Presentation on theme: "Lecture 2 Productivity and Measurement Dr. Arshad Zaheer."— Presentation transcript:
1Lecture 2Productivity and MeasurementDr. Arshad Zaheer
2Recap Management Operations Value-Added Operations Interfaces Definition of Operations ManagementNomenclatureGoods and ServicesResponsibilities of Operations ManagerNew Trends in OM
3Lecture Outline Productivity definition Factors effecting productivity Single factor productivityMultifactor productivityProductivity MeasurementProductivity analysis in enterprisesProblems
4Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital)The objective is to improve productivity!Important Note!Production is a measure of output only and not a measure of efficiency
6Productivity Units produced Input used Productivity = Measure of process improvementRepresents output relative to inputOnly through productivity increases can our standard of living improveHow can we improve?Labor, Technology, Management
8Multi-Factor Productivity OutputLabor + Material + Energy + Capital + MiscellaneousProductivity =Also known as total factor productivityMultiple resource inputs multi-factor productivity
9Labor Productivity At national level: Labor productivity- computed by taking entire economically active population as inputTotal value of goods & services produced as output.National productivity =GNPPopulation
10Productivity Measurement Productivity Measurement is important for productivity improvement.Very effective tool for decision-making at all economic levels.Success of productivity measurement & analysis depends largely upon clear understanding by all parties concerned (enterprise managers, worker, employers, trade union orgs & government; institutions) of why productivity measurement is important for effectiveness of org.
11Productivity Analysis in Enterprise Simple & practical approaches to productivity analysis are:Measurement of workers productivityMeasurement systems for planning & analyzing unit labor requirements.Measurement system of labor productivity aimed at structure of labor resource use.Value added productivity at enterprise level.
12Productivity Analysis in Enterprise . Three of most common purpose are:Comparing enterprise with its competitors.Determining relative performance of departments & workersComparing relative benefits of various types of input for collective bargaining & gain sharing.
13Collins Title Productivity Collins title wants to evaluate its labor and multifactor productivity with a new computerized title-search system. The company has a staff of four, each working eight hours per day (for a payroll of cost of $640/day) and overhead expenses of 400$ per day. Collins processes and closes on eight titles each day. The new computerized title-search system will allow the processing of 14 titles per day. Although the staff, their work hours and pay are the same, the overhead expenses are now 800$ per day. What is the labor productivity and multifactor productivity with old and new system?
14Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:8 titles/day32 labor-hrs=Old labor productivity
15Collins Title Productivity Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/dayOld System:8 titles/day32 labor-hrs=Old labor productivity= .25 titles/labor-hr
22Measurement ProblemsQuality may change while the quantity of inputs and outputs remains constantExternal elements may cause an increase or decrease in productivityPrecise units of measure may be lacking
23Productivity Variables Labor - contributes about 10% of the annual increaseCapital - contributes about 38% of the annual increaseManagement - contributes about 52% of the annual increase
24Problem 1The Production Manager at a Textile Mills, can currently expect his operation to produce 1000 square yards of fabric for each ton of raw cotton. Each ton of raw cotton requires 5 labor hours to process. He believes that he can buy a better quality raw cotton, which will enable him to produce 1200 square yards per ton of raw cotton with the same labor hours.What will be the impact on productivity (measured in square yards per labor-hour) if he purchases the higher quality raw cotton?
25Current Labor Productivity New Labor Productivity Solution1000 sq yds1 ton * 5 hours=Current Labor Productivity= 200 sq yds per hour1200 sq yds1 ton * 5 hours=New Labor Productivity= 240 sq yards per hourProductivity improves 20%= ( ) / 200 = 0.2 (20%)
26Problem 2A local auto mechanic finds that it usually takes him 2 hours to diagnose and fix a typical problem. What is his daily productivity (assume an 8 hour day)?He believes he can purchase a small computer trouble-shooting device, which will allow him to find and fix a problem in the incredible (at least to his customers!) time of 1 hour. He will, however, have to spend an extra hour each morning adjusting the computerized diagnostic device. What will be the impact on his productivity if he purchases the device?
