Productivity and Quality Management Fifth Lecture

Summary of Last Lecture Role of Productivity in Operations Management Efficiency versus effectiveness Productivity Calculations Productivity and Production

This Lecture Improving Productivity – Historical Background – Productivity Growth Productivity Improvement Factors (1 st Theory) – Internal Factors – External Factors Productivity Improvement Factors – Technical Factors

BACKGROUND

What is productivity? The effectiveness of productive effort, especially in industry, as measured in terms of the rate of output per unit of input.

Significance “Productivity and the growth of productivity must be the first economic consideration at all times, not the last. That is the source of technological innovation, jobs and wealth.” -William E. Simon (Former United States Secretary of the Treasury)

Typical impacts of productivity improvement

Productivity Calculations Single Factor Approach to Measuring Productivity Capital - Number of products produced divided by asset value Materials - Number of products produced divided by dollars spent on materials Direct Labor - Number of products produced divided by direct labor-hours Overhead - Number of products produced divided by dollars spent on operating cost Capital - Number of products produced divided by asset value Materials - Number of products produced divided by dollars spent on materials Direct Labor - Number of products produced divided by direct labor-hours Overhead - Number of products produced divided by dollars spent on operating cost

Productivity Calculations Example: Human Resource Factor:

Productivity Calculations Multi Factor Productivity:

HISTORICAL BACKGROUND OF PRODUCTIVITY

Historical background Pre industrial Revolution Era: Before the industrial revolution the only sources of power were water, wind and muscle. This was the era of low productivity and least efficiency. The industrial revolution (A new era of Productivity): The Industrial Revolution was the transition to new manufacturing processes in the period from about 1760 to sometime between 1820 and It is the era of surge in productivity and efficiency at industrial level.

Historical background Fordist Era: Named after Henry Ford, it is a notion of a modern economic and social system based on an industrialized and standardized form of mass production. It signifies high productivity practices in the industry by the introduction of assembly lines in the production process. Post-Fordism (Use of productivity improving techniques; a shift from mass production to efficient production): The dominant system of economic production, consumption and associated socio-economic phenomena, in most industrialized countries since the late 20th century.

PRODUCTIVITY GROWTH

Productivity Growth Productivity Growth is a key factor in a contry’s rate of inflation and the standard of living of its people

Productivity Growth Example:

Improving Productivity Following are the key steps to improve Productivity:  Develop productivity measures for all operations  Determine critical (bottleneck) operations  Develop methods for productivity improvements  Establish reasonable goals  Get management support (make it clear that management supports and encourages productivity improvements.)  Measure and publicize improvements  Invest on labor force by training and education

Improving Productivity And finally but most Importantly  ENCOURAGE POSITIVE CHANGES

Improving Productivity Encourage innovation and change to improve productivity. E.g. Case study:

Improving Productivity Scenarios that depict improvement in productivity: Increase in output by using the same or a lesser amount of (input) resource. Reduced amount of (input) resource used while keeping output constant or increasing it. Use of more resource as long as output increases at a greater rate. Decrease output as long as resource use decreases at a greater rate.

Improving Productivity The improvement of productivity is a multi- faceted notion. There are a number of factors that affect the productivity of any organization. For example o Personnel factors o Finance factors o Management factors o Government factors o Location factors

PRODUCTIVITY IMPROVEMENT FACTORS

Productivity improvement factors Productivity Improvement is not just doing things better. More importantly it is doing right things better. The production process is complex, adaptive, ongoing social system. The inter-relationship between labor, capital and the social organizational environment are important in the way they are balanced and coordinated into an integrated whole. Productivity improvement depends upon how successfully we identify and use the main factors of the socio production system.

PRODUCTIVITY IMPROVEMENT FACTORS 1 ST THEORY

Productivity improvement factors Categories There are two major categories of improvement factor. – External Factors those which are beyond the control of the individual enterprise and the internal factors – Internal Factors those within its control

Productivity improvement factors External Factors Factors which are external and not controllable for one institution are often internal to another. Factors external to an enterprise are of interest to that enterprise because an understanding of them can motivate certain actions which might change an enterprise behavior and its productivity in the long run.

Productivity improvement factors Internal Factors Since some internal factors are more easily changed than others it is useful to classify them into two groups: – Hard (not easily changed) – Soft (not easily changed)

Internal Factors Hard Factors Product Plant and equipment Technology Materials and energy

Internal Factors Soft Factors People Organization and Systems Work methods Management styles

External Factors Structural adjustments – Economic – Demographic and – social

External Factors Natural Resources – Manpower – Land – Energy – Raw materials

External Factors Government and Infrastructure – Institutional Mechanisms – Policies and strategy – Infrastructure – Public enterprises

Conclusion Internal factors are under the control of enterprise management But, external factors should also be analyzed, understood and considered The best way to do this is to introduce some productivity measurement systems at all levels of society

PRODUCTIVITY IMPROVEMENT FACTORS 2 ND THEORY

Factors that affect Productivity The eight main factors that affect productivity are:

TECHNICAL FACTORS

Technical factors Facility Location Layout and size Design of machines and equipment Minimization of bottlenecks Research and Development Productivity Improvement technologies

Technical factors a) Facility location: Improving Productivity t

Technical factors Improving Productivity Following factors must be kept in mind while deciding on facility location for maximum productivity:

Technical factors b) Layout and size of the facility is another factor that plays a vital role in productivity of any organization. If catered to properly it can greatly improve the productivity. Improving Productivity

Technical factors Principles of facility layout for maximum productivity: Improving Productivity

Technical factors c) Correct design of machines and equipment has a major role to play in the productivity. Improving Productivity

Technical factors d) Minimization of bottlenecks: Improving Productivity Bottleneck Operation Bottleneck Operation Machine #1 Machine #3 Machine #4 10/hr 30/hr Machine #2

Technical factors A Bottleneck is the process or step which has the lowest capacity and longest throughput. Throughput Time is the total time from the start to the finish of a process. Bottlenecks can be internal or external to a firm. Improving Productivity

Technical factors Eliminating Bottlenecks: i.Identify The System Bottleneck(s). ii.Exploit The Bottleneck(s). iii.Subordinate All Other Decisions to Step 2 iv.Elevate The Bottleneck(s). v.Do Not Let Inertia Set In. Improving Productivity

Technical factors e) Research and development department of any organization can truly define its competitiveness in the ever changing market. A strong R&D ensures a promising productivity scale. Improving Productivity

Technical factors f) Automation and computerization if utilized intelligently can greatly enhance productivity. Improving Productivity

Technical factors g) Use of Productivity improving technologies lowers the traditional factors of production of land, labor capital, materials and energy, that go into the production of economic output and improve the overall productivity. Improving Productivity

Summary of this Lecture Improving Productivity – Historical Background – Productivity Growth Productivity Improvement Factors (1 st Theory) – Internal Factors – External Factors Productivity Improvement Factors – Technical Factors

Improving Productivity