Production and Operations Management

Production & Operations Management

Course Outline: MB202

Operations Management Product Design and Development Process Selection Facility Location Facility Layout Capacity Planning PPC or! Study & Met"od Study Plus ##$

"at is Operations Management%

&"e business function responsi'le (or planning) coordinating) and controlling t"e resources needed to produce a company*s products and services

Operations Management

The field of management that specializes in the physical production of goods or services and uses quantitative techniques for solving manufacturing problems

Operations Management Flo+ C"art

Production System
Inputs
Materials Capital Labor Manag. Res.

Outputs Organization
Goods Services

Operations Management
Operations Management is t"e conversion o( inputs into outputs) using p"ysical resources) so as to provide t"e desired utility,utilities o( (orm) place) possession or state or a com'ination t"ere o( to t"e customer +"ile meeting t"e ot"er organi-ational o'.ectives o( e((ectiveness) e((iciency and adapta'ility$

&en Decision /reas o( OM

Goods & service design Quality Process & capacity design Location selection Layout design Human resource and job design Supply-chain management Inventory Scheduling Maintenance

/ Process Management Perspective

We all manage processes... Process

Information structure

Management

Inputs
Flo+ units
2customers) data) material) cas") etc$3

1et+or! o( Activities and Buffers

Outputs
0oods Services

La'or & Capital

Resources

Process Management

/ 'usiness process is a net+or! o( activities per(ormed 'y resources t"at trans(orms inputs into outputs# Process Management is a set o( managerial policies speci(ying "o+ a process s"ould 'e operated over time$$$

&ypical Organi-ation C"art

Typical Manufacturing Organization

&"e Organi-ation as an Operations Management System

Feedback Operations Strategy

Inputs "a$ materials Human resources Land% buildings In&ormation #echnology

Operations Management
Outputs Products Services

Products & Facilities Structure Product design "eporting relationships acilities layout #eams !apacity planning acilities location

Control Processes Inventory management Productivity Quality

The Technical Core

Business 4n(ormation Flo+

Di((erences 'et+een Manu(acturers and Service Operations

ervices!
4ntangi'le product Product cannot 'e inventoried 5ig" customer contact S"ort response time La'or intensive

Manufacturer s!
&angi'le product Product can 'e inventoried Lo+ customer contact Longer response time Capital intensive

Service and Manu(acturers

/ll use tec"nology Bot" "ave 6uality) productivity) & response issues /ll must (orecast demand 7ac" +ill "ave capacity) layout) and location issues /ll "ave customers and suppliers /ll "ave sc"eduling and sta((ing issues

Products

Products are t"e desired set o( process outputs Product &ypes

0oods versus Services Cost Delivery response time 8ariety 9uality

Product /ttri'utes

4nputs:Outputs

&angi'le 4nputs

People ;a+ material 4n(ormation &ime Buildings Cars Outgoing patient 2"ospital3 Delivered message 2advertising company3

4ntangi'le 4nputs

&angi'le Outputs

4ntangi'le Outputs

&rans(ormations

P"ysical::manu(acturing Locational::transportation 7<c"ange::retailing Storage::+are"ousing P"ysiological::"ealt" care 4n(ormational::telecommunications

/ll Managers are Ops Managers=

/ll managers must trans(orm inputs into outputs 7<ample: /ccounting Manager

4nputs: data) in(ormation) la'or &rans(ormation: application o( accounting principles and !no+ledge Outputs: accounting reports) !no+ledge o( per(ormance) $$$

&"ere(ore) all managers are in some sense Operations managers /ll managers "ave an >operation? to run

Operations Management
"alue Proposition Operations Strategy Operation Priorities Cost 9uality Delivery Fle<i'ility 4nnovation Service ystem #esign Product,Service Design Process Selection &9M Facility location Facility Layout @4& Planning $ %ontrol /ggregate Planning 4nventory Systems Pro.ect Management Sc"eduling M;P Statistical Process Control

Manu(acturing and Service Organi-ations

Operational Concerns for Manufacturing and Service Organi ations

Sc"eduling Must o'tain materials and supplies Bot" must 'e concerned +it" 6uality and productivity

Functions o( Operations Management

Materials Met"ods Mac"ines and 76uipments 7stimating Loading and Sc"eduling ;outing

