Chapter 1.

Operations & Productivity

1.Why should one study operations management?
Operations Management is the set of activities that creates value in the form of goods
and services by transforming inputs into outputs. Operations Management is one of the
three major functions of any organization, and it is generally related to all the other
business functions. All organizations market (sell), finance (account), and produce
(operate), and it is important to know how the Operations Management activity functions.
Therefore, we study how people organize themselves for productive enterprise. We
study Operations Management because we want to know how goods and services are
produced. The production function is the segment of our society that creates the
products we use. We study Operations Management to understand what operations
managers do. By understanding what these managers do, you can develop the skills
necessary to become such a manager. This will help you explore the numerous and
lucrative career opportunities in Operations Management. We study Operations
Management because it is such a costly part of an organization. A large percentage of
the revenue of most firms is spent in the Operations Management function. Indeed
Operations Management provides a major opportunity for an organization to improve its
profitability and enhance its service to society.
2.Identify four people who have contributed to the theory and techniques of
operations management.

Eli Whitney (1800)

Frederick W. Taylor (1881)
Henry Ford (1913)
Walter Shewhart (1924)
1. Eli Whitney -- early popularization of interchangeable parts (achieved through the
standardization of quality control)
2. Frederick W. Taylor management should be more resourceful and aggressive in the
improvements of work methods
3 & 4. Henry Ford + Charles Sorenson-- assembly line

3.Briefly describe the contributions of the four individuals identified in the preceding
question
Eli Whitney (1800)
Eli is credited for the early popularization of interchangeable parts, which was achieved
through standardization and quality control. Through a contract he signed with the U.S.
government for 10 000 muskets, he was able to command a premium price because of their
interchangeable parts.
Frederick W. Taylor (1881)
Known...
6.What are the three basic functions of a firm?

1. Marketing (selling) -- generates the demand, takes the order for product or
service
2. Finance (accounting) -- tracks how well the organization is doing, pays the bills,
collects the money
3. Operations/Production creates the product
7. Name the 10 decision areas of OM / Identify the 10 strategic OM
decisions
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 management
9. Scheduling
10. Maintenance
pg 7 table 1.2 (for descriptions of each)
8.Four areas that are significant to improving labor productivity
1. Design of goods and services?
2. Managing quality
3. process and capacity design
4. supply-chain-management
9.U.S. described as "knowledge society" How does this affect productivity
measurement and the comparison of productivity between the U.S. and
other countries
Measurement of productivity is an excellent way to evaluate a country's ability to
provide an improving standard of living for it's people. Only through increases in
productivity can the standard of living improve. Only through increases in
productivity can labor, capital, and management receive additional payments.
The U.S.economic system transforms inputs to outputs at about an annual 2.5%
increase in productivity per year. The productivity increase is a result of mix of
CAPITAL (38% of 2.5%) LABOR (10% of 2.5%) and MANAGEMENT (52% of 2.5%)

10.What are the measurement problems that occur when one tries to
measure productivity?
Precise units of measure are often unavailable
Productivity The ratio of outputs (goods and services) divided by the inputs
(resources, such as labor and capital)
Operations Managers Job in regards to productivity Enhance (improve) the ratio
of
outputs to inputs Improving productivity means improving efficiency High
production does not mean high productivity

11.Mass customization and rapid product development were identified as

challenges to modern manufacturing operations. What is the relationship
between these challenges? Examples?
Page 20

12. 5 reasons productivity is hard to improve in the service sector

Service sector work is
1. Typically labor intensive
2. Frequently focus on unique individual attributes
3. Often an intellectual task performed by professionals
4. Often difficult to mechanize and automate
5. Often difficult to evaluate
13. What has Taco bell done to serve "Twice the volume with half the labor"
pg 18
Problems

1.1. John Lucy makes wooden boxes in which to ship

motorcycles. John and his three employees invest
40 hours per day making the 120 boxes.
a) What is their productivity?
120 boxes / 40 hours per day = 3 boxes/hour
b) John and his employees have discussed redesigning the process to improve
efficiency.

If they can increase the rate to 125 per day, what would be their new
productivity?
125 boxes / 40 hours per day= 3.125 boxes/hour
c) What would be their increase in productivity?
(3.125 3)/3.125 = an increase of a 4% in boxes/hour or of 0.125
boxes/hour
The number of boxes.

