(Solution Manual) Operations and Supply Chain Management The Core

Jacobs,Chase, 6

Business

Solution Manual

6th Edition

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Author(s): Jacobs, Chase

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SOLUTIONS MANUAL FOR OPERATIONS AND SUPPLY CHAIN MANAGEMENT THE CORE, 6E JACOBS, CHASE (ALL CHAPTERS DOWNLOAD LINK AT THE END OF THIS FILE) CHAPTER 1 OPERATIONS AND SUPPLY CHAIN MANAGEMENT Discussion Questions 1. Using Exhibit 1. 2 as a model, describe the source -make -deliver -return relationships in the following systems: a. An airline Source: Aircraft manufacturer, in -flight food, repair parts, computer systems Make: Aircraft and flight crew scheduling, ground services provided at airports, aircraft maintenance and repair Deliver: Outbound and arriving passenger service, baggage handling Return: Resolve any post -service issues such as lost or damaged luggage b. An automobile manufacturer Source: Suppliers of components and raw materials Make: Manufacturing of vehicles and components or subassemblies to be sold as spare parts Deliver: Delivery to and sales from dealerships, delivery of spare parts to the wholesale system Return: Warranty and recall repairs, trade -ins c. A hospital Source: Medical supplies, cleaning services, disposal services, food services, qualified personnel Make: Inpatient rooms, outpatient clinics, emergency room, operating rooms Deliver: Scheduling patients, providing treatment, ambulance service, family counseling Return: Billing errors, follow up visits d. An insurance company Source: Supplies needed for the office, underwriters, legal authority to operate Make: Establish policy guidelines and pricing, field agent/representative and facility network, develop Internet service capabilities, establish preferred vehicle repair service network Deliver: Meet with and advise clients, write policies, process and pay claims Return: Refund of overpaym ents 2. Define the service package of your college or university. What is its strongest element? What is its weakest one? The categories with examples are: Supporting facility - location, buildings, labs, parking Facilitating goods – class schedules, computers, books , chalk Explicit services – classes with qualified instructors, placement offices Implicit services – status and reputation (e.g., Ivy League schools) At Indiana University and the University of Southern California, among their strongest elements are their business schools and their Operations Management programs (of course). Both also have very dedicated alumni networks. A weak element of Indiana University is its weak football program (this has improved recently) ; for USC, weak elements are on -cam pus parking and housing. 3. What service industry has impressed you the most with its innovativeness? Our vote goes to cruise lines which have introduced such onboard innovations as wave machines for belly boarding and rock -climbing walls, as well as all sorts of other amenities to keep cruisers involved. The industry is doing record business as well. Some of the standout companies in less innovative industries are Bank of America (has a formalized research program to try out new customer services/a menities such as video screens in next to teller lines), Intuit (e.g., putting Quicken money management software online), Ikea, JetBlue Airlines, and Progressive Insurance (discussed later in the book). 4. What is product -service bundling and w hat are the b enefits to customers? Product -service bundling is adding value -added services to a firm’s product offerings to create more value for the customer . Th is provide s bene fits in two areas. First, this differentiate s the organization from the competition. Secondly, these services tie customers to the organization in a positive way. Alternatively, bundling can also involve adding products to a service, for example, adding the sale of convenience items and snacks at a hotel. 5. What is the difference between a service and a good? A service is an intangible process (you cannot hold it in your hands) , while a good is the physical output of a process. Some service businesses also provide a physical good as part of the serv ice, like a restaurant. Also, mots manufacturers of goods provide services for after - sales support, like computer tech support or automobile warranty service. So, while a service and a good are distinguishable , customers will often encounter both in their experiences with a company. 6. Some people tend to use the terms effectiveness and efficiency interchangeably, though we have seen they are different concepts. But is there any relationship at all between them? Can a firm be effective but inefficient? Very efficient but essentially ineffective? Both? Neither? Firms can be anywhere on these two dimensions. It is possible f or a firm to be the best at what they do in serving their market but be very wasteful in doing so. Alternatively, a firm could squeeze every dollar out of their processes but fail to deliver what the market expects and desires. Of course, the best firms will provide the goods and services that the market desires, exactly as the market desires, and do so at a minimum cost. Firms that are both inefficient and ineffective do not survive for long in any market. 