1
C H A P T E R
Operations and Productivity
DISCUSSION QUESTIONS LO 1.1: Define operations management
1. The text suggests four reasons to study OM. We want to AACSB: Application of knowledge
understand (1) how people organize themselves for productive 7. The 10 strategic decisions of operations management are
enterprise, (2) how goods and services are produced, (3) what product design, quality, process, location, layout, human resources,
operations managers do, and (4) this costly part of our economy supply-chain management, inventory, scheduling (aggregate and
and most enterprises. short term), and maintenance. We find this structure an excellent
LO 1.1: Define operations management way to help students organize and learn the material.
AACSB: Application of knowledge
LO 1.1: Define operations management
2. Possible responses include: Adam Smith (work specialization/
AACSB: Application of knowledge
division of labor), Charles Babbage (work specialization/division
of labor), Frederick W. Taylor (scientific management), Walter 8. Four areas that are important to improving labor productivity
Shewart (statistical sampling and quality control), Henry Ford are (1) basic education (basic reading and math skills), (2) diet of
(moving assembly line), Charles Sorensen (moving assembly line), the labor force, (3) social overhead that makes labor available
Frank and Lillian Gilbreth (motion study), Eli Whitney (standardi- (water, sanitation, transportation, etc.), and (4) maintaining and
zation). expanding the skills necessary for changing technology and
knowledge, as well as for teamwork and motivation.
LO 1.1: Define operations management
LO 1.6: Identify the critical variables in enhancing productivity
AACSB: Application of knowledge
AACSB: Application of knowledge
3. See references in the answer to Question 2.
9. Productivity is harder to measure when the task becomes
LO 1.1: Define operations management
more intellectual. A knowledge society implies that work is
AACSB: Application of knowledge more intellectual and therefore harder to measure. Because the
4. The actual charts will differ, depending on the specific U.S. and many other countries are increasingly “knowledge”
organization the student chooses to describe. The important societies, productivity is harder to measure. Using labor-hours as
thing is for students to recognize that all organizations require, a measure of productivity for a postindustrial society versus an
to a greater or lesser extent, (a) the three primary functions of industrial or agriculture society is very different. For example,
operations, finance/accounting, and marketing; and (b) that the decades spent developing a marvelous new drug or winning a
emphasis or detailed breakdown of these functions is dependent very difficult legal case on intellectual property rights may be
on the specific competitive strategy employed by the firm. significant for postindustrial societies, but not show much in the
LO 1.1: Define operations management way of productivity improvement measured in labor-hours.
AACSB: Application of knowledge LO 1.6: Identify the critical variables in enhancing productivity
5. The answer to this question may be similar to that for Question AACSB: Analytical thinking
4. Here, however, the student should be encouraged to utilize a 10. Productivity is difficult to measure because precise units of
more detailed knowledge of a past employer and indicate on the measure may be lacking, quality may not be consistent, and
chart additional information such as the number of persons exogenous variables may change.
employed to perform the various functions and, perhaps, the LO 1.6: Identify the critical variables in enhancing productivity
position of the functional areas within the overall organization
AACSB: Reflective thinking
hierarchy.
11. Mass customization is the flexibility to produce to meet
LO 1.1: Define operations management
specific customer demands, without sacrificing the low cost of a
AACSB: Application of knowledge product-oriented process. Rapid product development is a source of
6. The basic functions of a firm are marketing, accounting/ competitive advantage. Both rely on agility within the organization.
finance, and operations. An interesting class discussion: “Do all LO 1.1: Define operations management
firms/organizations (private, government, not-for-profit) perform
AACSB: Application of knowledge
these three functions?” The authors’ hypothesis is yes, they do.
Copyright ©2017 Pearson Education, Inc. 1
,2 CHAPTER 1 OPERATIONS AND PRODUCTIVITY
12. Labor productivity in the service sector is hard to improve For both a small and large retailer, the solution is to find a
because (1) many services are labor intensive and (2) they are “sustainable” solution or get out of the battery business. Burying
individually (personally) processed (the customer is paying for the batteries behind the store is not an option. Supplement 5:
that service—the haircut), (3) it may be an intellectual task Sustainability in the Supply Chain provides some guidelines for a
performed by professionals, (4) it is often difficult to mechanize deeper class discussion.
and automate, and (5) it is often difficult to evaluate for quality.