1.2.Riverside Metal Works produces cast bronze valves on an assembly line. On a recent
day, 160 valves were produced during an 8hour shift. Calculate the labor productivity of
the line.
Productivity = Units Produced / Input Used = 160 / 8 = 20 valves/(hour.line)
P = 160 (valves) / (8*3) (hours/day) = 6.66 valves/hours

1.3 This year, Benson, Inc., will produce 57,600 hot

water heaters at its plant in Florida in order to meet
expected global demand. To accomplish this, each
laborer at the plant will work 160 hours per month. If
labor productivity at the plant is 0.15 hot water
heaters per labor hour, how many laborers are
employed at the plant?
1

they tell you that it takes one hour to make .25 heaters. you know you need 60000 so
cross multiply to find out how many hours it takes to make 60,000 heaters:
.25heaters * x hours = 60,000 heaters * 1 hour
0.25 x = 60,000
0.25/0.25 x = 60,000/0.25
x = 240,000 hours.
2. assuming they want to complete the heaters in one month, they tell you 1 laborer can
work 160 hours. cross multiply to find out how many laborers will it take to work 240,000
hours.
160 hours * x laborers = 240,000 hours * 1 laborer
160 x = 240,000
160/160 x = 240,000/160
x = 1500 laborers.

Let n = number of laborers needed. There are 12 months

in a year.
n x 160 x 12 x 0.15 = 57,600
n x 160 x 12 = 384,000
n x 160 = 32,000
n = 200 laborers needed

1.5. Lori produces Final Exam care packages for

resale by her sorority.She is currently working a total of
5 hours per day to produce 100 core packages.
a) what is lori s productivity?
current: 20 packages per labor hour - new: 26.6 packages per labor hour
current: 5 hrs a day to produce 100 care packages -new: 5 hrs a day to produce 133 care
packages
productivity? new productivity? percentage increase?26.6/20= 1.33= 33% increase

1.6.Eric Jhonson

show the percent change in productivity

Multi-factor basis (dollars as common denom)
Last year:
units: 1,000
Labor hours: 300 (X 10)
Resin (pounds): 50 (x 5)
Capital invested: 10,000 ( x .01)
Energy (BTU): 3,000 (x .50)

Now .
1000
275 (x10)
45 (x5)
11,000 (x .01)
2,850 (x .50)

1.8.Kleen Karpet cleaned 65 rugs in October, consuming the following resources:

Labor: 520 hours at $13 per hour Solvent: 100 gallons at $5 per gallon
Machine rental: 20 days at $50 per day
(a) What is the labor productivity?
Productivity = Units Produced / Input Used
= 65 / 520 = 0.125 rugs/hour
= 65 / (520*13) = 0.0096 rugs/$
(b) What is the multifactor productivity?
Productivity = Units Produced / Input Used
= 65 / (520*13 + 100*5 + 20*50) = 7.87 rugs/1000$

1.9. David Upton is President of Upton Manufacturing, a

producer of Go-Kart tires. Upton makes 1000 tires per
day with the following resources:
Labor: 400 hours @ 12.50 per hour
Raw material: 20,000 pounds per day @ 1 per pound
Energy: 5,000 per day
Capital: 10,000 per day
a) What is the labor productivity for these tires at Upton Manufacturing?
Productivity= 1000 tires/400 working hours=2.5 tires/working hour
b) What is the multifactor productivity for these tires at Upton Manufacturing?
Multifactor productivity=1000 tires/(400*12.5+20000+5000+10000)=0.025
tires/
c) What is the percent change in multi-factor productivity if Upton can reduce
the energy
bill by 1,000 without cutting production or changing any other inputs?
Multifactor productivity=1000 tires/(400*12.5+20000+4000+10000)=0.028
tires/

