Amazon, an online retailer, plans to invest in a new material handling technolog

Question

Amazon, an online retailer, plans to invest in a new material handling technology, e.g., Kiva robots, that will enable faster processing of orders in its warehouse. Currently, a staff of 95 works for 8 hours per day at a payroll cost of $20 per hour per person. In addition to labor, this facility incurs $500 per day for rent and another 5,000 in miscellaneous expenses related to warehouse operations. Amazon processes an average of 240 orders per day. The new material handling technology allow processing of 300 orders per day. The company will lay off 65 workers and the remaining workers will get a raise to receive $25 per hour per person and will continue to work 8 hours per day. However, daily miscellaneous expenses will go up to $15,000. Compute the expected change in multifactor productivity for Amazon if they invest in the new material handling technology by answering the questions below. NOTE: SHOW ALL YOUR WORK. USE 4 DECIMAL PLACES IN YOUR CALCULATIONS. a) (1 point) What is (are) the input(s) that would be used to calculate productivity at Amazon? b) (1 point) What is (are) the output(s) that would be used to calculate productivity at Amazon 1 point) Provide the exact formula to calculate multi-factor productivity for Amazon. (Your answer should be in the form of an equation without any numbers or calculations.) d) (3 points) What is the expected percentage change in multifactor productivity at Amazon itf the company invests in the new material handling technology? NOTE: Use 4 decimal points in all your calculations. Do NOT round values to nearest whole numbers.

Explanation / Answer

Productivity is a measure of efficiency of production and is expressed as a ratio of output to input in a production process i.e output per unit of input.

a) In this case the Input would be the Dollars ($) spent on orders processed.

b) The output here would be the Orders processed.

c) Multifactor productivity is the value of output to value of input resources

value of input = Labour cost + Rent+Overhead

Value of output = orders processed

So formula of multifactor productivity would be = ( number of orders processed) / ( Labour cost + Rent cost + Overhead cost)

d) Initial productivity = 240/ ( 95x20 + 500+ 5000) = 240/7400 = 0.0324 orders per dollar spent

New productivity after investing in material hanling technology = 300/ ( 30x25+ 500+ 15000) = 300/16250 =0.0185

percentage change in productivity = (0.0185- 0.0324)/ 0.0324 = -43.08% i.e productivity will reduce by 43.08 %

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