LO 1.6: Identify the critical variables in enhancing productivity END-OF-CHAPTER PROBLEMS
AACSB: Reflective thinking
120 boxes
13. Taco Bell designed meals that were easy to prepare; with 1.1 (a) = 3.0 boxes/hour
40 hours
actual cooking and food preparation done elsewhere; automation
to save preparation time; reduced floor space; manager training 125 boxes
to increase span of control. (b) = 3.125 boxes/hour
40 hours
LO 1.6: Identify the critical variables in enhancing productivity
AACSB: Application of knowledge. (c) Change in productivity = 0.125 boxes/hour
14. Bureau of Labor Statistics (stats.bls.gov) is a good place to (d) Percentage change =
0.125 boxes
= 4.167%
start. Results will vary for each year, but overall data for the 3.0
economy will range from .9% to 4.8%, and mfg. could be as 1.2 (a) Labor productivity is 160 valves/80 hours = 2 valves
high as 5% and services between 1% and 2%. The data will vary per hour.
even more for months or quarters. The data are frequently revised,
often substantially. (b) New labor productivity = 180 valves/80 hours = 2.25
valves per hour
LO 1.5: Compute multifactor productivity
(c) Percentage change in productivity = .25 valves/2
AACSB: Application of knowledge valves = 12.5%
ETHICAL DILEMMA 57,600
1.3 0.15 = , where L number of laborers
AMERICAN CAR BATTERY INDUSTRY (160)(12)(L)
employed at the plant
You may want to begin the discussion by asking how ethical it is
57,600
for you to be in the lead battery business when you know that any So L = = 200 laborers employed
batteries you recycle will very likely find their way to an overseas (160)(12)(0.15)
facility (probably Mexico) with, at best, marginal pollution con-
tainment. Then after a likely conclusion of “Well someone has to Units produced 100 pkgs
1.4 (a) = = 20 pkgs/hour
provide batteries,” you can move to the following discussion. Input 5
(a) As owner of an independent auto repair shop trying to 133 pkgs
dispose of a few old batteries each week, your options may (b) = 26.6 pkgs per hour
5
be limited. But as an ethical operator, your first option is to
put pressure on your battery supplier to take your old 6.6
batteries. Alternatively, shop for a battery supplier who (c) Increase in productivity = = 33.0%
20
wants your business enough to dispose of your old batter-
ies. Third, because there is obviously a market for the lead
in old batteries, some aggressive digging may uncover an
imaginative recycler who can work out an economical
arrangement for pickup or delivery of your old batteries.
Another option is, of course, to discontinue the sale of
batteries. (This a problem for many small businesses; ethical
decisions and regulation may be such that they often place
an expensive and disproportionate burden on a small firm.)
(b) As manager of a large retailer responsible for disposal
of thousands of used batteries each week, you should have
little trouble finding a battery supplier with a reverse supply
chain suitable for disposal of old batteries. Indeed, a sophis-
ticated retailer, early on in any supply-chain development
process, includes responsible disposal of environmentally
dangerous material as part of the negotiations. Disposal of
old batteries should be a minor issue for a large retailer.
Copyright ©2017 Pearson Education, Inc.
, CHAPTER 1 O P E R A T I O N S AND PRODUCTIVITY 3
1.5 Resource Last Year This Year Change Percentage Change
1,000 1,000 0.31
Labor = 3.33 = 3.64 0.31 = 9.3%
300 275 3.33
1,000 1,000 2.22
Resin = 20 = 22.22 2.22 = 11.1%
50 45 20
1, 000 1, 000 0.01
Capital = 0.1 = 0.09 –0.01 = 10.0%
10,000 11,000 0.1
1,000 1,000 0.02
Energy = 0.33 = 0.35 = 6.1%
3,000 2, 850 0.02 0.33
1.6 Last Year This Year
Production 1,000 1,000
Labor hr. @ $10 $3,000 $2,750
Resin @ $5 250 225
Capital cost/month 100 110
Energy 1,500 1,425
$4,850 $4,510
[(1,,510) (1,,850)]
(1,,850)
0.222 0.206 0.016
= = 7.8% improvement*
0.206 0.206
* with rounding to 3 decimal places.