which implies an increase of productivity of: Productivity=100*.028/.025=112%

an increase of 12%

2.Bill Kill makes plastic bottles in which to ship orange juice. Bill and his 4
partners spend 50 hours per day making the 200 bottles.
(a) What is their productivity?
P = 200 / 50 (bottles/hours) = 4
(b) Bill and his partners have discussed redesigning the process to improve
efficiency. If they can increase the rate to 250 per day, what would be their
new productivity?
P = 250 / 50 (bottles/hours) = 5
(c) What would be their increase in productivity?
They can only increase is the number of bottles, because the number of hours
that each person works per day is high (10hours/day).
3. We are a firm which produce pen-drivers. In one day we produce 50 boxes and in
one box there are 1000 pen-drivers.For production of this product we need 20
persons. 15 persons work 8 hours per day and 5 person 4 hours per day. Further we
work 5 days a week. One worker costs 20/hour. The Material costs are 10cent/piece
and the energy costs are 100/day. The price of one pen-drive is 10.
(a) What is their productivity?
Labor productivity:
P = 50 (boxes/day) / (8*15+4*5) (hours/day) = 0.357
Multifactor productivity:
P = 50*1000*10 / ((8*15*20+4*5*20) + 100 + 0.1*50*1000) = 63.29 /day
(b) What can be changed to increase the productivity?
20 /piece
P = 50*1000*20 / ((8*15*20+4*5*20) + 100 + 0.1*50*1000) = 126.58 /day
15 /hour/worker
P = 50*1000*10 / ((8*15*15+4*5*15) + 100 + 0.1*50*1000) = 69.44 /day
20 /piece and 15 /hour/worker
P = 50*1000*20 / ((8*15*15+4*5*15) + 100 + 0.1*50*1000) = 138.89 /day

The greatest impact from the productivity is the costs from one pen-driver.

Chapter 3.Forecasting Not in our chapter searched from Net

4.1.Under what circumstances is the use of qualitative forecasting techniques

appropriate?
Qualitative techniques can be used in a wide range of circumstances. In some cases
quantitative techniques cannot be used, e.g. when past information about the values being
forecast does not exist. For example, for a new product, there are no past data on sales on
which to base estimates of future sales. Similarly, past sales of a product might not be
relevant if a competitor launches a new product with superior features or performance. In
other situations, there is insufficient time to obtain data or use quantitative techniques, or
circumstances are changing so rapidly that a statistically based forecast would be of little
guidance. Even when statistical techniques are available qualitative techniques involving
human judgement are often used by managers for forecasting. Further, managers appear to be
more comfortable dealing with their own judgements or with those of a colleague, compared
with forecasts generated via a computer package and lacking transparency. Even when
quantitative techniques are used, estimates may be combined with qualitative judgements, or
supplemented, reviewed or screened by subjecting them to qualitative judgements i.e. any
forecasts provided by an analyst are for decision-support, not decision-making.
It has been suggested that the widespread use of human judgement to make business forecasts
can be rationalised in two ways. The first is that people might be better able to detect
changing patterns in time series, which exhibit considerable random variations, compared
with statistical models. The second rationale for the use of human judgement is that people
might be able to integrate external (i.e. non-time series) information into the forecasting
process. A number of qualitative forecasting techniques have been developed to provide
estimates of key parameters for use in financial analysis in such situations.
4.2 Outline the steps involved in undertaking a survey to collect forecast estimates from
individuals. Outline the advantages and disadvantages of using groups, as opposed
to individuals, to provide forecasts.
The steps involved in undertaking a survey are outlined in Figure 4.1(of the book). It is
important to note that the decisions made in the early stages affect the choices made in later
stages. For example information needs specified at the start will affect the sampling design,
the way in which the questionnaire is structured and the selection of data analysis techniques.
These forward links in the survey process are indicated by solid arrows in Figure 4.1. It
should be noted that if there were only forward links in the process then the conducting of a
survey could be done one step at a time, completing each step before considering the next.
Implicit in this single direction approach is the assumption that there are no limiting factors
in later steps. This is seldom, if ever, the case. For instance there are often limitations on
data collection or data processing resources, i.e. a budget constraint. These limitations
restrict the alternatives available at earlier steps; these backward linkages are indicated in
Figure 4.1 by dashed lines running upwards. Backward linkages run from the collect data
and analyse data boxes back to the develop questionnaire and sample design phases. This

illustrates that major decisions concerning data collection and analysis should always be
considered before selecting a sample and designing a questionnaire.
Techniques for collecting information from individuals such as surveys and polls can be easy
to implement, done at a low cost and on a timely basis. However evidence suggests that
forecasts produced by groups offer greater forecasting accuracy than those derived from
individuals. Groups also provide more information, although the marginal increase in
information content decreases as group size increases. The use of groups also provides an
opportunity to gain more information about the range of possible outcome values hence
giving an insight into the risk associated with the estimates. From a behavioural perspective,
it is also likely that a group responsible for a implementing a project will have greater
commitment to it if they are also involved in providing estimates of variables used in the
financial analysis leading up to a decision to proceed with a project. The choice between
using individual versus group techniques really comes down to the particular situation and
what is feasible. For instance group techniques such as Delphi and NGT often require greater
skills, resources and time than collecting information from individuals using some form of
survey or poll.
4.3 What are the steps normally applied when undertaking a Delphi survey? What are
some of the variants of this methods?

