The Productivity Formula McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-1

Dimensions of Quality Performance Features Reliability Conformance Durability Serviceability Aesthetics Perceive quality McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-2

Consequences of Poor Quality Limited resources When the quality of an organization’s goods or services is poor, the whole organization suffers. The organization loses business and therefore revenues, and it also has more difficulty attracting other important resources. Higher costs Businesses spend billions of dollars each year on inspections, errors, rework, repairs, customer refunds, and other costs to find and correct mistakes. Attracting new customers costs several times more per customer than keeping existing customers satisfied. Quality programs may carry some start-up costs, but the cost of poor quality is higher. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-3

Types of Quality Control Product quality control An organization’s efforts to prevent or correct defects in its goods or services or to improve them in some way. Process quality control Quality control that focuses on ways to improve the product itself. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-4

Methods for Improving Quality Control Statistical quality control Zero-defects approach Employee involvement approach Six sigma Total Quality Management McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-5

Quality Standards Malcolm Baldrige Quality Award Leadership Strategic planning Customer and market focus Information and analysis Human resource focus Process management Business results ISO 9000 Benchmarking Delivering greater customer value McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-6

Guidelines for Quality Control McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-7

Trends in Productivity in the United States McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-8

Constraints on Productivity Management limitations Employee attitudes and skills Government regulations Union rules McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-9

Measuring Productivity The basic way to measure productivity is to divide outputs by inputs. To increase productivity, a supervisor needs to increase outputs, reduce inputs, or both. Quantity without quality does not boost productivity. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-10

Improving Productivity Do equal work at a lower cost, and increase output without a cost increase. Improve process quality so that employees work more efficiently and do not have to spend time correcting mistakes or defects. Understand the goals of quality programs and their own role in achieving those goals. Use their specific knowledge of the tasks and processes their teams perform to find unique ways to contribute to productivity. Use as many of these strategies as will work. Encourage and use employees’ ideas for saving money. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-11

Improving Productivity (continued) Use budgets Review budget reports Observe employee use of resources Increase output Increase output without boosting costs Ensure the new output goals are reasonable Communicate new goals carefully Electronic monitoring McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-12

Improving Productivity (continued) Improve methods Reengineering Process control techniques Kaizen Give employees more control over the way they work Design jobs to be interesting Reduce overhead Monitor work areas Eliminate unnecessary paperwork McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-13

Improving Productivity (continued) Minimize waste Reduce downtime Reduce detour behavior Use filtering software Set a good example Regulate or level the work flow Ensure adequate planning for the required work Work with others to examine and solve work-flow problems Use temporary employees during peak periods McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-14

The Costs of Uneven Work Flow McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-15

Improving Productivity (continued) Install modern equipment Compute the payback period Find the average rate of return (ARR) McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved Payback period = Cost of new equipment Savings per year Average rate of return = Average annual earnings or savings Amount invested (cost)

Improving Productivity (continued) Train and motivate employees Minimize tardiness, absenteeism, and turnover Employees tend to arrive late or not at all if they dislike their jobs or find them boring Absenteeism may be the first step to leaving the company High turnover is expensive, because the organization must recruit and train new employees McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-17

Employee Fears About Productivity Improvement Many employees believe that cost reductions can lead to less overtime pay, more difficult work, and even layoffs Supervisors must respond to employee fears Be prepared with information Present the information to the employees Allow employees to ask questions McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 2-18