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Semester 2 (Jan – Apr 2011)OPMG210B
Operationsand
Productivity
Semester 2 (Jan – Apr 2011)OPMG210B
Learning outcomes
Define operations managementExplain the difference between goods and servicesExplain the difference between production and productivity
Compute single-factor productivity
Compute multifactor productivity
Identify the critical variables in enhancing productivity
Semester 2 (Jan – Apr 2011)OPMG 210B
What is operations management?
Production is the creation of goods and services
Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs
Managers who successfully design and deliver goods and services through the world understand operationsOM applies to service industry such as restaurants as well as factories
Applies to office, hospital, restaurant, department store or factory –production of goods and services requires OM
Efficient production of goods and services requires effective applications of the concepts, tools and techniques of OM that we will study in this courseProduction activities may be more obvious in manufacturing firms and less obvious in organisation that does not create a tangible good or product (e.g. transplant of liver, transfer of funds from savings to chequing account)
Semester 2 (Jan – Apr 2011)OPMG210B
Organising to produce goods and services
To create goods and services all organisations perform 3 essential functions:Marketing – generates demand
– Takes order for product or service– Nothing happens until there is a sale
Production/operations – creates the productFinance/accounting – tracks how well the organisation is doing, pays bills, collects the money
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Semester 2 (Jan – Apr 2011)OPMG210B
OperationsTeller scheduling
Cheque clearing
Collection
Transaction processing
Facilities design/layout
Vault operations
Maintenance
Security
FinanceInvestments
Security
Real estate
Accounting
Auditing
MarketingLoans
Commercial
Industrial
Financial
Personal
Mortgage
Trust Department
Commercial Bank
Organisational charts
Shows how a bank organises itself to perform these functions
Semester 2 (Jan – Apr 2011)OPMG210B
OperationsGround support
equipment
Maintenance
Ground Operations
Facilitymaintenance
Catering
Flight Operations
Crew schedulingFlyingCommunicationsDispatching
Management science
Finance/ accountingAccounting
PayablesReceivablesGeneral Ledger
Finance
Cash controlInternational
exchange
Airline
MarketingTraffic administration
ReservationsSchedulesTariffs (pricing)
Sales
Advertising
Organisational chartsShows how an airline organises itself to perform these functions
Semester 2 (Jan – Apr 2011)OPMG210B
MarketingSales
promotion
Advertising
Sales
Market research
Organisational charts
OperationsFacilities
Construction; maintenance
Production and inventory controlScheduling; materials control
Quality assurance and control
Supply chain management
ManufacturingTooling; fabrication; assembly
DesignProduct development and designDetailed product specifications
Industrial engineeringEfficient use of machines, space,
and personnel
Process analysisDevelopment and installation of
production tools and equipment
Finance/ accountingDisbursements/
credits
ReceivablesPayablesGeneral ledger
Funds Management
Money marketInternational
exchange
Capital requirements
Stock issueBond issue
and recall
Manufacturing
Shows how a manufacturing firm organises itself to perform these functions
Semester 2 (Jan – Apr 2011)OPMG210B
Why study OM?
Study OM for 4 reasonsOM is one of three major functions (marketing, finance, and operations) of any organisation
– All organisations market (sell), finance (account) and produce (operate) – OM is integrally related to all other business functions– Study how people organise themselves for productive enterprise
We want (and need) to know how goods and services are produced– Production function is the segment of society that creates the products
and services we use
We want to understand what operations managers do– By understanding, you can develop skills necessary to become such a
manager
OM is such a costly part of an organisation– Large % of revenue of most companies spent on OM function– OM provides opportunity to improve profitability and enhance service
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Semester 2 (Jan – Apr 2011)OPMG 210B
What operations managers do
All good managers perform the basic functions of the management process:PlanningOrganisingStaffingLeadingControlling
Operations managers apply these functions to 10 major OM decisionsJob opportunities include plant manager, operations analyst, quality manager, supply chain manager
Semester 2 (Jan – Apr 2011)OPMG210B
Ten critical decisions of OM
Ten decision areas
Design of goods and servicesManaging qualityProcess and capacity design Location strategyLayout strategyHuman resources and job design Supply chain managementInventory managementSchedulingMaintenance
Semester 2 (Jan – Apr 2011)OPMG210B
The critical decisions
Design of goods and services– What good or service should we offer?– How should we design these products and services?
