CHAPTER ONE

NATURE OF OPERATIONS MANAGEMENT

1.1. Introduction
Production is the creation of goods and services. The field of production management in the
past focused almost exclusively on manufacturing management, with a heavy emphasis on the
methods and techniques used in operating a factory. In recent years, the scope of production
management has broadened considerably. Production concepts and techniques are applied to a
wide range of activities and situations outside manufacturing; that is, in services such as health
care, food service, recreation, banking, hotel management, retail sales, education, transportation,
and government. This broadened scope has given the field the name production/operations
management, or more simply, operations management, a term that more closely reflects the
diverse nature of activities to which its concepts and techniques are applied.
We can use an airline company to illustrate a production/operations system. The system consists
of the airplanes, airport facilities, and maintenance facilities, sometimes spread out over a wide
territory. Most of the activities performed by management and employees fall into the realm of
operations management:
 Forecasting such things as weather and landing conditions, seat demand for flights, and
the growth in air travel.
 Capacity planning, essential for the airline to maintain the cash flow and make a
reasonable profit. (Too few or too many planes, or even the right number of planes but
in the wrong places, will hurt profits.)
 Scheduling of planes for flights and for routine maintenance; scheduling of pilots and
flight attendants; and scheduling of ground crews, counter staff, and baggage handlers.
 Managing inventory of such items as foods and beverages, first-aid equipment, in-
flight magazines, pillows and blankets, life preservers.
 Assuring quality, essential in flying and maintenance operations, where the emphasis is
on safety. Also important in dealing with customers at ticket counters, check-in, and
telephone reservations, where the emphasis is on efficiency and courtesy.
 Employee motivation and training in all phases of operations.

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  Location of facilities according to managers’ decisions on which cities to provide
service for, where to locate maintenance facilities, and where to locate major and minor
hubs.
At first glance, it may appear that service operations don’t have much in common with
manufacturing operations. However, a unifying feature of these operations is that both can be
viewed as transformation processes. In manufacturing, inputs of raw materials, energy, labour,
and capital are transformed into finished goods. In service operations, these same types of inputs
are transformed into service outputs. Managing the transformation process in an efficient and
effective manner is the task of the operations manager in any type of organization.
What is Operations Management?
Operations management is the set of activities that creates goods and services through the
transformation of inputs into outputs. Activities creating goods and services take place in all
organizations (firms), the production activities that create goods are usually quite obvious. In
them, we can see the creation of a tangible product such as cement or cloth.
In organizations that do not create physical products, the production function may be less
obvious. An example is the transformation that takes place at a bank, hospital, airline, or college.
Regardless of whether the end product is good or service the production activities that go on in
the organization are often referred to as operations or operations management.
An operation is responsible for supplying the product or service of the organization.
Why Study OM?
• You may be wondering why you need to study operations management. There are a
number of very good reasons:
– Operations management activities are at the core of all business organizations.

– More of all jobs are in operations management related areas.

– Activities in all of the other areas of business organizations are all interrelated
with operations management activities.

– Operations management has been recognized as an important factor in a country’s

well being.

– It plays an important role in the society in which we live:

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 – Higher standard of living

