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notes for the operations management assignment...

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A U.S. manufacturing company operating a subsidiary in an LDC (less developed country) shows the following results: U.S 100,000 20,000 $20,000 60,000

Sales (units) Labor (hours) Raw Materials (currency) Capital Equipment (hours)

LDC 20,000 15,000 FC 20,000 5,000

a. Calculate partial labor and productivity figures for the parent and the subsidiary. Do the result seem misleading? b. Compute the multifactor productivity figures for labor and capital together. Are the results better? c. Calculate raw material productivity figures (unit/$ where $1= FC 10). Explain why these figures might be greater in the subsidiary. a. Labor Productivity Country U.S LDC

Output in Units 100,000

Input in Hours 20,000

Productivity (Output/Input) 100,000/20,000 = 5

20,000

15,000

20,000/15,000 = 1.33

Capital Equipment Productivity Country U.S LDC

Output in Units 100,000

Input in Hours 60,000

Productivity (Output/Input) 100,000/60,000 = 1.67

20,000

5,000

20,000/5,000 = 4

Yes, the results are misleading as you would expect the capital equipment productivity measure to be higher in the U.S. than in a LDC. 5b. Multifactor – Labor and Capital Equipment Country U.S LDC

Output in Units Input in Hours Productivity (Output/Input) 100,000 20,000+60,000 = 80,000 100,000/80,000 = 1.25 20,000

15,000+5,000 = 15,000

20,000/20,000 = 1

Yes, results are better because labor and equipment can be substituted for each other. Therefore, this multifactor measure is a better indicator of productivity in this instance. 5c. Raw Material Productivity Country

Output in Units

Input in Hours

Productivity (Output/Input)

U.S

100,000

$20,000

100,000/20,000 = 5.00

LDC

20,000

FC $20,000/10 = $2,000

20,000/2,000 = 10.00

Raw material productivity measures might be greater in the LDC due to a reduced cost paid for raw materials, which is typical of LDC’s.

6

Various financial data for 2004 and 2005 follow. Calculate the total productivity measure and the partial measures for labor, capital, and raw materials for this company for both years. What do these measures tell you about this company?

Output: Input:

2004 $200,000 30,000 35,000 5,000 50,000 2,000

Sales Labor Raw Materials Energy Capital Other

2005 $220,000 40,000 45,000 6,000 50,000 3,000

6 Total Productivity Year 1998

Output in Dollars Input in Dollars $200,000 $30,000+35,000+5,000+50,000+2,000 = $122,000

1999

$220,000 $40,000+45,000+6,000+50,000+3,000 = $144,000

Partial Measure – Labor Year 1998 1999

Output in Dollars $200,000 $220,000

Input in Dollars Productivity (Output/Input) $30,000 200,000/30,000 = 6.67 $40,000

220,000/40,000 = 5.50

Partial Measure – Raw Materials Year 1998 1999

Output in Dollars $200,000 $220,000

Input in Dollars Productivity (Output/Input) $35,000 200,000/35,000 = 5.71 $45,000

220,000/45,000 = 4.89

Partial Measure – Capital Year 1998

Output in Dollars $200,000

Input in Dollars Productivity (Output/Input) $50,000 200,000/50,000 = 4.00

Productivity (Output/Input) 200,000/122,000 = 1.64 220,000/144,000 = 1.53

1999

$220,000

$50,000

220,000/50,000 = 4.40

The overall productivity measure is declining, which indicates a possible problem. The possible measures can be used to indicate cause of declining productivity. In this case, it is a combination of declines in both labor productivity and raw material productivity, but an increase in capital productivity. Further investigation should be taken to explain the drops in both labor and raw materials productivity. An increase in the cost of both of these measures, without an accompanying increase in the selling price might explain these measures. 1e A retail store had sales of $45,000 in April and $56,000 in May. The store employs eight full-time workers (they work a 40-hour week). In April the store also had seven part-time workers at 10 hours per week, and in May the store had 9 parttimers at 15 hours per week (assume four weeks in each month). Using sales dollars as the measure of output, what is the percentage change in productivity from April to May? 1e. Month April

Output in Dollars $45,000

May

$56,000

Input in Hours Productivity (Output/Input) Percentage Change 1,560 45,000/1,560 = 28.85 1,820

56,000/1,820 = 30.77

(30.77-28.85)/28.85 = 6.67%

2e A fast-food restaurant serves hamburgers, cheeseburgers, and chicken sandwiches. The restaurant counts a cheeseburger as equivalent to 1.25 hamburgers and chicken sandwiches as 0.8 hamburgers. Current employment is five full-time employees (who work a 40-hour week). If the restaurant sold 700 hamburgers, 900 cheeseburgers, and 500 chicken sandwiches in one week, what is the productivity? What would its productivity have been if it had sold the same number of sandwiches (2,100) but the mix was 700 of each type?

2e. Part Hamburgers--- 700 Cheeseburgers--- 900*(1.25) = 1125 Chicken Sand--- 500*(0.8) = 400

Output in Hamburger Equivalents Input in Hours Productivity (Output/Inpu

2,225

200

2,225/200 = 11.125

2,135

200

2,135/200 = 10.675

Hamburgers--- 700 Cheeseburgers--- 700*(1.25) = 875 Chicken Sand--- 700*(0.8) = 560...