1

C H A P T E R

Operations and Productivity

DISCUSSION QUESTIONS
1.The text suggests four reasons to study OM. We want to
understand (1) how people organize themselves for productive
enterprise, (2) how goods and services are produced, (3) what
operations
managersdo,and(4)thiscostlypartofoureconomyandmost
enterprises.
2.Possible responses include: Adam Smith (work
specialization/division of labor), Charles Babbage (work
specialization/division of labor), Frederick W. Taylor (scientific
management), Walter Shewart (statistical sampling and quality
control), Henry Ford (moving assembly line), Charles Sorensen
(movingassemblyline),FrankandLillianGilbreth(motionstudy),
EliWhitney(standardization).
3.Seereferencesintheanswertoquestion2.
4.The actual charts will differ, depending on the specific
organization the student chooses to describe. The important
thingisforstudentstorecognizethatallorganizationsrequire,to
a greater or lesser extent, (a) the three primary functions of
operations, finance/accounting,andmarketing;and(b)thatthe
emphasisordetailedbreakdownofthesefunctionsisdependent
onthespecificcompetitivestrategyemployedbythefirm.
5.Theanswertothisquestionmaybesimilartothatforquestion
4.
Here,however,thestudentshouldbeencouragedtoutilizeamore
detailedknowledgeofapastemployerandindicateonthechart
additionalinformationsuchasthenumberofpersonsemployedto
performthevariousfunctionsand,perhaps,thepositionofthe
functionalareaswithintheoverallorganizationhierarchy.
6.The basic functions of a firm are marketing, accounting/
finance,andoperations.Aninterestingclassdiscussion:Doall
firms/organizations(private,government,notforprofit)perform
thesethreefunctions?Theauthorshypothesisisyes,theydo.
7.The10decisionsofoperationsmanagementareproductde
sign,quality,process,location,layout,humanresources,supply
chainmanagement, inventory,scheduling(aggregateandshort
term),maintenance.Wefindthisstructureanexcellentwayto
helpstudentsorganizeandlearnthematerial.
8.Fourareasthatareimportanttoimprovinglaborproductivity
are:(1)basiceducation(basicreadingandmathskills),(2)diet
of
thelaborforce,(3)socialoverheadthatmakeslaboravailable
(water,sanitation,transportation,etc.),and(4)maintainingand
expanding the skills necessary for changing technology and
knowledge,aswellasforteamworkandmotivation.

9.Productivityishardertomeasurewhenthetaskbecomes
moreintellectual.Aknowledgesocietyimpliesthatworkismore
intellectualandthereforehardertomeasure.BecausetheU.S.(and
many other countries) are increasingly knowledge societies,
productivity is harder to measure. Using labor hours as a
measure of productivity for a postindustrial society vs. an
industrialoragriculturesocietyisverydifferent. For example,
decadesspentdevelopingamarvelousnewdrugorwinningavery
difficultlegalcaseon intellectualpropertyrights
may

be

significant

for

post
industrialsocieties,butnotshowmuchinthewayofproductivity
improvementmeasuredinlaborhours.
10.Productivityisdifficulttomeasurebecausepreciseunitsof
measure may be lacking, quality may not be consistent, and
exogenousvariablesmaychange.
11.Masscustomizationistheflexibilitytoproduceinorderto
meet specific customer demands, without sacrificing the low
costofaproductorientedprocess.Rapidproductdevelopmentis
asourceofcompetitiveadvantage.Bothrelyonagilitywithin
theorganization.
12.Laborproductivityintheservicesectorishardtoimprove
because(1)manyservicesarelaborintensiveand(2)theyare
individually(personally)processed(thecustomerispayingfor
that servicethe hair cut), (3) it may be an intellectual task
performedbyprofessionals,(4)itisoftendifficulttomechanize
andautomate,and(5)oftendifficulttoevaluateforquality.
13.TacoBelldesignedmealsthatwereeasytoprepare;with
actualcookingandfoodpreparationdoneelsewhere;automation
tosavepreparationtime;reducedfloorspace;managertrainingto
increasespanofcontrol.

