Re Engineering Book
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UNIT-I INTRODUCTION Productivity concepts Productivity benefit model Productivity cycle Macro and micro factor of productivity 1
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Re Engineering Book
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UNIT-I INTRODUCTION
Productivity concepts
Productivity benefit model
Productivity cycle
Macro and micro factor of productivity
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1.1. PRODUCTIVITYProductivity quotient is obtained by dividing output by one of the factors of production
in this way it is possible to speak of the productivity of capital investment or raw materials according to whether output is being considered in relation to capital, investment or raw material etc.
1.1.1. COMMON MISUSE OF THE TERM
The term productivity is often confused with the term production. “Many people think that the greater the production, the greater the productivity. This is not necessarily true. We shall show this by an example, but before doing so, let us clarify the meanings of the terms production and productivity.
Production is concerned with the activity of producing goods and/or services.
Productivity is concerned with the efficient utilization of resources (inputs) in producing goods and/or services (output).
If viewed in quantitative terms, production is the quantity of output produced, while productivity is the ratio of the output produced to the inputs.
Example:
Suppose that a company manufacturing electronic calculators produced 10,000 calculators by employing 50 people at 8 hours/day for 25 days. Then, in this case,
Production=10,000 calculators
Productivity (of labor) = 10,000 calculators/50*8*25man-hours.
= 1 calculator/man-hour
Suppose this company increased its production to 12,000calculators by hiring 10 additional workers at 8hours/day for 25 days. Then,
The production = 12,000 calculators
Productivity (of labor) = 12,000 calculators/60*8*25 man-hours
= 1 calculator man-hours
Clearly, the production of calculators has gone up 20 percent (from 10,000 to 12,000), but the labor productivity has not gone up at all.
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We can easily show, by similar computations, that there could have been other extreme cases wherein the labor productivity went down even though production went up: or, the labor productivity went up along with the production.
The point we are making is that an increased production does not necessarily mean increased productivity.
Efficiency is the ratio of actual output attained to standard output expected.
For example: if the output of an operator is 120 pieces per hour while the standard rate is 180 pieces per hour, the operators efficiency is said to be 120/180=0.6667 or 66.67 percent.
Effectiveness is the degree of accomplishment of objectives.
Whereas how well the resources are utilized to accomplish the results refers to the efficiency. Productivity is a combination of both effectiveness and efficiency, since effectiveness is related to performance while efficiency is related to resources utilization.
The terms of productivity, effectiveness and efficiency in the following manner.
Productivity index = output obtained/input expended
= performance achieved/resources consumed
= effectiveness/efficiency
The first two identities of the above expression are clearly consistent with the usual definition of productivity; the last one is somewhat confusing for two reasons:
1. Productivity index is a numerical value, but effectiveness is not.
2. Mali does not also define efficiency Ina technical sense, that is, as the ratio of actual output to expected output tot expected or standard output. Further, his definition implies that productivity can be increased by reducing by efficiently-something that does not seem logical at all.
Perhaps the confusion could have been accorded by expression the productivity index as follow
Productivity index = f (effectiveness)/F (efficiency)
Where f and F refer to some functions.
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1.1.2. BASIC DEFINITIONS OF PRODUCTIVITY
Three basic types of productivity appear to be emerging; we shall refer to these basic forms as follows.
1.1.3. PARTIAL PRODUCTIVITY:
Partial productivity is the ratio of output to one class of input. For example labor productivity (the ratio of output to labor input) is a partial productivity measure. Similarly, capital productivity (the ratio of output to capital input) and material productivity (the ratio of output to material input) are example of partial productivities’.
1.1.4. TOTAL FACTOR PRODUCTIVITY:
Total factor productivity is the ratio of the output to the sum of associated labor and capital (factor) input. By net output, we mean total output menus intermediate goods and services purchased. N0tice that the denominator of this ratio is made up of only the labor and capital input factors.
1.1.5. TOTAL PRODUCTIVITY:
Total productivity is the ratio of total output to the sum of all input factors. Thus a total productivity measure reflects the joint impact of all the inputs in producing the output,’
In all of the above definition both the output and input(s) are expressed in real or physical terms. By being reduced to constant dollars (or any other monetary currency) of a reference period. This reduction to base period is accomplished by dividing the values of output and input by deflators or inflators, depending upon whether the prices of outputs and inputs have gone up of down, respectively, In other words the effect of reducing the output and input to a base period is to eliminate the effects of price variations, so that only the physical changes in output and input are considered in any of the productivity ratios.
We shall take a simple the ABC Company. The data for output produced and inputs consumed for a particular time period are given below.
Output = Rs1000
Human input = 300
Material input = 200
Capital input = 300
Energy input = 100
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Other expense input = 50
It is assumed that these values are in constant dollars with respect to a base period. Then the partial, total factor and total productivity values are computed as follows.
Partial productivities:
Human productivity = output/human input
= 1000/300=Rs/Rs3.33
Material productivity = output/material input
= 1000/200=Rs/Rs5.00
Capital productivity = output/capital input
= 1000/300=Rs/Rs3.33
Energy productivity = output/energy input
= 1000/100=Rs/Rs10.00
Other expense productivity = output/other expense input
= 1000/50= Rs/Rs 20.00
Total factor productivity = net output/ (labor+capital) input
= total output-materials and services purchased/ (labor+capital) input.