Managing quality– How do we define quality?– Who is responsible for quality?
Process and capacity design– What process and what capacity will these products require?– What equipment and technology is necessary for these processes?
Location strategy– Where should we put the facility?– On what criteria should we base the location decision?
Layout strategy– How should we arrange the facility?– How large must the facility be to meet our plan?
Human resources and job design– How do we provide a reasonable work environment?– How much can we expect our employees to produce?
Semester 2 (Jan – Apr 2011)OPMG210B
The critical decisions
Supply chain management– Should we make or buy this component?– Who are our suppliers and who can integrate into our e-commerce
program?
Inventory, material requirements planning, and JIT– How much inventory of each item should we have?– When do we re-order?
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Semester 2 (Jan – Apr 2011)OPMG210B
Significant events in Operations Management
Semester 2 (Jan – Apr 2011)OPMG210B
The heritage of OM
Division of labor (Adam Smith 1776; Charles Babbage 1852)
Standardised parts (Whitney 1800)
Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/ Sorenson 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth 1922)
Quality control (Shewhart 1924; Deming 1950)
Semester 2 (Jan – Apr 2011)OPMG210B
Computer (Atanasoff 1938)
CPM/PERT (DuPont 1957)
Material requirements planning (Orlicky 1960)
Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
Globalization (1992)
Internet (1995)
The heritage of OM
Semester 2 (Jan – Apr 2011)OPMG210B
Born 1765; died 1825French revolution saw new conflicts between Great Britain, France and the US so US government needed to prepare for war and started to rearmIssue contact for 10,000 musketsIn 1798, received government contract to make 10,000 musketsCredited for early popularisation of interchangeable parts
– Achieved through quality control and standardisation– Interchangeable parts – identical - made to specifications that ensure
they are so nearly identical that they will fit any device of the same type– Allows for ease of assembly and repair
Showed that machine tools could make standardised parts to exact specifications
– Musket parts could be used in any musket
Eli Whitney
5
Semester 2 (Jan – Apr 2011)OPMG210B
Frederick W. Taylor
Born 1856; died 1915Known as ‘father of scientific management’In 1881, as chief engineer for Midvale Steel, studied how tasks were doneContributed to personnel selection, planning and scheduling, motion study and ergonomicsBegan first motion and time studiesOne major contribution – belief that management should be more resourceful and aggressive in the improvement of work methods
– One of the first to systematically seek best way to produce
Created efficiency principlesAlso believed management should take more responsibility for:
– Matching employees to right job– Providing the proper training– Providing proper work methods and tools– Establishing legitimate incentives for work to be accomplished
Two famous experiments
– Shoveling – different sized shovel for different materials
– Pig iron – one best methodSemester 2 (Jan – Apr 2011)OPMG210B
Frank (1868-1924); Lillian (1878-1972)Husband-and-wife engineering team‘Father of motion study’ – Frank
– Principle that there is one best method to perform taskFurther developed work measurement methodsApplied efficiency methods to their home and 12 children! Book & Movie: “Cheaper by the Dozen,” book: “Bells on Their Toes”
Frank & Lillian Gilbreth
Semester 2 (Jan – Apr 2011)OPMG210B
Born 1863; died 1947In 1903, created Ford Motor CompanyIn 1913, first used moving assembly line to make Model T
– Unfinished product moved by conveyor past work station– Men stood still and material moved
Paid workers very well for 1911 ($5/day!)