In a classic Delphi survey, the first round is unstructured, allowing panellists to

identify freely and elaborate on the issues that they consider important. These
are then consolidated into a single set by the monitors, who then produce a
structured questionnaire designed to elicit the views, opinions and judgements of
the panellists in a quantitative form. The consolidated list of scenarios is
presented to the panellists in round two, at which time they place estimates on
key variables such as the time an event will occur. These responses are then
summarised and the summary information is presented to the panellists, who are
invited to reassess their original opinions in light of anonymous individual
responses. In addition, if panellists assessments fall outside the upper or lower
quartiles, they may be asked to provide justifications as to why they consider
their estimates are more accurate than the median values. Further rounds of
collection of estimates, compiling summary information and inviting revisions
continues until there is no further convergence of expert opinion. Experience
reveals this usually occurs after two rounds, or at the most four rounds (Janssen
1978).

There are a number of variants on the classical Delphi method. When the issues are well
defined, a clearly defined scenario can be developed by the monitoring team. In such
circumstances, it is common to replace the unstructured first round with a highly structured
set of questions through which specific estimates of parameters are obtained. A statistical
summary of all responses is then provided to the panel for the second round, rather than in the
third. In such cases, it is common for the Delphi method to include only one or two iterations.
Another variant is the paper Delphi (sometimes also known as a paper and pencil Delphi
poll) that is conducted entirely by mail. Another variant is the real time Delphi whereby

feedback is provided by computer and final results are usually available at the end of the
session.
4.4 How is nominal group technique (NGT) different to the Delphi method?
The classic Delphi method is conducted through a combination of a polling procedure and a
conference. Communication between conference panellists is however restricted and
undertaken through the monitoring team. Even though panellists are at the same physical
location, there is no face-to-face contact. Even in variants of the Delphi, there is no face-toface contact. The nominal group technique (NGT) uses the basic Delphi structure but in faceto-face meetings which allow discussion among participants. A meeting with NGT starts
without any interaction, with individuals initially writing down ideas or estimates related to
the problem or scenario. Each individual then presents their ideas or estimates, with no
discussion until all participants have spoken. Then each idea or estimate is discussed. The
process is then repeated. For this reason, NGT is sometimes known as the estimate-talkestimate procedure. In practical terms, like Delphi, the framing of the questions or the
scenario is crucial for the success of the process. Also, ideally, the leader or moderator of the
discussion should come from outside the group.
4.5 Outline the jury of expert opinion method. How does this differ from the Delphi
method?
The jury of expert opinion is one of the simplest and most widely used forecasting
approaches. In its most basic form it involves simply executives meeting and deciding on the
best estimate for the item being forecast. As a precursor to the meeting, it is common to
provide background information to executives. There are a number of variants of this
technique discussed in Chapter 4. One of these variants is when the estimates of the group
are obtained by participants writing their estimates on paper, and then combined to produce
an average. This variant of the jury of expert opinion approach could almost be considered
an informal variant of the Delphi method. The key difference is that there is no mechanism
to prevent interaction amongst group members.
4.6 A company offering eco-tourism adventures wishes to forecast the numbers of
annual tourists of various types coming to a region five years from now, and
chooses the Delphi method to develop their forecasts.
(a) Explain how a panel of appropriate experts could be selected.
(b) Suggest how the information to the panel and questions could be
framed.
(c) How many rounds of data collection would you expect to
undertake? Discuss how these would proceed.
(a)

The criteria for selecting panel members should be determined at the start
of the exercise. In this case, the criteria may be that the person has a
minimum number of years of experience in (or knowledge of) the tourism
industry in the region and be in a senior or management position in which
they are exposed to changing trends in tourist activity.