ETHICAL DILEMMA
With most of the ethical dilemmas in the text, the instructor
should generate plenty of discussion with this dilemma. The
authorsarehesitanttoendorseaparticularcorrectanswer.And
studentsmaywellbeonbothsideofthisdilemma.
Manystudentswillbeinclinedtoacceptthechildlaborlaws
oftheirhomecountry.Forinstance,Americansacceptteenagers
working. But Germans (and others) are more likely to expect
teenagerstobehomestudyingorinanapprenticeprogram;they
frownuponteenagersworking.Studentsraisedinmoreaffluent
environments may not understand children working. However,
thosewhohadtoscrapebyintheiryouthorhadparentsthatdid
maybemoresympatheticto10yearoldsworking.
Fromaneconomicandselfpreservationperspectivemany
10yearoldsdoworkandneedtowork.Therearestillalotof

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CHAPTER 1O P E R AT I O N S A N D P R O D U C T I V I T Y

poorpeopleintheworld.Suchadecisionmayendorsethemoral
philosophy perspective defined as a Utilitarianism decision.
Autilitarianismdecisiondefinesacceptableactionsasthosethat
maximize total utility, i.e., the greatest good for the greatest
numberofpeople.
FromaU.S.corporatemanagementperspective,companies
cannottoleratethepublicitythatgoeswithhiring10yearolds.
These companies need to have standards that prohibit such
actions by their subcontractors. The moral philosophy per
spectivemightcallthisthevirtueethics positionthedecision
thatamaturepersonwithagoodmoralcharacterwoulddeem
correct.

END-OF-CHAPTER PROBLEMS

1.7
Production
Labor hr. @ $10
Resin @ $5
Capital cost/month
Energy

1.5 (a)
(b)

1,00
0
$3,000
250
100
1,50
0
$4,850

1,00
0
$2,750
225
110
1,42
5
$4,510

133pkgs
=26.6pkgsperhour
5

125boxes
(b)
=3.125boxes/hour
40hours
(c)Changeinproductivity=0.125boxes/hour
0.125boxes
= 4.166%
3.0

1.2(a)Laborproductivityis160valves/80hours=2valves
perhour.
(b)Newlaborproductivity=180valves/80hours=2.25
valvesperhour
(c)Percentagechangeinproductivity= .25 valves / 2
valves=12.5%
57,600
,whereL numberoflaborers
(160)(12)( L )
employedattheplant
57,600

=200 laborersemployed
So L =
(160)(12)(0.15)

1.30.15 =

This Year

Unitsproduced 100pkgs
=
=20pkgs/hour
Input
5

120boxes
1.1 (a)
=3.0boxes/hour
40hours

(d) Percentagechange=

Last Year

1.4Bureau of Labor Statistics (stats.bls.gov) is probably as

goodaplacetostartasany.Resultswillvaryforeachyear,but
overalldatafortheeconomywillrangefrom.9%to4.8%and
mfg.couldbeashighas5%andservicesbetween1%and2%.
Thedatawillvaryevenmoreformonthsorquarters.Thedataare
frequentlyrevised,oftensubstantially.

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CHAPTER 1O P E R AT I O N S A N D P R O D U C T I V I T Y

(c)Increaseinproductivity=
1.6

Resource

Labor
Resin
Capital
Energy

Last Year
1,000
300
1,000
50

1,000
275
1,000

=20

10,000
3,000

This Year

=3.33

1,000
1,000

6.6
=33.0%
20

45

=3.64

0.31

=22.22

2.22

1,000

=0.1

11,000
1,000

=0.33

2,850

Change

=0.09

=0.35

0.01

Percent
Change
0.31
3.33
2.22
20

=11.1%

0.01
0.1
0.02

0.02

=9.3%

0.33

=10.0%

=6.1%

[(1,000/4,850) (1,000/4,510)]

(1,000/4,850)
0.2060.222
0.016
=
=0.078fewerresources
0.206
0.206
7.8%improvement*
*withroundingto3decimalplaces.
Output
1.8 Productivity=
Input