Functions o( Operations Management

Dispatc"ing 7<pediting or Follo+ up 4nspection 7valuation

OM Decisions

Operations Management Decisions

trategic!
Product,Service Design Process Selection Capacity Planning Facility Location Facility Layout @o' Design

Tactical!
9uality Control Demand Forecasting Supply C"ain Management Production Planning 4nventory Control Sc"eduling

Product Design and Development

Product Design
Product design deals +it" its (orm and (unction$ Form implies t"e s"ape and appearance o( t"e product +"ile (unction is related to t"e +or!ing o( t"e product$

Product Design O'.ectives

1 2 3 4

Producibility !ost Quality "eliability

Service Design O'.ectives

1 2 3 4 5

Producibility Cost Quality "eliability #iming

C"aracteristics o( 0oods

&angi'le product Consistent product de(inition Production usually separate (rom consumption Can 'e inventoried Lo+ customer interaction

C"aracteristics o( Service

4ntangi'le product Produced & consumed at same time O(ten uni6ue 5ig" customer interaction 4nconsistent product de(inition O(ten !no+ledge: 'ased

0oods Contain Services , Services Contain 0oods

/utomo'ile Computer 4nstalled Carpeting Fast:(ood Meal ;estaurant Meal /uto ;epair 5ospital Care /dvertising /gency 4nvestment Management Consulting Service Counseling
Percent o( Product t"at is a 0ood Percent o( Product t"at is a Service

C00

BA

A0

2A

2A

A0

BA C00

Competitive Priorities: &"e 7dge

Four 4mportant Operations 9uestions: ill you compete on D Cost% 9uality% &ime% Fle<i'ility% /ll o( t"e a'ove% Some% &radeo((s%

Competing on Cost%

&ypically "ig" volume products O(ten limit product range & o((er little customi-ation May invest in automation to reduce unit costs Can use lo+er s!ill la'or Pro'a'ly use product (ocused layouts

Competing on 9uality%

&igh performance design!

Superior (eatures) "ig" dura'ility) & e<cellent customer service

Product $ service consistency!

Meets design speci(ications Close tolerances 7rror (ree delivery

Competing on &ime%

'ast delivery!

Focused on s"orter time 'et+een order placement and delivery

On(time delivery!

Deliver product e<actly +"en needed every time

Rapid development speed

Esing concurrent processes to s"orten product development time

Competing on Fle<i'ility%

Product fle)ibility!

7asily s+itc" production (rom one item to anot"er 7asily customi-e product,service to meet speci(ic re6uirements o( a customer

"olume fle)ibility!

/'ility to ramp production up and do+n to matc" mar!et demands

C"aracteristics o( a 0ood Design

;epaira'ility Modular Design ;edesigning Capa'ility Miniaturi-ation ires and &u'ing

C"aracteristics o( a 0ood Design

Design 'y Computers Dra+ings and speci(ications arranties ;elia'ility Maintaina'ility

Strategy and Issues during a Product!s "ife

Introduction
Best period to increase mar et s!are R"# engineering critical

Growth
)ractical to c!ange price or %ualit( image Strengt!en nic!e

Maturity
)oor time to c!ange image- price or %ualit( Competitive costs become critical #e*end mar et position

Decline
Cost control critical

Sales Time

$re%uent product and process c!anges S!ort production runs &ig! production costs Limited models 'ttention to %ualit(

$orecasting critical )roducts and process reliabilit( Increase capacit( S!i*t to+ards product *ocus ,n!ance distribution

Standardization . minor product c!anges Optimum capacit( )rocess stabilit( Long production runs

Little product di**erentiation Overcapacit( in t!e industr( Reduce capacit( and eventuall( prune line to eliminate items not returning good margin

Product Development
&"e aim o( Product development is to 2i3 provide t"e goods t"e mar!et demands +it" time)2ii3 ad.ust +it" t"e variation in 6uantity re6uired and 2iii3 c"arge t"e prices +"ic" t"e customer is +illing to pay as +ell as under conditions t"at it may "ave net pro(it also$

Strategy and 4ssues During a Product*s Li(e

Best period to increase mar.et share %ompany trategy0Issues R$# product engineering critical

Introduction

Practical to change price or quality image trengthen niche #rive(thru restaurants %#( ROM

