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1
C H A P T E R
Operations and Productivity
1. The text suggests four reasons to study OM. We want to under-
of labor), Frederick W. Taylor (scientific management), Walter
3. See references in the answer to Question 2.
4. The actual charts will differ, depending on the specific organ-
ization the student chooses to describe. The important thing is
er or lesser extent, (a) the three primary functions of operations,
5. The answer to this question may be similar to that for
on the chart additional information such as the number of persons
6. The basic functions of a firm are marketing, accounting/
finance, and operations. An interesting class discussion: “Do all
firms/organizations (private, government, not-for-profit) perform
7. The 10 strategic decisions of operations management are
product design, quality, process, location, layout, human resources,
supply-chain management, inventory, scheduling (aggregate and
8. Four areas that are important to improving labor productivity
are: (1) basic education (basic reading and math skills), (2) diet of
the labor force, (3) social overhead that makes labor available
9. Productivity is harder to measure when the task becomes
more intellectual. A knowledge society implies that work is more
many other countries are increasingly “knowledge” societies,
10. Productivity is difficult to measure because precise units of
11. Mass customization is the flexibility to produce in order to
meet specific customer demands, without sacrificing the low
cost of a product oriented process. Rapid product development is
12. Labor productivity in the service sector is hard to improve
that service—the hair cut), (3) it may be an intellectual task per-
increase span of control.
ETHICAL DILEMMA
AMERICAN CAR BATTERY INDUSTRY
You may want to begin the discussion by asking how ethical is it
for you to be in the lead battery business when you know that any
batteries you recycle will very likely find their way to an overseas
tainment. Then after a likely conclusion of “Well someone has to
provide batteries” you can move to the following discussion.
(a) As owner of an independent auto repair shop trying to dis-
pose of a few old batteries each week, your options may be
teries. Alternatively, shop for a battery supplier that wants
your business enough to dispose of your old batteries.
Third, because there is obviously a market for the lead in
2 CHAPTER 1 OPERATIONS AND PR O DU C T IVIT Y
1,000 tires/$40,000 = 0.025 tires/dollar.
1.0256, so the change is a 2.56% increase.
1.10
Last Year
This Year
Change
Percent Change
Labor hrs.
1,500 = 4.29
350
1,500 = 4.62
325
0.33
4.29
= 7.7%
Capital invested
1,500 = 0.10
15,000
1,500 = 0.08
18,000
0.02
0.1
−
= –20%
Energy (btu)
1,500 = 0.50
3,000
1,500 = 0.55
2,750
0.05
0.50
= 10%
1.11 Multifactor productivity is:
375 autos/[($20 × 10,000) + ($1,000 × 500) +
($3 × 100,000)] = 375/(200,000 + 500,000 +
300,000) = 375/1,000,000
= .000375 autos per dollar of inputs
1.12 (a) Before: 500/20 = 25 boxes per hour;
1.13 1,500 × 1.25 = 1,875 (new demand)
Outputs = Productivity
Inputs
1,875 = 2.344
Labor-hours
1,875
New process = 800 labor-hours
2.344
800 = 5 workers
160
1,500
Current process = = 2.344
labor-hours
1,500 = labor-hours 640
2.344
640 = 4 workers
160
Add one worker.
1.14 (a) Labor change:
1,500 1,500
(640 × $8) 5,120
1,875 = 0.293 loaves/$
(800 × $8)
(640 × $8) 5,120
1,875 1,875
= = .359 loaves/$
(640 × 8) + (100) 5,220
.293 – .293
(c) Percent change : = 0 (labor)
.293
.359 – .293
Percent change : = .225
.293
= 22.5% (investment)
1,500
Old process = (640 8) + 500 + (1,500 0.35)
1,875
New process = (800 8) + 500 + (1,875 0.35)
1,875
= = 0.248
7,556.25
0.248 – 0.244
Percent change = = 1.6%
0.244
1.15
Labor-hours
labor-hour
$ output 52($90) + 80($198)
=8 (45)
20,520
= = $57.00 per
360
1.17
After, 650/24 = 27.08
(b) 27.08/25
= 1.083, or an increase of 8.3% in productivity
(c) New labor productivity = 700 / 24 = 29.167
boxes per hour
=
=
6,600 vans
(b) Now = 0.11, so 60,000 labor-hours
labor-hours
60,000 labor-hours
so, 200 labor-hours/laborer
300 laborers on average, per month
x
x
4 CHAPTER 1 OPERATIONS AND PR O DU C T IVIT Y
(supply needs, preprinted waybills, package weights, pickup and
3. Other companies in the industry do an effective job of estab-
Determining output (in some standard measure, perhaps pounds)
and labor-hours would be a good start for single-factor productivity.