65
65
=
(52013)
$6,760
=.0096rugsperlabor$

(a)Laborproductivity=

65
(b) Multifactor
productivity
(520

$13)
+
(100
$5) + (20 $50)

65
=
= .00787rugsper$
$8,260
1.9 (a)Laborproductivity=1,000tires/400hours=2.5
tires/hour.
(b)Multifactorproductivityis1,000tires/(400
$12.50+20,000$1+$5,000+$10,000)=
1,000tires/$40,000=0.025tires/dollar.
(c)Multifactorproductivitychangesfrom1,000/40,000to
1,000/39,000,orfrom0.025to0.02564;theratiois
1.0256,sothechangeisa2.56percentincrease.

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CHAPTER 1O P E R AT I O N S A N D P R O D U C T I V I T Y

1.10
Labor hrs.
Capital invested
Energy (btu)

Last Year

This Year

Change

Percent Change

1,500

1,500

0.33
4.29

= 7.7%

0.02
0.1

= 20%

0.05
0.50

= 10%

350

=4.29

1,500
15,000
1,500
3,000

=0.10

=0.50

325

=4.62

1,500
18,000
1,500
2,750

=0.08

=0.55

Productivityofcapitaldiddrop;laborproductivityincreasedasdidenergy,butbylessthantheanticipated15%.
1.11

Multifactorproductivityis:
375autos/[($2010,000)+($1,000500)+
($3100,000)]=375/(200,000+500,000+
300,000)=375/1,000,000
=.000375autosperdollarofinputs

1.12

(a)Before:500/20=25boxesperhour;

1.13

1,5001.25=1,875(newdemand)
Outputs
=Productivity
Inputs
1,875
=2.344
Laborhours
1,875
Newprocess=
800laborhours
2.344
800
=5workers
160
1,500
Currentprocess =
=2.344
laborhours
1,500
=laborhours 640
2.344
640
=4workers
160
Addoneworker.

1.14

(a)Laborchange:
1,500
1,500
=
=.293loaves/$
(640$8) 5,120
1,875
=0.293loaves/$
(800$8)

6,600vans
=0.11,sox 60,000laborhour
x laborhours
60,000laborhours
so,
200laborhours/laborer
300laborers
onaverage,permonth

(b)Now

$output
52($90) + 80($198)
1.17
=
Laborhour
8(45)
20,520
=
= $57.00perlaborhour
360

(b)Investmentchange:
1,500
1,500
=
=.293loaves/$
(640$8) 5,120
1,875
1,875
=
=.359loaves/$
(6408)+(100) 5,220
.293 .293
=0(labor)
.293
.359 .293
Percentchange:
=.225
.293
=22.5%(investment)
(c)Percent change:

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CHAPTER 1O P E R AT I O N S A N D P R O D U C T I V I T Y

1,500
(640 8)+500+(1,500 0.35)
1,500
=
= 0.244
6,145
1,875
Newprocess=
(800 8)+500+(1,875 0.35)
1,875
=
= 0.248
7,556.25
0.2480.244
Percentchange=
= 1.6%
0.244
6,600vans
1.16(a)
= 0.10
xlaborhours
x = 66,000laborhours
1.15

After,650/24=27.08
(b)27.08/25
=1.083,oranincreaseof8.3%inproductivity
(c)Newlaborproductivity=700/24=29.167
boxesperhour

Oldprocess=

Thereare300laborers.So,
66,000laborhours
=220laborhours/laboreronaverage,permonth
300laborers

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CHAPTER 1O P E R AT I O N S A N D P R O D U C T I V I T Y

ADDITIONAL HOMEWORK PROBLEMS

(foundatwww.mylab.com.)

1,500
(350 8)+(15,000 0.0083)+(3,000 0.6)
1,500

2,800 124.50 1,800

1,500

0.317doz/$
4,724.5
1500
ThisYear =
(325 8)+(18,000 0.0083)+(2,750 0.6)

1.18LastYear =

1.Fromyourknowledgeofproductionprocessesandfromthe
caseandthevideo,identifyhoweachofthe10decisionsofOM
isappliedatFritoLay:

Productdesign:EachofFritoLays40plusproducts
must be conceived, formulated (designed), tested
(marketstudies,focusgroups,etc.),andevaluatedfor
profitability.