– Better quality goods and services

– Concern for the environment

– Improved working conditions

1.2. Historical Development of operations management

When we think of what operations management does—namely, managing the transformation of
inputs into goods and services—we can see that as a function it is as old as time. Think of any
great organizational effort, such as organizing the first Olympic games, building the Great Wall
of China, or erecting the Egyptian pyramids, and you will see operations management at work.
Operations management did not emerge as a formal field of study until the late 1950s and early
1960s, when scholars began to recognize that all production systems face a common set of
problems and to stress the systems approach to viewing operations processes. Many events
helped shape operations management. We will describe some of the most significant of these
historical milestones and explain their influence on the development of operations management.
The Industrial Revolution
The Industrial Revolution had a significant impact on the way goods are produced today. Prior to
this movement, products were made by hand by skilled craftspeople in their shops or homes.
Each product was unique, painstakingly made by one person. The Industrial Revolution changed
all that. It started in the 1770s with the development of a number of inventions that relied on
machine power instead of human power. The most important of these was the steam engine,
which was invented by James Watt in 1764.
The steam engine provided a new source of power that was used to replace human labor in
textile mills, machine-making plants, and other facilities. The concept of the factory was
emerging. In addition, the steam engine led to advances in transportation, such as railroads, that
allowed for a wider distribution of goods. About the same time, the concept of division of labor
was introduced. First described by Adam Smith in 1776 in The Wealth of Nations, this important
concept would become one of the building blocks of the assembly line. Division of labor means
that the production of a good is broken down into a series of small, elemental tasks, each of
which is performed by a different worker. The repetition of the task allows the worker to become

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highly specialized in that task. Division of labor allowed higher volumes to be produced. This,
coupled with advances in transportation, enabled distant markets to be reached by steam-
powered boats and railroads.
A few years later, in 1790, Eli Whitney introduced the concept of interchangeable parts. Prior to
that time, every part used in a production process was unique. With interchangeable parts, parts
are standardized so that every item in a batch of items fits equally. This concept meant that we
could move from one-at-a-time production to volume production, for example, in the
manufacture of watches, clocks, and similar items.
Scientific Management
Scientific management was an approach to management promoted by Frederick W. Taylor at the
turn of the twentieth century. Taylor was an engineer with an eye for efficiency. Through
scientific management, he sought to increase worker productivity and organizational output. This
concept has two key features. First, it is assumed that workers are motivated only by money and
are limited only by their physical ability. Taylor believed that scientific laws govern worker
productivity, and that it is up to management to discover these laws through measurement,
analysis, and observation. Workers are to be paid in direct proportion to how much they produce.
The second feature of this approach is the separation of the planning and doing functions in a
company, which means the separation of management and labor. Management is responsible for
designing productive systems and determining acceptable worker output. Workers have no input
into this process—they are permitted only to work.
Many people did not like the scientific management approach. This was especially true of
workers, who thought that management used these methods to unfairly increase output without
paying them accordingly. Still, many companies adopted the scientific management approach.
Today many see scientific management as a major milestone in the field of operations
management, and it has had many influences on operations management. For example, piece rate
incentives, in which workers are paid in direct proportion to their output, came out of this
movement. Also, a widely used method of work measurement, stopwatch time studies, was
introduced by Frederick Taylor. In stopwatch time studies, observations are made and recorded
of a work performing a task over many cycles. This information is then used to set a time stan -
dard for performing the particular task. This method is still used today to set a time standard for
short, repetitive tasks.

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The scientific management approach was popularized by Henry Ford, who used the techniques in
his factories. Combining technology with scientific management, Ford introduced the moving
assembly line to produce Ford cars. Ford also combined scientific management concepts with
division of labor and interchangeable parts to develop the concept of mass production. These
concepts and innovations helped him increase production and efficiency at his factories.
The Human Relations Movement
The early twentieth century was dominated by the scientific management movement and its
philosophy. However, this changed with the publication of the results of the Hawthorne studies.
The Hawthorne studies were conducted at a Western Electric plant in Hawthorne, Illinois, in the
1930s. The purpose was to study the effects of environmental changes, such as changes in
lighting and room temperature, on the productivity of assembly-line workers. The findings from
the study were unexpected; the productivity of the workers continued to increase regardless of
the environmental changes made. Elton Mayo, a sociologist from Harvard, analyzed the results
and concluded that the workers were actually motivated by the attention they were given. The
idea of workers responding to the attention they are given came to be known as the Hawthorne
effect.
Many sociologists and psychologists went to Hawthorne to study these findings, which led to the
human relations movement, an entirely new philosophy based on the recognition that factors
other than money can contribute to worker productivity. The impact of these findings on the
development of operations management has been tremendous. The influence of this new
philosophy can be seen in the implementation of a number of concepts that motivate workers by
making their jobs more interesting and meaningful. For example, the Hawthorne studies showed
that scientific management had made jobs too repetitive and boring. Job enlargement is an
approach in which workers are given a larger portion of the total task to do. Another approach
used to give more meaning to jobs is job enrichment, in which workers are given a greater role in
planning. Recent studies have shown that environmental factors in the workplace, such as
adequate lighting and ventilation, can have a major impact on productivity. However, this does
not contradict the principle that attention from management is a positive factor in motivation.
Management Science
While one movement was focusing on the technical aspects of job design and another on the
human aspects of operations management, a movement called management science was

