I. OBJECTIVES AND SCOPE
Our group aims aims to addres address s the case study study on the Norwe Norwegia gian n Salmon Salmon Proces Processin sing g Facili Facility ty in Trondheim. It also aims to apply concepts and techniques on multifactor productivity measurement to show how changes in both input and output variables affect the overall productivity and how these changes in productivity can be interpreted and used as basis for the company!s decision to upgrade its facility. Specifically Specifically the group will address the following concerns" #. $etermine $etermine the producti productivity vity of the processi processing ng facility facility using current current equipment. equipment. %. $etermine $etermine productiv productivity ity of the plant plant if the new system system were purchased purchased and implement implemented. ed. &. $etermine $etermine the amount amount of additional additional e'pense e'pense on equipment equipment that would would ma(e productiv productivity ity of the two systems equal. ). Identify Identify the the effect effect of increasi increasing ng energy energy costs costs.. The case study will be limited only to the analysis of NorSal Trondheim!s salmon processing facility. *ence purchase of fish from local sources along the North Sea and selling to customers for distribution which is beyond the scope of the case analysis will not be considered. In addition the following plant process operating conditions will be ta(en into consideration" #. The plant plant operate operates s for five +,+,- days a wee( in two shift shifts s only since since adding adding a & rd shift is not rd possible because the plant is cleaned every & shift. %. The plant plant has has & wor(ers wor(ers per shift shift which which are are paid /# /# per hour. hour. &. The energy energy costs costs of of the plant are are presently presently /# per per unit. 0nder these operating conditions NorSal Trondheim is considering upgrading its current facility to increase plant productivity since the factory has enough demand to cover capacity. 1lthough an equipment upgrade would mean additional cost a moderni2ed plant would on the contrary reduce energy energy consum consumpti ption. on. It is theref therefore ore necess necessary ary to comput compute e for the produc productiv tivity ity of the current current equipment and the proposed new system. 3oreover the amount of additional e'pense on the equipment that would ma(e productivity of the two systems equal as well as the effect of increasing energy costs will also be identified to aid in the evaluation of the case which will be the bases for the group!s recommendation. The following data are given for the current equipment and proposed upgrade" #. 4ith 4ith the the curren currentt equipm equipment ent"" +a- #, pounds pounds of salmon salmon can be processed processed each hour hour and +b- # units units of energy is used per per wee( %. 4ith the moderni2ed moderni2ed plant +upgraded +upgraded facility-" facility-" +a- % pounds pounds of salmon salmon can be processed processed each hour hour +b- cost to train personnel personnel are assumed assumed to be negligible +since +since with the updated equipment equipment being made by the same manufacturer the production personnel feel that they will be able to learn to use the new equipment quic(ly- +c- cost cost for purchas purchase e of the new equipmen equipmentt will will be /# /# per wee( +already +already include includes s principal interest and manufacturer!s installation of the new equipment- and +d- energy consumption consumption would by ,5 1ll computations will be based on the data and operating conditions indicated above.
II. ANALYSES AND DISCUSSIONS
6omputations and analysis of the specified ob7ectives are addressed in the succeeding sections" A. Productivity of the Processi! "#ci$ity usi! Curret E%ui&'et
Multifactor Productivity =
Output Labor + Material + Energy + Capital + Miscellaneous
6ompute for each component of the multifactor productivity equation"
Output =
Labor =
Energy=
(
( )(
(
)(
) (
)(
1,500 pounds salon # !ours $ s!ift 5 days " " " !our s!ift day %ee&
'10 !our
) (
)(
) (
)
=
1$0,000 pounds of salon %ee&
)
# !ours (0 %or&ers $ s!ift 5 days " " " = '$),000*%ee& %or&er s!ift day %ee&
1,000 energy units %ee&
)(
)
'10 = '10,000*%ee& energy unit
3aterial 8 +since purchase of fish from local sources along the North Sea is not part of the scope6apital 8 +since the older equipment is already paid for3iscellaneous 8 +since no other additional e'penses were indicated other than capital and energySubstitute each of the computed components in the given multifactor productivity equation"
Multifactor Productivity of Current Euipent =
Multifactor Productivity of Current Euipent =
1$0,000 pounds of salon*%ee& '$),000 '10,000 + %ee& %ee&
(
)(
)
(5( pounds of salon dollar
B. Productivity of the P$#t if the Ne( Syste' (ere Purch#sed #d I'&$e'eted
Multifactor Productivity =
Output Labor + Material + Energy + Capital + Miscellaneous
6ompute for each component of the multifactor productivity equation"
Output =
(
)(
) (
)(
)
$,000 pounds salon # !ours $ s!ift 5 days 1-0,000 pounds of salon " " " = !our s!ift day %ee& %ee&
Note that labor is the same for the current equipment and the new system.