*ro+th

Maturity

#ecline

Poor time to change image/ price/ or quality %ompetitive costs become critical #efend mar.et 'a) position machines

%ost control critical

Sales
%olor copiers &#T" Product design and development critical

1 2034 'loppy dis.s tation +agons

Internet

'orecasting critical Product and process reliability %ompetitive product improvements and options Increase capacity hift to+ard product focused -nhance distribution

tandardization ,ess rapid product changes ( more minor changes Optimum capacity Increasing stability of process ,ong production runs Product improvement and cost cutting

,ittle product differentiation %ost minimization Overcapacity in the industry Prune line to eliminate items not returning good margin Reduce capacity

OM trategy0Issue s

'requent product and process design changes hort production runs &igh production costs ,imited models Attention to quality

Product Development Process ( echnical!

/eeds Identi*ication

'dvance product planning

'dvance design

#etailed engineering design

)roduction process design and development

)roduct evaluation and implementation

)roduct use and support

1eeds 4denti(ication
Once a product idea sur(aces) it must 'e demonstrated t"at t"e product (ul(ils some consumer need) and t"at e<isting products do not already (ul(ill t"at need$

'dvance product planning

4t includes preliminary mar!et analysesF creating alternative concepts (or t"e productF clari(ying operational re6uirementsF esta'lis"ing design criteria and t"eir prioritiesF and estimating logistics re6uirements (or producing) distri'uting) and maintaining t"e product in t"e mar!et$

'dvance design
Promising design alternatives are evaluated according to critical parameters to determine +"et"er design support suc" as analytical testing) e<perimentation) p"ysical modeling) and prototype testing +ill 'e re6uired$

#etailed engineering design

&"is stage is a series o( engineering activities to develop a detailed de(inition o( t"e product) including its su'systems and components) materials) si-es) s"apes) and so on$

)roduction process design and development

or!ing +it" t"e detailed product design) engineers and manu(acturing specialists prepare plans (or materials ac6uisitions) production) +are"ousing) transportation) and distri'ution$

)roduct evaluation and implementation

Field per(ormance and (ailure data) tec"nical 'rea!t"roug"s in materials and e6uipment) and (ormal researc" all are used to monitor) analy-e) and redesign t"e product$

)roduct use and support

2$

G$

H$ A$

Support systems mig"t 7ducate users on speci(ic applications o( t"e product Provide +arranty and repair service Distri'ute replacement partsF or Epgrade t"e product +it" design improvements$

Product Developments &ec"ni6ues

Standardi-ation Simpli(ication Speciali-ation Diversi(ication

Standardi-ation
Standardi-ation means (i<ation o( some appropriate si-e) s"ape) 6uality) manu(acturing process) +eig"t and ot"er c"aracteristics as standards to manu(acture a product o( desired variety and utility$

Simpli(ication
Simpli(ication in an enterprise connotes t"e elimination o( e<cessive and undesira'le or marginal lines o( product to "ammer out +aste and to attain economy coupled +it" t"e main o'.ect o( improving 6uality and reducing costs and prices leading to increased sales$

Speciali-ation
Speciali-ation implies e<pertise in some particular area or (ield$ Speciali-ation implies reduction in t"e variety o( products manu(actured 'y t"e organisation$

Diversi(ication
4t implies policy o( producing di((erent types o( products 'y an enterprise$ Diversi(ication can 'e adopted (or t"e purpose o( Etilisation o( idle,surplus resources Sta'ilisation o( sales &o cope +it" demand (luctuations and For survival o( t"e organisation$

Process Selection

Pro.ect @o' S"op Batc" Mass Process

Pro.ect
Pro.ect tec"nology deals +it" one: o(:a !ind products t"at are tailored to t"e uni6ue re6uirements o( eac" customer$Since t"e products cannot 'e standardi-ed) t"e conversion process must 'e (le<i'le in its e6uipment capa'ilities) "uman s!ills) and procedures$

4ntermittent System

@o' S"op Batc"

4ntermittent System

4n t"is system) t"e goods are manu(actured specially to (ul(ill orders made 'y customers rat"er t"an (or stoc!$ 5ere t"e (lo+ o( material is intermittent$ 4ntermittent production system are t"ose +"ere t"e production (acilities are (le<i'le to "andle a +ide variety o( products and si-es$