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developing that would make its own unique contribution. Management science focused on
developing quantitative techniques for solving operations problems. The first mathematical
model for inventory management was developed by F. W. Harris in 1913. Shortly thereafter,
procedures were developed for statistical sampling theory and quality control.
World War II created an even greater need for the ability to quantitatively solve complex
problems of logistics control, weapons system design, and deployment of missiles.
Consequently, management science grew during the war and continued to grow after the war was
over. Many quantitative tools were developed to solve problems in forecasting, inventory
control, project management, and other areas. Management science is a mathematically oriented
field that provides operations management with tools that can be used to assist in decision
making. A popular example of such a tool is linear programming.
The Computer Age
The 1970s witnessed the advent of the widespread use of computers in business. With
computers, many of the quantitative models developed by management science could be used on
a larger scale. Data processing was made easier, with important effects in areas such as
forecasting, scheduling, and inventory management. A particularly important computerized
system, material requirements planning (MRP), was developed for inventory control and
scheduling. A material requirement planning was able to process huge amounts of data to
compute inventory requirements and develop schedules for the production of thousands of items.
This type of processing was impossible before the age of computers. Today the exponential
growth in computing capability continues to impact operations management.
Just-in-Time
Just in time (JIT) is a major operations management philosophy, developed in Japan in the
1980s, that is designed to achieve high-volume production using minimal amounts of inventory.
This is achieved through coordination of the flow of materials so that the right parts arrive at the
right place in the right quantity; hence the term, just in time. However, JIT is much more than the
coordinated movement of goods. An all-inclusive organizational philosophy employs teams of
workers to achieve continuous improvement in processes and organizational efficiency by
eliminating all organizational waste. Although JIT was first used in manufacturing, it has seen
use in the service sector, for example, in the food service industry. JIT has had a profound impact
on changing the way companies manage their operations. It is credited with helping turn many

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companies around and is used by companies including Honda, Toyota, and General Motors. JIT
promises to continue to transform businesses in the future.
Total Quality Management
As customers demand ever-higher quality in their products and services, companies have been
forced to focus on improving quality in order to remain competitive. Total quality management
(TQM) is a philosophy, promulgated by “quality gurus” such as W. Edwards Deming, which
aggressively seeks to improve product quality by eliminating causes of product defects and
making quality an all-encompassing organizational philosophy. With TQM everyone in the
company is responsible for quality. TQM was practiced by some companies in the 1970s and
became pervasive in the 1990s. This is an area of operations management that no competitive
company has been able to ignore. The number of companies joining the ranks of those achieving
ISO 9000 certification demonstrates the importance of this movement. ISO 9000 is a set of
quality standards developed for global manufacturers by the International Organization for
Standardization (ISO) to control trade into the then-emerging European Economic Community
(EEC). Today many companies require their suppliers to meet these standards as a condition for
obtaining contracts.
Business Process Reengineering (BPR)
Business process reengineering means redesigning a company’s processes to increase efficiency,
improve quality, and reduce costs. In many companies things are done in a certain way that has
been passed down over the years. Often managers say, “Well, we’ve always done it this way.”
Reengineering requires asking why things are done in a certain way, questioning assumptions,
and then redesigning the processes. Operations management is a key player in a company’s
reengineering efforts.
Flexibility
Traditionally companies competed by either mass-producing a standardized product or offering
customized products in small volumes. One of the current competitive challenges for companies
is the need to offer a greater variety of product choices to customers of a traditionally
standardized product. This is the challenge of flexibility, which means being able to offer a wide
variety of products to customers. For example, Procter and Gamble offers 13 different product
designs in the Pampers line of diapers. Although diapers are a standardized product, the product