Assume that the company purchased all its materials and services, including the energy, machinery and equipment and other services, such as marketing advertising information procession consulting etc.
Net output = 1000-(200+300+100+50)
= 1000-650
= Rs350
Total factor productivity = 350/300+300
= Rs/Rs 0.583
Total productivity = total output/total input
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= total output/ (human+material+capital+energy+other expense) input
=1000/300+200+300+100+50
=1000/950= Rs/Rs 1.053
Unless otherwise stated, we shall use these three basic definitions of productivity in the rest of the book. Notice that when we refer to partial productivity, we are implying more than one type of partial productivity. Labor productivity which is one of the most commonly used measures, is clearly a partial productivity measure since it relates output to only labor input.
1.2. PRODUCTIVITY BENEFIT MODELTraditionally, employees and unions have been suspicious of management’s
intentions to improve productivity because of the consequence often associated with such improvement. In many companies in the United States. Labor productivity improvements often resulted n layoffs, which are certainly unwelcome, particularly when the workers are given short notice. On the other hand many other companies have reaped the benefits of labor productivity gains by not hiring new employees when workloads increased, or by letting attrition take care of the excess labor force. While in many case labor productivity improvement is what is focused upon by management, including industrial engineers, there may have been many opportunities to improve material, capital, energy, and other expense productivities that were ignored. Even though labor productivity improvement might occur in an organization, if the total cost per unit of the product or service is not reduced and if the quality of the product or service is not improved it does not appear that this is a true productivity improvement while trying to reduce the number of workers, a company may bring in so much automation, robotics etc., that the savings in labor might be far exceeded by the excessive capital costs, thus causing and actual increase, in the unit cost of manufacturing of the product or service since.
Price /unit = cost/unit profit margin/unit
If the cost/unit increases, management if forced to either reduces the profit margin per unit to stay even. Of face a reduction in market share by holding the previous profit margin, in either case, the company management in question has a difficult choice. However, the opposite the favorable-is true when the total cost per unit is decreased and the quality of the product or service is improved.
The improvement of total productivity of a product or service results in the reduction of the total cost per unit. Therefore improving the total productivity results in two favorable management strategies:
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1. The consumers will benefits through savings by purchasing the product or service at lower prices for the same quality or even better quality in some cases.
2. The organization will most likely benefit through a gain in market share, and this might, in turn, create greater revenue-generating opportunities and take advantage of the economies of scale.
3. The employees of the organization will benefits through increased in real wages or salaries.
4. The share holders or owners of the organization will benefits through larger dividends on their share. Also, the organization will have a better chance of reinvesting the profits in new products, services, processes and ventures.
1.3. THE PRODUCTIVITY CYCLEThe productivity cycle schematically. At any given time, an organization that is in midst
of an on-going productivity program may be involved in one of the four stages or phases. Productivity program. Productivity evaluation, productivity planning and productivity improvement. We abbreviate these four phases MEPi, where, m,e,p,I stand, respectivily, for measurement, evaluation planning and improvement.
An organization that begins a formal productivity program for the first time can begin with productivity measurement once the productivity levels are measured, they have to be evaluated or compared against planned values, Based on this evaluation, target levels of productivity are planned on both short-and/or long term bases, to achieve the planned targets, productivity improvement takes places in a formal manner, in order to assess the degree to which the improvement will take place next period, productivity levels must be measured again. This cycle thus continues for as long a she productivity programs operate in the organization.
The productivity cycle concept shows us that productivity improvement must be preceded by measurement evaluation, and planning. All four phases are important not just productivity measurement or just productivity improvement. Also, this cycle emphasizes the process nature of the productivity issue. A productivity program is not a onetime project, but rather a continuous. Ongoing process.
EXAMPLE: For an illustration of the concept of the productivity cycle, let us consider the xyz company, which has had a formal productivity program for several years. Last year, the company total productivity was measured to b3e $/$1.250(that is, every dollar of total input used, the company produced 1.25 dollars worth of output), based on the historical record of achievement in total productivity, the target level of total productivity for last year was $/$.
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300. The productivity manager of the company makes an evaluation of the total productivity change in two ways : first, by comparing the actual achievement against the target set, and second, by comparing the actual total productivity levels between two consecutive years. In the first case, the achievement was short by[(1.300-1.250)/1.250]*100 percent , that is ,a percent while in the second case, the improvement of total productivity from the year before last to last year was [(1.250-1.250)/1.250]*100 percent, that is , 2.46 percent . These two types of evaluations helped the productivity manager set a realistic target for total productivity for this year of 1.310. In order to go from 1.250 last year to 1.310, this year (an expected improvement of 4.8 percent). The productivity manager had to institute some additional productivity improvement techniques, such as quality circles and statistical quality control. At the end of the year. He or she will measure the total productivity again to see whether, in fact, the target of 1.310 was achieved, then begin the evaluation phase again.
1.4. MACRO AND MICRO FACTOR OF PRODUCTIVITY:
1.4.1. Micro level productivity:
Micro level productivity is an important role in information policy particularly in providing evidence on how and where key driver of productivity improvement can be seen.
