Session : Transformation

Processes
 Operations Management

Quality of inputs Quality of outputs

monitored monitored

Random disturbances
Random disturbances

INPUTS Transformation OUTPUTS

Process

Feedback Mechanisms
 The Transformation Process
For a Service Organization (An MBA Institute)

Random disturbances
• Strikes of students, Quality of
Quality of teachers or staff outputs
inputs • Undue interference of
Raw minds monitored
monitored the government in the
(students)
working of institutions
Teachers
Class rooms Enlightened students with:
Transformation • Good communication skills
Computer lab Process • Pleasant personalities
Library • Leadership qualities
Projectors • Good analytical ability
(OHP, LCD etc.) • Team spirit
• Decision making abilities
Administrative • Computer skills
Feedback Mechanisms
staff
• Success at placement interviews
INPUTS • Grades obtained in examinations OUTPUTS
• Rising career graph of alumni in the industry
• Number of applications for admission
in the institute
• Ratings of surveys
 The Transformation Process For a Hybrid Service &
Manufacturing Organization
(A Restaurant)
Random disturbances
• High turnover of chefs, Quality of
Customers Quality of waiters, etc. outputs
Building inputs • Inflation monitored
Chef monitored • Government’s taxation
Vegetables policy
Furniture
Customers satisfied with:
Mutton, Transformation • Good preparation of the
chicken, Process food
pork, etc. • Pleasant behavior and
Cooking oil,
personality of the waiter
Spices, etc.
• Genuine prices charged
Waiters
Manager
Feedback Mechanisms
• Rising Revenues OUTPUTS
INPUTS • Repeat Customers
• Appreciation of customers
 The Transformation Process (A Refrigerator
Manufacturer)
Random disturbances
• High turnover of workers Quality of
Machines & Quality of and managers outputs
Equipments inputs • Recession monitored
Building monitored • Government’s taxation
Components, policy
parts, sub- • Strikes instigated by trade
unions Customers satisfied with:
assemblies, etc.
Transformation • Good cooling performance
Workers
Process • Less consumption with
Office electricity
infrastructure • Good after-sales service
(computers, • New advanced features
furniture, etc.)
Packaging
material
Feedback Mechanisms
Capital
• Rising sales volume
Managers • Lesser customer complaints
• Positive response of customers in
INPUTS the feedback forms OUTPUTS
• Productivity
Operations Management is defined as the
design, operation, and improvement of the
transformation process, which converts
the various inputs into desired outputs of
products and services.
Productivity and Competitiveness
• Input
– labor hours, investment in equipment, material usage,
or square footage

• Output
– sales made, products produced, customers served,
meals delivered, or calls answered

• Productivity
– ratio of output to input

• Competitiveness
– degree to which a nation can produce goods and
services that meet the test of international markets
Measures of Productivity
 Productivity Improvement
EXAMPLE 1.1
Calculate the labor productivity (policies / hr.) per week for
the following operations:
a. Three employees process 600 insurance policies in a week.
Each of them work 8 hours per day, 5 days per week.
 Productivity Improvement
EXAMPLE 1.1
Calculate the labor productivity (policies / hr.) per week for
the following operations:
a. Three employees process 600 insurance policies in a week.
They work 8 hours per day, 5 days per week.

SOLUTION
Policies processed
a. Labor productivity =
Employee hours

600 policies
= = 5 policies/hour
(3 employees)(40 hours/employee)
 Productivity Improvement
EXAMPLE 1.1
Calculate the productivity ratio for the following
operations:
b. A team of workers makes 400 units of a product, which is
sold in the market for $10 each. The accounting department
reports that for this job the actual costs are $400 for labor,
$1,000 for materials, and $300 for overhead.
 Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:

b. A team of workers makes 400 units of a product, which is

sold in the market for $10 each. The accounting department
reports that for this job the actual costs are $400 for labor,
$1,000 for materials, and $300 for overhead.

SOLUTION
Value of output
a. Multifactor productivity =
Labor cost + Materials cost
+ Overhead cost

(400 units)($10/unit) $4,000

= = = 2.35
$400 + $1,000 + $300 $1,700
Additional Problems
 AP 2
• Suds and Duds laundry washed and pressed the following
numbers of dress shirts per week

Week Work Crew Total Hours Shirts

worked

1 Sud and Dud 24 68

2 Sud and Jud 46 130

3 Sud, Dud and 62 152

Jud
4 Sud, Dud and 51 125
Jud

5 Dud and Jud 45 131

A. Calculate the labor productivity ratio for
each week

B. labor productivity pattern exhibited by

the data
 AP 3
CD players are produced on an automated assembly line
process. The standard cost of CD player is $150 per unit (labor,
$30; materials, $70; and overhead, $50). The sales price is
$300 per unit.

A. To achieve a 10 percent TFP improvement by reducing

material costs only, by what percent must these costs be
reduced
B. To achieve a 10 percent TFP improvement by reducing labor
costs only, by what percent must these costs be reduced
C. To achieve a 10 percent TFP improvement by reducing
Overhead costs only, by what percent must these costs be
reduced
 AP 4
The output of a process is valued at $100 per unit. The cost of
labor is $50 per hour including benefits. The accounting
department provided the following information about the
process for the past 4 weeks.
Week 1 Week 2 Week 3 Week 4

Units 1,124 1,310 1,092 981

produced
Labor ($) 12,735 14,842 10,603 9,526

Material 21,041 24,523 20,442 18,364

($)

OH ($) 8,992 10,480 8,736 7,848

A. Use the TFP/MFP ratio to see if recent
process improvements had any effect and if
so, when the effect was noticeable
B. Has labor productivity changed. Use the
labor productivity (units / hr) to support your
answer
 AP 5
• Alyssa’s Custom Cakes currently sells 5 Birthday, 2 Wedding
and 3 Specialty Cakes each month for $50, $150 and $100
each respectively. It takes 90 minutes to produce a birthday
cake, 240 minutes to produce a wedding cake and 60 minutes
to produce specialty cakes. Alyssa’s current TFP is 1.25
A. Assuming each cake costs the same to make , what is the
average cost to produce a cake
B. Calculate Alyssa’s labor productivity ratio in dollars per hour for
each type of cake
C. Based solely on the labor productivity ratio, which cake should
Alyssa try to sell the most
D. Based on your answer in part (a), is there a type of cake
Alyssa should stop selling
 AP 6
The BBC has a large order for special plastic lined military uniforms
to be used in an urgent military operation. Working the normal shifts
of 40 hours each per week, The BBC production process usually
produces 2500 uniforms per week at a standard cost of $120 each.
Seventy employees work the first shift and 30 the second. The
selling price is $200 per uniform.
Because of the urgent need BBC is authorized to use around the
clock production, six days per week, when each of the two shifts
works 72 hours per week, production increases to 4,000 uniforms
per week but at a costs of $144 each.
a. Did the TFP ratio increase, Decrease or remain the same
b. Did the labor productivity ratio increase, Decrease or remain the
same
c. Did weekly profits increase, Decrease or remain the same