Question:
Answer:
Labor productivity is considered to be an index of the output per hour per or person worked. Comparable measures might be used for machine production where in this case the denominator is the number of the machine (Carter, and Liane, 2011). Basing on Mack’s guitar fabrication shop case, the labor productivity ratios will be calculated as below;
Data provided
Total production = 100 guitars
80% considered good enough to sell
20% are scrapped
Each guitar sells for US$250
Each guitar requires 10 labor hours
Labor cost is US$10 per hour
Material cost is US$40 per guitar
Overhead cost is US$4,000
Question (a):
Calculation of labor productivity ratio
Labor cost = 10 labor hours * US$10 per hour * 100
Labor cost = US$10,000
Labor productivity ratio = output/input
Labor productivity ratio = 80 = 0.08 per hour
10 X 100
Labor productivity ratio = 0.08 per hour
Calculation of multi factor productivity ratio
Multi factor productivity ratio = output/input
Value of inputs = materials + labor + overheads
Multi factor productivity ratio = 80*250 = 1.11
4,000 + 10,000 + 4,000
Multi factor productivity ratio = 1.11
Question (b): the greatest effect on the multifactor productivity ratio
Option 1: increasing the sales price by 10%
10/100 of US$250 is 25. Therefore, the increased sales price is (250+25) = US$275
Multi factor productivity = 80*275 = 1.22
4,000 + 10,000 + 4,000
If Mack’s guitar fabrication shop resolves to implement David Clark 1st option to improve the multifactor productivity, then the new productivity level would be 1.22. In this case, if the business increase sales, it will not offer a substantial strategy that can enable the business increase its production (Jacobs, and Chase, 2013).
Option 2: improve quality so that only 10% are defective
10/100 of 100 is 10. Therefore, the reduced defectiveness is (100 - 10) = 90
Multifactor productivity = 90*250 = 1.25
4,000 + 10,000 + 4,000
If Mack’s guitar fabrication shop chooses to implement David Clark 2nd option to improve the multifactor productivity, then the new productivity level would be 1.25 (Stadtler, 2015).
Option 3: Reduce labor materials and overhead costs by 10% each
10/100 of 4,000 is 400. Therefore, the reduced labor material is (4,000 - 400) = 3,600
10/100 of 4,000 is 400. Therefore, the reduced overhead costs is (4,000 - 400) = 3,600
10/100 of 10,000 is 1,000. Therefore, the reduced overhead costs is (10,000 – 1,000) = 9,000
Multi factor productivity = 80*250 = 1.23
3,600 + 9,000 + 3,600
If Mack’s guitar fabrication shop agrees to implement David Clark 3rd option to improve the multifactor productivity, then the new productivity level would be 1.23. Reducing the labor materials and overhead costs by 10% each is considered not enough to facilitate the business increase its overall revenue since it results in a Multifactor productivity of 1.23 (Tayur, Ganeshan, and Magazine, 2012).
For Mack’s guitar fabrication shop to increase the multifactor productivity level, out of the three identified options by David Clark, option 2 is the option that primarily provides the most improvement in productivity (Christopher, 2016). Mack’s guitar fabrication shop should implement the 2nd option because it will enable the business increase its production and hence revenue.
Bibliography
Carter, C.R. and Liane Easton, P., 2011. Sustainable supply chain management: evolution and future directions. International journal of physical distribution & logistics management, 41(1), pp.46-62.
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Jacobs, R. and Chase, R., 2013. Operations and supply chain management. McGraw-Hill Higher Education.
Stadtler, H., 2015. Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). Springer Berlin Heidelberg.
Tayur, S., Ganeshan, R. and Magazine, M. eds., 2012. Quantitative models for supply chain management (Vol. 17). Springer Science & Business Media.