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designs are customized to the different needs of customers, such as the age, sex, and
development of the child using the diaper.
One example of flexibility is mass customization, which is the ability of a firm to highly
customize its goods and services to different customers. Mass customization requires designing
flexible operations and using delayed product differentiation, also called postponement. This
means keeping the product in generic form as long as possible and postponing completion of the
product until specific customer preferences are known.
Time-Based Competition
One of the most important trends in companies today is competition based on time. This includes
developing new products and services faster than the competition, reaching the market first, and
meeting customer orders most quickly. For example, two companies may produce the same
product, but if one is able to deliver it to the customer in two days whereas the other delivers it in
five days, the first company will make the sale and win over the customers. Time-based
competition requires specifically designing the operations function for speed.
Supply Chain Management
Supply chain management (SCM) involves managing the flow of materials and information from
suppliers and buyers of raw materials all the way to the final customer. The objective is to have
everyone in the chain work together to reduce overall cost and improve quality and service
delivery. Supply chain management requires a team approach, with functions such as marketing,
purchasing, operations, and engineering all working together. This approach has been shown to
result in more satisfied customers, meaning that everyone in the chain profits. SCM has become
possible with the development of information technology (IT) tools that enable collaborative
planning and scheduling. The technologies allow synchronized supply chain execution and
design collaboration, which enables companies to respond better and faster to changing market
needs. Numerous companies, including Dell Computer, Wal-Mart, and Baxter Healthcare, have
achieved world-class status by effectively managing their supply chains.
Global Marketplace
Today businesses must think in terms of a global marketplace in order to compete effectively.
This includes the way they view their customers, competitors, and suppliers. Key issues are
meeting customer needs and getting the right product to markets as diverse as the Far East,
Europe, or Africa. Operations management is responsible for most of these decisions. OM

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decides whether to tailor products to different customer needs, where to locate facilities, how to
manage suppliers, and how to meet local government standards. Also, global competition has
forced companies to reach higher levels of excellence in the products and services they offer.
Regional trading agreements, such as the North American Free Trade Agreement (NAFTA), the
European Union (EU), and the global General Agreement on Tariffs and Trade (GATT), guaran -
tee continued competition on the international level.
Environmental Issues
There is increasing emphasis on the need to reduce waste, recycle, and reuse products and parts.
Society has placed great pressure on business to focus on air and water quality, waste disposal,
global warming, and other environmental issues. Operations management plays a key role in
redesigning processes and products in order to meet and exceed environmental quality standards.
The importance of this issue is demonstrated by a set of standards termed ISO 14000. Developed
by the International Organization for Standardization (ISO), these standards provide guidelines
and a certification program documenting a company’s environmentally responsible actions.
Electronic Commerce
Electronic commerce (e-commerce) is the use of the Internet for conducting business activities,
such as communication, business transactions, and data transfer. The Internet developed from a
government network called ARPANET, which was created in 1969 by the U.S. Defense
Department. Since the late 1990s the Internet has become an essential business medium,
enabling efficient communication between manufacturers, suppliers, distributors, and customers.
It has allowed companies to reach more customers at a speed infinitely faster than ever before. It
also has significantly cut costs as it provides direct links between entities.
Electronic commerce can occur between businesses, known as B2B (business to business)
commerce, and makes up the highest percentage of transactions. The most common B2B
exchanges occur between companies and their suppliers, such as General Electric’s Trading
Process Network. A more commonly known type of e-commerce occurs between businesses and
their customers, known as B2C exchange, as seen with on-line retailers such as Amazon.com. E-
commerce can also occur between customers, known as C2C exchange, like consumer auction
sites such as eBay. E-commerce is creating virtual marketplaces that continue to change the way
business functions.

