PRODUCTIVITY IMPROVEMENT

1.1 Definition and Meaning: What is Productivity? ILO defines Productivity as the ratio between "Output of Work" and "Input of Resources" used in the process of creating wealth. A process is:

This definition applies to an enterprise, an industry or an economy as a whole. Productivity is simply the ratio between the amount produced & amounts of resources used in the course of production. These resources can be: ( Unit of resource is in brackets.)

Land (Hectares) Material (Metric Tonne) Plant & Machinery (Machine Hours) People (Man Hour) Capital (Rupees

1.1.1 Productivity of Land: Sachin used natural fertilizer for his land, after which the yield of rice increased from 200 quintals/hector to 300 quintals/hector. Productivity of land has increased by 50%.

1.1.2 Productivity of Material: One ton (1000 kg.) of hot rolled steel would yield 800 Kg. of cold rolled steel; the rest being scrap. Shalini changed the process parameters that enabled 900 kg. of cold rolled steel to be generated from same amount of hot rolled steel.

The productivity of hot rolled steel that was 80% has gone. up to 90%.

1.1.3 Productivity of Machine: Output of the machine shop was 100 pieces per shift. Prashant introduced few technical changes in the machine. These changes increased the output to 120 units per shift.

This implies 20% improvement in machine productivity

1.1.4 Productivity of People: A worker producing 100 pieces is now able to produce 130 pieces after undergoing a training session. Productivity of worker has increased by 30%.

Other Definitions Of Productivity:The definition and measurement of productivity has undergone a change over the years as role and relevance of productivity changed.

1950 OECC2: Productivity is the quotient obtained by dividing output by one of factors of production. It gives productivity of capital, investment or raw material according to whether output is being considered in relation to above factors.

1955 Davis: Change in product obtained for the resources expanded. 1962 Fabricant: Always a ratio of output to input. 1965 Kendrick and Creamer: Functional definition for Partial, Total factor and Total productivity. 1976 Siegal: Family of ratios of output to input.1979 Sumanth: Total productivity model 1987 Goidratt and Smith: Productivity is minimizing the use of resources required to produce an output desired by the customer.

IS PRODUCTIVITY DIFFERENT FROM PERFORMANCE? YES. Productivity takes into account output in relation to input. Performance takes into account output alone.

In performance, we consider only the output and not the input. In general index is the ratio of the, same parameters under different condition. A performance index becomes comparison of actual output with some standard or expected output.

CASE: It takes 3 Mts. of cloth to make a coat. In a day Prashant is expected to make 50 coats.He makes 40 coats from 111Mts.of cloth.

What is Prashant's performance? 40 coats. What is Prashant's performance.index?

What is Prashant's cloth productivity index?Normally Prashant should have consumed 120 Mts. (40 5 3) of cloth. However be managed to make 40 coats in 111 Mts. of cloth. What is productivity of cloth? =

IS PRODUCTION SAME AS PRODUCTIVITY? NO. CASE:Shalini was busy going through the production and machine hour consumption report of the past three months.

MONTHINPUT(Machine Hours)OUTPUT(No. of Units)March90,00099,000April1,00,0001,00,000May1,50,0001,35,000

The reports clearly showed that there had been an increase in production with a simultaneous increase in machine hour consumption.

Shalini was not sure whether it really indicated a rise in productivity or merely an increase in production. How should she get an answer to this ?

Solution:

We can see from the table that while production is rising from March to May; productivity is falling.

MONTHINPUT(Machine Hours)OUTPUT(No. of Units)PRODUCTIVITYMarch90,00099,0001.1April1,00,0001,00,0001.0May1,50,0001,35,0000.9

Typically when markets are booming it is worth increasing production so as to capture market-share even if productivity does not increase. Conversely during the lean periods when selling becomes difficult, increasing productivity will only result in increasing unsold stocks. It is therefore important to focus on increase in productivity as it helps in maintaining the profitability. Today's organizations are looking at Productivity improvements as cost reducing and profit Centre as well.

1.2 Partial ProductivityDefinition: Ratio of output to one class of input At a given time it considers only one input and ignores all other inputs. It is important as it focuses utilization of one resource.Labour productivity is measured using utilization of labour-hours; whereas Capital productivity is measured in Rupees.

CASE

As a part of new assignment, Parag of Pop-Corn Products was asked to identify areas for productivity improvements. He collected data on all the inputs and outputs of previous year's operations being transformed into equivalent of money units. The table below gives details with all figures in lakh rupees.

