Om Lec w1

OP 2202: Introduction to Operations
Management
Week – 1
Operations and Productivity
Operations
Management
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e
© 2006 Prentice Hall, Inc.
OP 2202: Introductions to Operations Management
Assessment Procedure
Lesson 1, Page 3
Assessment Criteria Effort Percentage

Case Study Group 10%
(Report 5%, presentation 5%)
Surprise Quizzes Individual 15%
(3, each 5%)
Mid-term Exam Individual 20%
Company Project Group 20%

(data collection 5%, project final report
10%, presentation 5%)
Class participation Individual 10%
(attendance 5%, discussion/ response in
class 5%)
Final Exam Individual 25%
Anupam Das, PhD

Lesson 1, Page 4
Outline for the week One

 Global Company Profile: Hard Rock Café
 What is Operations Management?
 What is the Transformation Process?
 Organizing to Produce Goods And Services
 Why Study OM?
 What Operations Managers Do?
 The Heritage of Operations Management
 Operations in the Service Sector
 Differences between Goods and Services
 Growth of Services
 Service Pay
 Exciting New Trends in Operations
Management
Anupam Das, PhD
Lesson 1, Page 5
Outline for the week One (Contd.)

 The Productivity Challenge
 Productivity Measurement
 Productivity Variables
 Productivity and The Service Sector
 Ethics and Social Responsibility
 Developing Missions And Strategies
 Achieving Competitive Advantage Through
Operations
 Competing on Differentiation
 Competing on Cost
 Competing on Response
 Ten Strategic OM Decisions
Anupam Das, PhD

Lesson 1, Page 6
Learning Objectives
When you complete this chapter, you
should be able to:
Identify or Define
 Production and productivity
 Operations management (OM)
 What operations managers do
 Services
 Mission
 Strategy
 Ten decisions of OM
Anupam Das, PhD

Lesson 1, Page 7
Learning Objectives (Contd.)

When you complete this chapter, you
should be able to:
Describe or Explain
 A brief history of operations management
 Career opportunities in operations management
 The future of the discipline
 Measuring productivity
 Specific approaches used by OM to achieve
strategies
 Differentiation
 Low cost
 Response
Anupam Das, PhD

Lesson 1, Page 8
The Hard Rock Cafe

 First opened in 1971
 Now – 110 restaurants in over 40 countries
 Rock music memorabilia
 Creates value in the form of good food and
entertainment
 3,500+ custom meals per day in Orlando
 How does an item get on the menu?
 Role of the Operations Manager
Anupam Das, PhD

Lesson 1, Page 9
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. (design, operation, and
improvement of productive systems).
Anupam Das, PhD

Lesson 1, Page 10
What is a Transformation Process

 a series of activities along a value chain
extending from supplier to customer
 activities that do not add value are
superfluous and should be eliminated
Different Transformation Processes
 Physical: as in manufacturing operations
 Locational: as in transportation operations
 Exchange: as in retail operations
 Physiological: as in health care
 Psychological: as in entertainment
 Informational: as in communication
Anupam Das, PhD

Lesson 1, Page 11
Organizing to Produce Goods and Services
 Essential functions:
 Marketing – generates demand
 Production/operations – creates
the product
 Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money
Anupam Das, PhD

Lesson 1, Page 12
Organizational Charts
Commercial Bank
Operations Finance Marketing

Teller Investments Loans
Scheduling Security Commercial
Check Clearing Real estate Industrial
Collection Financial
Transaction Accounting Personal
processing
Facilities Mortgage
design/layout
Auditing
Vault operations
Trust Department
Maintenance
Security
Anupam Das, PhD

Lesson 1, Page 13
Organizational Charts (Contd.)
Airline
Operations Finance/ Marketing

Ground support accounting Traffic
equipment Accounting administration
Maintenance Payables Reservations
Ground Operations Receivables Schedules
General Ledger Tariffs (pricing)
Facility
maintenance Finance Sales
Catering Cash control Advertising
Flight Operations International
exchange
Crew scheduling
Flying
Communications
Dispatching
Management science
Anupam Das, PhD
Lesson 1, Page 14
Organizational Charts (Contd.)