7. Two of the efficiency ratios mentioned in the chapter are the asset turnover and the return on asset s. While they are two separate measures, they are similar . What bit of data is used in one measure but not the other ? The simplest answer would be total cost . Return on assets uses total cost s to calculate profit margin . Asset turnover does not consider total costs . 8. Look at the job postings at http:// jobs.apics.org and evaluate the opportunities for an OS CM major with several years of experience. There are pages and pages of these in the APICS Career Center. Here are some examples: Purchasing and Planning Manager Sennheiser New Mexico Sennheiser is seeking an innovative and enthusiastic individual to manage the purchasing and planning areas at our Albuquerque manufacturing facility. This key role is responsible for leading the Purchasing, Planning and Warehouse departments to achieve outstanding results. You will be charged with ensuring cost effective on -time delivery, as well as building solid relationships with other internal departmen ts and international sister facilities. You will use production planning, procurement, inventory and materials management concepts to solve problems and provide continuous improvement in the supply chain process. Senior Manager Supply Chain Finance r Pharmavite This role contributes to Pharmavite's success by providing decision support to the organization to drive business growth and improve profitability. Responsible for supporting company innovation with respect to total delivered cost. Also supports direct sourcing team on reporting & analyzing purchase price variance and seeking out new cost savings projects. Performs ad - hoc analysis and/or support cross -functional projects to improve operational efficiencies and optimize profitability. Also manages the control function around headquarters -based operations overhead expenditures as well as capital investments. Medical Device Supply Chain Manager Cadwell The Supply Chain Manager provides overall leadership and mentoring for the purchasing, shipping, and receiving functions for Cadwell Industries, Inc., a leading medical device manufacturer. This position oversees the organization wide management of strateg ic sourcing, procurement, contract negotiations, and evaluation of services while collaborating closely with staff in Engineering, Marketing, Regulatory, Sales, and Service . Production/Operations Planner CG Industrial Specialties US - Nationwide Reportin g to the Operations Manager or Branch Manager; this position is responsible for preparing assembly schedules for shop technicians; coordinate material requirements with purchasing as well as coordinate shipping / receiving activities with warehouse staff. 9. Recent outsourcing of parts and services that had previously been produced internally is addressed by which current issue facing operations and supply management today? The coordination of relationships between mutually supportive but separate organizations. 10. What factors account for the amazing interest in OSCM today? With companies facing competition on a global scale, and ever -advancing manufacturing and information technologies, firms realize the competitive advantage their OSCM functions can provide if effectively managed . Many have found that the same old way of doing business leaves them unable to compete successfully. The 2011 tsunami in Japan and the 2015 LA ports closure have also brought to the forefront how important supply chains are, as well as the negative economic impact that disruptions in the supply chain can cause. 11. As the field of OSCM has advanced, new concepts have been applied to help companies compete in several ways , including the advertisement of the firm’s products or services. One recent concept to gain the attention of companies is promoting sustainability . Discuss how you have seen the idea of sustainability used by companies to advertise their goods or services. There of course will be several example s that students will bring up, though they may need some prodding to jog their memories. Some examples to start with might be IBM’s “I’m an IBMer” campaign where they advertise how they are “building a smarter planet.” Bottled water manufacturers have re duced the amount of plastic used in many of their products, thus saving production and distribution costs, but also allowing them to advertise how the new bottles are better for the environment because they result in less waste. Objective Questions 1. What are the three elements that require integration to be successful in operations and supply chain management? Strategy, Processes, and Analytics 2. Operations and supply chain management is concerned with the design and management of the enti re system that has what function? Produces a product or delivers a service. 