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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
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    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
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    Problem Qs: How do we compete?
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    Problem Ans.: Stop imports. Pass a law!!!
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    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 !!!!!
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    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
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    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
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    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?
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    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!!
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   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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