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INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Productivity

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Production and Operations Management ­MGT613
VU
Lesson 05
Productivity
Productivity is a measure of the effective use of resources, usually expressed as the ratio of output to
input .Also called Efficiency at times
·Productivity ratios are used for
Planning workforce requirements
Scheduling equipment
Financial analysis
Productivity
Partial measures is output/(single input)
Multi-factor measures is output/(multiple inputs)
Total measure is the output/(total inputs)
Productivity Growth = Current Period Productivity ­ Previous Period Productivity
Previous Period Productivity
Productivity Growth = Unit less Quantity
Partial
Output
Output
Output
Output
measures
Labor
Machine
Capital
Energy
Multifactor
Output
Output
measures
Labor + Machine
Labor + Capital + Energy
Total
=
Goods or Services Produced
measure
All inputs used to produce them
Units of output per labor hour
Labor Productivity
Units of output per shift
Value-added per labor hour
Machine Productivity Units of output per machine hour
Units of output per Rs. input
Capital Productivity
Dollar value of output per Rs. input
Units of output per kilowatt-hour
Energy Productivity
Rupee value of output per kilowatt-hour
Example
What is the multifactor productivity "MFP"? if 7500 Units Produced and Sold for Rs.10/unit with
Cost of labor of Rs.10,000, Cost of materials: Rs.5,000 and Cost of overhead: Rs.20,000.
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Production and Operations Management ­MGT613
VU
Output
MFP =
Solution
Labor + Materials + Overhead
MFP =
(7500 units)*(100)
10,000 + 5,000 + 20,000
MFP =
(750,000)
35,000
MFP = 21.420
Factors Affecting Productivity
Productivity stands tall on four important pillars of Capital, Quality, Management and Technology.
These pillars are also responsible for positively as well as negatively affecting the Productivity of
the Organization.
1. CAPITAL An existing machine or facility if it is not functioning up to full capacity or turning
out products which are not acceptable can lower productivity. A new machine or repair of
existing machine would require capital input.
2. QUALITY Poor quality products would not meet customer requirements and would need
repairs and reworks on the product to meet the standards.
3. MANAGEMENT With better scheduling, planning, coordinating and controlling activities of
management the machine operations can be carried to improve productivity.
4. TECHNOLOGY Technological improvements have increased productivity. A machine of today
would outperform machine of yesterday but may not withstand machines of tomorrow.
CAUTION: Without careful planning technology can reduce productivity as it often leads to
increased costs, inflexibility or mismatched operations. All leads to reduction in value.
Other Factors Affecting Productivity
Standardization We live in a world where for the sake of convenience, reliability and safety,
majority of the products and services have been standardized. If for a moment any process whether
it relates to manufacturing or services is made standard less, the vital concept of compatibility
would be lost. Think for a moment if there is a fire at a Montessori school or at a crowded stadium,
if there is no standardization of fire hose attached to the fire truck and fire hydrant present at the
site, no effort would succeed in putting out the fire and saving the lives of the people.
Use of Internet .Use of Internet/Extranet especially for the services side, even though there are
knowledge base applications available for the manufacturing side as well but primarily it has the
been the services side which has been able to exploit the resourcefulness of the Internet.
Computer viruses. A lot of time IT based services industry have fallen a prey to computer viruses
and hackers.
Searching for lost or misplaced items. This speaks low about the coordinating activities and can
lead to loss in production time and increase in idle time. Often this also leads to increase in
replacement costs
Scrap rates Any aberration in the raw materials or processed product can lead to increase in scrap.
The increase in scrap rate in fact can decrease the utilization of resources in general and raw
material
New workers Organizations spend millions of Rupees every year to train their employees. A
trained workforce is not only reliable and dependable but also ensures good
Host of other Factors Affecting Productivity:
Safety
Shortage of IT Trained Workers
Layoffs
Labor turnover
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Production and Operations Management ­MGT613
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Design of the workspace
Incentive plans that reward productivity
E. Bottleneck Operation
Bottleneck is one process in a chain of processes, such that its limited capacity ( increased time
of completion, or increased labour requirement) reduces the capacity of the whole chain
A related concept is critical path (see Project Management) and the Theory of Constraints (from
the field of Industrial Engineering and Operations management).
