1

2 Single-factor measures –Output / (Single Input) All-factors measure –Output / (Total Inputs) Productivity

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

4 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

5 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr What is the labor productivity? Example: Single Factor Productivity

6 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) = The last one is unit-less Example: Labor Productivity

7 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

8 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

9 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

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

11 TrainingMethods TechnologyManagement Factors Affecting Productivity

12 Price Time Flexibility Quality Competitiveness

13 Price –Low Labor –Low Material –Low Overhead Quality –Characteristics that satisfy customer expectations above what competitors offer –Consistent quality over time (Reliability) Four Dimensions of Competitiveness

14 Time –Lead Time –Reliability in Lead Time (on time) Flexibility –Variety –Volume Four Dimensions of Competitiveness

15 Competing edges of the system (Strengths and Weaknesses) –The special attributes or capabilities that give an organization a competitive edge. Environmental Scanning (Opportunities and Threats) –The considering of events and trends that present threats or opportunities for a company. Formulation of Operational Strategy (SWOT)

16 Human Resources Technology, Facilities and Equipment Financial Resources Customers Product and Services Suppliers Competitive Edges

17 Main Threats and Opportunities –Competitor’s activities –Changes in consumer needs and preferences –Technological changes –Economic trends (GNP, unemployment, inflation, interests, taxes, tariffs) –Legal, political, and environmental issues Threats and Opportunities

18 Traditional Strategies –Cost Reduction Reduce cost in all activities –Product Differentiation Differentiate all parts and products New Strategies –Quality-based –Time-based Traditional and Recent Strategies

19 Focuses on quality in all aspects of an organization. High quality not only in product but also in design, production, service and organization. Quality at the source, zero defect, any defect stops the whole production system. Order qualifiers: Characteristics that customers perceive as minimum standards of acceptance in the product. Order winners: Characteristics that cause the product to be perceived better than that of competitors. Quality Based Strategy

20 Focuses on reduction of time needed to accomplish tasks. Cycle time reduction results in: Higher Productivity, and therefore Lower Costs (both direct cost and overhead). –The less time a product stays in a factory the less time it has to absorb overhead costs. Time based strategies

21 Low Price / Cheap Labor Economy of Scale Strategy: –Inject capital to increase labor productivity Focused Factory Strategy: –Quality, avoid diseconomy of scale Flexible Factories Strategy: –Cope with changes in consumer preferences Continuous Improvement Strategy –Zero Defect, Perfect Reliability (Car Industry) Japanese Strategies Over Time

22 1.What are the factors that affect productivity? 2.List the four key ways that organizations compete. 3.What is “Reliability”? 4.What two key aspects are studied to formulate the Operations Strategy? 5.List the five main groups of aspects studied under threats and opportunities. 6.What are two classes of traditional strategies. 7.What are two classes of new strategies. 8.Briefly define “order qualifiers” and “order winners”. 9.Why time based strategy results in a lower cost. 10.What were the main concepts in each of the 5 development strategies of Japanese Industries. Questions

23 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 Workers 5 4 Wage $/hr Machine $/hr 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

24 Assignment 1.2 …………….. Due at the beginning of the next class 2.A company has introduced a process improvement that reduces the processing time for each unit and increases output by 25% with less material but one additional worker. Under the old process, five workers could produce 60 units per hour. Labor costs are $12/hour, and material input was $16/unit. For the new process, material input is now $10/unit and overhead is charged at 1.6 times direct labor cost. Finished units sell for $31 each. a)Compute single factor productivity of labor in the old system. (Compute it in four possible ways.) b)Compute all factor productivity for both old and new systems. FactorOld SystemNew System Output6060(1.25) = 75 # of workers56 Worker cost$12/hr$12/hr Material$16/unit$10/unit Overhead 1.6(labor cost) 1.6(labor cost) Price 3131

25 Assignment 1.3 ……… For your own practice 3.A milk factory seeks advice from an external consulting company concerning its business and production processes. The final consulting report describes several steps to increase productivity including implementation of cutting-edge processing techniques through more powerful filtering systems. a)Calculate the labor productivity for the existing as well as the proposed system. b)Find the All-Factor Productivity for both systems. c)Assume that current processing includes 700 gallons of Grade-A milk sold at $2.40/gallon and 300 gallons of Grade-B milk at $1.90/gallon. Furthermore, assume that under the proposed system, processing will include 600 gallons of Grade-A milk at $2.40/gallon and 400 gallons of Grade-B milk at $1.90/gallon. Compare all-factor productivity for both the existing and the new system. Existing SystemProposed System Workers129 Milk Output/hour1,000 gallons1,400 gallons Wage Rate/hour$12 Filtration Cost/hour$120$170