Parag plans to calculate values of partial productivity to aid in his study. Please help him in his endeavor.

Rs. 000000OUTPUT1000INPUTHuman300Material200Capital300Energy100Other Expenses50

Solution:

Partial productivity of various inputs is as follows:

Human Productivity = 1000 / 300 = 3.3 Material Productivity = 1000 / 200 = 5.0 Capital Productivity = 1000 / 300 = 3.3 Energy Productivity = 1000 /100 = 10.0 Productivity of Other Expenses = 1000 / 50 = 20.0

Advantages Disadvantages1. Easy to understand. 1. Misleading, if used alone. 2. Easy to obtain data. 2. Can not explain overall cost increase. 3. Diagnostic tool to pinpoint areas of improvement. 3. Profit control is not precise.

1.3 Total Factor Productivity:In an effort to improve productivity of labour, company may install more machinery. Then productivity of labour will go up bringing down the capital productivity. Partial productivity that typically uses only one resource at a time fails to grasp this paradox.

Historically labour and capital were considered to be the most significant contributors in the process of production. Therefore in the Total Productivity Model developed by John W. Kendrick in 1951,he has taken labour and capital as only two input factors. e.g. Production worth 100 lakhs Rs. was manufactured and sold in a month. It consumed Rs. 20 lakhs worth labour hours and Rs. 55 lakhs worth capital.

Advantages Disadvantages 1.Data is easy to obtain. Does not consider impact of material and 2. Appealing from the viewpoint of the corporate and the National economist. energy inputs, though material typically forms 60% of the product cost.

1.4 Multi-Factor Model of Productivity: Total factor productivity model was further developed by Scott D. Sink as Multi-factor Productivity Measurement Model in which he considered Labour, Material and Energy as major inputs. He deliberately left out Capital, as it is most difficult to estimate how much of capital is being consumed in a unit of time. The concept of depreciation used by accountants makes it further difficult to estimate actual capital being consumed.

1.5 Total Productivity Model: Total Productivity Model developed by David J. Sumanth in 1979 is further extension of earlier models. Sumanth considered 5 items as inputs, those were Human, Material, Capital, Energy and an item called other expenses. This model can be applied in any manufacturing or service organization.

Model can be summarized as follows:

Total tangible output =Value of finished units produced + partial units produced + Dividends from securities + Interests from bonds + Other incomes

Total tangible inputs =Value of human inputs (employees) + capital inputs + materials purchased + energy inputs + other expenses (taxes) transport, office etc.

Advantages Disadvantages1. All quantifiable inputs are considered. 1. Data is difficult to compute. 2. Sensitivity analysis can be done. 2. Does not consider intangible factors of input and output. 3. Provides both firm level and operational unit level productivity.

CASE

Haldiram Lalbhai Ltd. (HLL) manufactures the product Lux soaps, face wash, Liquid soap and gel. The input for each of this product are classified as : Human (H), Capital (C), Material (M), Energy (E), and other expenses (X).

The following table shows the money value of each of these inputs for each of the product manufactured in 1995-96.

ProductAmount of input (Rs. Lakhs)Total input for the productTotal output for the productHCMEXSoap24145631*50Face Wash2.56105831.555Liquid Soap23104102945Gel3813553440Total input9.5**21471929125.5190

*Total input for Soap is: calculated as 2 + 4 + 14 5 + 6 = 31 Similarly calculating for the other products, we get all values of Product Input column. **Total human input for the firm is 2 + 2.5 + 2 + 3 = 9.5 Similar calculating for other inputs, we get all values of Total Inputs row.

Mr. Lalbhai wants to know the productivity of each of its product line. He also wants to know how productive his firm is as a whole. Please help him.

Solution:

(A) Total productivity of the firm:

(B) How to know feasibility of a particular product line?

This can be gauged by calculating totalproductivity of each product line.

Calculation is as follows:

Calculate total productivity for the other product lines and fill in the table.

ProductTotal output of the productTotal input of the productTotal productivity of the productSoap50311.61Face WashLiquid SoapGel

(C) How to find out productivity of an individual input factor for a particular product? This can be found using partial productivity measure.

Calculation is as follows:

ProductOutput of ProductHuman InputHuman ProductivityCapital InputCapital ProductivitySoap50225412.5Face Wash552.56Liquid4523Gel4038

Partial Productivity of Soap with respect to its Human input is 50 / 2 = 25.