CHAPTER 1 OPERATIO NS AND PR O DU CT I VI T Y 5
3. How are the 10 decisions of OM different when applied by
the operations manager of a production process such as
Frito-Lay than when applied by a service organization such as
Hard Rock Cafe?
Hard Rock performs all 10 of the decisions as well, only with a
1. Hard Rock’s 10 decisions: This is early in the course to
discuss these in depth, but still a good time to get the students
engaged in the 10 OM decisions around which the text is
structured.
◼ Product design: Hard Rock’s tangible product is food and
like any tangible product it must be designed, tested, and
“costed out.” The intangible product includes the music,
◼ Process: The process can be discussed from many
perspectives: (a) the process of processing a guest, to
their seat, taking the order, order processing, delivery of
the meal, payment, etc., (b) the process of how a meal is
prepared (see, for instance, the example box in Chapter 2
on Chef Pierre Alexander), or (c) some subset of any
interesting thing about Hard Rock’s inventory is that they
maintain $40 million of memora-bilia with all sorts of
special care, tracking, and storage issues.
◼ Scheduling: Because most Hard Rock Cafe’s sales are
driven by tourists, the fluctuations in seasonal, daily, and
hourly demands for food are huge. This creates a very
interesting and challenging task for the operations
◼
2. Productivity of kitchen staff is simply the output (number of
meals) over the input (hours worked). The calculation is how many
meals prepared over how many hours spent preparing them. The
same kind of calculation can be done for the wait staff. In fact,
3. Each of the 10 decisions discussed in Question 1 can be
addressed with a tangible product like an automobile.
◼ Product design: The car must be designed, tested, and
costed out. The talents may be those of an engineer or
operations manager rather than a chef, but the task is the
6 CHAPTER 1 OPERATIONS AND PR O DU C T IVIT Y
down time is very expensive because of high fixed and
1. The analysis of the productivity data is shown below:
Both labor and material productivity increased, but capital equip-
ment productivity did not. The net result is a large negative change
2. An analysis of adjusted results reduces the negative impact on
the capital allocation but there is still a negative growth in multi-
factor productivity. After adjustment for inflation, the material
costs are still higher in 2009. Yet, one must be aware of the extra
changes in capital costs is warranted. Even after adjusting for in-
flation, multifactor productivity was not positive. However, labor
CHAPTER 1 OPERATIO NS AND PR O DU CT I VI T Y 5
Copyright ©2014 Pearson Education, Inc.
and materials productivity was favorable. The capital investment
cost (as figured by the accounting department) was so large as to
make his multifactor productivity negative. Multifactor productiv-
ity has fallen by 11.61% before adjustment and by 7.88% after the
adjustment for inflation.
2 CHAPTER 1 OPERATIONS AND PR O DU C T IVIT Y
1,000 tires/$40,000 = 0.025 tires/dollar.
1.0256, so the change is a 2.56% increase.
1.10
Last Year
This Year
Change
Percent Change
Labor hrs.
1,500 = 4.29
350
1,500 = 4.62
325
0.33
4.29
= 7.7%
Capital invested
1,500 = 0.10
15,000
1,500 = 0.08
18,000
0.02
0.1
−
= –20%
Energy (btu)
1,500 = 0.50
3,000
1,500 = 0.55
2,750
0.05
0.50
= 10%
1.11 Multifactor productivity is:
375 autos/[($20 × 10,000) + ($1,000 × 500) +
($3 × 100,000)] = 375/(200,000 + 500,000 +
300,000) = 375/1,000,000
= .000375 autos per dollar of inputs
1.12 (a) Before: 500/20 = 25 boxes per hour;
1.13 1,500 × 1.25 = 1,875 (new demand)
Outputs = Productivity
Inputs
1,875 = 2.344
Labor-hours
1,875
New process = 800 labor-hours
2.344
800 = 5 workers
160
1,500
Current process = = 2.344
labor-hours
1,500 = labor-hours 640
2.344
640 = 4 workers
160
Add one worker.