Quality: Thestandardsforeachingredient,including
itspurityandquality,mustbedetermined.

Process:Theprocessthatisnecessarytoproducethe
productandthetolerancethatmustbemaintainedfor
eachingredientbyeachpieceofequipmentmustbe
specifiedandprocured.

Location:Thefixedandvariablecostsofthefacility,
aswellasthetransportationcostsinandthedelivery
distance,giventhefreshness,mustbedetermined.

Layout: The FritoLay facility would be a process

facility,withgreatcaregiventoreducingmovement
ofmaterialwithinthefacility.

Human resources: Machine operatorsmay nothave

inherentlyenrichedjobs,sospecialconsiderationmust
be given to developing empowerment and enriched
jobs.

Supply chain: FritoLay, like all other producers of

foodproducts,mustfocusondevelopingandauditing
rawmaterialfromthefarmtodelivery.

Inventory: Freshness and spoilage require constant

efforttodrivedowninventories.

Scheduling: The demand for high utilization of a

capitalintensive facility means effective scheduling
willbeimportant.

Maintenance: High utilization requires good

maintenance, from machine operator to the
maintenance

departmentanddepotservice.

0.341doz/$
0.341 0.317
0.317
0.076or7.6%increase

PercentChange=

1.19Global.Itslevelofintegrationgoesbeyondmultinational.
Thecollectionofpartsandsubassembliescomingfromother
countriesiscarefullyorchestrated.Itisnottransnationalbecause
itshomeisclearlytheU.S.,andthereislittlesenseoflocal
responsiveness.

CASE STUDY
NATIONALAIREXPRESS
Thiscasecanbeusedtointroducetheissueofproductivityand
howtoimproveit,aswellasthedifficultyofgoodconsistent
measures of productivity. This case can also be used to
introducesomeofthetechniquesandconceptsofOM.
1.Thenumberofstopsperdriveriscertainlyagoodplaceto
start.However,mileageandnumberofshipmentswillprobably
begoodadditionalvariables.(Regressiontechniques,addressedin
Chapter4,canbeaddressedheretogenerateinterest.)
2.Customerserviceshouldbebasedonananalysisofcustomer
requirements.Documentrequirementsintermsofservicesdesired
(supplyneeds,preprintedwaybills,packageweights,pickupand
dropoffrequirements)shouldallbeconsidered.(Thehouseof
qualitytechniquediscussedinChapter5isoneapproachforsuch
ananalysis.)
3.Othercompaniesintheindustrydoaneffectivejobofestab
lishingverygoodlaborstandardsfortheirdrivers,sorters,and
phonepersonnel.Difficultperhaps,butdoable.(Theworkmea
surementsupplementtoChapter10addresseslaborstandards.)

VIDEO CASE STUDIES

1

FRITOLAY:OPERATIONSMANAGEMENT
INMANUFACTURING

Thiscaseprovidesagreatopportunityforaninstructortostimulate
aclassdiscussionearlyinthecourseaboutthepervasivenessofthe
10decisionsofOMwiththiscasealoneorinconjunctionwiththe
HardRockCafecase.Ashortvideoaccompaniesthecase.

2.Howwouldyoudeterminetheproductivityoftheproduction
processesatFritoLay?
Determiningoutput(insomestandardmeasure,perhapspounds)
andlaborhourswouldbeagoodstartforsinglefactorproductivity.
Formultifactorproductivity,wewouldneedtodevelopand
understandcapitalinvestmentandenergy,aswellaslabor,and
thentranslatethoseintoastandard,suchasdollars.
3.Howarethe10decisionsofOMdifferentwhenappliedby
theoperationsmanagerofaproductionprocesssuchasFrito
LaythanwhenappliedbyaserviceorganizationsuchasHard
RockCafe?
HardRockperformsall10ofthedecisionsaswell,onlywitha
moreservicesectororientation.Eachoftheseisdiscussedinthe
solutiontotheHardRockCafecase.

