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Operations and
Productivity

PowerPoint presentation to accompany


Heizer and Render
Operations Management, 10e
Principles of Operations Management, 8e
PowerPoint slides by Jeff Heyl

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Input
Aloe Vera,
water, sugar,
preservatives,
plastic bottle,
machines,
artificial flavor

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Process

Harvesting,
mixing, filling,
packaging

Output
Fruit Flavoured
Green Tea

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What Is Operations
Management?
Production is the creation of
goods and services
Operations management (OM) is
the set of activities that create
value in the form of goods and
services by transforming inputs
into outputs
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Definition from other


authors
OM the management of systems or
processes that create goods and/or
provide services. (William Stevenson)
OM as the design, operation, and
improvement of the systems that create
and deliver the firms primary products
and services. (Chase, Jacobs, Aquilano)

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Potato Chips Production

Input

Washing

Peeling

2011 Pearson Education, Inc. publishing as Prentice Hall

Slicing

Frying

Packaging

Output

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Potato Chips Production

Input

Washing

Peeling

Slicing

2011 Pearson Education, Inc. publishing as Prentice Hall

Blanching

Drying

Frying

Packaging

Output

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Potato Chips Production

Input

Washing

Peeling

Slicing

2011 Pearson Education, Inc. publishing as Prentice Hall

Blanching

Drying

Frying

Packaging

Output

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Potato Chips Production

Input

Washing

Peeling

Slicing

Need high
capacity slicing

2011 Pearson Education, Inc. publishing as Prentice Hall

Blanching

Drying

Frying

Packaging

Output

Need high
capacity
dehydrator

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Potato Chips Production


Good Manufacturing Processes

Input

Washing

Peeling

Slicing

Need high
capacity slicing

Blanching

Drying

Frying

Packaging

Output

Need high
capacity
dehydrator
Transportation

2011 Pearson Education, Inc. publishing as Prentice Hall

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Potato Chips Production


Good Manufacturing Practices

Input

Washing

Peeling

Slicing

Need high
capacity slicing

Blanching

Drying

Frying

Packaging

Output

Need high
capacity
dehydrator
Transportation

Operations Management the design, operation, and


improvement of the systems that create and deliver the
firms primary products and services. (Chase, Jacobs,
Aquilano)

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Potato Chips Production


Good Manufacturing Practices

Input

Washing

Peeling

Slicing

Need high
capacity slicing

Blanching

Drying

Frying

Packaging

Output

Need high
capacity
dehydrator
Transportation

Operations management (OM) is the set of activities that


create value in the form of goods and services by
transforming inputs into outputs. (Heizer, Render)
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Organizing to Produce
Goods and Services
Essential functions:
1. Marketing generates demand
2. Production/operations creates
the product

3. Finance/accounting tracks how


well the organization is doing,
pays bills, collects the money

Watch Video Mang Inasal


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Organizational Charts
Commercial Bank
Operations

Finance

Marketing

Teller
Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Vault operations
Maintenance
Security

Investments
Security
Real estate

Loans
Commercial
Industrial
Financial
Personal
Mortgage

Accounting

Auditing
Trust Department
Figure 1.1(A)

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Organizational Charts
Airline
Operations
Ground support
equipment
Maintenance
Ground Operations
Facility
maintenance
Catering
Flight Operations
Crew scheduling
Flying
Communications
Dispatching
Management science

Finance/
accounting
Accounting
Payables
Receivables
General Ledger
Finance
Cash control
International
exchange

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Marketing
Traffic
administration
Reservations
Schedules
Tariffs (pricing)
Sales
Advertising

Figure 1.1(B)
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Organizational
Charts
Manufacturing
Operations
Facilities
Construction; maintenance

Production and inventory control


Scheduling; materials control

Quality assurance and control


Supply-chain management
Manufacturing
Tooling; fabrication; assembly

Design
Product development and design
Detailed product specifications

Industrial engineering
Efficient use of machines, space,
and personnel

Finance/
accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall

Marketing
Sales
promotion
Advertising
Sales
Market
research

Process analysis
Development and installation of
production tools and equipment
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Figure 1.1(C)
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Why Study OM?