Similarly calculate the partial productivity for each input for each product line. And fill in the table.

Thus Sumanth's Total Productivity Model helps in calculating total productivity of firm as well as productivity of individual product or input factor.

1.6 Cobb-Douglas Function: Cobb and Douglas recognized labour and capital as two major resources and developed a mathematical expression taking output as function of these two resources. The function is called as Cobb-Douglous function. Which can be put down as: Q = a L K f where, Q = Output, L = Labour Input,K = Capital Input, a, d and f are constants to be estimated.

An interesting factor of this model is Thus Cobb-Douglas function provides a simple measure to understand trade off between labour and capital.

1.7 American Productivity Center (APC) Model: American Productivity Center has been advocating a productivity measure that relates profitability with productivity and price recovery factor.

This measure Is derived as follows:

= Productivity x Price Recovery Factor The APC model is different from other models in its treatment, by inclusion of Price Recovery Factor.

What is price recovery factor? It is a factor that captures the effect of inflation. The changes in this factor over time indicate whether changes in input costs are absorbed, passed on, or overcompensated for, in the price of the firm's output. Thus inclusion of this factor will show whether gains or losses of a firm are due to changes in productivity or it merely indicates the fluctuations in the prices of the material consumed and sold.

1.8 Productivity Improvement: All efforts towards productivity improvement have always been focused on the resources i.e. men, material, money, time, machinery, etc and the processes through which they go, to give the output.

1.8.1 Sumanth's Five Pronged Model In 1982, Sumanth and Omachanu proposed Five Pronged Approach, classifying fifty-four different techniques based on the five basic types: Technology; Employee, Product, Process and Material.

Refer Table 1.1 on the next page.

Technology Based Employee Based Product Based Task Based Material BasedCAD Financial Incentives Value Engineering Method Engineering Inventory Control CAMGroup Incentives Product Diversification Works Measurement Material Require-ment Planning Integrated CAMFringe Benefits Product Simplification Job Design Materials Management RoboticsPromotions R & D Job Evaluation Quality Control Laser Beam TechnologyJob Enrichment Product Standardization Job Safety Design Material Handling Energy TechnologyJob Enlargements Reliability Improvement Ergonomics Material Recycling Group TechnologyJob Rotation Advertising & Promotion Production Scheduling Computer GraphicsWorker Participation Computer Aided - Data Processing EmulationMBO

Maintenance Management Skill Enhancement Rebuilding Old Machinery Learning Curve Energy Conservation Working Condition Improvement Communication Zero Defects Punishment Recognition Quality Circles Training Education Role Perception Supervision Quality

In areas of product and process improvement; Value Analysis aids in eliminating non-value adding function i.e. those function resulting in low performance at high costs from products and processes. On the technology front, extremely precise and accurate high-speed machines and systems like CAD, CAM, CIM, FMS, TRANSFER LINES etc. Have drastically reduced the processing time.

On the human front, incentive plans, job enrichment, fringe benefits etc. Are used to encouraged value adding inputs from people. Inventory control, MRP, material handling system etc. reduce the time, space, effort and money involved in making material available for its time and place utility.Techniques like work-study, ergonomics etc. eliminate motions that are non-productive or make them easy to perform for the human factor.

Today's Lean Production System approach is a holistic one, which covers all areas of productivity improvements; gave a completely new perspective to the way that a business is managed. Applying this concept, a tremendous rise in productivity can be achieved. In order to sustain, a few other techniques like JIT, TPM, TQC, KAIZEN, Quality Circles etc. need to be applied simultaneously. Each of the above techniques further consists of many other elements that will be discussed in detail at a later stage.

1.8.2 ILO Approach to Productivity Improvement The classical ILO approach was Task Based. It breaks manufacturing time into basic work content, added work content, and ineffective time. This approach focuses on reducing inefficient time in the total work content.

The basic work content of the product or operation Work content means, of course, the amount of work "contained in" a given product or process measured in man-hours or machine-hours. The basic work content is the irreducible minimum time theoretically required to produce one unit of output.

B. Added work content (i) Work content added by defects in the design or specification of the product. This additional work content is the time taken over and above the time of the basic work content due to features inherent in the product which could be eliminated.

(ii) Work content added by inefficient methods of production or operation. This is the time taken over and above the basic work content plus A, due to inefficiencies inherent in the process or method of manufacture or operation.