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CHAPTER 1O P E R AT I O N S A N D P R O D U C T I V I T Y

HARDROCKCAFE:OPERATIONS
MANAGEMENTINSERVICES

Thereisashortvideo(7minutes)availablefromPrenticeHall
andfilmedspecificallyforthistextthatsupplementsthiscase.
1.HardRocks10Decisions:Thisisearlyinthecoursetodis
cuss these in depth, but still a good time to get the students
engaged in the 10 OM decisions around which the text is
structured.
Productdesign:HardRockstangibleproductisfoodandlike

anytangibleproductitmustbedesigned,tested,andcosted
out.Theintangibleproductincludesthemusic,memorabilia,
andservice.
Quality:Thecasementionsthequalitysurveyasanovert
qualitymeasure,butqualitycanbediscussedfromavarietyof
perspectiveshiringtherightpeople,foodingredients,good
suppliers,speedofservice,friendliness,etc.
Process: The process can be discussed from many
perspectives: (a) the process of processing a guest, to their
seat,takingtheorder,orderprocessing,deliveryofthemeal,
payment,

etc.,

(b)theprocessofhowamealisprepared(see,forinstance,the
example box in Chapter 2 on Chef Pierre Alexander), or
(c)somesubsetofanyofthese.
Location:HardRockCafeshavetraditionallybeenlocatedin
touristlocations,butthatisbeginningtochange.
Layout: Little discussion in the case, butstudentsmaybe
veryawarethatakitchenlayoutiscriticaltoefficientfood
preparation and that a bar is critical in many food
establishmentsforprofitability.Theretailshopinrelationto
the restaurant and its layout is a critical ingredient for
profitabilityatHardRock.
Humanresources:JimKnight,VPforHumanResourcesat
HardRock,seekspeoplewhoarepassionateaboutmusic,love
to serve, can tell a story. This OM decision is a critical
ingredientforsuccessofaHardRockCafeandanintegralpart
oftheHardRockdiningexperience.
Supplychainmanagement:Althoughnotdiscussedinthecase,
studentsshouldappreciatetheimportanceofthesupplychainin
anyfoodserviceoperation.Someitemslikeleatherjacketshave
a9monthleadtime.Contractsformeatandpoultryaresigned8
monthsinadvance.
Inventory:HardRock,likeanyrestaurant,hasacriticalinven
toryissuethatrequiresthatfoodbeturnedoverrapidlyandthat
foodininventorybemaintainedattheappropriateandoften
critical temperatures. But the interesting thing about Hard

Rocksinventoryisthattheymaintain$40millionofmemora
biliawithallsortsofspecialcare,tracking,andstorageissues.
Scheduling:BecausemostHardRockCafssalesaredriven
by tourists, the fluctuations in seasonal, daily, and hourly
demandsforfoodarehuge.Thiscreatesaveryinterestingand
challengingtaskfortheoperationsmanagersatHardRock.
(Notmentionedinthecase, linearprogrammingisactually
usedinsomecafestoschedulethewaitstaff.)
Maintenance/reliability:TheHardRockCafedoorsmustopen
everydayforbusiness.Whateverittakestoprovideareliable
kitchenwithhotfoodservedhotandcoldfoodservedcold
must be done. Bar equipment and pointofsale equipment
mustalsowork.
2.Productivityofkitchenstaffissimplytheoutput(numberof
meals)overtheinput(hoursworked).Thecalculationishowmany
mealspreparedoverhowmanyhoursspentpreparingthem.The
samekindofcalculationcanbedoneforthewaitstaff.Infact,
HardRockmanagersbeginwithproductivitystandardsandstaff
toachievethoselevels.(Youmaywanttorevisitthisissuewhen
you gettoChapter10andSupplement10onlaborstandardsand
discusshowlaborcanbeallocatedonaperitembasiswithmore
precision.)
3.Each of the 10 decisions discussed in question 1 can be
addressedwithatangibleproductlikeanautomobile.
Productdesign:Thecarmustbedesigned,tested,andcosted
out. Thetalentsmaybethoseofanengineeroroperations
managerratherthanachef,butthetaskisthesame.
Quality:Atanautoplant,qualitymaytaketheformofmeasuring
tolerancesorwearofbearings,butthereisstillaqualityissue.
Process: With an auto, the process is more likely to be an
assemblylineprocess.
Location:HardRockCafemaywanttolocateattouristdestina
tions,butanautomanufacturermaywanttogotoalocationthat
willyieldlowfixedorvariablecost.
Layout:Anautomobileassemblyplantisgoingtobeorganized
onanassemblylinecriterion.
Human resources: An auto assembly plant will be more
focusedonhiringfactoryskillsratherthanapassionformusic
orpersonality.
Supplychain:Theabilityofsupplierstocontributetodesign
andlowcostmaybeacriticalfactorinthemodernautoplant.
Inventory:Theinventoryissuesareentirelydifferenttracking
memorabiliaatHardRock,butanautoplantrequirestrackinga
lotofexpensiveinventorythatmustmovefast.
Scheduling:Theautoplantisgoingtobemostconcernedwith
schedulingmaterialnotpeople.
Maintenance:Maintenancemaybeevenmorecriticalinan
autoplantasthereisoftenlittlealternaterouting,anddown
timeisveryexpensivebecauseofhighfixedandvariablecost.