@o' S"op
@o' s"op tec"nology is appropriate (or manu(acturers o( small 'atc"es o( many di((erent products) eac" o( +"ic" is custom designed and) conse6uently) re6uires its o+n uni6ue set o( processing steps) or routing) t"roug" t"e production process$ For e<ample) printing s"op) restaurant) etc$

Batc"
&"is process is adopted +"en 'atc"es or lots o( items are to 'e produced using t"e same set o( mac"ines in t"e same se6uence$For e<ample) Ba!ery) C"emical industry) Printing press) etc$

Continuous Production System

Mass Process

Continuous Production System

Continuous production system is t"e speciali-ed manu(acture o( identical products on +"ic" t"e mac"inery and e6uipment is (ully engaged$ &"e continuous production is normally associated +it" large 6uantities and +it" "ig" rate o( demand$

Mass 2/ssem'ly line3

Standardi-ation is t"e (undamental c"aracteristic o( t"is system$ Standardi-ation is t"ere +$r$t$ materials and mac"ines$ Eni(orm and uninterrupted (lo+ o( material is maintained t"roug" predetermined se6uence o( operations re6uired to produce t"e product$

Process 2Continuous Flo+3

&"e product is "ig"ly standardi-ed) as are all o( t"e manu(acturing procedures) t"e se6uence o( product 'uildup) materials) and e6uipment$ Continuous (lo+ tec"nology a((ords "ig":volume) around:t"e:cloc! operation +it" capital:intensive) speciali-ed automation$For e<ample) Oil re(ineries) Cement (actory) Sugar (actory) etc$

Process Design
5ig"

Process(focused

5ob
8ariety o( Products

hops

6Print shop/ emergency room / machine shop/ Repetitive 6modular7 fine dining focus

Mass %ustomization 6#ell %omputer8s P%7

%ustomization at high "olume

Assembly line
6%ars/ appliances/ T"s/ fast(food restaurants7 Product(focused

Moderate

%ontinuous
6steel/ beer/ paper/ bread7
Lo+ Lo+ Moderate

8olume

5ig"

#iscrete vs$ Continuous Flo% and &epetitive Manufacturing Systems

Operation Process %hart for discrete part manufacturing

/ typical Organi-ation o( t"e Production /ctivity in ;epetitive Manu(acturing

'ssem(ly )ine 1* Product &amily 1
S0-0 S0-1 S0-i S0-n

"aw Material # $omp% Inventory

&a(rication (or +ac,end -perations!

#ept. 0 #ept. 1 #ept. 2 #ept.

&inished Item Inventory

S1-0

S1-1

S1-i

S1-m

'ssem(ly )ine 2* Product &amily 2

Product:Process Mi<
&ypical com'inations o( product:process structures are illustrated in Figure$/s t"e product s"i(ts to a di((erent stage) t"e manu(acturing process structure also s"i(ts) and ne+ manu(acturing priorities emerge$ "ereas manu(acturing (le<i'ility and 6uality are competitive priorities in earlier stages) priorities s"i(t to+ard dependa'le delivery and competitive cost in later stages$

Lo+ volume) Process structure lo+ process standardi-atio li(e:cycle stages n) one o( a !ind 5umbled flo+ 69ob shop7 Disconnected line (lo+ 2'atc"3 Connected line (lo+ 2assem'ly line3 Continuous (lo+
Commercial printer

Multiple product s) lo+ volume

Fe+ ma.or products) "ig"er volume

5ig" volume) "ig" standardi-ation) commodity products 8 oid

5eavy e6uipmen t

/uto assem'ly

8 oid Product structure Product li(e:cycle stages

Sugar re(inery

Facility Location
/ (acility 2plant3 is a place +"ere men) materials) money) mac"inery and e6uipment) etc$) are 'roug"t toget"er (or manu(acturing product$

Facility Location

Cost:'ene(it analysis D most common approac" to selecting a site (or a ne+ location 1e+ location scouting so(t+are is "elping managers turn (acilities location into a science

4mportance o( Facility Location

Competition Cost 5idden 7((ects

Location Factors

Primary (actors Secondary (actors

Primary (actors

/vaila'ility o( ra+ material 1earness to mar!et &ransport (acilities /vaila'ility o( la'our /vaila'ility o( (uel and po+er /vaila'ility o( +ater

