1/19/2017 Principles of Operations Management: Sustainability and Supply Chain Management, Global Edition PRINTED BY: abdelkader.mazouz@aau.ac.ae. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 62 PART 1 INTRODUCTION TO OPERATIONS MANAGEMENT 1.16 An air-conditioner factory makes three different types of air-conditioners: the ceiling type, the cassette type and the wall- mounted type. Weekly sales of each type are 2, 4 and 6 pieces, at a price of 350, 450, and 500 each, respectively. The ceiling type can be assembled in 1.5 hours, the cassette type in 1 hour and the wall-mounted type in 45 minutes. Labour cost is 40 per hour and the current factory's multi factor productivity is 2.2. a) Calculate the average cost per air-conditioner based on cur- rent multifactor productivity b) Calculate labor productivity (in euro per hour) for cach type of air-condition c) Where the company should focus its efforts, based (i) on the labor productivity, and (ii) on average cost? 1.17 As part of a study for the Department of Labor Statistics, you are assigned the task of evaluating the improve- ment in productivity of small businesses. Data for one of the small businesses you are to evaluate are shown at right. The data are the monthly average of last year and the monthly average this year. Determine the multifactor productivity with dollars as the common denominator for: a) Last year. b) This year. c) Then determine the percent change in productivity for the monthly average last year versus the monthly average this year on a multifactor basis. Labor: $8 per hour Capital: 0.83% per month of investment Energy: $0.60 per BTU Production (dozen) Labor (hours) LAST YEAR 1,500 350 THIS YEAR 1,500 325 Capital investment (S) Energy (BTU) 15,000 3,000 18,000 2,700 CASE STUDIES Uber Technologies, Inc. The $41 billion dollar firm Uber Technology, Inc., is unsettling the traditional taxi business. In over 40 countries and 240 mar- kets around the world, Uber and similar companies are chal- lenging the existing taxi business model. Uber and its growing list of competitors, Lyft, Sidecar, and Flywheel in America, and fledging rivals in Europe, Asia, and India, think their smart phone apps can provide a new and improved way to call a taxi. This disruptive business model uses an app to arrange rides between riders and cars, theoretically a nearby car, which is tracked by the app. The Uber system also provides a history of rides, routes, and fees as well as automatic billing. In addition, driver and rider are also allowed to evaluate each other. The services are increasingly popular, worrying established taxi ser- vices in cities from New York to Berlin, and from Rio de Janeiro to Bangkok. In many markets, Uber has proven to be the best, fastest, and most reliable way to find a ride. Consumers world- wide are endorsing the system as a replacement for the usual taxi ride. As the most established competitor in the field, Uber is putting more cars on the road, meaning faster pickup times, which should attract even more riders, which in turn attracts even more drivers, and so on. This growth cycle may speed the demise of the existing taxi businesses as well as provide sub- stantial competition for firms with a technology-oriented model similar to Uber's. The Uber business model initially attempts to bypass a number of regulations and at the same time offer better service and lower fees than traditional taxis. However, the traditional taxi industry is fighting back, and regulations are mounting. The regulations vary by country and city, but increasingly spe- cial licensing, testing, and inspections are being imposed. Part of the fee charged to riders does not go to the driver, but to Uber, as there are real overhead costs. Uber's costs, depending on the locale, may include insurance, background checks for drivers, vetting of vehicles, software development and mainte- nance, and centralized billing. How these overhead costs com- pare to traditional taxi costs is yet to be determined. Therefore, improved efficiency may not be immediately obvious, and contract provisions are significant (see www.uber.com/legal/ usa/terms). In addition to growing regulations, a complicating factor in the model is finding volunteer drivers at inopportune times. A sober driver and a clean car at 1:00 a.m. New Year's Eve does cost more. Consequently, Uber has introduced "surge" pricing. Surge pricing means a higher price, sometimes much higher, than normal. Surge pricing has proven necessary to ensure that cars and drivers are available at unusual times. These higher surge prices can be a shock to riders, making the "surge price" a conten- tious issue. Discussion Questions 1. The market has decided that Uber and its immediate competi- tors are adding efficiency to our society. How is Uber providing that added efficiency? 2. Do you think the Uber model will work in the trucking industry? 3. In what other areas/industries might the Uber model be used? Sources: Wall Street Journal (January 2, 2015), B3, and (Dec. 18, 2014), D1; and www.bloombergview.com/articles/2014-12-11/can-uber-rule-the-world.