Micro level data work has proved particularly power full in assessing “five drivers” of productivity work in practice and perhaps where potential productivity gains are not being achieved. “Five drivers” of productivity are
1. competition2. innovation3. investment4. skill5. enterprise
Competition:
The effect of competition on productivity in enabling more production\vity firm to grow at expense of other and in giving firm a clear incentive to improve performance can be seen in firm level data. One study shows that these processes and the entry and exit of business associated with them.
Innovation:
The competition is positively associated with innovation by firm innovation can boost productivity in two ways,
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Firms investing in R&D them self’s and reaping the benefits from new or improved products and process or spillovers from creator of knowledge to others firm to compel. Studies have shown that both these process R&D investment and use of external knowledge influence the ability of firm to innovate international sales and innovation have been shown to be associated with superior productivity.
Innovation includes not only technical development but also design and this too has been shown to generate positive returns.
Investment:
Investments improve the labor productivity by increasing the stock of capital available to workers. A number of studies has estimated the effects and recent works has been shown the specific productivity impact associated with investing in hardware (it).investing software and the use of employee have also been shown to be associated with higher level of firm productivity. These effects are particularly large when supported by modem broadband communication network.
Skill
The quality and quantity of skill in an economy or a firm affect its productivity capability. Linking of skill variables to ABI information has produced a series of analysis showing that both qualification and occupations are associated with productivity effect.
Enterprise:
The creation of new firm to exploit new ideas is essential to the competitive process studies into the demography of enterprises and effect of entry of new firm on productivity have been carried out in a number of countries.
Micro data analysis:
It is possible to analysis relationship between economic variable more closely. The presences of linked demographic information in many data sets allow more complex tabulation and regression result to be exacted than by simply using aggregates.
It is possible to isolate the effects of factors such as region, firm size and foreign ownership on the productivity of individual businesses.
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UNIT II PRODUCTIVITY MODEL
PRODUCTIVITY MESUREMENT
INTERNATIONAL LEVEL,
NATIONAL LEVEL,
ORGANATIONAL LEVEL.
TOTAL PRODUCTIVITY MODEL.
PRODUCTIVITY MANAGEMENT IN MANUFACTURING AND SERVICE SECTOR.
PRODUCTIVITY EVALUVATION MODEL.
PRODUCTIVITY IMPROVEMENT MODEL AND TECHNIQUES.
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2.1. PRODUCTIVITY MEASUREMENT AT THE INTERNATIONAL LEVEL
Productivity comparisons based on some systematic measurement approaches at the
international level are valuable tools for understanding and evaluating the impact of productivity on the
domestic and international markets of competing countries.
2.1.1. MEASUREMENT APPROACHES
2.1.1.1. Rostas’s Measures Comparison of the value of the gross output per unit of labor
Comparison of the value of the net output per unit of labor
Comparison of the physical output (gross as well as net) per unit of labor
Comparison of the physical input of materials.
2.1.1.2. Shelton and Chandler’s Measures Hourly labor cost = E/L
Output per man-hour = Q/L
Unit labor cost = (E/L) (Q/L) = E/Q
Where, E = aggregate labor cost 9cor expenditure)
L = man-hours of labor
Q = quantity of output
Methods of measuring unit labor costs
1. Measurement by product. This method considers a typical product and compares labor costs
(and possibly production costs) from plant-to-plant in different countries by using actual cost
records.
2. Measurement by industry: This approach consists of aggregating the output of all the different
products of individual companies or of an industry into a combine figure.
Although this method is easier to implement because of the availability of data for basic
industries in industrialized countries, there are some difficulties, the most serious ones being
quality differences and product diversity.
3. Measurement by all manufacturing industries: Measurement is done on a combined
manufacturing industry basis. This method to comparing the productivities of various countries.
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Unit labor cost estimates:
Labor expenditure (cost)
Output (production)
Time periods and time trends
Currency exchange rates
2.2. PRODUCTIVITY MEASUREMENT AT THE NATIONAL LEVELThe measurement intricacies of a national economy, because organizations form the basic units
of an economy. The productivity measures used by countries appear to be partial productivity
indicators, particularly labor productivity. Whether it is to report a growth or decline, this measure has
been employed by national governments around the world.
2.2.1. Index approach Labor productivity indexes
Capital productivity indexes
Labor and capital productivity indexes
Labor productivity indexes: among the partial productivity measures, labor productivity appears
to be the most commonly used.
The three types of labor productivity indexes commonly employed are as follows:
1. BLS indexes: These are the indexes published by the Bureau of Labor Statistics (BLS) every
quarter.
Labor productivity =
2. NBER indexes:
Labor productivity =
3. Brooking Institute indexes:
Capital productivity indexes. By definition
Capital productivity =
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2.3. PRODUCTIVITY MEASUREMENT IN ORGANIZATIONS LEVELEconomics, engineers, managers, and accountants have taken different approaches
in measuring productivity at the firm level.
Economists: Index approach; production function approach; input-output approach.Engineers: Index approach; utility approach; servo-system approachManagers: Array approach; financial rations approachAccountants: Capital budgeting approach; unit cost approach
2.3.1. Index Approach:An index number is a quantity which shows by its variations the changes over time or space of a
magnitude which is not acceptable of direct measurement in it or of direct observation in practice.