Secondary (actors

Soil and climate 4ndustrial atmosp"ere Financial and ot"er aids /vaila'ility o( (acilities li!e "ousing) sc"ools) "ospitals and recreation clu's Momentum o( an early start

Secondary (actors

Special advantage o( t"e place Personal (actors 5istorical (actors Political sta'ility

Comparison 'et+een Er'an and ;ural area

Er'an

;ural

Availability of local mar.et! Due to large &"e mar!et place is (ar a+ay population t"e local demand (rom t"e industries) t"ere(ore (or t"e product is (airly "ig"$ cost o( distri'ution o( (inis"ed products is more$ ,abour! /mple availa'ility 4t is rat"er di((icult to get o( diversi(ied la'our$ s!illed la'our in rural areas$ Transport facilities! 0ood transport (acilities are availa'le$ Allied Industries! Pro<imity to allied industries are availa'le$ /de6uate transport (acilities are not availa'le$ /'sence o( allied industries$

Comparison 'et+een Er'an and ;ural area

Er'an
Availability of educational facilities! /vaila'ility o( educational) recreational and social (acilities$ %ost of land! &"e cost o( land is "ig"$ 7ven at "ig" cost su((icient land is not availa'le +"ic" puts constraints on t"e arrangement o( plants and mac"ines$ Restrictions on constructions! &"ere are greater restrictions on t"e construction o( (actory 'uildings$ Municipal and public utility services! Certain speci(ic municipal (acilities and pu'lic

;ural
&"ere are (e+er educational) social and recreational (acilities$ Su((icient land is availa'le at c"eaper rates$

&"ere are (e+ restrictions on construction o( (actory 'uildings$ Municipal (acilities and pu'lic utility services are not availa'le$

Comparison 'et+een Er'an and ;ural area

Er'an
Postal and %ommunication ervices! 0ood and prompt postal and communication services are availa'le$ Rates of ta)es! &"e rates o( ta<es are relatively "ig"$ %ost of labour! Due to "ig" standard o( living t"e cost o( la'our is relatively "ig"$ Availability of facilities! Ban!ing (acilities) credit (acilities and insurance (acilities are availa'le$ ,abour turnover! 5ig" la'our turnover 'ecause o( large

;ural
Prompt postal and communication services are not availa'le$ &"e rates o( ta<es are 6uite lo+$ La'our is availa'le at c"eaper rate$ /'sence o( 'an!ing (acilities) credit (acilities and insurance (acilities$

Comparison 'et+een Er'an and ;ural area

Er'an
Trade union movement! &"e trade union movement is very strong +"ic" o(ten result in stri!es) loc!outs etc$ Training facilities! Development o( t"e training (acilities (or +or!ers and management institutes (or e<ecutives put t"e city area into privileged position$ torage facilities! Su((icient storage (acilities including cold: storage are availa'le$ Problems of pollution! Concentration o( many industries in

;ural
&rade union movement is not very strong$ /'sence o( training (acilities and management institutes$ Storing and +are"ouse (acilities are not availa'le$ Pro'lems o( air pollution) +ater pollution) etc$ are less and t"e rural environment is conducive to good "ealt" o( +or!ers$

Comparison 'et+een Er'an and ;ural area

Er'an
#anger of bombardment in +ar time! 4ndustrial city areas 'ecome t"e target o( air attac!s in +ar time$ *overnment Policy! &o avoid concentration o( industries) government imposes restrictions (or starting ne+ industries in ur'an areas$

;ural
Less danger o( 'om'ardment in +ar time$ 0overnment provides (inancial assistance and land at c"eaper rates to attract t"e entrepreneurs to start industries in rural areas$

0eneral Procedure (or Facility Location Planning

&"e Preliminary Screening Detailed /nalysis Factor ;atings

&"e Preliminary Screening

;esource s La'or s!ills and productivity Land availa'ility and cost ;a+ materials Su'contractors &ransportation (acilities Etility availa'ility and rates

Local Conditions Community receptivity to 'usiness Construction cost Organi-ed industrial comple<es 9uality o( li(e: climate) "ousing) recreation) sc"ools &a<es