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Summary of historical development
Concept Time Explanation
Industrial Late 1700s Brought in innovations that changed production by
Revolution using machine power instead of human power
Brought the concepts of analysis and measurement of
Scientific Early 1900s
the technical aspects of work design, and development
management
of moving assembly lines and mass production
Focused on understanding human elements of job
Human relations 1930s to 1960s design, such as worker motivation and job satisfaction
movement

Focused on the development of quantitative

Management 1940s to 1960s techniques to solve operations problems
science
Enabled processing of large amounts of data and
Computer age 1960s
allowed widespread use of quantitative procedures
Designed to achieve high-volume production with
Just-in-time 1980s
minimal inventories
systems (JIT)
Sought to eliminate causes of production defects
Total quality 1980s
management (TQM)
Reengineering 1980s Required redesigning a company’s processes in order to
provide greater efficiency and cost reduction
Considered waste reduction, the need for recycling,
Environmental 1980s
and product reuse
issues
Offered customization on a mass scale.
Flexibility 1990s
Time-based 1990s Based on time, such as speed of delivery
competition
Supply chain 1990s Focused on reducing the overall cost of the system that
management manages the flow of materials and information from
suppliers to final customers
Designed operations to compete in the global market
Global competition 1990s
Electronic commerce Late 1990s; Used the Internet for conducting business activity
early21st C.
Table 1 Historical Development of Operations Management

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Operations as a Productive System
An operation has been defined as transformation system that converts inputs into outputs. Inputs
to the system include energy, materials, labor, capital and information as shown below. Process
technology is then used to convert inputs into outputs. The process technology is the methods,
procedures, and equipment used to transform materials or inputs into products or services.

Figure 1 an operation as a productive system

 The types of inputs used will vary from one industry to another e.g., operation in automobile
manufacturing will differ from service industry.
 Feedback information is used to control the process technology or inputs.
 Operations managers use feedback information to continually adjust the mix of inputs and
technology needed to achieve desired outputs.
The operations system is in constant interaction with its environment; internal and external
environment.
 The internal environment may change policies, resource forecasts or goals.

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  The external environment may change in terms of legal, political, social, economic, or
technical condition thereby causing a corresponding change in the operations inputs,
outputs, or transformation system. For example, a change in economic conditions may
cause operations managers to revise their demand forecast and as a result hire more
people and expand capacity.
Illustrations of the transformation process;
Food
processor Inputs Processing Output
 Raw vegetables  Cleaning  Canned vegetables
 Metal sheets  Making cans
 Water  Cutting
 Energy  Cooking
 Labor  Packing
 Building  Labeling
 Equipment
Hospital Processing Output
Inputs
 Doctors, nurses  Examination  Healthy patients
 Hospital  Surgery
 Medical supplies  Monitoring
 Equipment  Medication
 Laboratories  Therapy

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1.3. Manufacturing operations and Service operations
Organizations can be divided into two broad categories: manufacturing organizations and
service organizations, each posing unique challenges for the operations function. There are two
primary distinctions between these categories. First, manufacturing organizations produce
physical, tangible goods that can be stored in inventory before they are needed. By contrast,
service organizations produce intangible products that cannot be produced ahead of time.
Second, in manufacturing organizations most customers have no direct contact with the
operation. Customer contact is made through distributors and retailers. For example, a customer
buying a car at a car dealership never encounters the automobile factory. However, in service
organizations the customers are typically present during the creation of the service. Hospitals,
colleges, theaters, and barbershops are examples of service organizations in which the customer
is present during the creation of the service. The differences between manufacturing and service
organizations are not as clear-cut as they might appear, and there is much overlap between them.
Most manufacturers provide services as part of their offering, and many service firms
manufacture physical goods that they deliver to their customers or consume during service
delivery.
For example, a manufacturer of furniture may also provide shipment of goods and assembly of
furniture. On the other hand, a barbershop may sell its own line of hair care products. You might
not know that General Motors’ greatest return on capital does not come from selling cars but
rather from post-sales parts and service. The differences between manufacturing and services are
shown in Figure 1.3, which focuses on the dimensions of product tangibility and the degree of
customer contact. Pure manufacturing and pure service extremes are shown, as well as the
overlap between them.