1. OM is one of three major functions of
any organization, we want to study
how people organize themselves for
productive enterprise
2. We want (and need) to know how
goods and services are produced
3. We want to understand what
operations managers do

4. OM is such a costly part of an


organization
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Other Reasons for Studying


OM
Due to Trends in Work
1. Do Multitasking
2. Knowledgeable
3. Familiarization to Technology

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Operations function is the


organizations core function

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Core Process

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Example

Core Processes

School/university (service) Training, learning, teaching


(the core department or the most important
employee are the teacher)

NGO like World Vision

Care/free education, Social


Service, Health Check Up

Church

Facilitate worship activity

Financial institution

Investment, provision of
money/loan/management of
money, payroll management

DOST (science institution) Research/scholarship/


technology transfer
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Inputs core human


resource input
Private Manufacturing
company (Purefoods)

- engineers or production
people, food technologist

Parlor (David salon)

- hair dresser, image

Pharma company (Pfizer)


Testing centers (BFAD, Intertek)

consultant, beautician

- Pharmacist / Chemist

Embroidery (Burdahand)

-embroiderer/ sewers/tailors

Schools (San Beda)

professors / teachers

Bank (BPI)

--tellers ,or bank officers,

Search firm (John Clement)- search consultants, HR Specialist


Audit Firms (SGV)
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-accountants
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Operations

Examples

Farming, mining, construction,


manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange
Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment
Films, radio and television,
concerts, recording
Communication
Newspapers, radio and television
newscasts, telephone, satellites

Goods Producing

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What Operations
Managers Do
Basic Management Functions

Planning
Organizing

Staffing
Leading
Controlling
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Ten Critical Decisions


Ten Decision Areas
1. Design of goods and services
2. Managing quality
3. Process and capacity
design
4. Location strategy
5. Layout strategy
6. Human resources and
job design
7. Supply-chain
management
8. Inventory, MRP, JIT
9. Scheduling
10. Maintenance
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Table 1.2
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The Critical Decisions


1. Design of goods and services
What good or service should we
offer?

How should we design these


products and services?

2. Managing quality
How do we define quality?
Who is responsible for quality?
Table 1.2 (cont.)
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The Critical Decisions


3. Process and capacity design
What process and what capacity will
these products require?
What equipment and technology is
necessary for these processes?

4. Location strategy
Where should we put the facility?
On what criteria should we base the
location decision?
Table 1.2 (cont.)
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The Critical Decisions


5. Layout strategy
How should we arrange the facility?
How large must the facility be to meet
our plan?

6. Human resources and job design


How do we provide a reasonable
work environment?
How much can we expect our
employees to produce?
Table 1.2 (cont.)
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The Critical Decisions


7. Supply-chain management
Should we make or buy this
component?
Who should be our suppliers and how
can we integrate them into our strategy?

8. Inventory, material requirements


planning, and JIT
How much inventory of each item
should we have?
When do we re-order?
Table 1.2 (cont.)
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The Critical Decisions


9. Intermediate and shortterm
scheduling
Are we better off keeping people on
the payroll during slowdowns?
Which jobs do we perform next?

10. Maintenance
How do we build reliability into our
processes?
Who is responsible for maintenance?
Table 1.2 (cont.)
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Where are the OM Jobs?


Technology/methods
Facilities/space utilization
Strategic issues

Response time
People/team development
Customer service

Quality
Cost reduction
Inventory reduction

Productivity improvement
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Play Video of Frito Lay Product

Play Video of Hardrock Caf Service


Play Video of McDonald

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Contributions From
Human factors
Industrial engineering
Management science
Biological science
Physical sciences

Information technology
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New Challenges in OM
From

To

Local or national focus

Global focus

Batch shipments

Just-in-time

Low bid purchasing

Supply-chain
partnering

Lengthy product
development

Rapid product
development,
alliances

Standard products

Mass
customization

Job specialization

Empowered
employees, teams

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Pineapples were first introduced


into Europe in the 17th century
So exotic that they were seen as a
symbol of great status.
Poorer middle-class families
would even take to hiring
pineapples for occasions when
they wished to entertain, in order
to appear grand, praying that no
one would actually attempt to cut
a slice.
This story helps illustrate the
institutionally-based approach to
service
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Characteristics of Goods
(Product)
Tangible product

Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
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Characteristics of Service
Intangible product

Produced and
consumed at same time
Often unique

High customer
interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
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Industry and Services as


Percentage of GDP
90

Services

80

Manufacturing

70
60
50
40
30

20

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US

UK

Spain

South Africa

Russian Fed

Mexico

Japan

Hong Kong

Germany

France

Czech Rep

China

Canada

Australia

10

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Goods and Services


Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100%

75

50

25

25

50

75

100%

Percent of Product that is a Good


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Percent of Product that is a Service