Manufacturing
Operations Finance/ Marketing

Facilities accounting Sales
Construction; maintenance Disbursements/ promotion
Production and inventory control credits Advertising
Scheduling; materials control Receivables Market
Quality assurance and control Payables research
General ledger
Supply-chain management
Manufacturing Funds Management
Tooling; fabrication; assembly Money market
Design International
Product development and design exchange
Detailed product specifications Capital requirements
Industrial engineering Stock issue
Efficient use of machines, space, Bond issue
and personnel and recall
Process analysis
Development and installation of
production tools and equipment
Anupam Das, PhD

Lesson 1, Page 15
Why Study OM?
 OM is one of three major functions

(marketing, finance, and operations) of
any organization
 We want (and need) to know how
goods and services are produced
 We want to understand what operations
managers do
 OM is such a costly part of an
organization
Anupam Das, PhD

Lesson 1, Page 16
Options for Increasing Contribution

Finance/
Marketing Accounting OM
Option Option Option
Increase Reduce Reduce

Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%
Sales $100,000 $150,000 $100,000 $100,000

Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500
Contribution increased 71% 21% 114%
Anupam Das, PhD

Lesson 1, Page 17
What Operations Managers Do
Basic Management Functions

 Planning
 Organizing
 Staffing
 Leading
 Controlling
Anupam Das, PhD

Lesson 1, Page 18
Ten Critical Decisions
Ten Decision Areas

1. Service and product design
2. Quality management
3. Process and capacity design
4. Location
5. Layout design
6. Human resources, job design
7. Supply-chain management
8. Inventory management
9. Scheduling
10. Maintenance
Anupam Das, PhD

Lesson 1, Page 19
Critical Decisions (Contd.)

 Service and product design
 What good or service should we offer?
 How should we design these products and
services?
 Quality management
 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?
Anupam Das, PhD
Lesson 1, Page 20

 Location
 Where should we put the facility?
 On what criteria should we base the location
decision?
 Layout design
 How should we arrange the facility and
material flow?
 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?
Anupam Das, PhD
Lesson 1, Page 21

 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?
Anupam Das, PhD

Lesson 1, Page 22

 Intermediate and short–term
scheduling
 Are we better off keeping people on the
payroll during slowdowns?
 Which jobs do we perform next?
 Maintenance
 Who is responsible for maintenance?
 When do we do maintenance?
Anupam Das, PhD

Lesson 1, Page 23
Where are the OM Jobs?
Anupam Das, PhD

Lesson 1, Page 24
Where are the OM Jobs? (Contd.)

 Technology/methods
 Facilities/space utilization
 Strategic issues
 Response time
 People/team development
 Customer service
 Quality
 Cost reduction
 Inventory reduction
 Productivity improvement
Anupam Das, PhD

Lesson 1, Page 25
Significant Events in OM
Anupam Das, PhD

The Heritage of OM
Lesson 1, Page 26
 Division of labor (Adam Smith 1776; Charles Babbage

1852)
 Standardized parts (Whitney 1800)
 Scientific Management (Taylor 1881)
 Coordinated assembly line (Ford/ Sorenson/Avery
1913)
 Gantt charts (Gantt 1916)
 Motion study (Frank and Lillian Gilbreth 1922)
 Quality control (Shewhart 1924; Deming 1950)
Anupam Das, PhD

The Heritage of OM (Contd.)