Labor =
( )( '10 !our
) (
)(
) (
)
# !ours (0 %or&ers $ s!ift 5 days " " " = '$),000*%ee& %or&er s!ift day %ee&
Since energy is reduced by ,5"
Energy =
(
1,000 energy units %ee&
)(
)
'10 ( 050 ) = '5,000*%ee& energy unit
3aterial 8 +since purchase of fish from local sources along the North Sea is not part of the scope6apital 8 /#9wee( 6apital for purchase of new equipment already includes principal interest and manufacturer!s installation fee. 3iscellaneous 8 +since no other additional e'penses were indicated other than capital and energySubstitute each of the computed components in the given multifactor productivity equation"
Multifactor Productivity of .e% /yste =
Multifactor Productivity of .e% /yste =
1-0,000 pounds of salon*%ee& '$),000 '5,000 '10,000 + + %ee& %ee& %ee&
(
)(
)(
)
)10 pounds of salon dollar
Ta(ing all indicated factors into consideration productivity for the new system +).# pounds of salmon9dollar- is higher compared to that of the current system +&.,& pounds of salmon9dollar-. This can be attributed to the combination of increase in salmon processing capacity and decrease in energy consumption with the introduction of the new equipment. *ence even though it would cost the plant roughly /#9wee( for the new system the productivity is still higher compared to that of the current system which ma(es the option of using the new system strategic and sound. C. Additio#$ E)&ese o E%ui&'et th#t '#*es Productivity of the T(o Syste's E%u#$
To determine the amount of additional e'pense on the new equipment that would ma(e the productivity of the two systems equal equate the multifactor productivity of the current equipment to that of the new system while ta(ing the additional e'pense or miscellaneous component of the new system variable.
Multifactor Productivity Current Euipent = Multifactor Productivity of .e% /yste
1$0,000 pounds of salon*%ee& 1-0,000 pounds of salon*%ee& = '$),000 '10,000 '$),000 '5,000 '10,000 + + + +2dditional E"pense %ee& %ee& %ee& %ee& %ee&
(
)(
)
(
)(
)(
)
2dditional E"pense on .e% Euipent = '-,(((((*%ee& It can be observed that the amount of additional e'pense that must be incurred to the new system +/:&&&.&&9wee(- for it to equal the current system is appro'imately more than half +:&.&&5- of what it would cost the plant to use the new system +/#9wee(-. This proves even more that the new system is more productive than that of the current system since :&.&&5 can similarly translate to a cost advantage. D. Effect of Icre#si! Eer!y Costs
If energy costs doubles" New ;nergy 6ost" /#9unit ' % 8 /%9unit $.# 6urrent ;quipment"
Energy =
(
1,000 energy units %ee&
)(
)
'$0 = '$0,000*%ee& energy unit
Multifactor Productivity of Current Euipent =
Multifactor Productivity of Current Euipent =
1$0,000 pounds of salon*%ee& '$),000 '$0,000 + %ee& %ee&
(
)(
)
$3( pounds of salon dollar
$.% New System"
Energy =
(
1,000 energy units %ee&
)(
)
'$0 05 = '10,000*%ee& energy unit
Multifactor Productivity of .e% /yste =
1-0,000 pounds of salon*%ee& '$),000 '10,000 '10,000 + + %ee& %ee& %ee&
(
)(
)(
)
Multifactor Productivity of .e% /yste =
(-) pounds of salon dollar
