1. Productivity and Quality Management
Fourth Lecture

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

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

4. Role of productivity in operations management

5. Definition of Operations Management
Management of an organization's production system
Production system converts inputs into goods & services
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6. Management Activities
Planning
Organizing
Staffing
Leading (Directing)
Controlling
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7. 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?

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

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

10. 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
% | | | | | | | | |
Automobile
100%
Alone
Group
Class

11. New Trends in OM Ethics Global focus
Environmentally sensitive production
Rapid product development
Mass customization
Empowered employees
Supply-chain partnering
Just-in-time performance
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12. 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
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13. 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

14. 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.

15. 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
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16. 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
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17. Productivity Calculations
Labor Productivity
Productivity =
Units produced
Labor-hours used
= = 4 units/labor-hour
1,000
250
One resource input  single-factor productivity
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18. 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
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19. 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

20. 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

21. 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

22. 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
= titles/labor-hr
© 2011 Pearson Education, Inc. publishing as Prentice Hall

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

24. 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 $ =
Old multifactor productivity
= titles/dollar
© 2011 Pearson Education, Inc. publishing as Prentice Hall

25. 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 $
8 titles/day $ =
Old multifactor productivity
= titles/dollar =
New multifactor productivity
© 2011 Pearson Education, Inc. publishing as Prentice Hall

26. 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 $ =
Old multifactor productivity
= titles/dollar
14 titles/day $ =
New multifactor productivity
= titles/dollar
© 2011 Pearson Education, Inc. publishing as Prentice Hall

27. 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

28. 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

29. 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
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30. Investment and Productivity10 8 6 4 2
Percent increase in productivity
Percentage investment
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31. 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
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32. 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

33. Examples of Productivity

34. 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.

35. Comparison of Two Companies

39. Difference between productivity and production

40. 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”.

41. 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.

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

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

44. 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.

46. 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.

47. 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.

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

49. THANK YOU