(b)

In this case, the issues are likely to be fairly well defined and a clearly
developed scenario involving the future tourist industry could be developed
which sought specific estimates of future tourist numbers in five years. As
such, the unstructured first round of the traditional Delphi might be
replaced with a structured set of questions through which specific estimates
of future tourist numbers could be obtained. For example, the Delphi could
be framed to present the main tourist types and then ask the panelists to
estimate the likely number of tourists of each group coming to the region in
five years time. Alternatively, if a traditional Delphi is used, in the first
round panelists may be asked to identify the key factors influencing tourist
numbers coming to the region. For instance, respondents might identify that
the exchange rate has a major impact on the number of international
tourists, and that the backpacker numbers are more sensitive to these
fluctuations compared with the international retiree market numbers.
Based on this response from the first round, in the second round, a specific
question might be framed asking what the likely impact on numbers of
backpacker and retiree respectively if the exchange rate became more or
less favourable.

(c)

The number of rounds will depend on the panelists and the manner in which the Delphi
is conducted, i.e. at what stage the structured questionnaire is distributed. If the survey
was simply asking for estimates of likely tourist numbers in five years and these were
relatively easy to predict based on past experience then it would be likely that estimates
from respondents would conver after only one or two rounds of the structured survey.
The greater the degree of uncertainty, the more rounds that will be needed to reach
some degree of convergence, or at least reach a stage where panelists are not changing
their estimates in response to the feedback provided. Typically few Delphi surveys
however go past two iterations.

4.7 The management of a coal-fired electricity generation station is

concerned that new technology to reduce carbon dioxide emissions will
be required to offset emissions, and measures such as purchase of
carbon credits will be required if the national government signs up to
the Kyoto protocol. The severity of adjustment for the company will
depend on the extent of reduction in greenhouse-gas emissions agreed
to by the national government. Explain how scenario forecasting could
be used to aid decision making by the company.
Scenario forecasting could be used in a number of ways in helping the decision
making of the company. For instance, the company could develop three
scenarios a best case, most likely and worst case and assess the likely impact
of these. The best case scenario might be that the no carbon dioxide
reductions will be agreed to by the national government and hence no new
technology to reduce carbon emissions will be needed except to the extent that
it would have been replaced with more efficient technology as part of the normal
course of operations. The most likely scenario might be that the national
government accepts relatively modest targets for reducing carbon dioxide
emissions by a widely accepted figure of say 5%. The worst case scenario might
be that government targets the electricity industry which results in targets set
for reducing emissions being highly onerous and requiring the company to

reduce emissions to 80% of current levels. Once management identified each of

these scenarios, they could then use these to identify strategies for complying
with the emission requirements and what the likely cost of these would be.
The steps in developing these scenarios would follow the steps set out in
Chapter 4.
4.8 A company engaged in sugar refining and export wishes to make
medium term projections of international sugar prices. Suggest a
method that could be used to make these forecasts.

Many of the methods outlined in Chapter 4 could be used to forecast medium term
international sugar prices. In fact, it is also possible that one of the quantitative forecasting
methods regression analysis - discussed in Chapter 3 could also be applied, if the past trend
is likely to be repeated in the future. Which method is most appropriate ultimately comes
down to what level of accuracy in the forecast is required, the amount of resources available
to obtain the forecast and the timeframe in which the forecast must be obtained. For instance,
if accuracy is of paramount importance and cost not a major consideration, then the NGT
would probably be the favoured technique. However bringing groups of experts together for a
face-to-face meeting as is required for NGT or classic Delphi, may be both difficult and
expensive. In such cases, a postal Delphi may be the most appropriate technique to use.
Staticized group techniques are often even simpler and less costly to apply and may be
considered if the trade-off with slightly reduced accuracy is thought appropriate. Staticized
group estimates can also be compiled quickly if necessary and may be considered when
estimates are needed quickly. Furthermore, when there is the potential for major or discrete
changes, the use of scenarios is a technique that provides a convenient framework for
assessing the potential impact of these.
No matter what technique is selected, it is important to recognise the limitations of the
technique as these will impact on how the technique is applied and the quality of the forecasts
obtained. Furthermore, with any technique that involves the collection of data it is essential to
proceed in an orderly and well thought-out manner. Sometimes there is a tendency to collect
information first and then worry about how it is to be used. The starting point however should
be first to clearly identify what information is needed, decide on the most appropriate
technique to collect the data (in context of the resources, time and other limitations) and only
then commence collection.