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CHAPTER 1O P E R AT I O N S A N D P R O D U C T I V I T Y

ADDITIONAL CASE STUDY

ZYCHOLCHEMICALSCORPORATION*
1.Theanalysisoftheproductivitydataisshownbelow:

Both labor and material productivity increased, but capital

equipmentproductivitydidnot.Thenetresultisalargenegative
change in productivity. If this is a onetime change in the
accountingprocedures,thisnegativechangeshouldalsobeaone
time anomaly. The effect of accounting procedures is often
beyond

the

control

ofmanagers.Forexample,perhapsthecapitalallocationisbased
onanacceleratedallocationofdepreciationofnewlyinstalled
technology.Thisaccountingpracticewillseriouslyimpactnear
termproductivityandthenlateryearsproductivityfigureswill
benefitfromthereduceddepreciationflows.Thishighlightsthe
difficulty in accounting for costs in an effective managerial
manner.Decisionsandevaluationofoperatingresultsshouldbe
based on sound managerial accounting practices and not
necessarilygenerallyacceptedfinancialaccountingprinciples.
2.Ananalysisofadjustedresultsreducesthenegativeimpacton
the capital allocation but there is still a negative growth in

multifactor productivity. After adjustment for inflation, the

materialcostsarestillhigherin2009.Yet,onemustbeawareof
the

extra
volatility of the cost of petroleumbased products. Did the
managerhavecontroloverhispriceincreases?Oneshouldlookat
the
changesinapetroleumbasedpriceindex,includingthecostofoil,
overthelasttwoyearsinordertogainabetterunderstandingof
thedegreetowhichthemanagerhadcontroloverthesecosts.The
increase in wages was beyond the managers control and a
constantrateshouldbeusedforcomparingbothyearsresults.Yet
a
negativeresultstillremains.Evenwhenmaterialcostsin2009are
convertedtotheoriginalcostof$320,anegative5%growthin
productivityremains.Theincreaseinthecapitalbaseisresponsi
bleyetshouldnotpersistinfutureyearsiftheincreasewasthe
resultofanadoptionofnewtechnology.

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CHAPTER 1O P E R AT I O N S A N D P R O D U C T I V I T Y

3.The manager did not reach the goal. An analysis of the

changesincapitalcostsiswarranted.Evenafteradjustingforin
flation,multifactorproductivitywasnotpositive.However,labor
andmaterialsproductivitywasfavorable.Thecapitalinvestment
cost(asfiguredbytheaccountingdepartment)wassolargeasto
makehismultifactorproductivitynegative.Multifactorproductiv
ityhasfallenby11.61%beforeadjustmentandby7.88%afterthe
adjustmentforinflation.

Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.