52 PART 1 | INTRODUCTION TO OPERATIONS MANAGEMENT Ditty Improving Productivity at Starbucks “This isa game of seconds.” sa Siva Peterson, whom Starbucks has put ‘sa res, operation inprve incharge of saving seconds. Her team of 10 ana is constant asking ment l Starbucks oute's have ‘hamselvs: "How can we shave time off this? increased the average transactions Peterson's analysis sugested thal here were some obvious opportunites. per hour to 11.7—a 46% incease— Fis, top equring gratues on creditcard purchases under $25. This siced an ‘ second off the tan yearly volume by $250,000, to nme at the cash regi. shout $1 milion. The est: 27% “barista in Starbucks's vocabulary, to do othe things. The savings: about same Ocoee 18 2010 a 12 sacons pe expresso shot Dap, 2009), Then anasts noticed that Starbucks largest cod beverage, the Vent se, required twa bending and ciging motions to scoop up enough ie. Ts shout 45% per yea. Inthe s as too small. Redesign ofthe scoop provided fe proper amount in Industry, a4 59% per ya Ineease is . tion and cut 14 seconds ofthe average time of minute very ts zg Thi were new espresso machines; wih the push a button, the 5 machines grind cofee beans and be. This led ie sever, caled @ Sources: Business eck (Auou g 5 Productivity Measurement LO 1.4 Compute ‘The measurement of productivity can be quite direct. Such is the ease when productivity is single-factor productivity measured by labor-houts per ton of a specific type of stel. Although labor-hours is a common ‘measure of input, other measures such as capital (dollars invested), materials (tons of ore), or energy (kilowatts of electricity) can be used.* An example of this can be summarized in the following equation: Units produced Productivity = TO ised at) For example, if units produced = 1,000 and labor-hours used is 250, then: Units produced 1,000 Single-factor productivity = [EPs = So = 4 units per labor-hour ‘The use of just one resource input to measure productivity, as shown in Equation (1-1), is Single-tactorroductity now as single-actrprodutvy. However, a broader view of productivity is muliactrproductviy, indicates the goods anc which includes all inputs (¢-g., capital, labor, material, energy). Multifactor productivity is also ics an pak) 0% known as foal factor productivity. Mulifactor productivity is calculated by combining the {input input units as shown here: Mute productiy ouput Wists heresaienang Multifactor productivity ~ ~————_—____Ouiput__(,, ta ea au tifactor productivity = eS Material + Energy = Capital > Miscellaneous To aid in the computation of multifactor productivity, the individual inputs (the denominator) can be expressed in dollars and summed as shown in Example 2. Example 2 | COMPUTING SINGLE-FACTOR AND MULTIFACTOR GAINS IN PRODUCTIVITY Collins Title Insurance Ld. wants to evaluate its labor and multifactor productivity with a new comput- rized tile search system, The company has a staf of four, each working § hours per day (for a payroll cost of S640/day) and overhead expenses of S400 per day. Collins processes and closes on $ ticles each day. The new computerize tile-search system will allow the processing of 14 titles per day. Although the staf, their work hours, and pay are the same, the overhead expenses are now $800 per day APPROACH Collins uses Equation (1-1) to compute labor productivity and Equation (1-2) to com. pute multifactor productivity.LO 1.5 Compute multifactor productivity CHAPTER 1 OPERATIONS AND PRODUCTIVITY 53 SOLUTION Stitles per day 3Wiabor-hours 14 Gilles per day labor-hours B titles per day ‘3640 = 400 14 titles per day SERRE — 0097 tths per dollar SEO Boo 7 0097 tits per doll Labor productivity has increased from .25 to 4375. The change is (.4375 — .28)/.28 = 0.75, or a 175% increase in labor produetivity. Multifactor produetivity has inereased from .0077 to .0097. This, change is (0097 — .0077)/ 0077 = 0.26, or a 26% increase in multifactor productivity Labor productivity with the od system: = 25 titles per labor-hour Labor productivity with the new system: 4375 titles per labor-hour Multifactor productivity with the old system: 0077 titles per dollar Multifactor productivity with the new system: INSIGHT P Both the labor (single-factor) and multifactor productivity measures show an increase in productivity, However, the muhifactor measure provides a better picture of the inerease because it includes al the costs connected with the increase in utp. LEARNING EXERCISE ® If the overhead goes to $960 (rather than $800), what is the multifactor productivity? [Answer: 00875] RELATED PROBLEMS 1.1, 12, 14,15,16,17, 1.81.9, 110,111,113, 114,117 Use of productivity measures aids managers in determining how well they are doing. But results from the two measures can be expected to vary. If labor productivity growth is entirely the result of capital spending, measuring just labor distorts the results. Multifactor productivity is usually better, but more complicated. Labor productivity is the more popular measure. The ‘multifactor-produetivity measures provide better information about the trade-offs among fac ‘ors, but substantial measurement problems remain, Some of these measurement problems are: 1. Quality may change while the quantity of inputs and outputs remains constant. Compare an HDTV of this decade with a black-and-white TV of the 1950s. Both are TVs, but few people would deny that the quality has improved. The unit of measure a TV_ is the same, but the quality has changed. 2. External elements may cause an increase or a decrease in productivity for which the sys- tem under study may not be directly responsible. A more reliable electric power service may greatly improve production, thereby improving the firm's productivity because of this support system rather than because of managerial decisions made within the firm. 3. Precise units of measure may be lacking. Not all automobiles require the same inputs: ‘Some cars are subcompacts, others are 911 Turbo Porsches, Productivity measurement is particularly difficult in the service sector, where the end product can be hard to define. For example, economic statistics ignore the quality of your haircut, the ‘outcome of a court case, or the service at a retail store. In some eases, adjustments are made for the quality of the product sold but nor the quality of the sales presentation or the advantage of a broader product selection, Productivity measurements require specific inputs and out- puts, but a free economy is producing worth what people want—which includes convenience, speed, and safety. Traditional measures of outputs may be a very poor measure of these other ‘measures of worth. Note the quality-measurement problems in a law office, where each case is different, altering the accuracy of the measure “cases per labor-hour” or “cases per employee.” Productivity Variables ‘As we saw in Figure 1.6, productivity inereases are dependent on three productivity variables: Prodvtvy variables 1. Labor, which contributes about 10% of the annual increase ee tase 2. Capital, which contributes about 38% of the annual inerease. taplal andthe at end sinc 3. Management, which contributes about 52% of the annual increase, ‘These three factors are critical to improved productivity. They represent the broad areas in which managers can take action to improve productivity management