Sources o( 4n(ormation

/(ter identi(ying !ey location re6uirements) management underta!es a searc" to (ind alternative locations t"at are consistent +it" t"ese re6uirements$

Detailed /nalysis

Once t"e preliminary screening narro+s alternative sites to .ust a (e+) more detailed analysis 'egins$

Factor ;atings
Steps in using Factor ;ating

List t"e most relevant (actors in t"e location decision 2column C3 7ac" (actor is rated ) say (rom C 2very lo+3 to A 2very "ig"3)according to its importance 2column 23 7ac" location is rated) say (rom C 2very lo+3 to C0 2very "ig"3) according to its merits on eac" c"aracteristic 2column G3 &"e (actor rating is multiplied 'y t"e location rating (or eac" (actor &"e sum o( t"e product yields t"e total rating score (or t"at location

Factor ratings (or eac" location alternative

Factor
&a< advantages Suita'ility o( la'or s!ills Pro<imity to customers Pro<imity to suppliers /de6uacy o( +ater ;eceptivity o( community 9uality o( educational system /ccess to rail and air transp$ Suita'ility o( climate

Facto Locatio Product r n o( H J G2 ;atin ;ating ;atings 2 I gG

G A C A H G 2 2 I 2 G H C C0 B I CJ C0 G 20 H G0 CH C2 CHK

&otal

&otal Cost /nalysis

&otal Cost L Fi<ed Cost M Operational Cost

Fi<ed cost include e<penditure on land) 'uilding) mac"ines and ot"er e6uipments etc$ Operational costs are t"e e<penditure incurred on inputs) trans(ormation process and t"e distri'ution o( output$

Comparative Cost C"art

A A H H G 2 C H G 2 C C A G 2

&ota l cost s

A H G 2 C

Locations

Brea!:even C"art
La'or &ransportation

Material

Costs o( Facts

&otal Fi<ed Costs

8olume o( Enits

Brea!:even C"art
B &otal / Costs D 7 C 8olume o( Output 7B C / D

Dimensional /nalysis
M/ MB L NC/CO NCBCO
C

NC/2O NCB2O

###$
2

NC/ nO NCB nO

If

M/ 4s more t"an one t"en location / +ill 'e 'etter MB t"an B$

Facility Layout

Layout are concerned +it" arrangement o( production) support) customer service and ot"er (acilities used in operation$

Facilities Layout

Process Layout Product Layout Cellular Layout Fi<ed:position Layout

Factors a((ecting t"e Plant Layout

Product and material speci(ication Location and site o( t"e Plant Manu(acturing process Material 5andling Storage o( in:process inventory Plant personnel and employee (acilities

Factors a((ecting t"e Plant Layout

Service (acilities Design o( 'uilding Fle<i'ility or! areas and e6uipment or!ing conditions Disposal o( +aste and dangerous gases

&ypes o( Plant Layout

Process Layout Product Layout 0roup Layout

Capacity Planning

Capacity is t"e rate o( productive capa'ility o( a (acility$ Capacity is usually e<pressed as volume o( output per time period$

Capacity Planning

Determination and ad.ustment o( t"e organi-ation*s a'ility to produce products and services to matc" customer demand

Capacity Planning Decisions

/ssessing e<isting capacity Forecasting capacity needs 4denti(ying alternative +ays to modi(y capacity 7valuating (inancial) economical) and tec"nological capacity alternatives Selecting a capacity alternative most suited to ac"ieving strategic mission

Strategies (or Modi(ying Capacity

S"ort:term ;esponses Long:term ;esponses

Production Planning and Control

Production planning and control is t"e organisation and planning o( t"e manu(acturing process$ 4t co:ordinates supply and movement o( materials and la'or) ensures economic and 'alanced utili-ation o( mac"ines and e6uipment as +ell as ot"er activities related +it" production to ac"ieve t"e desired manu(acturing results in terms o( 6uantity) 6uality) time and place$

Functions o( Production Planning and Control

;outing Sc"eduling Loading Programming Ordering Dispatc"ing Progressing or Follo+:up 4nventory Control

or! Study

or! study is simply t"e study o( +or!$ 4t is t"e analysis o( +or! into smaller parts (ollo+ed 'y rearrangement o( t"ese parts to give t"e same e((ectiveness at lesser cost$ 4t e<amines 'ot" t"e met"od and duration o( t"e +or! involved in a process$

Components o( Study

or!