Theory of constraints (TOC) is a body of knowledge on the effective management of (mainly
business) organizations, as systems.
The figure below clearly shows that a machine requiring 12 hours to complete the job is the real
bottleneck. A manufacturing bottle neck like this normally leads to delayed completion and extended
time for job. Similar bottlenecks are observed in the Service side as well.
10/hr
Machine A
10/hr
Machine B
Bottleneck
30/hr
Operation
Machine C
10/hr
Machine D
10/hr
Develop productivity measures
Determine and isolate critical (bottleneck) operations
Develop methods for productivity improvements
Establish reasonable goals
Get management support
Measure and publicize improvements
Clearly differentiate between productivity and efficiency
Example of Productivity Measurement
You have just determined that your 20 Operations ( Service) department employees have used a total of
2200 hours of labor this week to process 480 insurance forms. Last week the same crew used only 2000
hours of labor to process 400 forms.
Which productivity measure should be used?
Answer: Could be classified as a Total Measure or Partial Measure and Time/Labor productivity.
Is productivity increasing or decreasing?
Answer: Last week's productivity = 400/2000 = 0.2, and this week's productivity is = 480/2200 = 0.22.
So, productivity is increasing slightly.
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Production and Operations Management ­MGT613
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Pakistani Productivity Example 1
Calculate the change in productivity of Pakistani Textile Industry between the years 2003-04 and 2004-
05? (Installed Capacity)
Parameter
2003/4
2004/5
Change
Number of mills
399
426
6.77
Spindles (000)
9286.8
9815.5
5.69
Rotors(000)
145.6
151.6
4.12
Pakistani Productivity Example2
Calculate the change in productivity of Pakistani Textile Industry between the years 2003-04 and 2004-
05? ( Working Capacity)
Parameter
2003/4 2004/5 % Change
Number of Looms(000)
4.3
4.9
13.95
Spindles (000)
7710.0 8531.0
10.65
Rotors(000)
67.3
75.1
11.59
Textile Productivity Example 3
Calculate the Productivity of Pakistani Textile Industry between the years 2003-04 and 2004-05?
(Weaving Sector Capacity)
Parameter
Installed
Working
% Effectiveness
I
W
W/I
Power Loom Sector
225258
220447
Independent Weaving Unit
26034
25500
Integrated Textile Unit
10249
4947
Total
261541
220447
Pakistan Automobile Industry
Calculate the Productivity Change for Pakistani Automobile Industry between the years 2003-04 and
2004-05?
Type
2003-04
2004-05
% change in
Productivity
Cars
79,655
100,213
Motorcycles
263,149
386,589
Trucks
1,669
1,999
Buses
1,151
1,503
Tractors
28,583
35,308
How countries/nations can improve productivity
As students of Operations Management in Pakistan we need to know and understand how the concepts
of productivity can help nation improve its quality of life and economy.
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Production and Operations Management ­MGT613
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Increase capital formation by saying no to foreign goods. This would increase savings and
decrease consumption. Foreign goods only make why to a market if there is high consumption.
BE PAKISTANI BUY PAKISTANI
Decrease in administrative ( non productive) regulations of the government. Self explanatory.
Right balance between Services and Manufacturing activities. In the city of Lahore, there is an
availability of surplus services, which is often less productive than manufacturing operations
An emphasis on both long term and short term objective based performance. (Closely monitor
and audit the variances between planed and actual results).
Exploit the inherent resources of domestic market .Let it be known to all that the best
productive market for Pakistani Producer is Pakistani market.