Output
1.7 Productivity = 1.8 (a) Labor productivity = 1,000 tires/400 hours = 2.5
Input
tires/hour.
65 65 (b) Multifactor productivity is 1,000 tires/(400 ×
(a) Labor productivity = = $12.50 + 20,000 × $1 + $5,000 + $10,000) =
(520 × 13) $6,760
1,000 tires/$40,000 = 0.025 tires/dollar.
= .0096 rugs per labor $
(c) Multifactor productivity changes from 1,000/40,000 to
1,000/39,000, or from 0.025 to 0.02564; the ratio is
65
(b) Multifactor = 1.0256, so the change is a 2.56% increase.
productivity (520 × $13) + (100 × $5) + (20 × $50)
65
= = .00787 rugs per $
$8,260
1.9 Last Year This Year Change Percent Change
1,500 1,500 0.33
Labor hrs. = 4.29 = 4.62 = 7.7%
350 325 4.29
1,500 1,500 0.02
Capital invested = 0.10 = 0.08 = –20%
15,000 18,000 0.1
1,500 1,500 0.05
Energy (btu) = 0.50 = 0.55 = 10%
3,000 2,750 0.50
Productivity of capital did drop; labor productivity increased as did energy, but by less than the anticipated 15%.
Copyright ©2017 Pearson Education, Inc.
, 4 CHAPTER 1 OPERATIONS AND PRODUCTIVITY
1.10 Multifactor productivity is: 1,500
1.14 Old process =
375 autos/[($20 × 10,000) + ($1,000 × 500) + (640 8) + 500 + (1,500 0.35)
($3 × 100,000)] = 375/(200,000 + 500,000 + 1,500
300,000) = 375/1,000,000 = = 0.244 loaves/$
6,145
= .000375 autos per dollar of inputs
1,875
1.11 (a) Before: 500/20 = 25 boxes per hour; New process =
(800 8) + 500 + (1,875 0.35)
After, 650/24 = 27.08 1,875
= = 0.248 loaves/$
(b) 27.08/25 7,556.25
= 1.083, or an increase of 8.3% in productivity 0.248 – 0.244
Percent change = = 1.6%
0.244
(c) New labor productivity = 700/24 = 29.167
boxes per hour 6,600 vans
1.15 (a) = 0.10
x labor-hours
1.12 1,500 × 1.25 = 1,875 (new demand) x = 66,000 labor-hours
Outputs
= Productivity There are 300 laborers. So,
Inputs
1,875 66,000 labor-hours
= 2.344 = 220 labor-hours/laborer
Labor-hours 300 laborers
1,875 on average, per month
New process = 800 labor-hours 6,600 vans
2.344 (b) Now = 0.11, so x 60,000 labor-hours
800 x labor-hours
= 5 workers 60,000 labor-hours
160 so, 200 labor-hours/laborer
1,500 300 laborers on average, per month
Current process = = 2.344
labor-hours
1,500 $ output 52($90) + 80($198)
= labor-hours 640 1.16 =
2.344 Labor-hours 8(45)
640 $20, 520
= 4 workers = = $57.00 per labor-hour
160 360
Add one worker.
1,500
1.13 (a) Labor change: 1.17 Last year =
(350 8) + (15,000 0.0083) + (3,000 0.6)
1,500 1,500 1,500
= = .293 loaves/$
(640 × $8) 5,120 2,800 124.50 1,800
1,875 1,500
= 0.293 loaves/$ 0.317 doz / $
(800 × $8) 4,724.5
1500
(b) Investment change: This year =
(325 8) + (18,000 0.0083) + (2,750 0.6)
1,500 1,500
= = .293 loaves/$ 0.341 doz / $
(640 × $8) 5,120
0.341 0.317
1,875 1,875 Percent change =
= = .359 loaves/$ 0.317
(640 × 8) + (100) 5,220 0.076, or 7.6% increase
.293 – .293
(c) Percent change : = 0 (labor)
.293
.359 – .293
Percent change : = .225
.293
= 22.5% (investment)
The better option is to purchase a new blender because it
generates more loaves per dollar.
