Question

You manage a company that installs decks. Currently, your workers install 590 square feet of deck per day. You have four workers per shift, and you have two eight hour shifts per day. Your equipment capital costs are $50 per day. Your material use is 1,500 linear feet of decking per day and 66 pounds of other raw material per day. Your costs are $15 per labor hour, $0.95 per linear foot of decking, and $1.15 per pound of other raw material.

1. What is your current multifactor productivity?

You hire a USC Upstate operations management student named Brooke to improve productivity. Brooke works with your workers to brainstorm and develop three possible approaches.

• The first approach is to reduce material costs. She found a supplier who will charge $0.91 per linear foot of decking and $1.00 per pound of other raw material.

• The second approach is to improve work methods. In this approach, it is estimated that the workers will install 650 square feet of deck per day. The material use is estimated to be 1,660 linear feet of decking and 72 pounds of other raw material.

• The third approach is to automate some parts of the installation process. This would increase capital costs for new equipment and reduce workers used. In this approach, it is estimated that the workers will install 598 square feet of deck per day. The workers can be reduced by one person per shift. The capital costs will increase to $250 per day.

2. Calculate the productivity for each of the possible approaches. What is the best approach to improving productivity? 3. By what percentage was productivity improved with your choice of approach?

Answer 1

(1)

Output per day = 590 sqft.

Input capital per day = $50
Input material per day = 1500 ft of decking x $0.95 per ft. + 66 lb. x $1.15 = $1500.9
Input labor hours per day = 4 workers x 16 hours x $15 per worker hour = $960

So, total input per day = $50 + $1500.9 + $960 = $2510.9

So, multifactor productivity = Output / Input = 590 / 2510.9 = 0.2350 sqft. per dollar

(2)

a -

Reduction in material input per day = 1500 x (0.95 - 0.91) + 66 x (1.15 - 1.00) = $69.9

This will be the reduction in the total input per day because the other input factors are the same as before.

So, productivity =  590 / (2510.9 - 69.9) = 0.2417 sqft. per dollar

b -

Increase in material input per day = (1660 - 1500) x 0.95 + (72 - 66) x 1.15 = $158.9

New output per day = 650 sqft per day

So, productivity = 650 / (2510.9 + 158.9) = 0.2435 sqft. per dollar.

c -

Reduction in labor hour input per day = 1 x 16 x 15 = $240

Increase in capital cost per day = $250 - $50 = $200

New output per day = 598 sqft per day

So, productivity = 598 / (2510.9 - 240 + 200) = 0.2420 sqft. per dollar.

So, the second option gives the highest boost in the productivity among the three alternatives.

(3)

% Improvement = (0.2435 - 0.2350) / 0.2350 = 3.61%