2.3.1.1. Kendrick – Creamer Model:Their indices are basically of three types: Total productivity, Total factor productivity, and Partial
productivity.
Total productivity index for a given period
=
Total factor productivity index =
Net output = output – intermediate goods and services
Total factor input = (man-hour input of the measured period weighted by
base-base period average hourly earnings, preferably
including fringe benefits)
+ (total capital of the measured period expressed in base-
period prices and weighted by the base-period rate of
return, with depreciation treated as intermediate service)
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Net output = total factor input, in the base period
Productivity gain = difference between net output and total factor input
Partial productivity of labor =
Partial productivity of capital =
Partial productivity of material =
2.3.1.2. Craig – Harris Model.2
Total quantity Pt =
Where, Pt = total productivityL = labor input factorC = capital input factorR = raw material and purchased parts input factorQ = other miscellaneous goods and services input factorOt = total output
2.3.1.3. APC Model.4The American Productivity Center (APC) has been advocating a productivity measure that relates
profitability with productivity and price recovery factor
Profitability =
=
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=
= (productivity) (price recovery factor)
2.3.1.4. Mundel’s Model.Mundel present two alternatives form of productivity
PI = =
PI = =
Where ,PI = productivity indexOMP = aggregated outputs, measured periodOBP = aggregated outputs, base periodIMP = inputs, measured periodIBP = inputs, base period
2.3.2. Production Function ApproachEconomics have used the products function approach in the past four decades. Their approach
has been to develop some general mathematical expression for output as a function of input factors,
Pure theory of production functions. Production functions are the development of three kinds
of functions.
2.3.2.1. The Cobb-Douglas function
Q =
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Where Q = outputL = labor inputK = capital inputu = random measurement error componenta, d, and f and constants to be estimated
2.3.2.2. The constant elasticity of substitution (CSE) function
Q =
Where Q = value-added outputL = labor input = total man-hoursK = gross book value of capital adjusted by capacity utilization coefficienta = arbitrary constant of proportionalityb = distribution parameterr = substitution parameterv = degree of returns to scalee = base of the natural logarithm
u = random measurement error with mean zero and variance
The term u represents uncontrollable and unpredictable variations in output that occur after an input
factor is employed in production.
2.3.2.3. The variable elasticity of substitution (VES) function
Q =
2.3.3. Input – Output ApproachInput – Output (I-O) analysis was originally applied to the study of flows in the national
economy.
Although, much work has been reported using the I-O approach at the national and industrial
levels of productivity measurement, very little has been done on applying this technique at the firm
level.
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2.3.4. Servo-System ApproachHershauer and Ruch present a “servo-system model of worker productivity.” Their servo-system
approach: “Productivity related to output through a conversion process.”
This model is called the “servo-system” model because it is a dynamic feedback system, in which
the output of an action taken by one person or group eventually has an effect on that person or group.
2.3.5. Capital Budgeting ApproachMao [1965] demonstrated capital technique in measuring the “productivity” of public
investment.
Mao’s basic approach is (1) to compute a rate of return for each of the projects and then rank
the projects according to their rates of return, and (2) to determine the cost of social capital and use it
as the cutoff rate for the projects. The criterion for accepting or rejecting a project thus depends on
whether its rate of return is higher or lower than the social cost of capital.
2.3.6. Unit Cost ApproachIndirect ways of measuring productivity has been to determine and a analyze the “unit” costs,
where “unit” is the division, plant, department, or product. The unit costs are composed of direct labor,
direct material, and fixed and variable overheads.
The measure they use is what they call QPR (Quality Productivity Ratio), which is defined as
QPR1 =
QPR2=
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QPR3 =
For Example,
Suppose, a company manufactures 100 items in time period 1, and that out of these, 10 are
rejected. The processing costs are Rs100 / 1000 items, and the error (reject) correction costs are
Rs1000 / 1000 items. Then
QPR1 = = = 4.5 items per rupee
2.4. TOTAL PRODUCTIVITY MODEL (TPM)The total productivity model (TPM) is a basic model from which several versions are derived. It is
based on a “total productivity” measure and a set of five partial productivity measures. The model can
applied in any manufacturing company or any service organization.
Total productivity =
Where, Total tangible output = value of finished units produced
+ value of partial units produced
+ Dividends from securities
+ Interest from bonds
+ Other income and
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Total tangible input = value of (human + material + capital)
+ Energy + other expense) inputs used
Figure.2.1 output element considered in the total productivity
Figure 2.2 input elements considered in the total productivity model
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Outputs (tangible)
Finished units produced
Partial units produced
Dividends from securities
Interest from bonds
Other income
For sale For internal use
For sale For internal use
Inputs (tangible)
Human
Workers
Managers
Professionals
Bureaucrats
Clerical staff
Capital Material
Raw materials
Purchased parts
Energy
Oil
Gas
Coal
Water
Electricity etc
Other Expense
Travel
Taxes, (local, city, state, federal)
Professional’s fees
Marketing
Information processing
Office supplies
R & D
General administration expense, etc.
Fixed
Land
Plant (buildings and structures)
Machinery
Tools and equipment
Others (amortized
R & D, etc.)