3. Consider the following financial data from the past year for Midwest Outdoor Equipment Corporation. Annual Sales 24,324,000 Net Income 2,975,000 Cost of Goods Sold 12,600,000 Total Assets 10,550,000 Inventory 2,875,000 Receivables 3,445,000 a. Compute the profit margin . $2,975 ,000 $23,324 ,000=.1275 b. Compute the asset turnover ratio . $24,324 ,000 $10,550 ,000=2.3055 c. Compute the return on assets ratio. .1275 (2.3055 )=.2939 4. The Midwest Outdoor Equipment Corporation (see question 3) has entered into a new contract with a major supplier of raw materials use d in the manufacturing process. Under the new arrangement, called vendor managed inventory , the supplier manages their raw material inventory inside the manufacturer’s plant, and only bills the manufacturer when the manufacturer consume s the raw material. This is expected to reduce total assets by $2 million. What is the expected change in return on assets ? Asset turnover would be 24,324,000 /(10,550,000 -2,000,000) = 2.8449 Return on assets would be .1275( 2.8449) = .3627 The return on assets goes up by .0687 or (.3626 - .2939)/.2939 = .23375 or 23.37% 5. What is the name of the process in which one company studies the processes of another firm to identify best practices? Benchmarking 6. A company has recently implemented an automated online billing and payment processing system for orders it ships to customers. As a result, it has reduced receivables by $500,000 . What would be the expected directional change in the asset turnover ratio ? Here total assets would be reduced . Asset turnover is calculated as annual sales/total assets . Since total assets are reduced, the asset turnover ratio would go up. Not much more could be said unless we had data for annual sales and total assets before the change. 7. Match the following OSCM job titles with the appropriate duties and responsibilities. C Plant manager A: Plans and coordinates staff activities such as new product development and new facility location D Supply chain m anager B: Oversees the movement of goods throughout the supply chain A Project manager C: Oversees the workforce and resources required to produce the firm’s products E Business process improvement analyst D: Negotiates contracts with vendors and coordinates the flow of material inputs to the production process B Logistics manager E: Applies the tools of lean production to reduce cycle time and eliminate waste in a process 8. What high -level OSCM position manager is responsible for working with the CEO and company president to determine the company’s competitive strategy? Chief Operating Officer 9. Order the following major concepts that have helped define the OSCM field on a time line. Use 1 for the earliest to be introduced, and 5 for the most recent. 3 Supply chain management 1 Manufacturing strategy 5 Business analytics 2 Total quality management 4 Electronic commerce 10. Which major OSCM concept can be described as an integrated set of activities designed to achieve high -volume production using minimal inventories of parts that arrive at workstations exactly when they are needed? Just-in-time (JIT) production 11. ___________________________ leverage the vast amount of data in enterprise resource planning systems to make decisions related to managing resources. Business analytics 12. Which current issue in OSCM relates to the ability of a firm reconfigure i ts retail s tores, warehouses, and other facilities. Accommodating the shift to on -line retail purchasing Analytics Exercise: The Supply Chain Improvement Model 1. Setup the spreadsheet with the SCIM equation. This exercise picks up on Exhibit 1. 6 and asks students to build a spreadsheet and answer a series of questions related to the fictious company eCar. The base data is as follows from Exhibit 1. 6: Annual Sales Automobile sales Automotive leasing Total automotive sales Services and other Total sales $19,952 869 20,821 3,226 24,578 Cost of Goods Sold (COGS) Automotive sales Automotive leasing Total automotive COGS Services and other Total COGS 15,939 459 16,398 2,770 20,509 Other Costs Research and development Selling, general and administrative Restructuring and other Total other costs 1,343 2,646 149 4,138 Current Assets Inventory Receivables Cash Total current assets 3,552 1,324 7,227 12,103 Fixed Assets Property, plant, and equipment Other Total fixed assets 10,396 11,810 22,206 a. Using the data in exhibit 1.6 and your spreadsheet, calculate the profit margin, asset turnover, and return on assets of the company as presented in Exhibit 1.6. (Hint: profit margin and return on assets are negative.) The completed spreadsheet should look like what is shown below in column B. The other columns answe r question b. b. To better understand how the SCIM works, complete the following table. Assume that the change suggested is only to the single account and the other accounts are the same as presented in Exhibit 1. 6. The change can be described in simple “up,” “down,” or “does not change” terms. Change Profit Margin Asset Turnover Return on Assets Automotive sales increase by 25% (no changes in other costs) Up Up Up Research and development costs decrease by 50% Up Does not change Up The investment in inventory is reduced by 50% Does not change Up Up The company builds a new plant that cost $3 billion Does not change Down Up Receivables are reduced Does not change Up Up 2. Analyze the impact of the increase in sales over the next year. eCar expects that automobile sales will increase significantly over the next year. During the year covered by the data in Exhibit 1.16, eCar produced and delivered about 370,000 cars. eCar expects that sales will increase to about 450,000 cars next year. Cons ider the following questions related to the impact of this increase