Henry Ford
Semester 2 (Jan – Apr 2011)OPMG210B
Born 1900; died 1993Engineer and physicistCredited with teaching Japan quality control methods in post-WW2Used statistics to analyse processHis methods involve workers in decisionsTaught that by adopting appropriate principles of management, organizations can increase quality and simultaneously reduce costs (by reducing waste, rework, staff attrition and litigation while increasing customer loyalty)Key is to practice continual improvement and think of manufacturing as a system, not as bits and pieces
W. Edwards Deming
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Semester 2 (Jan – Apr 2011)OPMG210B
Other disciplines contributing to progress of OM:– Human factors– Industrial engineering– Management science– Biological science– Physical sciences– Information technology
Combined with statistics, management and economics – contribute to improved models and decision making
Contributions from other disciplines
Semester 2 (Jan – Apr 2011)OPMG210B
Goods and Services
Semester 2 (Jan – Apr 2011)OPMG210B
Manufacturers produce a tangible product, service products are often intangibleSome products – combination of a good and a serviceSeveral differences between goods and services:
– Services include repair and maintenance, government, food, lodging, transportation, insurance, trade, financial, real estate, education, legal, medical, entertainment and other professional occupations
– Services – economic activities that typically produce an intangible product
Goods and services
Semester 2 (Jan – Apr 2011)OPMG210B
Characteristics of goods
Tangible product
Consistent product definition
Production usually separate from consumption
Can be inventoried
Low customer interaction
Some aspects of quality are measurable
Product is transportable
Often easy to automate
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Semester 2 (Jan – Apr 2011)OPMG210B
Characteristics of services
Intangible product
– E.g. purchase of ride in an empty airline seat
Produced and consumed simultaneously
– No stored inventory
– E.g. haircut – produced and ‘consumed’ at same time
Often unique
– E.g. haircut produced for you is not exactly like anyone else’s
High customer interaction
– Often difficult to standardise, automate and make as efficient as we would like because customer interaction demands uniqueness
Inconsistent product definition
Often knowledge-based
Frequently dispersed
– Brought to client via local office or retail outlet
Semester 2 (Jan – Apr 2011)OPMG210B
Goods versus services
Can be resold
Can be inventoried
Some aspects of quality measurable
Selling is distinct from production
Product is transportable
Site of facility important for cost
Often easy to automate
Revenue generated primarily from tangible product
Attributes of goods(Tangible product)
Attributes of services(Intangible product)
Reselling unusual
Difficult to inventory
Quality difficult to measure
Selling is part of service
Provider, not product, isoften transportable
Site of facility important forcustomer contact
Often difficult to automate
Revenue generated primarily from the intangible service
Semester 2 (Jan – Apr 2011)OPMG210B
Goods and services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/investment management
Consulting service/teaching
Counseling
% of product that is a good % of product that is a service
100% 75 50 25 0 25 50 75 100%| | | | | | | | |
Distinction not clear cut - most goods contain a service, and most services contain a good
Pure service – does not include a tangible product
Semester 2 (Jan – Apr 2011)OPMG210B
Industry and services as % of GDP
Services Manufacturing
Au
str
alia
Ca
na
da
Ch
ina
Cze
ch
Re
p
Fra
nc
e
Ge
rma
ny
Ho
ng
Ko
ng
Ja
pa
n
Me
xic
o
Ru
ss
ian
Fe
d
So
uth
Afr
ica
Sp
ain
UK
US
90 −
80 −
70 −
60 −
50 −
40 −
30 −
20 −
10 −
0 −
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Semester 2 (Jan – Apr 2011)OPMG210B
120 –
100 –
80 –
60 –
40 –
20 –
0 – | | | | | | |1950 1970 1990 2010 (est)
1960 1980 2000
Em
plo
yment
(mill
ions)
Growth of services
Manufacturing
Service
Services constitute largest economic sector in postindustrial societiesManufacturing employment –decreased in last 25 years
US manufacturing and service employment
Semester 2 (Jan – Apr 2011)OPMG210B
Manufacturing and service employment
40 40 –
30 30 –
20 20 –
10 10 –
0 0 – | | | | | | |19501950 19701970 19901990 2010 (2010 (estest))
19601960 19801980 20002000
– 150
– 125
– 100
– 75
– 50
– 25
– 0
Em
plo
ym
en
t (m
illio
ns)
Ind
ex:
1997 =
100
Manufacturingemployment
(left scale)
Industrial production
(right scale)
No of people employed in manufacturing decreased modestly in recent yearsBut production increases
– Each person is producing about 20 times more than in 1950
Services now dominant employer (since early 1920s)
Semester 2 (Jan – Apr 2011)OPMG210B
Trends in Operations Management
Semester 2 (Jan – Apr 2011)OPMG210B
New challenges in OM
Global focusJust-in-timeSupply chain partneringRapid product development, alliancesMass customisationEmpowered employees, teams
ToFromLocal or national focus
Batch (large) shipments
Low bid purchasing
Lengthy product development
Standard products
Job specialisation
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Semester 2 (Jan – Apr 2011)OPMG210B
Local or national focus