Lesson 1, Page 27
 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)
Anupam Das, PhD

Lesson 1, Page 28
Eli Whitney
 Born 1765; died 1825
 In 1798, received
government contract to
make 10,000 muskets
 Showed that machine tools
could make standardized
parts to exact specifications
 Musket parts could be
used in any musket © 1995 Corel Corp.
Anupam Das, PhD

Lesson 1, Page 29
Frederick W. Taylor
 Born 1856; died 1915

 Known as ‘father of scientific
management’
 In 1881, as chief engineer for
Midvale Steel, studied how
tasks were done
 Began first motion and
time studies
 Created efficiency principles
Anupam Das, PhD

Lesson 1, Page 30
Taylor’s Principles
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
Anupam Das, PhD

Lesson 1, Page 31
Frank & Lillian Gilbreth

 Frank (1868-1924);
Lillian (1878-1972)
 Husband-and-wife
engineering team
 Further developed work
measurement methods © 1995 Corel Corp.
 Applied efficiency methods to their home

and 12 children!
 Book & Movie: “Cheaper by the Dozen,”
book: “Bells on Their Toes”
Anupam Das, PhD

Lesson 1, Page 32
Henry Ford
 Born 1863; died 1947 ‘Make them all

alike!’
 In 1903, created
Ford Motor Company
 In 1913, first used
moving assembly line
to make Model T
 Unfinished product moved
by conveyor past work station
 Paid workers very well for 1911 ($5/day!)
Anupam Das, PhD

Lesson 1, Page 33
W. Edwards Deming
 Born 1900; died 1993
 Engineer and physicist
 Credited with teaching
Japan quality control
methods in post-WW2
 Used statistics to analyze
process
 His methods involve
workers in decisions
Anupam Das, PhD

Lesson 1, Page 34
Contributions From
 Human factors
 Industrial engineering
 Management science
 Biological science
 Physical sciences
 Information science
Anupam Das, PhD

New Challenges in OM
Lesson 1, Page 35
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply chain
partnering
 Lengthy product  Rapid product
development development,
alliances
 Standard products  Mass customization
 Empowered
 Job specialization employees, teams
Anupam Das, PhD

Lesson 1, Page 36
Characteristics of Goods
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer
interaction
Anupam Das, PhD

Lesson 1, Page 37
Characteristics of Service
 Intangible product
 Produced and consumed
at same time
 Often unique
 High customer interaction
 Inconsistent product
definition
 Often knowledge-based
 Frequently dispersed
Anupam Das, PhD

Lesson 1, Page 38
Industry and Services as % of GDP

Services Manufacturing
90 −
80 −
70 −
60 −
50 −
40 −
30 −
20 −
10 −
0−
South Africa
Canada
Czech Rep
Hong Kong
Japan
Mexico
Spain
US
UK
Australia
China
France
Germany
Russian Fed
Anupam Das, PhD
Lesson 1, Page 39
Goods Versus Services

Attributes of Goods Attributes of Services
(Tangible Product) (Intangible Product)
Can be resold Reselling unusual
Can be inventoried Difficult to inventory
Some aspects of quality Quality difficult to measure
measurable
Selling is distinct from Selling is part of service
production
Product is transportable Provider, not product, is
often transportable
Site of facility important for cost Site of facility important for
customer contact
Often easy to automate Often difficult to automate
Revenue generated primarily Revenue generated primarily
from tangible product from the intangible service
Anupam Das, PhD

Goods and Services

Lesson 1, Page 40
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 0 25 50 75 100%
| | | | | | | | |
Percent of Product that is a Good Percent of Product that is a Service
Anupam Das, PhD

Organizations in Each Sector

Lesson 1, Page 41
% of all
Service Sector Example Jobs
Professional Notre Dame University, 25.5
Services, San Diego Zoo, Arnold
Education, Legal, Palmer Hospital
Medical
Trade (retail, Walgreen’s, Wal-Mart, 20.6
wholesale) Nordstrom’s
Utilities, Pacific Gas & Electric, 7.1
Transportation American Airlines, Santa
Fe R.R., Roadway
Express
Anupam Das, PhD


Lesson 1, Page 42
% of all
Service Sector Example Jobs
Business and Snelling and Snelling, 6.9
Repair Services Waste Management,
Pitney-Bowes
Finance, Citicorp, American Express, 6.7
Insurance, Prudential, Aetna, Trammel
Real Estate Crow
Food, Lodging, McDonald’s, Hard Rock 5.4
Entertainment Café, Motel 6, Hilton
Hotels, Walt Disney,
Paramount Pictures
Public U.S., State of Alabama, 4.5
Administration Cook County
Anupam Das, PhD