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Manufacturing and Service


Employment
Employment (millions)

120
100

Service

80

60
40

Manufacturing

20
0

|
|
|
|
|
|
|
1950
1970
1990 2010 (est)
1960
1980
2000
Figure 1.4 (A)

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Manufacturing Employment
and Production
Industrial
production
(right scale)

125
100
75

40
30
20
10
0

Manufacturing 50
employment
(left scale)

|
1950

Index: 1997 = 100

Employment (millions)

150

25

|
|
|
|
| 0
1970
1990 2010 (est)
1960
1980
2000
|

Figure 1.4 (B)


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Changing Challenges
Traditional
Approach

Reasons for
Change

Current
Challenge

Ethics and
regulations
not at the
forefront

Public concern over


pollution, corruption,
child labor, etc.

Local or
national
focus

Growth of reliable, low


cost communication
and transportation

High ethical and


social
responsibility;
increased legal
and professional
standards
Global focus,
international
collaboration

Lengthy
product
development

Shorter life cycles;


growth of global
communication; CAD,
Internet

Rapid product
development;
design
collaboration
Figure 1.5

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Changing Challenges
Traditional
Approach
Low cost
production,
with little
concern for
environment;
free
resources
(air, water)
ignored
Low-cost
standardized
products

Reasons for
Change

Current
Challenge

Public sensitivity to
environment; ISO 14000
standard; increasing
disposal costs

Environmentally
sensitive
production; green
manufacturing;
sustainability

Rise of consumerism;
increased affluence;
individualism

Mass
customization

Figure 1.5
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Changing Challenges
Traditional
Approach

Reasons for
Change

Current
Challenge

Emphasis on
specialized,
often manual
tasks

Recognition of the
employee's total
contribution; knowledge
society

Empowered
employees;
enriched jobs

In-house
production;
low-bid
purchasing

Rapid technological
change; increasing
competitive forces

Supply-chain
partnering; joint
ventures,
alliances

Large lot
production

Shorter product life


cycles; increasing need
to reduce inventory

Just-In-Time
performance;
lean; continuous
improvement

Figure 1.5
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New Trends in OM
Ethics
Global focus

Environmentally sensitive production


Rapid product development
Environmentally sensitive production

Mass customization
Empowered employees
Supply-chain partnering

Just-in-time performance
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Productivity Challenge
Productivity is the ratio of outputs (goods
and services) divided by the inputs
(resources such as labor and capital)
The objective is to improve productivity!
Important Note!
Production is a measure of output
only and not a measure of efficiency

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The Economic System


Inputs

Transformation

Outputs

Labor,
capital,
management

The U.S. economic system


transforms inputs to outputs
at about an annual 2.5%
increase in productivity per
year. The productivity
increase is the result of a
mix of capital (38% of 2.5%),
labor (10% of 2.5%), and
management (52% of 2.5%).

Goods
and
services

Feedback loop
Figure 1.6

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Improving Productivity at
Starbucks
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

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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:

Operations improvements have


helped Starbucks
increase
yearly
Stop requiring signatures
Saved
8 seconds
revenue per outlet
$200,000 to
on credit card purchases
perby
transaction
$940,000 in six years.
under $25
improved
by 27%,
Change the sizeProductivity
of the ice hasSaved
14 seconds
or about 4.5% per
scoop
peryear.
drink
New espresso machines

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Saved 12 seconds
per shot
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Productivity
Units produced
Productivity =
Input used
Measure of process improvement
Represents output relative to input
Only through productivity increases
can our standard of living improve
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Productivity Calculations
Labor Productivity
Units produced

Productivity =

Labor-hours used
1,000
250

= 4 units/labor-hour

One resource input single-factor productivity


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Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy
+ Capital + Miscellaneous
Also known as total factor productivity
Output and inputs are often expressed
in dollars
Multiple resource inputs multi-factor productivity
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Collins Title Productivity


Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day

8 titles/day
Overhead = $400/day

8 titles/day
Old labor
=
productivity 32 labor-hrs

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Collins Title Productivity


Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day

8 titles/day
Overhead = $400/day

8 titles/day
Old labor
=
productivity 32 labor-hrs = .25 titles/labor-hr

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Collins Title Productivity


Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
Old labor
=
productivity 32 labor-hrs = .25 titles/labor-hr

14 titles/day
New labor
=
productivity
32 labor-hrs
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Collins Title Productivity


Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
Old labor
=
productivity 32 labor-hrs = .25 titles/labor-hr

14 titles/day
New labor
=
= .4375 titles/labor-hr
productivity
32 labor-hrs
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Collins Title Productivity


Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
Old multifactor
=
productivity
$640 + 400

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Collins Title Productivity


Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400

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Collins Title Productivity


Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400
14 titles/day
New multifactor
=
productivity
$640 + 800
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Collins Title Productivity


Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day

8 titles/day
Overhead = $400/day
Overhead = $800/day

8 titles/day
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400
14 titles/day
New multifactor
=
= .0097 titles/dollar
productivity
$640 + 800
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Key Variables for Improved


Labor Productivity
1. Basic education appropriate for the
labor force
2. Diet of the labor force
3. Social overhead that makes labor
available
Challenge is in maintaining and
enhancing skills in the midst of rapidly
changing technology and knowledge
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Investment and Productivity


Percent increase in productivity

10
8

6
4
2
0
10

15

20

25

30

35

Percentage investment
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Service Productivity
1. Typically labor intensive
2. Frequently focused on unique
individual attributes or desires
3. Often an intellectual task performed by
professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality

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Productivity at Taco Bell


Improvements:
Revised the menu
Designed meals for easy preparation
Shifted some preparation to suppliers
Efficient layout and automation
Training and employee empowerment
New water and energy saving grills

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Productivity at Taco Bell


Results:
Improvements:

Preparation
Revised the time
menucut to 8 seconds

span
control
increased
Management
Designed meals
forofeasy
preparation
from 5 to 30
Shifted some preparation to suppliers
In-store labor cut by 15 hours/day
Efficient layout and automation
Stores handle twice the volume with half
the
Training
laborand employee empowerment
Conserve
New water300
andmillion
energygallons
savingof
grills

water and
200 million KwH of electricity each year
saving $17 million annually

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More Examples

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Total Productivity
1) Value of a companys output such as
finished goods and work in progress is
P418,200. Value of inputs such as labor,
materials and capital = P352,600

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Partial Productivity
2) A bakery oven produces 346 pastries in
4 hours. What is its productivity?
3) 2 Workers paint tables in a furniture
shop. If the workers paint 22 tables in 8
hours. What is their productivity?

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Multifactor Productivity
4) Output is worth $382 and labor and
material cost are $168 and $98,
respectively.

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Example 2.1
Long Beach Bank employs three loan officers, each
working eight hours per day. Each officer processes
an average of five loans per day. The banks payroll
cost for the officers is $820 per day, and there is a daily
overhead expense of $500. The bank has just
purchased new computer software that should enable
each officer to process eight loans per day, although
the overhead expense will increase to $550. Evaluate
the change in labor and multifactor productivity before
and after implementation of the new computer
software.

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More examples
1.A company that processes fruits and
vegetables is able to produce 400 cases
of canned peaches in one-half hour with
4 workers. What is the labor
productivity?

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2. A wrapping-paper company produced


2,000 rolls of paper in one day. Standard
price is $1/roll. Labor cost was $160,
material cost was $50, and overhead was
$320. Determine the multifactor
productivity?

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3. Compute the multifactor productivity


measure for an eight-hour day in which
the usable output was 300 units
produced by 3 workers who used 600
pounds of materials. Workers have an
hourly wage of $20, and material cost is
$1 per pound. Overhead is 1.5 times
labor cost.
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4.A health club has 2 employees who work on lead


generation. Each employee works 40 hours a week,
and is paid $20 an hour. Each employee identifies an
average of 400 possible leads a week from a list of
8,000 names. Approximately 10% of the leads become
members and pay a one time fee of $100. Material cost
are $130 per week, and overhead costs are 1,000 per
week. Calculate the Multifactor productivity for this
operation in fees generated per dollar of input.

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#7/p.49 (Reid)
Howard Plastics produces plastic containers for use in the food
packaging industry. Last year its average monthly production included
20,000 containers produced using one shift five days a week with an
eight-hour-a-day operation. Of the items produced 15 percent were
deemed defective. Recently, Howard Plastics has implemented new
production methods and a new quality improvement program. Its
monthly production has increased to 25,000 containers with 9 percent
defective.
a) Compute the monthly productivity ratios (unit per month / hr) for the
old and new production system.
b) Compare the changes in productivity between the two production
systems.

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End

Thank you

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All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any means, electronic, mechanical, photocopying,
recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.

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