27Productivity with computer Solution8 hours per day2 hours per problem=Current Productivity= 4 Problems per day8 hours per day2 hours per problem=Productivity with computer= 7 Problems per dayProductivity improves 75% (7-4) / 4 = 0.75 (75%)
28Problem 3Susan has a part-time "cottage industry" producing seasonal plywood yard ornaments for resale at local craft fairs and bazaars. She currently works 8 hours per day to produce 16 ornaments.a. What is her productivity?b. She thinks that by redesigning the ornaments and switching from use of a wood glue to a hot-glue gun she can increase her total production to 20 ornaments per day. What is her new productivity?c. What is her percentage increase in productivity?
30Problem 4A firm cleans chemical tank cars. With standard equipment, the firm typically cleaned 70 chemical tank cars per month. They utilized 10 gallons of solvent, and two employees worked 20 days per month, 8 hours a day. The company decided to switch to a larger cleaning machine. Last April, they cleaned 60 tank cars in only 15 days. They utilized 12 gallons of solvent, and the two employees worked 6 hours a day.1. What was their productivity with the standard equipment?2. What is their productivity with the larger machine?3. What is the change in productivity?
32Problem 5Joanna French is currently working a total of 12 hours per day to produce 240 dolls. She thinks that by changing the paint used for the facial features and fingernails that she can increase her rate to 360 dolls per day. Total material cost for each doll is approximately $3.50; she has to invest $20 in the necessary supplies (expendables) per day; energy costs are assumed to be only $4.00 per day; and she thinks she should be making $10 per hour for her time. Viewing this from a total (multifactor) productivity perspective, what is her productivity at present and with the new paint?
33Solution Currently Using the new paint Labor 12 hrs * $10 = $120 = $ 120Material240 * $3.50= $840360 * $3.50= $1260Supplies= $ 20= $ 20Energy= $ 4= $Total Inputs= $984= $1404Productivity240/984= 0.24360/1404= .26
34Problem 6(Refer Problem 5) How would total (multifactor) productivity change if using the new paint raised Ms. French’s material costs by $0.50 per doll?
35Solution If the material costs increase by $0.5 per doll: Using the new paintLabor12 hrs * $10= $ 120Material360 * $4= $1440Supplies= $ 20Energy= $Total Inputs= $1584Productivity360/1584= .23
36Problem 7(Refer Problem 6) If she uses the new paint, by what amount could Ms. French’s material costs increase keeping the total (multifactor) productivity same as 0.24?
37SolutionWe want to know how high the material cost could go, using the new paint, before the productivity drops to the current level of In mathematical terms we make the material cost a variable (X), set the new multifactor productivity value to the current level, 0.24, and solve for X.360(12x10) + (360X)= 0.24360= 0.24( X360= XX =3.77 $It follows then that the new paint could raise Materials cost by no more than approximately $0.27 (the difference between $3.77 and $3.50) before Ms. French would experience a decrease in multifactor productivity.
39SolutionTotal output is 1600 valves per day. 20 workers are active for eight hours per day. So Total working hours per day are 20x8=160. So Labor Productivity is 1600/160 i.e. 10 valves/hour.(b) Productivity rises by 20 percent, to 12 valves/hour. output will be 12x8x20 = 1920(c) New productivity is 1800 / (20 x 8) = valves/hour(d) Gibson did not gain the desired 20 percent increase in productivity, but they did gain overten percent, without extra equipment or energy, and without increasing the wage bill.
42Problem 10A farmer grows crop in his 100 by 100 foot garden. He then sells the crop at the local farmers' market. Two summers ago, he was able to produce and sell 1200 pounds of crop. Last summer, he tried a new fertilizer that promised a 50% increase in yield. He harvested 1900 pounds. Did the fertilizer live up to its promise?
43Solution Two summer ago Last Sumer Change 1200/10000=0.12 lbs/sq ft ( )/0.12 = 58.3%Since the productivity gain was 58.3%, not 50%, the fertilizer was at least as good as advertised.
44Forthcoming lecture- Competitiveness and Strategy