Working
Inventory
Cash
Accounts receivable
Notes receivable
2.4.1. Notation for the Total Productivity Model
TPF = total productivity of a firm =
TP1 = total productivity of product1i
=
PPij = partial productivity of product i with respect to input factor j
{j} = { H, M, C, E, X}
H = human input (includes all employees)
M = material and purchased parts input (includes raw materials and purchased parts used in manufacturing and assembly)
C = capital input (includes the uniform annual cost of both fixed and working capital)
E = energy input (includes oil, gas, coal, electricity, etc.)
X = other expense input (includes taxes, professional fees, information processing expense, office supplies expense, travel expense, etc.)
i = 1, 2, …………. N
N = total number of products manufactured in the period under consideration (current period)
Oi = current-period output of product i in value terms (expressed in constant rupee, or any other monetary unit, of base period, using selling price as the weight)
OF = current-period output of the firm in value terms (expressed in Constant dollars, or any other monetary unit, of base period, using selling price as the weight)
OF = ∑ Oi
Ii = current-period total input for product i in value terms (expressed in constant dollars, or any other monetary unit, of base period)
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∑ Iij = IiH + IiM + IiC + IiE + IiX
Iij = current-period total input of type j for product i in value terms (expressed in constant rupee, or any other monetary unit, of base period)
IF = total current-period input used by the firm in value terms (expressed in
constant dollars, or any other monetary unit, of base period)
= ∑ Ii = ∑ ∑ Iij
If 0 and t represent subscripts corresponding to base period and current period,
respectively,
TPFt = =
TPF0 = =
We define the total productivity index for the firm in period t, (TPIF)t
(TPIF)t =
The total productivity index for a product i in period t, (TPI)it
(TPI)it =
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Tangible input
I period t
Iit
Product iTangible output
in period t
Oit
Total
productivity = TPit =
in period t
Figure2.3 total productivity for a product i as a ratio of total tangible output to total
tangible input
Where,
TPit = =
TPio = =
2.4.2. Tangible Output Elements Finished units produced. These units can be expressed either in physical or in value terms. Thus,
for example, we may that the output of a product in a certain period is 1000 tons
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Tangible input
in period t
IFt
FirmTangible output
in period t
OFt
Total
productivity = TFPit =
in period t
Figure2.4 total productivity for a firm as a ratio of total tangible output to total tangible
input
Base period, any normal period in which the production was not much different from the
average.
Partial units produced partially completed units should also be considered when counting the
total tangible output produced during the period. The work in process inventory form the partial
units
2.4.3. Tangible Input Elements:
Human input: The direct labor has traditionally been consider, we have consider all the human
resources employed in producing the output.
Material input: The “material” input consists of raw material and purchased parts.
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When one or more products manufactured in the current period were not produced in the base
period, the calculation for each raw material corresponding to a product is as follows
Capital: TPM, we consider both the fixed capital and the working capital. The fixed capital comprises
land, plant (buildings and structures), machinery, tools and equipment, and amortized research and
development costs. The working capital, on the other hand, includes money needed to support
inventory, cash, accounts receivable and notes receivable.
Energy: The energy input is the cost of energy incurred by using up one or more of the fuel resources,
such as oil, gas, coal electricity, and water. If solar energy is consumed, the cost of solar panels is
considered under fixed capital items.
2.4.4. STEPS IN IMPREMENTING THE TOAL PRODUCTIVITY MODELA step-by-step procedure is essential to achieve successful productivity-measurement efforts in
an organization. The following 12 steps are a guide.
1. Sales, profit and cost analysis
2. Familiarization with products, processes, and personnel
3. Allocation of total output and input (when necessary) to a particular operational unit
4. Data collection design
5. Base-period selection
6. Obtaining deflator information
7. Data collection and recording areas for improvement
8. Data synthesis
9. Productivity computations
10. Charting productivity indices
11. Productivity trend analysis
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12. Introduction to the evaluation phase of the productivity program
Figure2.5 sales, profit, and cost analysis
2.5. PRODUCTIVITY EVALUATION IN COMPANIES AND ORGANIZATIONS
Evaluate total productivity for any given product i(I) between two periods t-1 and t and (2)
within a given period t.
We compare the actual total productivities TP it–1 and TPit in period t-1 and t, respectively. In the
second case, we compare the actual total productivity TP it in period t with two types of budgeted total
productivities. TPit and TPii. These two evaluations should provide a fairly powerful tool in planning total
productivity for each product.1
2.5.1. EXPRESSION FOR TOTAL PRODUCTIVITY CHANGE
TPit = actual change of total productivity of product I between two successive periods, t-1 and t
Oit = actual change of tangible output of product I between two successive
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Sales records for the products for the past 3 years or more
Income statements for the past 3 years or more
Computations of percentage contribution in the total
Application of Pareto’s law
Managerial judgment
Periods, t-1 and tIt = actual change of tangible input of product I between two successive
Periods, t-1 and t
TPit = TPit - TPit-1
Oit = Oit - Oit-1
Iit = Iit - Iit-1
TPit =
TPit-1 =
Oit = Oit-1 - Oit
Iit = Iit-1 - Iit
TPit-1 =
TPit-1 =
=
TPit = for t I; Oit, 0; TPit-1, Iit-1 0
Case 1. TPit = 0; that is, the total productivity has remained constant between periods
t-1and t.