Reliable worldwide communication and transportation networks
Global focus, moving production offshore
Batch (large) shipments
Short product life cycles and cost of capital put pressure on reducing inventory
Just-in-time performance
Low-bid purchasing
Supply chain competition requires that suppliers be engaged in a focus on the end customer
Supply chain partners, collaboration, alliances, outsourcing
Past Causes Future
New trends in OM
Semester 2 (Jan – Apr 2011)OPMG210B
Lengthy product development
Shorter life cycles, Internet, rapid international communication, computer-aided design, and international collaboration
Rapid product development, alliances, collaborative designs
Standardized products
Affluence and worldwide markets; increasingly flexible production processes
Mass customization with added emphasis on quality
Job specialization
Changing socioculture milieu; increasingly a knowledge and information society
Empowered employees, teams, and lean production
Past Causes Future
New trends in OM
Semester 2 (Jan – Apr 2011)OPMG210B
Low-cost focus
Environmental issues, ISO 14000, increasing disposal costs
Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing
Ethics not at forefront
Businesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollution
High ethical standards and social responsibility expected
Figure 1.6Figure 1.6
Past Causes Future
New trends in OM
Semester 2 (Jan – Apr 2011)OPMG210B
Global focus– Rapid decline in communication and transportation costs – made markets
global
– Resources (capital, markets, talent, labour) – also global
– Op managers responding with innovations that generate ideas, production and finished goods rapidly
Just-in-time performance– Vast financial resources committed to inventory – making it costly
– Inventory also impedes rapid response to changes in marketplace
– Op managers cutting inventories at all levels – raw materials to finished goods
Supply chain partnering– Shorter product life cycle driven by demanding customers – also rapid
changes in materials and processes – suppliers must be in tune with needs of customers
– Op managers are outsourcing and building long term partnerships with critical players in supply chain
New trends in OM
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Semester 2 (Jan – Apr 2011)OPMG210B
Rapid product development– Rapid international communication of news, entertainment, lifestyles –
dramatically reducing life span pf products
– Op managers response – management structures and technology that are faster and partners that are more effective
Mass customisation– Cultural and individual differences place pressure on firms to respond
– Op managers response – flexible prod process – goal is to produce customised products whenever and wherever needed
Empowered employees– Explosion of knowledge and more technical workforce - more competence
required at work
– Op managers response – move decision making to individual worker level
Environmentally sensitive production– Op managers – designing products that are biodegradable, reuse, recycle,
more efficient packaging
Ethics– Op managers – enhance ethical behaviour
New challenges in OM
Semester 2 (Jan – Apr 2011)OPMG210B
Productivity
Semester 2 (Jan – Apr 2011)OPMG210B
Productivity challenge
Creation of goods and services requires changing resources into goods and services
– More efficiently we make change more productive we are
– More value added to the good or service provided
Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour and capital)
Op manager’s job is to improve productivity – can be done in 2 ways:
– Reducing inputs while keeping output constant
– Increasing output while keeping input constant
Production – the making of goods and services
– High production does not imply high productivity
Measuring productivity – excellent way to evaluate country’s ability to provide improve standard of living for its people
Semester 2 (Jan – Apr 2011)OPMG210B
Productivity challenge
Production is a measure of output only and not a measure of efficiency
Only through increase in productivity can standard of living improve
Only through increases in productivity can labour, capital etc receive additional payment
– If returns to labour, capital etc increase without increased productivity, prices rise
– Alternatively, increase in productivity = lower prices as more is produced with same resources
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Semester 2 (Jan – Apr 2011)OPMG210B
A team of 10 analysts continually look for ways to shave time. Some improvements:
Stop requiring signatures on credit card purchases under $25
Saved 8 seconds per transaction
Change the size of the ice scoop Saved 14 seconds per drink
New espresso machines Saved 12 seconds per shot
Improving productivity at Starbucks
Semester 2 (Jan – Apr 2011)OPMG210B
A team of 10 analysts continually look for ways to shave time. Some improvements:
Stop requiring signatures on credit card purchases under $25
Saved 8 seconds per transaction
Change the size of the ice scoop Saved 14 seconds per drink
New espresso machines Saved 12 seconds per shot
Improving productivity at Starbucks
Operations improvements have helped Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years.
Productivity has improved by 27%, or about 4.5% per year.