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FIGURE 2Characteristics of manufacturing and service organizations
Even in pure service companies, some segments of the operation may have low customer contact
while others have high customer contact. The former can be thought of as “back room” or
“behind the scenes” segments. Think of a fast-food operation such as Wendy’s, for which
customer service and customer contact are important parts of the business. However, the kitchen
segment of Wendy’s operation has no direct customer contact and can be managed like a
manufacturing operation. Similarly, a hospital is a high-contact service operation, but the patient
is not present in certain segments, such as the lab where specimen analysis is done.
In addition to pure manufacturing and pure service, there are companies that have some
characteristics of each type of organization. For these companies it is difficult to tell whether
they are actually manufacturing or service organizations. Think of a post office, an automated
warehouse, or a mail-order catalog business. These companies have low customer contact and
are capital intensive, yet they provide a service. We call these companies quasi-manufacturing
organizations.
1.4. Operations Management Decisions
Long-term decisions that set the direction for the entire organization are called strategic
decisions. They are broad in scope and set the tone for other, more specific decisions. They
address questions such as: What are the unique features of our product? What market do we plan
to compete in? What do we believe will be the demand for our product? Short-term decisions

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that focus on specific departments and tasks are called tactical decisions. Tactical decisions
focus on more specific day-to-day issues, such as the quantities and timing of specific resources.
Strategic decisions are made first and determine the direction of tactical decisions, which are
made more frequently and routinely. Therefore, we have to start with strategic decisions and then
move on to tactical decisions. This relationship is shown in Figure 1.4. Tactical decisions must
be aligned with strategic decisions, because they are the key to the company’s effectiveness in
the long run. Tactical decisions provide feedback to strategic decisions, which can be modified
accordingly.

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 No. General decisions to be made Operations
management
term
1 What are the unique features of the business that will make it
Operations strategy
competitive?
2 What are the unique features of the product? Product design
3 What are the unique features of the process that give the product its Process selection
unique characteristics?
4 What sources of supply should we use to ensure regular and timely Supply chain
receipt of the exact materials we need? How do we manage these managements
sources of supply?
5 How will managers ensure the quality of the product, measure quality, Quality management
and identify quality problems?
6 What is the expected demand for the product? Forecasting

7 Where will the facility be located?

Location analysis
8 How large should the facility be? Capacity planning
9 How should the facility be laid out? Where should the kitchen and
ovens be located? Should there be seating for customers? Facility layout

10 What jobs will be needed in the facility, who should do what task, and Job design and work
how will their performance be measured? measurement
11 How will the inventory of raw materials be monitored? When will
Inventory management
orders be placed and how much will be kept in stock?
12 Who will work on what schedule? Scheduling

Table 2 Operations Management Decisions

Operations have responsibility for four major decision areas: process, quality, capacity and
inventory.
1. Process- Decisions in this category determine the physical process or facility used to produce
the product or service. The decisions include the type of equipment and technology, process
flows, layout of the facility and all other aspects of the physical plant or service facility. Many
of these process decisions are long range in nature and cannot be easily reversed, particularly
when heavy capital investment is needed.
2. Quality- The operations function is responsible for the quality of goods and services produced.
Quality decisions must insure that quality is designed and built into the product in all stages of
operations: standards must be set, people trained, and the product or service inspected for
quality to result. Operations have a particular responsibility for producing products and
services that meet the defined specifications and standards.