Lesson 1, Page 43
Manufacturing % of all
Sector Example Jobs
General General Electric, Ford, U.S. 13.3
Steel, Intel
Construction Bechtel, McDermott 7.1
Agriculture King Ranch 2.5
Mining Homestake Mining 0.4

Sector Percent of all jobs
Service 76.7%
Manufacturing 23.3%
Anupam Das, PhD
Development of the Service Economy

Lesson 1, Page 44
100
90 Services
80
70
M
60 an
uf
50 ac
tu
40 rin
g
30
Agriculture
20
10
0
1800 1850 1900 1950 2000
Anupam Das, PhD


Lesson 1, Page 45
30 – – 150
Industrial
production
25 –
Employment (millions)
– 125
Manufacturing
Index: 1997 = 100

employment
20 – – 100
15 – – 75
10 – – 50
5 – – 25
Estimate
0 – – 0
1950 1970 1990 2010
Anupam Das, PhD


Lesson 1, Page 46
United States
Canada
France
Italy
Britain
Japan
W. Germany | | | | |
40 50 60 70 80
1970 2005 Percent
Anupam Das, PhD

Lesson 1, Page 47
New Trends in OM
Past Causes Future
Local or Low-cost, reliable worldwide Global focus
national focus communication and
transportation networks
Batch (large) Short product life cycles and Just-in-time

shipments cost of capital put pressure on shipments
reducing inventory
Low-bid Quality emphasis requires that Supply-chain

purchasing suppliers be engaged in partners, ERP,
product improvement
e-commerce
Lengthy Shorter life cycles, Internet,
product rapid international Rapid product
development communication, computer- development,
aided design, and international alliances,
collaboration collaborative
designs
Anupam Das, PhD

Lesson 1, Page 48
New Trends in OM
Past Causes Future
Standardized Affluence and worldwide Mass
products markets; increasingly flexible customization with
production processes added emphasis
on quality
Job Changing socioculture milieu; Empowered

specialization increasingly a knowledge and employees,
information society teams, and lean
production
Environmental issues, ISO Environmentally

Low-cost focus sensitive
14000, increasing disposal
costs production, green
manufacturing,
recycled
materials,
remanufacturing
Anupam Das, PhD

Productivity Challenge
Lesson 1, Page 49
Productivity is the ratio of outputs (goods

and services) divided by the inputs
(resources such as labor and capital)
The objective is to improve this

measure of efficiency
Important Note!
Production is a measure of output
only and not a measure of efficiency
Anupam Das, PhD

Lesson 1, Page 50
The Economic System
Inputs Processes Outputs
Labor, The U.S. economic system Goods

capital, transforms inputs to outputs and
management at about an annual 2.5% services
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%).
Feedback loop
Anupam Das, PhD

Lesson 1, Page 51
Increasing Productivity – The LA Motor Pool

Before:
 Cost $120 million annually
 21,000 vehicles
 30% of the 900 trash trucks were in repair
 11% of police cars were in repair
Actions:
 Created team assignments
 Assigned parking places for trucks
 Tires checked and trucks emptied each night
 Standard customer pickups established
 Computerized fleet management
 Mechanics moved to night shift
Results:
 Total fleet reduced by 500 vehicles
 Parts inventory dropped 20% reducing cost by $5.4 million
annually
 Standardized pickups reduced costs by $12 million annually
 Out of service garbage trucks dropped to 18% Anupam Das, PhD
Lesson 1, Page 52
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
Anupam Das, PhD

Lesson 1, Page 53
Productivity Calculations
Labor Productivity
Units produced
Productivity =
Labor-hours used
1,000
= = 4 units/labor-hour
250
Anupam Das, PhD

Lesson 1, Page 54
Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy
+ Capital + Miscellaneous
 Also known as total factor productivity