in sales. a. Using your spreadsheet, calculate the average revenue (sales price) and cost of each car produced last year. Base the cost estimate on the automotive sales COGS (this reflects the variable cost for each car). b. Assume that the relationships between average revenue and cost stay the same next year (revenue/car and variable cost/car stay the same), and that nothing else changes in the financials. If sales do improve to 450,000 cars, what would be the expected profit margin, asset turnover, and return on assets if it were possible for the company to do this? c. What questions might you explore with management to evaluate the assumptions that were made in your calculations? The key things would be rather selling costs would change and whether inventory and receivables might increase. It is likely that these number would increase with the increase sales volume. 3. Analyze the impact of building a more efficient manufacturing plant eCar recognizes that their current manufacturing plant is not very efficient. Investing in their plant would allow greater use of robots and other automation thus reducing the cost to produce cars. This would be a major change for the company and would have broad implications for their financials. They anticipate that they could use their current cash to pay for the investment. Management also expects to raise the average revenue on each car to $65,000 by offering more options. They expect that the average cost to build the cars to go down to $40,000 per car. This reduction is due to the reduction of some labor and better integration of the electronics in the car. They expect to be able to sell 450,000 cars next year. a. Return to the original data given in Exhibit 1.16. Assume that they use $2 billion of their cash and invest it in new equipment. Also, assume that they can raise the average revenue and lower the average cost as stated above. What would be the expected profit margin , asset turnover, and return on assets for the company after the change? As shown in the spreadsheet (next page) the change is significant. Profit margin increases from 3.08% to 23.93%, asset turnover improves from 0.70 to 0.97, and return on assets improves from 2.16% to 23.25%. This would be a major improvement in the performance of the company. b. Looking at different worst - and best -case scenarios is often good. What if eCar can only increase the rev enue per car to $58,000 and only reduce the cost to $42,000? What would be the expected profit margin, asset turnover, and return on assets if this were happened (assume they make the investment in the equipment)? Things would still be pretty good with pr ofit margin 13.01%, asset turnover 0.88, and return on assets 11.45%. c. What questions might you explore with management to evaluate the assumptions that were made in your calculations? All the other accounts should be checked to see if they would change. Scenarios like were explored in question 2 should be used to learn more about the impact on the financials. Chapter 02 - Strategy and Sustainability CHAPTER 2 STRATEGY AND SUSTAINABILITY Discussion Questions 1.What is meant by a “triple -bottom- line” strategy? Give an example of a company that has adopted this type of strategy. A triple-bottom-line strategy places emphasis on a company’s environmental and social responsibilities as well as the traditional bottom line of economic prosperity. It recognizes that the long-term health of the firm is interdependent with the health of the environment and the betterment of society. There are many examples – one is Patagonia. For details see their current sustainability page: http://www.patagonia.com/home/ 2. Find examples where companies have used features related to environmental sustainability to “win” new customers. Car companies use environmental concerns in marketing ads. The development of hybrid and flex-fuel cars is one way they have operationalized those concerns. Consumer goods companies display the “made with recycled material” l ogo on the packaging. Bottled water manufacturers are using recycled material and advertising bottles made with less plastic. 3. What are the major priorities associated with operations and supply chain strategy? For each major priority, describe the unique characteristics of the market niche with which it is most compatible. • Cost: In most every industry, there is a market segment that is very price sensitive. Firms that can supply goods or services at the lowest price will have an advantage there. This requires extremely efficient operations with a continuous focus on cost minimization. As a result, large production volumes are often required to successfully compete here. • Quality: Like the low-cost focused customers, most industries will encounter a market segment willing to pay more for a higher quality product. Typically, these goods and services will not be commodity products. Customers may focus on design quality (feature sets, materials, etc.), process quality (fit and finish, reliability, etc.) to differing levels based on the industry. • Delivery speed and reliability: When a customer has a dire and need for a good or service, companies that can deliver the product the fastest have a distinct advantage. In the business- to-business (B2B) market segment, customers depend on stated delivery windows to achieve reductions in inventory while still meeting strict production windows. • Changes in volume: Again, this is often important to be a player in many B2B markets. Customers need to know their suppliers can rapidly respond to changes in demand so they can meet the end customer demand swings. 