Semester 2 (Jan – Apr 2011)OPMG210B
Input measures – labour-hours, capital ($ invested), materials (tons), or energy (kW of electricity used)
Example: if units produced = 1000 and labour-hrs used = 250, then
Productivity =Units produced
Input used
Productivity measurement
= = 4 units/labor-hour
1,000
250
Productivity =Units produced
Labor-hours used
Semester 2 (Jan – Apr 2011)OPMG210B
Single- and multi-factor productivity
Single factor productivity = one resource input
Multi-factor productivity – multiple resource inputs
Output
Labor + Material + Energy + Capital + Miscellaneous
Productivity =
Multifactor productivity – also known as total factor productivity
To aid computation individual inputs are often expressed in dollars and summed
Output
InputsProductivity =
∑
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Semester 2 (Jan – Apr 2011)OPMG210B
Example: Multifactor productivity
Company A has a staff of 4, each working 8 hr per day (payroll cost = $640/day) with expenses of $400 per day. A total of 8 tiles are processed each day. The company recently purchased a computerised system that will allow 14 tiles to be processed each day. Although the staff, their work hours and pay will be the same, overhead expenses are now $800 per day.
How will labour productivity change?
What will be new multifactor productivity? By what percentage will it increase or decrease?
Semester 2 (Jan – Apr 2011)OPMG210B
Solution: Multifactor productivity
Labour productivity (old) = 8 tiles per day/32 labour-hr = 0.25tiles per labour-hr
Labour productivity (new) = 14 tiles per day/32 labour-hr = 0.4375 tiles per labour-hr
Labour prod increased by 75% (0.4375-0.25)/0.25 = 75%
Multifactor productivity (old) = 8 tiles per day/640+400 = .0077tiles per $
Labour productivity (new) = 14 tiles per day/640+ 800 = .0097tiles per $
Multifactor prod increased by 26%
If overhead now goes to $960 rather than $800, what is the multifactor productivity? (0.00875)
Semester 2 (Jan – Apr 2011)OPMG210B
Measurement problems
Productivity measures aid managers in determining how well they are doing
Multifactor usually better but more complicated
– Better info about trade-offs among factors, but many measurement problems including the following:
Quality may change while the quantity of inputs and outputs remains constant
– New colour TV and old black and white – quality improved but unit of measure – TV- still the same
External elements may cause an increase or decrease in productivity
– More reliable electricity system may greatly improve production – improving firm’s productivity rather than because of any internal decision
Precise units of measure may be lacking
– E.g. not all cars require same inputs
Measurement particularly difficult in service sector – end product hard to define
– E.g. statistics ignore quality of a haircut
Semester 2 (Jan – Apr 2011)OPMG210B
Productivity variables
Productivity increases – dependent on 3 variables
These represent the broad areas in which managers can take action to improve productivity
Productivity variables – the 3 factors critical to productivity improvement – labour, capital and the art and science of management
– Labour - contributes about 10% of the annual increase
– Capital - contributes about 38% of the annual increase
– Management - contributes about 52% of the annual increase
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Semester 2 (Jan – Apr 2011)OPMG210B
1. Labour
Improvement in contribution of labour to productivity is the result of healthier, better-educated and better-nourished labour force
About 10% of increase in prod attributed to improvement in labour
3 key variables for improved labour productivity
Basic education appropriate for the labour force
– Illiteracy – major impediment to productivity
Diet of the labour force
– Poor diet (obesity, malnutrition and chronic diseases) – also major impediment
Social overhead that makes labour available such as transportation
Challenge for developed countries - maintaining and enhancing skills in the midst of rapidly changing technology and knowledge
– Recent data – average 17yr-old American knows significantly less maths than average Japanese at same age
Training, motivation and team building, improved HR strategies as well as improved education – techniques that will contribute to increased labour productivity
Semester 2 (Jan – Apr 2011)OPMG210B
2. Capital
Capital investments provide equipment and tools used in production
Inflation and taxes increase cost of capital
When capital invested per employee drops – productivity drops
Using labour rather than capital – reduces unemployment in the short run, but makes economies less productive and therefore lower wages in long run
Capital investment – necessary but seldom sufficient for increased productivity
– Constant trade-off between capital and labour
Semester 2 (Jan – Apr 2011)OPMG210B
3. Management
Responsible for ensuring that labour and capital are effectively used to increase productivity