 Output and inputs are often expressed
in dollars
Anupam Das, PhD

Lesson 1, Page 55
Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day
8 titles/day
Old labor productivity = = .25 titles/labor-hr
32 labor-hrs
14 titles/day
New labor productivity = = .4375 titles/labor-hr
32 labor-hrs
Old multifactor 8 titles/day
productivity = = .0077 titles/dollar
$640 + 400
New multifactor 14 titles/day
productivity = = .0097 titles/dollar
$640 + 800
Labor productivity increased = .4375/.25 = 1.75 or 75%
Multifactor productivity increased = .0097/.0077 = 1.26 or 26%
Anupam Das, PhD
Lesson 1, Page 56
Measurement Problems
 Quality may change while the

quantity of inputs and outputs
remains constant
 External elements may cause an
increase or decrease in productivity
 Precise units of measure may be
lacking
Anupam Das, PhD

Lesson 1, Page 57
Productivity Variables
 Labor - contributes about 10% of
the annual increase
 Capital - contributes about 32%
of the annual increase
 Management - contributes about
52% of the annual increase
Anupam Das, PhD

Lesson 1, Page 58
Key Variables for Improved Labor Productivity
 Basic education appropriate for the labor

force
 Diet of the labor force
 Social overhead that makes labor
available
 Maintaining and enhancing skills in the
midst of rapidly changing technology and
knowledge
Anupam Das, PhD

Lesson 1, Page 59
Labor Skills
About half of the 17-year-olds in the US cannot
correctly answer questions of this type
Anupam Das, PhD

Lesson 1, Page 60
Investment and Productivity in Selected Nations
Percent increase in mfg productivity 10
Japan
8
Belgium
Netherlands
6
Italy
France
4
Canada
US UK
2
0
10 15 20 25 30 35
Percentage investment
Anupam Das, PhD

Lesson 1, Page 61
Service Productivity
 Typically labor intensive
 Frequently focused on unique
individual attributes or desires
 Often an intellectual task performed by
professionals
 Often difficult to mechanize
 Often difficult to evaluate for quality
Anupam Das, PhD

Lesson 1, Page 62
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
Results:
 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
Anupam Das, PhD

Ethics and Social Responsibility
Challenges facing operations managers:
 Developing safe quality products
 Maintaining a clean environment
 Providing a safe workplace
 Honoring community commitments
Developing Missions and Strategies
Mission
Mission - where are you going?
– Organization’s purpose for being
– Provides boundaries & focus
– Answers ‘What do we provide
society?’
© 1995 Corel Corp.
Mission of the Hard Rock Café

To spread the spirit of Rock ‘n’ Roll by delivering an
exceptional entertainment and dining experience. We are
committed to being an important, contributing member of
our community and offering the Hard Rock family a fun,
healthy, and nurturing work environment while ensuring
our long-term success.
Factors Affecting Mission
Philosophy &
Values
Environment Profitability
& Growth
Mission
Customers Public Image

Benefit to
Benefit to
Society
Society
Mission/Strategy
Mission - where you are going
Strategy - how you are going to get there; an
action plan
Strategy
• Action plan to achieve mission
• Shows how mission will be
achieved
• Company has a business strategy
• Functional areas have strategies
Strategy Process
Company
Mission
Business
Strategy
Functional
Functional Area
Area
Strategies
Marketing Operations Fin./Acct.

