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2. © 2011 Pearson Education, Inc. publishing as Prentice Hall 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!

3. outputs SYSTEM transformations inputs productivity OI Customers Goodsandservices Land people capital facilities equipment tools energy materials information

4. A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machinesSaved 12 seconds per shot

5. © 2011 Pearson Education, Inc. publishing as Prentice Hall A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machinesSaved 12 seconds per shot Operations improvements have helped Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years. Productivity has improved by 27%, or about 4.5% per year.

6.  Measure of process improvement  Represents output relative to input  Only through productivity increases can our standard of living improve Productivity = Units produced Input used

7. © 2011 Pearson Education, Inc. publishing as Prentice Hall Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 Labor Productivity One resource input  single-factor productivity

8. © 2011 Pearson Education, Inc. publishing as Prentice Hall Output Labor + Material + Energy + Capital + Miscellaneous Productivity =  Also known as total factor productivity  Output and inputs are often expressed in dollars Multiple resource inputs  multi-factor productivity

9. 9 Single-factor Output Output Output Output measures Labor Machine Capital Energy All-factors Output measure All inputs Measures of Productivity

10. 10 Single-factor Output Output Output Output measures Labor Machine Capital Energy If we produce only one product, the numerator can be either the total units of the product or the total $ value of the product. If we produce several products, the numerator is the total $ value of all products. The denominator can be the units of input or the total $ value of input. Single Factor

11. 11 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr What is the labor productivity? Example: Single Factor Productivity

12. 12  10,000 units / 500hrs = 20 units/hr  (10,000 units * $10/unit) / 500hrs = $200/hr  10,000 units / (500hrs * $9/hr) = 2.2 unit/$  (10,000 units * $10/unit) / (500hrs * $9/hr) = 22.22  The last one is unit-less Example: Labor Productivity

13. 13 Labor Productivity – Quantity (or value) of output / labor hrs – Quantity (or value) of output / shift Machine Productivity – Quantity (or value) of output / machine hrs Energy Productivity – Quantity (or value of output) / kwh Capital Productivity – Quantity (or value) of output / value of input Some Single Factor Measurements

14. 14 All-factors Goods or Services produced measure All inputs used to produce them If we produce only one product, the numerator can be either the total units of product or total $ value of the product. If we produce several products, the numerator is the total $ value of all products. Usually, the numerator is the total $ value of all outputs. The denominator is total $ value of all inputs. All Factors

15. 15 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr Cost of raw material: $30,000 Overhead: $15,500 Example

16. 16 Output Labor + Materials + Overhead (10,000 units) * ($10) (500)*($9) + ($30,000) + ($15,500) AFP = 2.0 Example : All-Factor Productivity AFP =

17. © 2011 Pearson Education, Inc. publishing as Prentice Hall 1.Quality 1.Quality may change while the quantity of inputs and outputs remains constant 2.External elements 2.External elements may cause an increase or decrease in productivity  Precise units  Precise units of measure may be lacking

18. © 2011 Pearson Education, Inc. publishing as Prentice Hall 1.Labor 1.Labor - contributes about 10% of the annual increase 2.Capital 2.Capital - contributes about 38% of the annual increase 3.Management 3.Management - contributes about 52% of the annual increase

19. © 2011 Pearson Education, Inc. publishing as Prentice Hall 1.Typically labor intensive 2.Frequently focused on unique individual attributes or desires 3.Often an intellectual task performed by professionals 4.Often difficult to mechanize 5.Often difficult to evaluate for quality

21. Productivity Improvement (PI) is the result of managing and intervening in transformation or work processes. PI will occur if:

22.  Static: P=O/I in a given period of time (t). Useful for benchmarking purposes.  Dynamic: p(1)=O(1)/I(1); p(2)=O(2)/I(2); then p(2)/p(1) yields a dimensionless index that reflects change in productivity between periods. ((p(2)-p(1))/p(1))*100 yields the percentage change between periods.

23.  Partial-Factor: Uses a single “I” factor; e.g., output/labor-hour, sales/employee  Multi-Factor: Uses more than one “I” factor; e.g. output/direct costs (labor, materials, and overhead).  Total-Factor: Uses all “I” factors. (Note: Total-Factor captures “trade-offs” between input factors.)

24.  Multiple products/services (aggregation-O)  Varied categories, types, and levels of input resources (aggregation-I)  Price/cost changes of outputs & inputs  Redesigned products, services, processes  “Hard-to-measure” factors (e.g., quality)

25.  Individual level  Group level  Department level  Corporate level  National level  Global level

26.  Why are global-level productivity measures important?  How do we compare productivity among nations?  How can a nation increase productivity in a global economy?

27.  Measure and compare competitiveness among nations.  Contribute to the development of a nation’s economic, social, and political policies.  Develop global cooperation among nations.  Help business organizations make investment decisions.

28.  Education  Technology  Macroeconomic policies  Social and culture environments  Foreign aids  Foreign investments  Industry policies & competition

30.  At the national level, growing productivity  leads to a higher standard of living  holds inflation in check  enhances international competitiveness.  The annual GDP growth is partially due to  growth in productivity  growth in inflation

31.  Comparisons within a segment of economy over time  Comparisons of specific productivity measures  International comparisons

32. 200120022003 1994 - 2003 Business Sector 2.24.94.52.6 Non-Farm Sector 2.15.04.42.6 Manufacturing2.27.25.14.2

33.  Efficiency  Effectiveness  Quality  Quality of Work Life  Innovation

34.  Measures the resources expected to be consumed to the resources actually consumed.  Hence, it focuses on the input side of the system. (To what degree did the system utilize the “right” things.)

35.  Measures what the system sets out to accomplish (objective) with what was actually accomplished; plan vs. actual  Hence, effectiveness is an output measure. (Is the output “right” - right quality, right quantity, on time, etc.)

36.  Degree to which the outputs (products and services) from the system conform to requirements or meet customer expectations.  The focus is on quality attributes (e.g., conformance, performance, convenience, responsiveness, perceived quality.)

37.  Measures the way that employees in a system respond to the sociotechnical aspects of that system.

38.  Measures the applied creativity of the system.  Relates to the design and development of improved products, services, and processes.

39. 39 1.A company that makes shopping carts for supermarkets recently purchased new equipment, which reduced the labor content needed to produce the carts. Information concerning the old system (before adding the new equipment) and the new system (after adding the new machines) includes: Old System New System Output/hr 80 84 Workers 5 4 Wage $/hr 10 10 Machine $/hr 40 50 a)Compute labor productivity for both the Old System and the New System. b)Compute AFP productivity for both the Old System and the New System. c)Suppose production with old equipment was 30 units of cart A at a price of $100 per cart, and 50 units of cart B at a price of $120. Also suppose that production with new equipment is 50 units of cart A, at a price of $100 per cart, and 30 units of cart B at a price of $120. Compare all-factor productivity for the old and the new systems. Assignment 1.1…………….. Due at the beginning of the next class