1.14 (a) Labor change:
1,500 1,500
(640 × $8) 5,120
1,875 = 0.293 loaves/$
(800 × $8)
(640 × $8) 5,120
1,875 1,875
= = .359 loaves/$
(640 × 8) + (100) 5,220
.293 – .293
(c) Percent change : = 0 (labor)
.293
.359 – .293
Percent change : = .225
.293
= 22.5% (investment)
1,500
Old process = (640 8) + 500 + (1,500 0.35)
1,875
New process = (800 8) + 500 + (1,875 0.35)
1,875
= = 0.248
7,556.25
0.248 – 0.244
Percent change = = 1.6%
0.244
1.15
Labor-hours
labor-hour
$ output 52($90) + 80($198)
=8 (45)
20,520
= = $57.00 per
360
1.17
After, 650/24 = 27.08
(b) 27.08/25
= 1.083, or an increase of 8.3% in productivity
(c) New labor productivity = 700 / 24 = 29.167
boxes per hour
=
=
6,600 vans
(b) Now = 0.11, so 60,000 labor-hours
labor-hours
60,000 labor-hours
so, 200 labor-hours/laborer
300 laborers on average, per month
x
x
4 CHAPTER 1 OPERATIONS AND PR O DU C T IVIT Y
(supply needs, preprinted waybills, package weights, pickup and
3. Other companies in the industry do an effective job of estab-
Determining output (in some standard measure, perhaps pounds)
and labor-hours would be a good start for single-factor productivity.
CHAPTER 1 OPERATIO NS AND PR O DU CT I VI T Y 5
3. How are the 10 decisions of OM different when applied by
the operations manager of a production process such as
Frito-Lay than when applied by a service organization such as
Hard Rock Cafe?
Hard Rock performs all 10 of the decisions as well, only with a
1. Hard Rock’s 10 decisions: This is early in the course to
discuss these in depth, but still a good time to get the students
engaged in the 10 OM decisions around which the text is
structured.
◼ Product design: Hard Rock’s tangible product is food and
like any tangible product it must be designed, tested, and
“costed out.” The intangible product includes the music,
◼ Process: The process can be discussed from many
perspectives: (a) the process of processing a guest, to
their seat, taking the order, order processing, delivery of
the meal, payment, etc., (b) the process of how a meal is
prepared (see, for instance, the example box in Chapter 2
on Chef Pierre Alexander), or (c) some subset of any
interesting thing about Hard Rock’s inventory is that they
maintain $40 million of memora-bilia with all sorts of
special care, tracking, and storage issues.
◼ Scheduling: Because most Hard Rock Cafe’s sales are
driven by tourists, the fluctuations in seasonal, daily, and
hourly demands for food are huge. This creates a very
interesting and challenging task for the operations
◼
2. Productivity of kitchen staff is simply the output (number of
meals) over the input (hours worked). The calculation is how many
meals prepared over how many hours spent preparing them. The
same kind of calculation can be done for the wait staff. In fact,
3. Each of the 10 decisions discussed in Question 1 can be
addressed with a tangible product like an automobile.
◼ Product design: The car must be designed, tested, and
costed out. The talents may be those of an engineer or
operations manager rather than a chef, but the task is the
6 CHAPTER 1 OPERATIONS AND PR O DU C T IVIT Y
down time is very expensive because of high fixed and
1. The analysis of the productivity data is shown below:
Both labor and material productivity increased, but capital equip-
ment productivity did not. The net result is a large negative change
2. An analysis of adjusted results reduces the negative impact on
the capital allocation but there is still a negative growth in multi-
factor productivity. After adjustment for inflation, the material
costs are still higher in 2009. Yet, one must be aware of the extra
changes in capital costs is warranted. Even after adjusting for in-
flation, multifactor productivity was not positive. However, labor
CHAPTER 1 OPERATIO NS AND PR O DU CT I VI T Y 5
Copyright ©2014 Pearson Education, Inc.
and materials productivity was favorable. The capital investment
cost (as figured by the accounting department) was so large as to
make his multifactor productivity negative. Multifactor productiv-
ity has fallen by 11.61% before adjustment and by 7.88% after the
adjustment for inflation.