Copyright ©2017 Pearson Education, Inc. 4
C H A P T E R
Operations and Productivity
DISCUSSION QUESTIONS LO 1.1: Define operations management
1. The text suggests four reasons to study OM. We want to AACSB: Application of knowledge
understand (1) how people organize themselves for productive 7. The 10 strategic decisions of operations management are
enterprise, (2) how goods and services are produced, (3) what product design, quality, process, location, layout, human resources,
operations managers do, and (4) this costly part of our economy supply-chain management, inventory, scheduling (aggregate and
and most enterprises. short term), and maintenance. We find this structure an excellent
LO 1.1: Define operations management way to help students organize and learn the material.
AACSB: Application of knowledge
LO 1.1: Define operations management
2. Possible responses include: Adam Smith (work specialization/
AACSB: Application of knowledge
division of labor), Charles Babbage (work specialization/division
of labor), Frederick W. Taylor (scientific management), Walter 8. Four areas that are important to improving labor productivity
Shewart (statistical sampling and quality control), Henry Ford are (1) basic education (basic reading and math skills), (2) diet of
(moving assembly line), Charles Sorensen (moving assembly line), the labor force, (3) social overhead that makes labor available
Frank and Lillian Gilbreth (motion study), Eli Whitney (standardi- (water, sanitation, transportation, etc.), and (4) maintaining and
zation). expanding the skills necessary for changing technology and
knowledge, as well as for teamwork and motivation.
LO 1.1: Define operations management
LO 1.6: Identify the critical variables in enhancing productivity
AACSB: Application of knowledge
AACSB: Application of knowledge
3. See references in the answer to Question 2.
9. Productivity is harder to measure when the task becomes
LO 1.1: Define operations management
more intellectual. A knowledge society implies that work is
AACSB: Application of knowledge more intellectual and therefore harder to measure. Because the
4. The actual charts will differ, depending on the specific U.S. and many other countries are increasingly “knowledge”
organization the student chooses to describe. The important societies, productivity is harder to measure. Using labor-hours as
thing is for students to recognize that all organizations require, a measure of productivity for a postindustrial society versus an
to a greater or lesser extent, (a) the three primary functions of industrial or agriculture society is very different. For example,
operations, finance/accounting, and marketing; and (b) that the decades spent developing a marvelous new drug or winning a
emphasis or detailed breakdown of these functions is dependent very difficult legal case on intellectual property rights may be
on the specific competitive strategy employed by the firm. significant for postindustrial societies, but not show much in the
LO 1.1: Define operations management way of productivity improvement measured in labor-hours.
AACSB: Application of knowledge LO 1.6: Identify the critical variables in enhancing productivity
5. The answer to this question may be similar to that for Question AACSB: Analytical thinking
4. Here, however, the student should be encouraged to utilize a 10. Productivity is difficult to measure because precise units of
more detailed knowledge of a past employer and indicate on the measure may be lacking, quality may not be consistent, and
chart additional information such as the number of persons exogenous variables may change.
employed to perform the various functions and, perhaps, the LO 1.6: Identify the critical variables in enhancing productivity
position of the functional areas within the overall organization
AACSB: Reflective thinking
hierarchy.
11. Mass customization is the flexibility to produce to meet
LO 1.1: Define operations management
specific customer demands, without sacrificing the low cost of a
AACSB: Application of knowledge product-oriented process. Rapid product development is a source of
6. The basic functions of a firm are marketing, accounting/ competitive advantage. Both rely on agility within the organization.
finance, and operations. An interesting class discussion: “Do all LO 1.1: Define operations management
firms/organizations (private, government, not-for-profit) perform
AACSB: Application of knowledge
these three functions?” The authors’ hypothesis is yes, they do.
Copyright ©2017 Pearson Education, Inc. 1
,2 CHAPTER 1 OPERATIONS AND PRODUCTIVITY
12. Labor productivity in the service sector is hard to improve For both a small and large retailer, the solution is to find a
because (1) many services are labor intensive and (2) they are “sustainable” solution or get out of the battery business. Burying
individually (personally) processed (the customer is paying for the batteries behind the store is not an option. Supplement 5:
that service—the haircut), (3) it may be an intellectual task Sustainability in the Supply Chain provides some guidelines for a
performed by professionals, (4) it is often difficult to mechanize deeper class discussion.
and automate, and (5) it is often difficult to evaluate for quality.
