General Motors (GM) Production theory and Estimation

Syndicate 5 :Rohimat EffendiMeilina MarsintaSufian TanReza Ahmad PalaGeneral Motors (GM) Production theory and EstimationCompany BackgroundThe largest carmaker in the worldGM has 33 % of Us car market, down from 46 % in 1978 and 35 % in 1991It started by incuring huge loses $2 billion in 1990, and 4,5 $ in 1991Problems : bloated work force and management, low capacity utilization, too many division and models, and high cost supplier

The Organization of ProductionInputs >> the resources used in production of good and services, such as : Labor, Capital, LandFixed Inputs >> those that cannot be readily changed during the time period under considerationVariable Inputs >> those can be varied easily and on very short noticeShort Run>> At least one input is fixedLong Run>> All inputs are variableInput of ProductionIn 1991, General Motors (GM) has Labor = 756 thousand worker, with 50,000 blue worker and 24,000 white collar (2:1)21 plants then closeThe plant capacity of 2 million cars and truck per year and left GM with 5 to 5,5 million capacity to north America operation Comparation of total sales, employee, and sales per employee at GM, Ford, Chrysales in 1991companySales in billion dolarEmployee in thousandSales per employeeGeneral motors123,1756162,7Ford88,3333265,4chrysler29,4123238,8From the table above, productivity level of GM much lower than the other competitor, due to the sales and employeePrepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide 6Optimal Use of theVariable InputMarginal RevenueProduct of LaborMRPL = (MPL)(MR)Marginal ResourceCost of LaborMRCL =TC LOptimal Use of LaborMRPL = MRCLPrepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide 7Returns to Scale

Constant Returns to ScaleIncreasing Returns to ScaleDecreasing Returns to ScaleDecreasing return to scale Decreasing return to scale, on the other hand, arise primarily because of the scale of operation increase, it becomes ever more difficult to manage the firm effectively and coordinate the various operations and divisions of the firm

VS=

White or blue collar??The real actionCut average manufacturing time per vehicleCentralized sales and service and marketing systemSpun of its auto component groupsOutsource of assembly task

As the result in 2002 , GM has surpassed ford on vehicle productivity, quality ratings. And profitability