C. Ineffective time All interruptions which cause the worker or machine or both to cease producing or carrying out the operations on which they are supposed to be engaged, whatever may be the cause, must be regarded as ineffective time because no work effective towards completing the operation in hand is being done during the period of the interruption.

A.1 Poor Design and Frequent design changes A.2 Waste of Materials B.1 Poor Layout and utilization of space B.6 Frequent breakdowns of Machines and Equipment C.2 Poor Workmanship C.3 Accidents and Occupational hazards WORK CONTENT ADDED BY INEFFICIENT METHODS OF MANUFACTURE OR OPERATION

(i) Ineffective time due to shortcomings on the part of the management. Time during which man or machine or both are idle because the management has failed to plan, direct, co-ordinate or control efficiently.

(ii) Ineffective time within the control of the worker. Time during which man or machine or both are idle for reasons within the control of the worker himself.

Focussing on reducing added work content & inefficient time in the total work content:

Following are some of the methods by which added work content & inefficient time can be reduced:

Reducing I. Poor design and frequent design changes 2. Waste of materials 3. Incorrect quality standards 4. Poor layout and poor utilization of space 5. Inadequate material handling 6. Frequent stoppage in production 7. Ineffective method of work 8. Poor planning of work 9. Frequent breakdowns 10.Absenteeism & lateness 11. Poor workmanship 12.Accidents and occupational hazards

1.8.1 Role of Computers and IT in Productivity Improvement

Computer as the name suggests has always been in use for computing or processing large amount of data. The latest developments in this field has reduced the complexities and increased the speed.

Let's take the typical case of a commercial bank that has thousands of depositors carrying out millions of transactions. Previously all the information about these depositors and their transactions were recorded manually on different kind of account books. This work was not only mammoth and cumbersome, calling for large number of manpower but shear monotony of it often led to errors. Moreover getting a particular piece of information was highly time consuming and many times it was not accurate either.

Apart from increasing the speed & reducing the resources,computers today are doing something that would have been impossible manually.Today we can book railway/plane tickets from say Delhi to Kolkatta from London or New York.Thanks to Compters & IT Revolution.

CASELevi-Strauss is one of the largest denim makers in the USA.They have large number of outlets spread all over the country.All these outlets are connected to each other and to manufacturing place by network.As soon as any sale is made at any of these shops, the details of the item sold are entered into a computer. This very information is instantly available to manufacturing shop via network.

Accordingly production is scheduled and the item is produced and shipped to that particular shop, This cycle of production and transport takes maximum three days and therefore all the Retail shop of Levi-Strauss work on just three-day inventory.This low inventory directly reduces the operating costs and improves bottomline

1.9 Performance Measurement using the Objectives Matrix (OMAX)

Many organizations resist measuring Productivity for such reasons as distrust of accuracy,warriness of paperwork, and lack of qualified measurers.

A productivity ratio has many forms because organizations produce many different goods and services from many different resources.

FORMAT AND FUNCTIONS OF THE OBJECTIVES MATRIX

Genetic classes of Productivity Criteria

Six Genetic Categories That Define a Persons, Work units,or Total Organizations Contribution to Productivity.

1.Quantitative the number of items produced or a measure of Service provided (output).

2.Quality--precise or inferential indicators of quality of goods or services produced

3.TimelinessActivities or fuctions are completed on schedule.4.Yield--Degree of efficiency of the transformation process (waste reduction)5.Utilizationthe effectiveness with which critical resources are Utilized.(Key people and machines)6.Group traitsindividual and organizational properties that contribute to productive performance (such as safety,turnover, absenteeism).

Defining,Quantifying &Monitoring of performances are the major steps in Evaluating the Performance Matrix

Two or three ratios may be required to account for one category.

What can be done for the improvement of Hard and Soft Factors in ProductivityHard Factors in productivity are concerned with the physicalComforts and quantifiable elements desired by employees1.Proper plant utilisation.2.Conditions under which workshop is concerned.3.Ergonomics .4.Transportation &Canteen Facilities.5.Elimination of hazards etc.

Soft factors improvements Is always difficult but essential.

1.Job Satisfaction.2.Incentives.3.Recognition.4.Job Morale.5.Enthusiasm.6.Sympathy.7.Sincerity & Honesty.8.Safety.

The personal qualities ,particularly the ability to deal with people,can help a works manager to find Soft Factors which will contribute in the results obtained in terms both of improved productivity and of improved human Relations in the factory.

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