Decisions Decisions Decisions
Strategies for Competitive Advantage
Differentiation (Competing on Differentiation)
Uniqueness can go beyond both the physical
characteristics and service attributes to encompass
everything that impacts customer’s perception of value
Cost leadership (Competing on Cost)

Provide the maximum value as perceived by customer
Does not imply low value or low quality
Quick response (Competing on Response)

Flexibility
Reliability
Timeliness
Requires institutionalization within the firm of the ability
to respond
10 Strategic OM Decisions
 Goods & service design
 Quality
 Process & capacity design
 Location selection
 Layout design
 Human resource and job design
 Supply-chain management
 Inventory
 Scheduling
 Maintenance
Lesson 1, Page 70
Practice Problems
Problem 1:
Mance Fraily, the Production Manager at Ralts Mills, can
currently expect his operation to produce 1000 square yards of
fabric for each ton of raw cotton. Each ton of raw cotton requires
5 labor hours to process. He believes that he can buy a better
quality raw cotton, which will enable him to produce 1200 square
yards per ton of raw cotton with the same labor hours.
What will be the impact on productivity (measured in square

yards per labor-hour) if he purchases the higher quality raw
cotton?
Anupam Das, PhD

Lesson 1, Page 71
Practice Problems
Problem 1:
Mance Fraily, the Production Manager at Ralts Mills, can currently expect his operation to produce 1000
square yards of fabric for each ton of raw cotton. Each ton of raw cotton requires 5 labor hours to
process. He believes that he can buy a better quality raw cotton, which will enable him to produce 1200
square yards per ton of raw cotton with the same labor hours.
What will be the impact on productivity (measured in square yards per labor-hour) if he purchases the
higher quality raw cotton?
1000 square yards

Current labor productivity=
1 ton * 5 hours
= 200 square yards per hour
1200 square yards
New labor productivity =
1 ton * 5 hours
= 240 square yards per hour
Productivity improvement = (240 - 200) / 200 = .2 = 20%
improvement
Anupam Das, PhD
Lesson 1, Page 72
Practice Problems
Problem 2:
C. A. Ratchet, the local auto mechanic, finds that it usually takes
him 2 hours to diagnose and fix a typical problem. What is his
daily productivity (assume an 8 hour day)?
Mr. Ratchet believes he can purchase a small computer trouble-

shooting device, which will allow him to find and fix a problem in
the incredible (at least to his customers!) time of 1 hour. He will,
however, have to spend an extra hour each morning adjusting the
computerized diagnostic device. What will be the impact on his
productivity if he purchases the device?
Anupam Das, PhD

Lesson 1, Page 73
Practice Problems
Problem 2:
C. A. Ratchet, the local auto mechanic, finds that it usually takes him 2 hours to diagnose and fix a typical
problem. What is his daily productivity (assume an 8 hour day)?
Mr. Ratchet believes he can purchase a small computer trouble-shooting device, which will allow him to find
and fix a problem in the incredible (at least to his customers!) time of 1 hour. He will, however, have to
spend an extra hour each morning adjusting the computerized diagnostic device. What will be the impact
on his productivity if he purchases the device?
8 hours per day
Current productivity =
2 hours per problem
= 4 problems per day
7 hours per day
Productivity with computer =
1 hour per problem
= 7 problems per day
Productivity improvement = (7 - 4) / 4 = 3 / 4 = .75 = 75%
improvement
Anupam Das, PhD
Lesson 1, Page 74
Practice Problems
Problem 3:
Joanna French is currently working a total of 12 hours per day to
produce 240 dolls. She thinks that by changing the paint used for
the facial features and fingernails that she can increase her rate
to 360 dolls per day. Total material cost for each doll is
approximately $3.50; she has to invest $20 in the necessary
supplies (expendables) per day; energy costs are assumed to be
only $4.00 per day; and she thinks she should be making $10 per
hour for her time. Viewing this from a total (multifactor)
productivity perspective, what is her productivity at present and
with the new paint?
Anupam Das, PhD

Lesson 1, Page 75
Practice Problems
Problem 3:
Joanna French is currently working a total of 12 hours per day to produce 240 dolls. She thinks
that by changing the paint used for the facial features and fingernails that she can increase her
rate to 360 dolls per day. Total material cost for each doll is approximately $3.50; she has to
invest $20 in the necessary supplies (expendables) per day; energy costs are assumed to be only
$4.00 per day; and she thinks she should be making $10 per hour for her time. Viewing this from
a total (multifactor) productivity perspective, what is her productivity at present and with the new
paint?
Currently Using the new paint