SUMMARY
The important concepts of Productivity, Competitiveness and Strategy when considered in cohesion
enhance the overall performance of any service based or manufacturing organization. Organizations
formulate operational and organizational strategies to achieve competitive advantage over its
competitors. Different types of competencies allow organizations to formulate time or quality based
strategies to achieve competitive
advantage and increase their revenues. The same concepts find equal application for a country to gain
competitive advantage over other countries.
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Table of Contents:
  1. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT
  2. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Decision Making
  3. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Strategy
  4. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Service Delivery System
  5. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Productivity
  6. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:The Decision Process
  7. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Demand Management
  8. Roadmap to the Lecture:Fundamental Types of Forecasts, Finer Classification of Forecasts
  9. Time Series Forecasts:Techniques for Averaging, Simple Moving Average Solution
  10. The formula for the moving average is:Exponential Smoothing Model, Common Nonlinear Trends
  11. The formula for the moving average is:Major factors in design strategy
  12. The formula for the moving average is:Standardization, Mass Customization
  13. The formula for the moving average is:DESIGN STRATEGIES
  14. The formula for the moving average is:Measuring Reliability, AVAILABILITY
  15. The formula for the moving average is:Learning Objectives, Capacity Planning
  16. The formula for the moving average is:Efficiency and Utilization, Evaluating Alternatives
  17. The formula for the moving average is:Evaluating Alternatives, Financial Analysis
  18. PROCESS SELECTION:Types of Operation, Intermittent Processing
  19. PROCESS SELECTION:Basic Layout Types, Advantages of Product Layout
  20. PROCESS SELECTION:Cellular Layouts, Facilities Layouts, Importance of Layout Decisions
  21. DESIGN OF WORK SYSTEMS:Job Design, Specialization, Methods Analysis
  22. LOCATION PLANNING AND ANALYSIS:MANAGING GLOBAL OPERATIONS, Regional Factors
  23. MANAGEMENT OF QUALITY:Dimensions of Quality, Examples of Service Quality
  24. SERVICE QUALITY:Moments of Truth, Perceived Service Quality, Service Gap Analysis
  25. TOTAL QUALITY MANAGEMENT:Determinants of Quality, Responsibility for Quality
  26. TQM QUALITY:Six Sigma Team, PROCESS IMPROVEMENT
  27. QUALITY CONTROL & QUALITY ASSURANCE:INSPECTION, Control Chart
  28. ACCEPTANCE SAMPLING:CHOOSING A PLAN, CONSUMER’S AND PRODUCER’S RISK
  29. AGGREGATE PLANNING:Demand and Capacity Options
  30. AGGREGATE PLANNING:Aggregate Planning Relationships, Master Scheduling
  31. INVENTORY MANAGEMENT:Objective of Inventory Control, Inventory Counting Systems
  32. INVENTORY MANAGEMENT:ABC Classification System, Cycle Counting
  33. INVENTORY MANAGEMENT:Economic Production Quantity Assumptions
  34. INVENTORY MANAGEMENT:Independent and Dependent Demand
  35. INVENTORY MANAGEMENT:Capacity Planning, Manufacturing Resource Planning
  36. JUST IN TIME PRODUCTION SYSTEMS:Organizational and Operational Strategies
  37. JUST IN TIME PRODUCTION SYSTEMS:Operational Benefits, Kanban Formula
  38. JUST IN TIME PRODUCTION SYSTEMS:Secondary Goals, Tiered Supplier Network
  39. SUPPLY CHAIN MANAGEMENT:Logistics, Distribution Requirements Planning
  40. SUPPLY CHAIN MANAGEMENT:Supply Chain Benefits and Drawbacks
  41. SCHEDULING:High-Volume Systems, Load Chart, Hungarian Method
  42. SEQUENCING:Assumptions to Priority Rules, Scheduling Service Operations
  43. PROJECT MANAGEMENT:Project Life Cycle, Work Breakdown Structure
  44. PROJECT MANAGEMENT:Computing Algorithm, Project Crashing, Risk Management
  45. Waiting Lines:Queuing Analysis, System Characteristics, Priority Model