Case 2. TPit > 0; that is, the total productivity has increased in period t as compared to
Period t-1
Case 3 . TPit < 0; that is, the total productivity has decreased in period t as compared to
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Period t-1.
2.5.2. THE PRODUCTIVITY EVALUATION TREE (PET)
Actually feasible “paths” of the more general set of pats in what we call the Productivity
Evaluation Tree (PET). This tree shows the theoretically possible changes in output and input that result
in changes in total productivity.
Figure2.6 The productivity evaluation tree (PET)
2.6. PRODUCTIVITY IMPROVEMENT MODEL Productivity improvement model approaches are:
1. Goodwin’s model2. Sutermeister’s model3. Hershauer and Ruch’s model4. Crandall and Wooton’s strategies5. Stewart’s strategy6. Aggarwal’s approach
2.6.1. Goodwin’s ModelThe question he attempted to answer was: “How can we improve the way we improve?”
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Improvement Management – this approach is not directly related to improving the productivity of an
organization, it nevertheless provides a fairly good conceptual framework to view productivity
improvement.
Figure2.7 Goodwin’s model for “improvement management”
2.6.2. Sutermeister’s ModelSutermeister’s approach to productivity improvement is characterized by identifying and
explaining the interrelationships of factors affecting worker productivity.
The relation between need satisfaction, morale, employees; job performance and productivity is
much too complex for us to assume that satisfaction of individual’s needs will automatically lead to
better job performance and increased productivity.
He argues that even when individual’s needs are well met, they are fairly well satisfied with their
jobs and their firm, and have a fairly high level of morale, it is possible that they will fully restrict their
output by not working at their best, but work against the firm’s goal of increased productivity.
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Figure2.8 Sutermeister’s model
2.6.3. Hershauer and Ruch’s ModelHershauer and Ruch present what they call a “servo system model” of worker productivity. This
model is based on the existing literature and on information gathered during the analysis of several
productivity conscious organizations.
In their model, Hershauer and Ruch consider the individual worker performance a the focal
point of the model, where in organizational and individual factors impact this performance either
directly or indirectly. They contend that any factor in their model can be traced as an input through the
model to worker performance, and many factors can be traced to performance as an output. They
consider their model as a servo system because of this feedback effect and the time-delay
characteristics. In other words, the output generated as a result of an action taken by a person or group
eventually has an effect on this person or group.
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Figure 2.9 Hershauer and Ruch’s model
2.6.4. Crandall and Wooton’s StrategiesCrandall and Wooton present a model that “integrates the role of productivity improvement
with the growth of the organization and the role of the executive as a productivity decision maker”.
They suggest a shift in concern from traditional strategies of efficiency-oriented productivity
improvement to strategies focusing on the growth and development of organizations. Their contention
is that productivity improvement strategies in an organization must be dependent upon the
organizational growth stage. They identify four possible stages of organizational growth.
The entrepreneurial the initial development of an organization and involves the exploration of its
environment to introduce new products or services. The growth in this stage is external in nature.
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The bureaucratic stage the organization and codification of administrative and work processes. It is an internal growth to bureaucratize and organize the results of the entrepreneurial stage.
Diversification and systemization is basically a segmentation of the enterprise into multiple product
line, services, and activities, as well as the establishment of the complex interrelationships necessary to
support a diversified organization. This stage involves both internal and external growth.
Mega organizational growth represents exceptionally complex environments turbulent change
conditions involves both internal and external growth.
2.6.5. Stewart’s StrategyStewart proposes a productivity improvement strategy for organizations based on a systems
perspective, which requires that one view an organization a complex network of interdependent
subunits, all aimed at producing a blend of activities that enhances the overall performance of the
organization in the long run. He argues that all opportunities for productivity improvement must
compete with each other for common resources, acknowledging the concept of diminishing marginal
return, that is, an one given improvement action is pursued, the marginal improvement due to the
incremental use of a given technique would likely decrease.
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Figure 2.10 productivity improvement strategies
1. Using the Nominal Group Technique (NGT), a structured group process, identify the
opportunities for productivity improvement. A task force of approximately 12 members of
diverse points of view from within the organization is formed for this purpose, and with the help
of a trained facilitator, meeting for about two hours, identifies the opportunities for productivity
improvement in the form of a prioritized listing. (The NGT involves the silent generation of ideas
for productivity improvement, round robin presentation, clarification, voting and ranking, and
final decision.
2. Compile and distribute the results of step 1 to all participants.
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3. Conduct an “implementation work session. “This involves the task force, under the supervision
of the facilitator, generating essential implementation information about the top 10 productivity
improvement opportunities identified in step 1. A work sheet is used for this purpose.
4. Compile the information from step 3 and communicate the summaries to top management.
5. Have the top management make a decision as to which productivity improvement opportunities
will be explored further. This set of opportunities selected is denoted as the “action set”. (O 1,
O2,……,Ox)
6. For each productivity improvement ides in the action set, let the top management form a
“micro” group consisting of from two to five people. Provide the micro group with the results of
the implementation work session so that each of the groups can get some idea of what first
steps seem appropriate and what obstacles are faced in implementing the idea.
