Productivity and Quality Management Fourth Lecture.

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.

75 50 25 0 25 50 75 100%| | | | | | | | |

AutomobileAutomobile

100%

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

Alone Group Class

© 2011 Pearson Education, Inc. publishing as Prentice Hall

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


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

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.


Feedback loop

Outputs

Goods and

services

Transformation

Economic system transforms inputs to outputs

/CONVERSITION PROCESS

The Economic SystemInputs

Labor,capital,

management

Figure 1.6


Measure of process improvement Represents output relative to input Only through productivity increases can

our standard of living improve

Productivity

Productivity =Units produced

Input used


Productivity Calculations

Productivity =Units produced

Labor-hours used

= = 4 units/labor-hour1,000250

Labor Productivity

One resource input single-factor productivity


Multi-Factor Productivity

OutputLabor + 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



Staff of 4 works 8 hrs/day 8 titles/dayPayroll cost = $640/day Overhead = $400/day

Old System:

=Old labor

productivity8 titles/day32 labor-hrs




Old System:

8 titles/day32 labor-hrs=

Old labor productivity = .25 titles/labor-hr




Old System:

14 titles/day Overhead = $800/day

New System:


Old labor productivity

=New labor

productivity

= .25 titles/labor-hr

14 titles/day

32 labor-hrs




Old System:


New System:


Old labor productivity = .25 titles/labor-hr


New labor productivity = .4375 titles/labor-hr




Old System:


New System:

=Old multifactor

productivity8 titles/day$640 + 400




Old System:


New System:

8 titles/day$640 + 400=

Old multifactor productivity = .0077 titles/dollar




Old System:


New System:

8 titles/day$640 + 400=

Old multifactor productivity

=New multifactor

productivity

= .0077 titles/dollar

14 titles/day

$640 + 800




Old System:


New System:

8 titles/day$640 + 400

14 titles/day$640 + 800

=Old multifactor

productivity

=New multifactor

productivity




Measurement Problems1. Quality may change while the quantity

of inputs and outputs remains constant (HDTV, iphones)

2. External elements may cause an increase or decrease in productivity (using more reliable electric power system)

3. Precise units of measure may be lacking


Productivity Variables

1. Labor - contributes about 10% of the annual increase

2. Capital - contributes about 38% of the annual increase

3. Management - contributes about 52% of the annual increase


Key Variables for Improved Labor Productivity

1. Basic education appropriate for the labor force2. Diet of the labor force3. 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


Investment and Productivity

10

8

6

4

2

0

Perc

ent i

ncre

ase

in p

rodu

ctivi

ty

Percentage investment

10 15 20 25 30 35


Service Productivity

1. Typically labor intensive (teaching, counseling)

2. Frequently focused on unique individual desires (customer representatives in banks)

3. Often an intellectual task performed by professionals4. Often difficult to mechanize5. Often difficult to evaluate for quality


Ethics andSocial Responsibility

Challenges facing operations managers:

Developing and producing safe, quality products

Maintaining a clean environment Providing a safe workplace Honoring stakeholder commitments

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

THANK YOU

Productivity and Quality Management Fourth Lecture.

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