Accounts for > ½ of the annual increase in productivity
– Includes improvements made thru use of knowledge and application of technology
Post-industrial societies – knowledge societies
Knowledge society – a society in which much of the labour force has migrated from manual work to work based on knowledge
– i.e. technical and info-processing tasks requiring ongoing education
– Required education and training – important high-cost items –responsibility of Op managers
More effective use of capital – contributes to productivity
– Op manager must select best new capital investments as well as improving productivity of existing ones
Poorly educated labour, inadequate capital and dated technology -country cannot be a world-class competitor with these
Semester 2 (Jan – Apr 2011)OPMG210B
Productivity and service sector
Productivity of service sector difficult to improve because work in the service sector is:
Typically labor intensive e.g. counseling, teaching
Frequently focused on unique individual attributes or desires e.g. investment advice
Often an intellectual task performed by professionals e.g. medical diagnosis
Often difficult to mechanize e.g. a haircut
Often difficult to evaluate for quality e.g. performance of a law firm
More intellectual and personal the task, more difficult to achieve increases in productivity
14
Semester 2 (Jan – Apr 2011)OPMG210B
Example: Productivity at Taco Bell
Case of how Taco Bell increased productivity to lower costs
Improvements made include;
Revised the menu
Designed meals for easy preparation
Shifted some preparation to suppliers
Efficient layout and automation
Training and employee empowerment
Semester 2 (Jan – Apr 2011)OPMG210B
Improvements:Improvements:
�� Revised the menu Revised the menu
�� Designed meals for easy preparationDesigned meals for easy preparation
�� Shifted some preparation to suppliersShifted some preparation to suppliers
�� Efficient layout and automationEfficient layout and automation
�� Training and employee empowermentTraining and employee empowerment
Results:
Productivity at Taco Bell
Preparation time cut to 8 seconds
Management span of control increased from 5 to 30
In-store labor cut by 15 hours/day
Stores handle twice the volume with half the labor
Fast-food low-cost leader
Semester 2 (Jan – Apr 2011)OPMG 210B
Ethics and social responsibility
Op managers face many challenges and constant changes
– Physical, social environment, laws and values
Challenges from conflicting perspectives of stakeholders such as customers, distributors, suppliers, owners, lenders, employees
Ethical challenges facing Op managers include:
Developing and producing safe, quality products
Maintaining a clean environment
Providing a safe workplace
Honoring community commitments
Semester 2 (Jan – Apr 2011)OPMG 210B
Exercise 1: Productivity
Kleen Karpet cleaned 65 rugs in October, consuming the following resources:
Labour 520 hr at $13/hrSolvent 100 gallons at $5/galMachine rental 20 days at $50/day
a. What is the labour productivity per dollar?b. What is the multifactor productivity?
15
Semester 2 (Jan – Apr 2011)OPMG 210B
Exercise 2
Student tuition at Boehring University is $150 per semester credit hour. The state supplements school revenue by $100 per semester credit hour. Average class size for a typical 3-credit course is 50 students. Labor costs are $4,000 per class, material costs are $20 per student per class, and overhead costs are $25,000 per class.
a. What is the multifactor productivity ratio for this course process?
b. If instructors work an average of 14 hours per week for 16 weeks for each 3-credit class of 50 students, what is the labor productivity ratio?
Semester 2 (Jan – Apr 2011)OPMG 210B
Exercise 3
Productivity can be measured in a variety of ways, such as by labour, capital, energy, material usage and so on. At Modern Lumber Inc. , Art Binley, president and producer of apple crates sold to growers, has been able, with his current equipment, to produce 240 crates per 100 logs. He currently purchases 100 logs per day, and each log requires 3 labour-hrs to process.
He believes that he can hire a professional buyer who can buy a better-quality log at the same cost. If this is the case, he can increase his production to 260 crates per 100 logs. His labour-hrs will increase by 8 hrs- per day.
What will be the impact on productivity (measured in crates per labour-hr) if the buyer is hired?
Semester 2 (Jan – Apr 2011)OPMG 210B
Exercise 4
Art Binley has decide to look at his productivity from a multifactor productivity perspective. To do so, he has determined his labour, capital, energy, and material usage and has decided to use dollars as the common denominator.
His total labour-hrs are now 300 per day and will increase to 308 per day. His capital and energy costs will remain constant at $350 and $150 per day, respectively. Material costs for the 100logs per day are $1,000 and will remain the same.
If he pays an average of $10 per hr, determine Binley’s productivity increase