7. In each micro group, develop a problem-solving strategy with the assistance of a “process
consultant”. The strategy might be as simple as obtaining information from a vendor or a
complicated as conducting a detailed cost-benefit analysis.
8. Have each of the micro groups produce a recommendation to the top management as to
whether the particular ideas should be pursued further or not.
9. Have the top management make the final decision as to which of the recommendations from
each of the micro groups should be fully implemented and which should not continued. The
decision criteria here include the availability of man power, the extent of capital expenditures,
and the potential disruption within the organization.
10. Assign the responsibility for implementing those productivity improvement opportunities that
have been approved in step 9. These opportunities are designated {O1,…… Oj} in the figure.
11. Implement the set {O1,…… Oj}
12. Follow up or monitor progress.
2.6.6. Aggarwal’s Approach
1. Identify and priotize the objectives of the company or organization. In a meeting of the
department, managers must agree on the three to five most important goals to be achieved
through productivity improvement efforts. These goals must be prioritized, and the meeting
should focus on the problems and conflicts that might be expected.
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2. Delineate criteria for outputs within organizational limitations. In this step, the management
must quantify each of the goals and study all the limitations impinging on the goals. The
limitations may relate to capital, personnel, technology, or markets.
3. Prepare action plans. After working out the details of action plans, responsibilities must be
assigned to individuals on a tentative basis.
4. Eliminate known barriers to productivity. Capacity bottlenecks, wasteful repetitive work
elements, wasteful repetitive cost expenditure, and such other aspects must be considered by
the managers.
5. Develop productivity measuring method and calculate the base-period productivity. Based on
the goal priorities established in step 1, choose a productivity measure or measures for that set
of goals. Calculate the base-period productivity for these measures.
6. Execute action plans and start ongoing measurement and reporting. Focus attention on priority
action items that yield quick returns. Concentrate on short, visible, urgent, and easily
achievable activities with the effort level being in proportion to the anticipated returns. In other
words, work with the “Pareto principle – distinguish vital few from trivial many”. Side-by-side,
periodic measurement and reporting must be started.
7. Motivate workers and supervisors to achieve higher productivity. Hundreds of companies
located in a host of countries around the world report that workers’ participation in more than
80 percent of the cases has helped to increase the productivity of their respective companies or
department. Advance planning, special retraining or education, and recognition are important
to improve productivity.
8. Maintain the momentum of productivity efforts. The company should start new productivity
projects one after the other in order to keep the momentum. Each project reinforces the other
and regenerates motivation.
9. Keep auditing the organizational climate. Without the continued interest and support of
operating managers and staff specialists, productivity efforts will have little success. Attempting
to accomplish several major productivity projects simultaneously, or starting to ignore the
perpetual need for training the workers and the supervisors, may spoil the organizational
climate for productivity efforts.
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2.7. TECHNOLOGIES – BASED PRODUCTIVITY IMPROVEMENT TECHNIQUES
The productivity improvement techniques heavily dependent upon new technologies are numerous.
1. Computer-aided design (CAD)
2. Computer – aided manufacturing (CAM)
3. Computer-integrated manufacturing (CIM)
4. Robotics
5. Laser technology
6. Energy technology
7. Group technology
8. Computer graphics
9. Maintenance management
10. Rebuilding old machinery
2.7.1. COMPUTER - AIDED DESIGN (CAD)
Computer-aided design (CAD) refers to the design of products, processes, or systems with the
help of a computer. It was found to be particularly useful in dealing with complex geometry and three-
dimensional internal parts.
The aircraft industry was one of the first to apply CAD as a productivity improvement tool.
Examples are:
Design of automobile chassis, engine parts, and suspension parts
Design of circuit configuration in printed circuit boards for electronic products
Design of facilities to minimize the unnecessary movements of materials, people, and products
Design of the human form three-dimensionally, and the use of it to evaluate the physical
interaction between man and workplace or task (for example, in aircraft cockpits, trucj cabs
passenger vehicles, cranes, forklifts)
CAD replaces the manual design on drafting boards with interactive design at the CRT (cathode-ray
tube) terminal of a computer, where a special mechanism is used to change the design on the
terminal. This special mechanism is usually a “pen”.
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2.7.2. COMPUTER – AIDED MANUFACTURING (CAM)Computer-aided manufacturing (CAM) involves the use of a computer to design and control the
manufacturing process. Some typical areas covered by CAM include:
Assembly-line balancing
Machine sequencing and loading
Parts scheduling
Inventory control
Capacity planning
Operator scheduling
Automated inspection
The effectiveness of CAM will depend upon the efficiency and flexibility of the software used.
IITRI (Illinois Institute of Technology Research Institute, 35 West Federal Street, Chicago, IL 60616 has
been offering CALB (Computer-aided line balancing), GALS (generalized assembly-line simulator), CAMEL
(Computer-aided machine loading), CBS(computer-aided batch scheduling), MS (manufacturing
simulator)
2.7.3. COMPUTER –INTEGRATED MANUFACTURING (CIM)Computer-integrated manufacturing (CIM) is a fully integrated CAD/CAM system that provides
computer assistance from marketing to product shipment. It encompasses several functions, including
order entry, bill of material processing, inventory control, and materials requirements planning; design
automation, including drafting, design and simulation, manufacturing planning, including process
planning, routing and rating, tool design, and parts programming, and shop floor control, such as
numerical control, assembly automation, testing and process automation.