LO 1.6: Identify the critical variables in enhancing productivity END-OF-CHAPTER PROBLEMS
AACSB: Reflective thinking
120 boxes
13. Taco Bell designed meals that were easy to prepare; with 1.1 (a) = 3.0 boxes/hour
40 hours
actual cooking and food preparation done elsewhere; automation
to save preparation time; reduced floor space; manager training 125 boxes
to increase span of control. (b) = 3.125 boxes/hour
40 hours
LO 1.6: Identify the critical variables in enhancing productivity
AACSB: Application of knowledge. (c) Change in productivity = 0.125 boxes/hour
14. Bureau of Labor Statistics (stats.bls.gov) is a good place to (d) Percentage change =
0.125 boxes
= 4.167%
start. Results will vary for each year, but overall data for the 3.0
economy will range from .9% to 4.8%, and mfg. could be as 1.2 (a) Labor productivity is 160 valves/80 hours = 2 valves
high as 5% and services between 1% and 2%. The data will vary per hour.
even more for months or quarters. The data are frequently revised,
often substantially. (b) New labor productivity = 180 valves/80 hours = 2.25
valves per hour
LO 1.5: Compute multifactor productivity
(c) Percentage change in productivity = .25 valves/2
AACSB: Application of knowledge valves = 12.5%
ETHICAL DILEMMA 57,600
1.3 0.15 = , where L number of laborers
AMERICAN CAR BATTERY INDUSTRY (160)(12)(L)
employed at the plant
You may want to begin the discussion by asking how ethical it is
57,600
for you to be in the lead battery business when you know that any So L = = 200 laborers employed
batteries you recycle will very likely find their way to an overseas (160)(12)(0.15)
facility (probably Mexico) with, at best, marginal pollution con-
tainment. Then after a likely conclusion of “Well someone has to Units produced 100 pkgs
1.4 (a) = = 20 pkgs/hour
provide batteries,” you can move to the following discussion. Input 5
(a) As owner of an independent auto repair shop trying to 133 pkgs
dispose of a few old batteries each week, your options may (b) = 26.6 pkgs per hour
5
be limited. But as an ethical operator, your first option is to
put pressure on your battery supplier to take your old 6.6
batteries. Alternatively, shop for a battery supplier who (c) Increase in productivity = = 33.0%
20
wants your business enough to dispose of your old batter-
ies. Third, because there is obviously a market for the lead
in old batteries, some aggressive digging may uncover an
imaginative recycler who can work out an economical
arrangement for pickup or delivery of your old batteries.
Another option is, of course, to discontinue the sale of
batteries. (This a problem for many small businesses; ethical
decisions and regulation may be such that they often place
an expensive and disproportionate burden on a small firm.)
(b) As manager of a large retailer responsible for disposal
of thousands of used batteries each week, you should have
little trouble finding a battery supplier with a reverse supply
chain suitable for disposal of old batteries. Indeed, a sophis-
ticated retailer, early on in any supply-chain development
process, includes responsible disposal of environmentally
dangerous material as part of the negotiations. Disposal of
old batteries should be a minor issue for a large retailer.
Copyright ©2017 Pearson Education, Inc.
, CHAPTER 1 O P E R A T I O N S AND PRODUCTIVITY 3
1.5 Resource Last Year This Year Change Percentage Change
1,000 1,000 0.31
Labor = 3.33 = 3.64 0.31 = 9.3%
300 275 3.33
1,000 1,000 2.22
Resin = 20 = 22.22 2.22 = 11.1%
50 45 20
1, 000 1, 000 0.01
Capital = 0.1 = 0.09 –0.01 = 10.0%
10,000 11,000 0.1
1,000 1,000 0.02
Energy = 0.33 = 0.35 = 6.1%
3,000 2, 850 0.02 0.33
1.6 Last Year This Year
Production 1,000 1,000
Labor hr. @ $10 $3,000 $2,750
Resin @ $5 250 225
Capital cost/month 100 110
Energy 1,500 1,425
$4,850 $4,510
[(1,,510) (1,,850)]
(1,,850)
0.222 0.206 0.016
= = 7.8% improvement*
0.206 0.206
* with rounding to 3 decimal places.