Labor 12 hrs * $10 = $120 12 hrs * $10 = $120
Material 240 * $3.50 = $840 360 * $3.50 =$1260
Supplies = $20 = $20
Energy = $4 = $4
Total Inputs = $984 =$1404
Productivity 240/984 = 0.24 360/1404 = .26
Anupam Das, PhD

Lesson 1, Page 76
Practice Problems
Problem 4:
How would total (multifactor) productivity change if using the new
paint raised Ms. French’s material costs by $0.50 per doll?
Problem 5:
If she uses the new paint, by what amount could Ms. French’s
material costs increase without reducing total (multifactor)
productivity?
Anupam Das, PhD

Lesson 1, Page 77
Practice Problems
Problem 4:
How would total (multifactor) productivity change if using the new paint raised
Ms. French’s material costs by $0.50 per doll?
If the material costs increase by $0.50 per doll:

Using the new paint
Labor 12 hrs * $10 = $120
Material 360 * $4.00 =$1440
Supplies = $20
Anupam Das, PhD

Lesson 1, Page 78
Practice Problems
Problem 5:
If she uses the new paint, by what amount could Ms. French’s material costs increase
without reducing total (multifactor) productivity?
From Problem 3 we know
Currently Using the new paint
Labor 12 hrs * $10 = $120 12 hrs * $10 = $120
Material 240 * $3.50 = $840 360 * $3.50 = $1260
Supplies = $20 = $20
Energy = $4 = $4
Total Inputs = $984 = $1404
Productivity 240/984 = 0.24 360/1404 = .26
First we make the material cost a variable (X), then set the new
multifactor productivity value to the current level, 0.24, and solve for X
360/(($12*10) + 360 $(X) + $20 + $4) = 0.24
Anupam Das, PhD
Lesson 1, Page 79
Practice Problems
Problem 5:
If she uses the new paint, by what amount could Ms. French’s material costs increase
without reducing total (multifactor) productivity?
First we make the material cost a variable (X), then set the new
multifactor productivity value to the current level, 0.24, and solve for X
360/(($12*10) + 360 $(X) + $20 + $4) = 0.24
360 = 0.24($120 + 360$(X) + $20 + $4)
360 = $28.8 + 86.4$(X) + $4.8 + $.96
325.44 = 86.4$(X)
$(X)= 325.44/86.4 = $3.7666  $3.77
The new paint could raise Materials cost by no more than
approximately $0.27 (the difference between $3.77 and $3.50) before
Ms. French would experience a decrease in multifactor productivity.
Anupam Das, PhD

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OP 2202: Introduction to Operations

Assessment Criteria Effort Percentage

Company Project Group 20%

Anupam Das, PhD

Outline for the week One

Outline for the week One (Contd.)

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Learning Objectives (Contd.)

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The Hard Rock Cafe

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What Is Operations Management?

Production is the creation of goods

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What is a Transformation Process

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Organizing to Produce Goods and Services

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Operations Finance Marketing

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Organizational Charts (Contd.)

Operations Finance/ Marketing

Organizational Charts (Contd.)

Operations Finance/ Marketing

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Why Study OM?

 OM is one of three major functions

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Options for Increasing Contribution

Increase Reduce Reduce

Sales $100,000 $150,000 $100,000 $100,000

Contribution increased 71% 21% 114%

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What Operations Managers Do

Basic Management Functions

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Ten Critical Decisions

Ten Decision Areas

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Critical Decisions (Contd.)

Critical Decisions (Contd.)

Critical Decisions (Contd.)

Anupam Das, PhD

Critical Decisions (Contd.)

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Where are the OM Jobs?

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Where are the OM Jobs? (Contd.)

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 Division of labor (Adam Smith 1776; Charles Babbage

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The Heritage of OM (Contd.)

 Computer (Atanasoff 1938)

Anupam Das, PhD

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 Born 1856; died 1915

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Frank & Lillian Gilbreth

 Applied efficiency methods to their home

Anupam Das, PhD