02-1 .Chapter 02 - Strategy and Sustainability • Flexibility and new product introduction speed : The high-tech industry is a good example where this is a key competitive advantage. Being able to rapidly respond to advances in technology and correctly gauge customer expectations is key to competing successfully. 4. Why does the “proper” operations and supply chain strategy keep changing for companies that are world-class competitors? The top three priorities have generally remained the same over time: make it good, make it fast, and deliver it on time. Others have changed. Part of this may be explained by realizing that world class organizations have achieved excellence in these three areas and ar e, therefore, focusing attention on some of the more minor areas to gain competitive advantage. The changes in the minor priorities may result from recognizing opportunities or from changes in customer desires or expectations. 5. What do the expressions “order winner” and “order qualifier” mean? What was the order winner for your last major purchase of a product or service? Order winners are dimensions that differentiate the product or service or services of one firm from another. Order qualifiers are dimensions that are used to screen a product or service as a candidate for purchase. Order qualifiers get a company’s “foot in the door.” Order winners are what make the sale. Obviously, answers will vary for the order winners fro m your last purchase. 6. Pick a company that you are familiar with and describe its operations strategy and how it relates to winning customers. Describe specific activities used by the company that support the strategy (see Exhibit 2.3 for an example). Student answers will vary widely based on their experiences and views. It might be helpful for a classroom exercise to assign certain companies to several students/teams and compare their answers in class. 7. At times in the past, the dollar showed relative weak ness with respect to foreign currencies, such as the yen, euro, and pound. This stimulated exports. Why would long -term reliance on a lower valued dollar be at best a short -term solution to the competitiveness problem? This approach is dependent on econo mic policies of other nations. This is a fragile dependency. A long-term approach is to increase manufacturing and service industry productivity in order to regain competitive advantage. At a national level, solutions appear to lie in reversing attitude s. At a firm level, competitive weapons are consistent quality, high performance, dependable delivery, competitive pricing, and design flexibility. 8. Identify an operations and supply chain - related "disruption" that recently impacted a company. What could the company have done to have minimized the impact of this type of disruption prior to it occurring? The March 2011 tsunami that struck Japan was geographically concentrated but had global impact on multiple firms, many of which had no physical presence at all in the affected area. Examples include firms that had sole source agreements with suppliers in the affected area. The tsunami left these companies scrambling to find new suppliers to feed into their supply chains. These firms could have reduced th e impact of the tsunami by having a few high -quality, 02-2 .Chapter 02 - Strategy and Sustainability dependable suppliers located in different geographical regions. There are many other examples that could be taken from this one event. A simple Internet search will provide plenty of material for discussion. The L.A. ports work slowdown in early 2015 was a man -made disruption for many global firms. Both inbound and outbound shipments were affected – some delayed and others (U.S. produce exports) were ruined. McDonald’s resorted to flying over 2 million pounds of frozen French fries into Japan at significant extra cost during this period to keep restaurants open. The are many examples from the recent pandemic. There were severe shortages of toilet paper made by Proctor and Gamble and Kimberly-Clark and sold through grocery stores . In this case, the companies had been running supply chains with little reserve supply since regular demand was very predictable . Some reserve buffer inventory could have been carried to help when demand dramatically incr eased. There are many other examples. 9. What do we mean when we say productivity is a “relative” measure? For productivity to be meaningful, it must be compared with something else. The comparisons can be either intra-company as in the case of year-to-year comparisons of the same measure, or intercompany as in the case of benchmarking. Intercompany comparisons of single factor productivity measures can be somewhat tenuous due to differences in accounting practices (especially when comparing wit h foreign competitors) and the balance of labor to capital resources. Total factor productivity measures are somewhat more robust for comparison purposes. 