Productivity and Quality Management Fourth Lecture

Summary of Last Lecture History of Background of Productivity Productivity Models Productivity Measurement Models Productivity Improvement

This Lecture Role of Productivity Operations Management Efficiency Versus Effectiveness Production and Productivity Example of Productivity

Role of productivity in operations management

Definition of Operations Management Management of an organization's production system Production system converts inputs into goods & services © 1984-1994 T/Maker Co.

Management Activities Planning Organizing Staffing Leading (Directing) Controlling © 1984-1994 T/Maker Co.

Typical Operations Management Decisions How much will we sell? How do we measure quality? Which product do we offer? How to produce good / provide service? Where do we locate our facility? Is subcontracting a good idea? How much inventory should we keep?

Characteristics of Goods Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction © 1995 Corel Corp.

Characteristics of Services Intangible product Inconsistent product definition Produced & consumed at same time Cannot be inventoried High customer interaction © 1995 Corel Corp.

Thinking Challenge The distinction between goods & services is seldom clear. Almost all goods have some service. An automobile requires maintenance. Classify (1) computer, (2) fast-food restaurant, (3) dentist, (4) counseling on the scale below. Good Service 75 50 25 0 25 50 75 100% | | | | | | | | | Automobile 100% Alone Group Class

New Trends in OM Ethics Global focus Environmentally sensitive production Rapid product development Mass customization Empowered employees Supply-chain partnering Just-in-time performance © 2011 Pearson Education, Inc. publishing as Prentice Hall

Productivity 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 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Efficiency Versus Effectiveness The difference between efficient and effective is that efficiency refers to how well you do something, whereas effectiveness refers to how useful it is. “Efficiency is doing things right; effectiveness is doing the right things.” Doing the Right Things is More Important than Doing Things Right

Efficiency Versus Effectivenes For example, if a company is not doing well and they decide to train their workforce on a new technology. The training goes really well - they train all their employees in avery short time and tests show they have absorbed the training well. But overall productivity doesn't improve. In this case the company's strategy was efficient but not effective.

The Economic System Inputs Transformation Outputs Feedback loop Labor, capital, management Transformation Economic system transforms inputs to outputs /CONVERSITION PROCESS Outputs Goods and services Feedback loop Figure 1.6 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Productivity Units produced Input used Productivity = Measure of process improvement Represents output relative to input Only through productivity increases can our standard of living improve © 2011 Pearson Education, Inc. publishing as Prentice Hall

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

Multi-Factor Productivity 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 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Productivity Calculations Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 8 titles/day 32 labor-hrs = Old labor productivity © 2011 Pearson Education, Inc. publishing as Prentice Hall

Productivity Calculations Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 8 titles/day 32 labor-hrs = Old labor productivity = .25 titles/labor-hr © 2011 Pearson Education, Inc. publishing as Prentice Hall

Productivity Calculations Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day 32 labor-hrs 14 titles/day Overhead = $800/day New System: 8 titles/day 32 labor-hrs = Old labor productivity = .25 titles/labor-hr = New labor productivity © 2011 Pearson Education, Inc. publishing as Prentice Hall

Productivity Calculations Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day 32 labor-hrs = Old labor productivity = .25 titles/labor-hr 14 titles/day 32 labor-hrs = New labor productivity = .4375 titles/labor-hr © 2011 Pearson Education, Inc. publishing as Prentice Hall

Productivity Calculations Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 8 titles/day $640 + 400 14 titles/day Overhead = $800/day New System: = Old multifactor productivity © 2011 Pearson Education, Inc. publishing as Prentice Hall

Productivity Calculations Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day $640 + 400 = Old multifactor productivity = .0077 titles/dollar © 2011 Pearson Education, Inc. publishing as Prentice Hall

Productivity Calculations Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 14 titles/day $640 + 800 8 titles/day $640 + 400 = Old multifactor productivity = .0077 titles/dollar = New multifactor productivity © 2011 Pearson Education, Inc. publishing as Prentice Hall

Productivity Calculations Staff of 4 works 8 hrs/day 8 titles/day Payroll cost = $640/day Overhead = $400/day Old System: 14 titles/day Overhead = $800/day New System: 8 titles/day $640 + 400 = Old multifactor productivity = .0077 titles/dollar 14 titles/day $640 + 800 = New multifactor productivity = .0097 titles/dollar © 2011 Pearson Education, Inc. publishing as Prentice Hall

Measurement Problems Quality may change while the quantity of inputs and outputs remains constant (HDTV, iphones) External elements may cause an increase or decrease in productivity (using more reliable electric power system) Precise units of measure may be lacking © 2011 Pearson Education, Inc. publishing as Prentice Hall

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

Key Variables for Improved Labor Productivity Basic education appropriate for the labor force Diet of the labor force Social overhead that makes labor available such as transportation and sanitation Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge © 2011 Pearson Education, Inc. publishing as Prentice Hall

Investment and Productivity 10 8 6 4 2 Percent increase in productivity Percentage investment 10 15 20 25 30 35 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Service Productivity Typically labor intensive (teaching, counseling) Frequently focused on unique individual desires (customer representatives in banks) Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality © 2011 Pearson Education, Inc. publishing as Prentice Hall

Ethics and Social Responsibility Challenges facing operations managers: Developing and producing safe, quality products Maintaining a clean environment Providing a safe workplace Honoring stakeholder commitments © 2011 Pearson Education, Inc. publishing as Prentice Hall

Examples of Productivity

Example: Diamond Industry Following are Factors Affecting Productivity in Diamond Industry- Employees Training. Automation. Equipments Used by Employees- polishing tangs. diamond wheels. Quality and Availability of Raw Diamonds. Standard of Diamonds Produced by firms. Management Policies.

Comparison of Two Companies

Difference between productivity and production

Production Introduction • Production involves the step by step conversion of one form of material into another through chemical or mechanical process with a view to enhance the utility of the product or services. • According to Elwood Butta “production is a process by which goods or services are created”.

Characteristics of production system • Production is an organized activity. • The production system transforms the various inputs into useful outputs. • Production system does not operate in isolation from the other organizational systems. • There exists a feed back about the activities which is essential to control and improve system performance.

Types of production • Job production • Batch production • Mass production • Continuous production

Functions of production management • Production planning • Production control • Factory building • Provision of plant services • Plant layout • Physical Environment • Inventory control • Product department

Difference How is production different from productivity ? • Production is related to the activity of producing goods or services. It is a process of converting input into value-added output. • Productivity is related to the efficient utilization of input resource produced in the form of value added goods or services.

We have understood three things from the above example: • Production and productivity are two different things. • Increase in production does not necessarily mean increase in productivity. • Productivity is always associated with the context in which it is calculated. – For example, in the above case, we have calculated total productivity. While in another case, someone may like to know about material productivity or energy productivity.

Conclusion • Productivity is a concept, whereas production is a fact. • Production is achieved by means of resources, productivity is measured through means of maximum manpower, machinery, financial support. • Production is a variable, dependent on many factors such as labour availability, motive power, etc. whereas productivity is the optimum measure of what or how much can be achieved or realized.

Summary Role of Productivity Operations Management Efficiency Versus Effectiveness Production and Productivity Example of Productivity

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