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3. Capacity- Capacity decisions are aimed at providing the right amount of capacity at the right
place at the right time. Long-range capacity is determined by the size of the physical facilities
built by the firm and its suppliers. In the short run, capacity can sometimes be augment by
subcontracting, extra shifts, or rental of space. Capacity planning, however, determines not
only the size of facilities but also the proper number of people in operations. The available
capacity must be allocated to specific tasks and jobs in operations by scheduling people,
equipment, and facilities.
4. Inventory- Inventory management decisions in operations decisions determine what to order,
how much to order, and when to order. Inventory control systems are used to manage
materials from purchasing through raw materials, work in process, and finished goods
inventories. Inventory managers manage the flow of materials within the firm and within the
supply chain.
Careful attention to the four decision areas is the key to management of successful operations.
If each of the four decisions areas is functioning properly and well integrated with the other
areas and functions of the firm, the operations function can be considered well managed.

1.5. Productivity Measurement

Sound business strategy and supporting operations strategy make an organization more
competitive in the marketplace. However, how does a company measure its competitiveness?
One of the most common ways is by measuring productivity. In this section, we will look at how
to measure the productivity of each of a company’s resources as well as the entire organization.

Recall that operations management is responsible for managing the transformation of many
inputs into outputs, such as goods or services. A measure of how efficiently inputs are being
converted into outputs is called productivity. Productivity measures how well resources are
used. It is computed as a ratio of outputs (goods and services) to inputs (e.g., labor and
materials). The more efficiently a company uses its resources, the more productive it is:

We can use this equation to measure the productivity of one worker or many, as well as the
productivity of a machine, a department, the whole firm, or even a nation.
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The possibilities are shown in Table 1-4.

Table 1-4Productivity Measures

When we compute productivity for all inputs, such as labor, machines, and capital, we are
measuring total productivity. Total productivity describes the productivity of an entire
organization. For example, let us say that the weekly dollar value of a company’s output, such as
finished goods and work in progress, is $10,200 and that the value of its inputs, such as labor,
materials, and capital is $8,600. The company’s total productivity would be computed as
follows:

Often it is much more useful to measure the productivity of one input variable at a time in order
to identify how efficiently each is being used. When we compute productivity as the ratio of
output relative to a single input, we obtain a measure of partial productivity also called single-
factor productivity. Following are two examples of the calculation of partial productivity:
1. A bakery oven produces 346 pastries in 4 hours. What is its productivity?

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 2. Two workers paint tables in a furniture shop. If the workers paint 22 tables in 8 hours,
what is their productivity?

Examples of select partial productivity measures are shown in Table 1-5.

Sometimes we need to compute productivity as the ratio of output relative to a group of inputs,
such as labor and materials. This is a measure of multifactor productivity. For example, let us
say that output is worth $382 and labor and materials costs are $168 and $98, respectively. A
multifactor productivity measure of our use of labor and materials would be:

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Table 1-5 Examples of Partial Productivity Measures

Example
Collins Title Company has a staff of 4 each working 8 hours per day (for a payroll cost of
$640 /day) and overhead expenses of $400 per day. Collins processes and closes on 8 titles each
day. The company recently purchased a computerized title-search system that will allow the
processing of 14 titles per day. Although the staff, their work hours, and pay will be the same,
the overhead expenses are now $800 per day.
- Labor productivity with the old system = 8 titles per day = 0.25 titles per
32 labor-hours labor hour
- Labor productivity with the new system = 14 titles per day = 0.4375 titles

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 32 labor-hours per labor-hour
- Multifactor productivity with the old system = 8 titles per day = 0.0077 titles
640+400 per dollar
- Multifactor productivity with the new system= 14 titles per day = 0.0097 titles
640+800 per dollar

 Labor productivity has increased from 0.25 to 0.4375. The change is 0.43750.25=1.75
or a 75% increase in labor productivity.
 Multifactor productivity has increased from 0.0077 to 0.0097. This change is
0.00970.0077=1.259, or a 25.9% increase in multifactor productivity.

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