02-3 .Chapter 02 - Strategy and Sustainability Objective Questions 1. Shell Oil Company’s motto “People, Planet and Profit” is a real -world implementation of what OSCM concept? Triple bottom line 2. A firm’s strategy should describe how it intends to create and sustain value for ________________________. Its current shareholders 3. What is the term used to describe individuals or organizations that are influenced by the actions of the firm? Stakeholders 4. How often should a company develop and refine the operations and supply chain strategy. At least yearly 5. What is the term used to describe product attributes that attract certain customers and can be used to form the competitive position of a firm? Competitive dimensions 6. What are the two main competitive dimensions related to product delivery? Delivery speed and delivery reliability 7. What are the two characteristics of a product or service that define quality? Design quality and process quality 8. What is the diagram that shows how a company’s strategy is delivered by a set of supporting activities called? Activity-system map 02-4 .Chapter 02 - Strategy and Sustainability 9. In implementing supply chain strategy, a firm must minimize its total cost without compromising the needs of what group of people? Customers 10. What is defined as the likelihood of disruption that would impact the ability of a company to continuously supply products or services? Supply chain risk 11. What are risks caused by natural or manmade disasters, and therefore impossible to reliably predict called? Disruption risks 12. Match the following common risks with the appropriate mitigation strategy. E Country risks A: Detailed tracking, alternate suppliers D Regulatory risk B: Carefully select and monitor suppliers A Logistics failure C: Contingency planning, insurance C Natural disaster D: Good legal advice, compliance B Major quality failure E: Currency hedging, local sourcing 13. What is the term used to describe the assessment of the probability of a negative event against the aggregate severity of the related loss ? Risk mapping 02-5 .Chapter 02 - Strategy and Sustainability 14. As Operations Manager, you are concerned about being able to meet sales requirements in the coming months. You have just been given the following production report : JAN FEB MAR APR Units Produced 2300 1800 2800 3000 Hours per Machine 325 200 400 320 Number of Machines 3 5 4 4 Find the average of the monthly productivity figures (units per machine hour). To answer this, we need to realize that the measure of hours given is per machine, so we must multiply that by the number of machines in each period to get the total machine hours in each period. Those figures are used in the calculations below. Average productivity : (2300/975 + 1800/1000 + 2800/1600 + 3000/1280)/4 Average productivity (2.36+1.80+1.75+2.34)/4= 2.06 units per machine hour Note that the average above weights each month the same, although output varies. An alternative answer would be to compute a weighted average productivity figure that is slightly different at 2.04 units per machine hour. 15. Sailmaster makes high-performance sails for competitive windsurfers. Below is information about the inputs and outputs for one model, the Windy 2000. Units sold 1,217 Sale price each $1,700 Total labor hours 46,672 Wage rate $12/hour Total materials $60,000 Total energy $4,000 Calculate the productivity in sales revenue/labor expense . We must do some interim calculations here. Sales revenue is calculated by multiplying units sold by the unit sales price. Labor expense is calculated by multiplying labor hours by the wage rate. (1217*1700) / (46672*12) = 3.69 02-6 .Chapter 02 - Strategy and Sustainability 16. Live Trap Corporation received the data below for its rodent cage production unit. Find the total productivity? Output Input 50,000 cages Production time 620 labor hours Sales price: $3.50 per unit Wages $7.50 per hour Raw materials (total cost) $30,000 Component parts (total cost) $15,350 Total productivity could be expressed two ways here based on how you express output: in units sold, or dollars of sales. Units sold: 50,000 / ((620 * $7.50) + 30,000 + 15,350) = 1.00 units sold per dollar input Dollars of sales: (50000*3.5) / ((620 * $7.50) + 30,000 + 15,350) = 3.5 dollars in sales per dollar input 17. Two types of cars (Deluxe and Limited) were produced by a car manufacturer last year. Quantities sold, price per unit, and labor hours are given below. What is the labor productivity for each car? Explain the problem(s) associated with the labor productivity. QUANTITY $/UNIT Deluxe car 4,000 units sold $8,000/car Limited car 6,000 units sold $9,500/car Labor, Deluxe 20,000 hours $12/hour Labor, Limited 30,000 hours $14/hour Labor Productivity – units/hour Model Output in Units Input in Labor Hours Productivity (Output/Input) Deluxe Car 4,000 20,000 0.20 units/hour Limited Car 6,000 30,000 0.20 units/hour Labor Productivity – dollars Model Output in Dollars Input in Dollars Productivity (Output/Input) Deluxe Car 4,000($8,000)= $32,000,000 20,000($12.00)= $240,000 133.33 Limited Car 6,000($9,500)= $57,000,000 30,000($14.00)= $420,000 135.71 02-7 .Chapter 02 - Strategy and Sustainability The labor productivity measure is a conventional measure of productivity. However, as a partial measure, it may