Output
1.7 Productivity = 1.8 (a) Labor productivity = 1,000 tires/400 hours = 2.5
Input
tires/hour.
65 65 (b) Multifactor productivity is 1,000 tires/(400 ×
(a) Labor productivity = = $12.50 + 20,000 × $1 + $5,000 + $10,000) =
(520 × 13) $6,760
1,000 tires/$40,000 = 0.025 tires/dollar.
= .0096 rugs per labor $
(c) Multifactor productivity changes from 1,000/40,000 to
1,000/39,000, or from 0.025 to 0.02564; the ratio is
65
(b) Multifactor = 1.0256, so the change is a 2.56% increase.
productivity (520 × $13) + (100 × $5) + (20 × $50)
65
= = .00787 rugs per $
$8,260
1.9 Last Year This Year Change Percent Change
1,500 1,500 0.33
Labor hrs. = 4.29 = 4.62 = 7.7%
350 325 4.29
1,500 1,500 0.02
Capital invested = 0.10 = 0.08 = –20%
15,000 18,000 0.1
1,500 1,500 0.05
Energy (btu) = 0.50 = 0.55 = 10%
3,000 2,750 0.50
Productivity of capital did drop; labor productivity increased as did energy, but by less than the anticipated 15%.
Copyright ©2017 Pearson Education, Inc.
, 4 CHAPTER 1 OPERATIONS AND PRODUCTIVITY
1.10 Multifactor productivity is: 1,500
1.14 Old process =
375 autos/[($20 × 10,000) + ($1,000 × 500) + (640 8) + 500 + (1,500 0.35)
($3 × 100,000)] = 375/(200,000 + 500,000 + 1,500
300,000) = 375/1,000,000 = = 0.244 loaves/$
6,145
= .000375 autos per dollar of inputs
1,875
1.11 (a) Before: 500/20 = 25 boxes per hour; New process =
(800 8) + 500 + (1,875 0.35)
After, 650/24 = 27.08 1,875
= = 0.248 loaves/$
(b) 27.08/25 7,556.25
= 1.083, or an increase of 8.3% in productivity 0.248 – 0.244
Percent change = = 1.6%
0.244
(c) New labor productivity = 700/24 = 29.167
boxes per hour 6,600 vans
1.15 (a) = 0.10
x labor-hours
1.12 1,500 × 1.25 = 1,875 (new demand) x = 66,000 labor-hours
Outputs
= Productivity There are 300 laborers. So,
Inputs
1,875 66,000 labor-hours
= 2.344 = 220 labor-hours/laborer
Labor-hours 300 laborers
1,875 on average, per month
New process = 800 labor-hours 6,600 vans
2.344 (b) Now = 0.11, so x 60,000 labor-hours
800 x labor-hours
= 5 workers 60,000 labor-hours
160 so, 200 labor-hours/laborer
1,500 300 laborers on average, per month
Current process = = 2.344
labor-hours
1,500 $ output 52($90) + 80($198)
= labor-hours 640 1.16 =
2.344 Labor-hours 8(45)
640 $20, 520
= 4 workers = = $57.00 per labor-hour
160 360
Add one worker.
1,500
1.13 (a) Labor change: 1.17 Last year =
(350 8) + (15,000 0.0083) + (3,000 0.6)
1,500 1,500 1,500
= = .293 loaves/$
(640 × $8) 5,120 2,800 124.50 1,800
1,875 1,500
= 0.293 loaves/$ 0.317 doz / $
(800 × $8) 4,724.5
1500
(b) Investment change: This year =
(325 8) + (18,000 0.0083) + (2,750 0.6)
1,500 1,500
= = .293 loaves/$ 0.341 doz / $
(640 × $8) 5,120
0.341 0.317
1,875 1,875 Percent change =
= = .359 loaves/$ 0.317
(640 × 8) + (100) 5,220 0.076, or 7.6% increase
.293 – .293
(c) Percent change : = 0 (labor)
.293
.359 – .293
Percent change : = .225
.293
= 22.5% (investment)
The better option is to purchase a new blender because it
generates more loaves per dollar.
Copyright ©2017 Pearson Education, Inc. 4