Met"od Study or! Measurement

Met"od Study

Selection o( t"e .o' ;ecording 7<amining Developing 4mplementing Maintaining

or! Measurement

Select t"e tas! 'e studied ;ecord t"e (acts /naly-e t"e (acts Measure t"e tas!s De(ine t"e met"ods and related time Maintain t"e +or!

Productivity

Productivity is t"e ratio 'et+een t"e amount produced and t"e amount o( resources used in t"e course o( production$ &"e resources may 'e any com'ination o( materials) mac"ines) men and space$

Productivity

Measure o( process improvement ;epresents output relative to input

Enits produced Productivity L 4nput used

Only t"roug" productivity increases can our standard o( living improve

Measuring Productivity

Productivity L organi-ation*s output o( products and services divided 'y its inputs &otal (actor ) Productivity La'or Productivity
)
Output "abor ' Capital ' Materials ' (nergy

Output "abor dollars

4mproving Productivity
C$

2$ G$

&ec"nological productivity 7mployee productivity Managerial productivity

Ma.or Productivity 8aria'les and t"eir contri'ution to productivity increase

La'or

Better 'asic education Better diet Better social in(rastructure li!e transportation and sanitation Better la'or utili-ation and motivation Steady and +ell:planned investments on e6uipment and its timely maintenance ;esearc" & Development Controlling o( t"e cost o( capital 7<ploitation o( ne+ 2in(ormation3 tec"nologies Etili-ation o( accumulated !no+ledge

Capital

Management

Productivity

Outputs P= Inputs

Measuring Productivity

Productivity is a measure o( "o+ e((iciently inputs are converted to outputs

Productivity : output0input

&otal Productivity Measure

Productivity relative to all inputs

Partial Productivity Measure

Productivity relative to a single input 6e;g;/ labor hours7

Multi(actor Productivity Measure

Productivity relative to a subgroup of inputs 6e;g;/ labor and materials7

La'or Productivity
7<ample:

Outputs 16 tables = = 0.4 tables 3 hour Inputs 05 hours

/ssume t+o +or!ers paint t+enty:(our ta'les in eig"t "ours: 4nputs: CI "ours o( la'or 22 +or!ers < J "ours3 Outputs: 2H painted ta'les

4nterpreting Productivity Measures

4s t"e productivity measure o( C$HC in t"e previous e<ample good or 'ad% Can*t tell +it"out a re(erence point Compare to previous measures 2e.g.: last +ee!3 or to anot"er 'enc"mar!

Productivity 0ro+t" ;ate

Can 'e used to compare a process*s productivity at a given time 2P23 to t"e same process* productivity at an earlier time 2PC3

P1 P 0 Growth Rate = P 0

Productivity 0ro+t" ;ate

-)ample!

Last +ee! a company produced CA0 units using 200 "ours o( la'or &"is +ee!) t"e same company produced CJ0 units using 2A0 048 units "ours o( la'or

188 hours 0:8 units P1 = = 8.91 units 3 hour 148 hours P P 8.91 8.94 Growth Rate = 1 0 = = 8.86 P 8.94 0 or a negative 67 growth rate

P 0 =

= 8.94 units 3 hour

Productivity -)ample : /n automo'ile manu(acturer "as presented t"e (ollo+ing data (or t"e past t"ree years in its annual report$ /s a potential investor) you are interested in calculating yearly productivity and year to year productivity gains as one o( several (actors in your investment analysis$
3==@ <nit car sales -mployee s Rs ales 2'illions ;s3 %ost of ales 2'illions3 2)B00)00 0 CC2)000 3==? 2)H00)00 0 CCG)000 3==> 200H 200I 2)C00)00 0 CCA)000 200A ,abor Productivity Enit Car Sales,7mployee CJ$G 2H$C 2C$2

;sHK)00 0 ;sGK)00 0

;sHC)000

;sGJ)000

Pear:to:year 4mprovement CG$BQ CA$JQ Total Productivity

;sGG)000

;sG2)000 &otal Cost Productivity C$CK Pear:to:year 4mprovement H$2Q C$2I C$2H

C$IQ