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Chapter 1 Intor to OM

# Chapter 1 Intor to OM - Welcome ISM3600 Dr.Verma...

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Welcome                     ISM 3600         Introduction to Operations Mgt.                                    Dr. Verma

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General Information   All  handouts including syllabus will be             posted on Blackboard.   Refer to the syllabus about structure of     course, course requirements, exams  and  grades.    Contact Dr. Verma via e-mail if you have  any questions at [email protected]

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Problem Given: Company needs 10,000,000 units
Problem Produce in house: FC = \$1,000,000 Labor cost = \$50/hour Time to make 1 unit = 1 hour TC = \$1,000,000 + (10,000,000) x (1hour/unit) x \$50/ hour) = 1,000,000 + \$50,000,000 = \$51,000,000

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Problem Foreign manufacturer: FC = \$500,000 Labor cost = \$10/hour Time to make 1 unit = 2 hours TC = \$500,000 + (10,000,000) x (2 hours/unit) x \$10/hour) = \$500,000 + \$20,000,000 = \$20,500,000
Problem Qs: How do we compete?

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Problem Ans.: Stop imports. Pass a law!!!
Problem Option 1: Reduce FC from \$1,000,000 to \$750,000 Union agrees to reduce labor cost from \$50/hour to \$30/hour TC = \$750,000 + (10,000,000) + (1 hour/unit) x (\$30/hour) = \$750,000 + \$30,000,000 = \$30,750,000

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Problem Option 1: \$30,750,000 as compared to \$20,500,000 from foreign manufacturer NOT GOOD ENOUGH !!!!!
Problem Now what !!!!! Ban imports !!!

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Problem Option 2: Reduce FC from \$1,000,000 to \$750,000 Union agrees to reduce labor cost from \$50 / hour to \$30 / hour Improve productivity: 1 hr/unit 0.65 hrs/unit TC = \$750,000 + (10,000,000) + (0.65 hour/unit) x (\$30/hour) = \$750,000 + \$19,500,000 = \$20,250,000
Problem Option 1: \$20,50,000 as compared to \$20,500,000 from foreign manufacturer WE DID IT !!!!! Conclusion: WE BEAT THEM !!!!!!

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Problem HOW did we beat them? By reducing cost; both fixed cost and labor cost. Improving productivity
Problem Qs: Could we match foreign manufacturer without reducing our wages?

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Problem Ans: What if we focused simply on improving productivity? What if we improved productivity and reduced the time to make one unit from 1 hour to 0.40 hours?
Problem TC = \$1,000,000 + (10,000,000) + (0.40 hour/unit) x (\$50/hour) = \$1,000,000 + \$20,000,000 = \$21,000,000 Compared to \$20,500,000 from foreign manufacturer

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Problem Qs: How do we improve productivity? Ans.: Work faster!!! Train employees Buy better/newer machines and equipment!!!! Better production systems and procedures Stop complaining about imports and do something instead to compete head on!!
Chapter 1 Introduction to Operations Management

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Role of OM Improve productivity and efficiency Lower Cost Increase flexibility and speed Improve quality OM as component of corporate     strategy
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