not provide all of the necessary information that is needed. For example, increases in productivity could result from decreases in quality, and/or increases in material cost. 18. A U.S. manufacturing company operating a subsidiary in an LDC (less -developed country) shows the following results: U.S. LDC Sales (units) 100,000 20,000 Labor (hours) 20,000 15,000 Raw materials (currency) $20,000 20,000 (FC) Capital equipment (hours) 60,000 5,000 a. Calculate partial labor and capital productivity figures for the parent and subsidiary. Do the results seem misleading? Labor Productivity Country Output in Units Input in Hours Productivity (Output/Input) U.S. 100,000 20,000 5.00 units/hour LDC 20,000 15,000 1.33 units/hour Capital Equipment Productivity Country Output in Units Input in Hours Productivity (Output/Input) U.S. 100,000 60,000 1.67 units/hour LDC 20,000 5,000 4.00 units/hour Yes. You might expect the capital equipment productivity measure to be higher in the U.S. than in a LDC. Also, the measures seem contradictory. Each plant appears to be far more productive than the other on one measure, but much worse on the other. 02-8 .Chapter 02 - Strategy and Sustainability b. Compute the multifactor productivity figures for labor and capital together. Do the results make more sense? Multifactor – Labor and Capital Equipment Country Output in Units Input in Hours Productivity (Output/Input) U.S. 100,000 20,000 + 60,000= 80,000 1.25 units/hour LDC 20,000 15,000 + 5,000= 20,000 1.00 units/hour Yes, labor and equipment can be substituted for each other. Therefore, this multifactor measure is a better indicator of productivity in this instance. c. Calculate raw material productivity figures (units/$ where $1 = 10 (FC)). Explain why these figures might be greater in the subsidiary. Raw Material Productivity Country Output in Units Input in Dollars Productivity (Output/Input) U.S. 100,000 $20,000 5.00 units/$ LDC 20,000 FC 20,000/$10 = $2,000 10.00 units/$ The 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 , especially if there are local sources for the raw materials. 19. Various financial data for the past two years follow. Calculate the total productivity measure and the partial measures for labor, capital, and raw materials for this company for both years. Wha t do these measures tell you about this company? Last Year This Year Output: Sales $200,000 $220,000 Input: Labor 30,000 40,000 Raw materials 35,000 45,000 Energy 5,000 6,000 Capital 50,000 50,000 Other 2,000 3,000 02-9 .Chapter 02 - Strategy and Sustainability Total Productivity Year Output in Dollars Input in Dollars Productivity (Output/Input) Last Year $200,000 $30,000 + 35,000 + 5,000 + 50,000 + 2,000 = $122,000 1.64 This Year $220,000 $40,000 + 45,000 + 6,000 + 50,000 +3,000 = $144,000 1.53 Partial Measure – Labor Year Output in Dollars Input in Dollars Productivity (Output/Input) Last Year $200,000 $30,000 6.67 This Year $220,000 $40,000 5.50 Partial Measure – Raw Materials Year Output in Dollars Input in Dollars Productivity (Output/Input) Last Year $200,000 $35,000 5.71 This Year $220,000 $45,000 4.89 Partial Measure – Capital Year Output in Dollars Input in Dollars Productivity (Output/Input) Last Year $200,000 $50,000 4.00 This Year $220,000 $50,000 4.40 The overall productivity measure is declining, which indicates a possible problem. The partial measures can be used to indicate cause of the declining productivity. In this case, it is a combination of declines in both labor and raw material productivity , which were somewhat offset by an increase in the capital productivity. Further investigation should be undertaken to explain the drops in both labor and raw material productivity. An increase in the cost of both of these measures, without an accompanyi ng increase in the selling price might explain these measures. 02-10 .Chapter 02 - Strategy and Sustainability 20. An electronics company makes communications devices for military contracts. The company just completed two contracts. The navy contract was for 2,300 devices and took 25 workers two weeks (40 hours per week) to complete. The army contract was for 5,500 devices that were produced by 35 workers in three weeks. On which contract were the workers more productive? Contract Output in Units Input in Hours Productivity (Output/Input) Navy 2300 25(2)40 = 2000 1.15 Army 5500 35(3)40 = 4200 1.31 The workers were more productive on the Army contract. 21. A retail store had sales of $45,000 in April and $56,000 in May. The store employs eight full -time workers who 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 nine part -timers 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 f rom April to May? Month Output in Dollars Input in Hours Productivity (Output/Input) Percentage Change April $45,000 (8(40)+7(10))*4 = 1560 28.85 May $56,000 1820 30.77 (30.77-28.85)/28.85 = 6.66% increase 22. A parcel delivery company delivered 103,000 packages last year, when its average employment was 84 drivers. This year the firm handled 112,000 deliveries with 96 drivers. What was the percentage change in productivity over the past year? Year Output in Packages Input in Drivers Productivity (Output/Input) Percentage Change Last 103,000 84 1226.2 This 112,000 96 1166.7 (1166.7 -1226.2)/1226.2 = - 4.85% (decrease) 02-11 .