Chapter 1 Productivity and Yield
Section 1.1 Functional Productivity
Example 1.1 Nokia Cellphone
Table 1.1 Data Summary (per Month)
Options by Management Function
Item Current
Marketing Finance Operations
Units sold 450 x x x
Price per unit ($) 70 15% x x
Product cost per unit ($) 45 x x -15%
Finance charge ($) 7,580 x -15% x
Tax rate 20% x x x
Table 1.2 Effect of Options
Options by Management Function
Item Current
Marketing Finance Operations
Units sold 450 450 450 450
Price per unit ($) 70 81 70 70
Product cost per unit ($) 45 45 45 38
Finance charge ($) 7,580 7,580 6,443 7,580
Tax rate (%) 20% 20% 20% 20%
Table 1.3 Increase in Income
Options by Management Function
Item Current
Marketing Finance Operations
Sales ($) 31,500 36,225 31,500 31,500
Product cost ($) 20,250 20,250 20,250 17,213
Gross margin ($) 11,250 15,975 11,250 14,288
Finance charge ($) 7,580 7,580 6,443 7,580
Sub-total ($) 3,670 8,395 4,807 6,708
Tax due ($) 734 1,679 961 1,342
Income after tax ($) 2,936 6,716 3,846 5,366
Increase/(decrease) from current ($) 3,780 910 2,430
Increase/(decrease) from current (%) 129% 31% 83%
Best option (maximum)? YES NO NO
Section 1.2 Productivity Options
Example 1.2 HP Laptop
Table 1.4 Data Summary (per Day)
Item Current Option 1 Option 2 Option 3
Number of staff 50 -22% -20% x
Working hours/day 8 x x 25%
Payroll cost/hour ($) 15 -20% x x
Number of machines 2 x 150% x
KWH used/machine 200 x x 10%
Power cost/KWH ($) 1 100% x x
Units produced/day 20 x x 70%
Material cost/unit ($) 6 x -50% x
Table 1.5 Effect of Proposal
Item Current Option 1 Option 2 Option 3
Number of staff 50 39 40 50
Working hours/day 8 8 8 10
Payroll cost/hour ($) 15 12 15 15
Number of machines 2 2 5 2
KWH used/machine 200 200 200 220
Power cost/KWH ($) 1 2 1 1
Units produced/day 20 20 20 34
Material cost/unit ($) 6 6 3 6
Table 1.6 Labor Productivity
Item Current Option 1 Option 2 Option 3
Labor-hours/day 400 312 320 500
Units/labor-hour 0.0500 0.0641 0.0625 0.0680
Increase/(decrease) from current (units) 0.0141 0.0125 0.0180
Increase/(decrease) from current (%) 28% 25% 36%
Best option (maximum)? NO NO YES
Table 1.7 Power Productivity
Item Current Option 1 Option 2 Option 3
KWH used/day 400 400 1,000 440
Units/KWH 0.0500 0.0500 0.0200 0.0773
Increase/(decrease) from current (units) 0.0000 -0.0300 0.0273
Increase/(decrease) from current (%) 0% -60% 55%
Best option (maximum)? NO NO YES
Table 1.8 Multifactor Productivity (per Day)
Item Current Option 1 Option 2 Option 3
Labor cost/day ($) 6,000 3,744 4,800 7,500
Power cost/day ($) 400 800 1,000 440
Material cost/day ($) 120 120 60 204
Total cost/day ($) 6,520 4,664 5,860 8,144
Units/$ 0.0031 0.0043 0.0034 0.0042
Increase/(decrease) from current (units) 0.0012 0.0003 0.0011
Increase/(decrease) from current (%) 40% 11% 36%
Best option (maximum)? YES NO NO
Section 1.3 Yield Management
Example 1.3 Intercontinental Hotel
Table 1.9 Data Summary (per Night)
Number of Amount per Room per Night ($)
No-Shows Probability Variable Overflow
(Rooms) Price
Cost Cost
0 0.27
1 0.34
125 36 85
2 0.21
3 0.18
Table 1.10 Maximum Optimal Probability
Number of Maximum Optimal Probability
No-Shows Probability Product Profit per Profit + Maximum
(Rooms) Room Overflow Probability
0 0.27 0.00
1 0.34 0.34
2 0.21 0.42
89 174 0.511
3 0.18 0.54
Total 1.00 1.30
Expected cost/night ($) 115.70
Table 1.11 Optimal Overbooking
Number of P(n < x) <=
No-Shows Probability P(n < x) Maximum?
(Rooms) Yes/No
0 0.27 0.00 YES
1 0.34 0.27 YES
2 0.21 0.61 NO
3 0.18 0.82 NO
Optimal overbooking (rooms) 1
Table 1.12 Net Savings (per Night)
Number of Overflow Customers Net No-Shows Amount ($) with Overbooking
No-Shows Probability
(Rooms)
Number of
No-Shows Probability No With
(Rooms) Rooms Product Rooms Product Net Savings
Overbook Overbook
0 0.27 1 0.27 0 0.00
1 0.34 0 0.00 0 0.00
2 0.21 0 0.00 1 0.21
115.70 73.68 42.02
3 0.18 0 0.00 2 0.36
Total 1.00 1 0.27 3 0.57
Cost/unit & Total cost 85 22.95 89 50.73