2.7.4. ROBOTICSAn industrial robot is a reprogrammable multifunctional manipulator designed to move
material, parts, tools, or specialized devices through variable programmed motions to accomplish a
variety of tasks.
An industrial robot consists of three basic components: manipulator, power supply, and control
system. The manipulator which has several axes of motion incorporated in it, performs the actual work
of the robot in reaching, grasping, moving, placing, and or doing a task of an operation on a part. The
power supply provides and controls the power for the actuators of the manipulators (for example,
hydraulic or pneumatic cylinders, electric or hydraulic motor, etc). the control system is the “brains” of
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the robot. It provides the sequencing and coordination of the motions of the various axes of the robot.
It also provides a communication linkage with external devices and machines.
2.7.5. LASER TECHNOLOGYLaser technology involves the use of a laser (Light Amplification by Stimulated Emission of
Radiation) beam to generate heat energy that may be used in diverse ways.
One of the firs applications of laser technology was in cutting metals, or drilling, but soon the
application areas extended to welding, hardening, alloying, and cladding. Laser-assisted inspection is
now a reality. At present, research is being done on lasers in machining”.
Laser technology is now being applied in conjunction with fiber optics for communications
purposes. There is a tremendous savings potential with lasers, although the initial cost of laser
technology is relatively high. This technology makes flexible manufacturing systems even more of a
present reality.
2.7.6. ENERGY TECHNOLOGYEnergy technology, as we use the term here, implies the use of new sources of energy. For
example, the use of chemise energy , solar energy ,geothermal energy, and hydrogen energy would fall
in this category.
Economies of production and distribution of the energy effect on the environmental, ecological, and
social aspects of the system in which the new energy technology will be used.
2.7.7. GROUP TECHNOLOGYGroup technology involves organizing and planning production parts into batches that have
some similarity in geometry and processing sequence.
Small batch production has the inherent disadvantage of lost production time due to too many
machine setups and the consequent loss of time due to setting up. yet 75 percent of all machined parts
are produced in small batches. Therefore, it becomes increasingly important to find ways of minimizing
the machine setup times in small batch manufacture,
2.7.8. MAINTENANCE MANAGEMENTMaintenance management is a formalized approach to maintaining the currently available
machinery and equipment to help them function according to the maintainability and reliability
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characteristics. Yet it can be a very effective means of cutting down maintenance costs and increasing
human productivity, fixed capital productivity.
2.7.9. REBUILDING OLD MACHINERY Many large corporations have their own machine building department where the remodeling is
under taken very methodically. This can certainly pay off. Of course the remodeling effort can be made
easier if the shop floor employees are encouraged to suggest the modification themselves. This effective
technique can have a positive effective the long run on productivity.
2.8. MATERIALS - BASED PRODCUTIVITY IMPROVEMENT TECHNIQUES
2.8.1. INVENTORY CONTROLInventory control is concerned with two basic questions: when to order and how much to order. An
effective inventory –control system will accomplish the following:
Six areas:
1. Development of demand forecasts, the treatment of forecast errors.
2. Selection of inventory models.
3. Measurement of inventory costs (carrying shortage, order)
4. Methods to record and account for items.
5. Methods for receipt, handling , storage, and issue items.
6. Information procedures to reports exceptions.
2.8.2.TYPES OF INVENTORY CONTROL SYSTEMS:
1.2 Fixed order size systems (quantity- based).Fixed order quantity, variable review period.
3.4 Fixed –order interval systems (time–based)Fixed review period, variable –order quantity)
5 Derived –order quantity system (production- based)Order quantity is variable.
Perpetual inventory system. Under this system, whenever the stock drops to the reorder level or below,
an order is triggered for a quantity to the equal to the economic order quantity (EOQ).
Periodic inventory system. The inventory position is checked only at specified time interval
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Figure 2.11 Periodic inventory systems.
Optional replenishment inventory system. In this system, stock levels are reviewed at regular intervals.
But orders are not placed until the inventory position has fallen to a predetermined recorder point.
Materials requirements planning (MRP) inventory system. This system functions by working back ward
from the scheduled completion dates of end products or major assemblies to determine the dates and
quantities of the various component parts and materials that are tope ordered. The system works well
when (a) a specific demand for an end item is known in advance, and (b) the demand for an item is tied
in a predictable fashion to the demand for other items.
Figure 2.12 Optional replenishment inventory systems.
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2.8.3. THE ABC ANALYSIS:The ABC Analysis helps classify the items into three categories – A,B, and C, where An equals
high –value items, B equals medium –value items, and C equals low –value items. This way, tight
inventory control can be exercised on the A items, moderate control on the B items, and lose control on
the C items. Thus, the ABC analysis separates the “vital few” from the “trivial many”.
Figure 2.13 Typical ABC inventory analysis A= high value items B= medium value items
C= low value items
2.8.4. MATERIAL REQUIREMENT PLANNING (MRP):MRP is a management planning and control techniques. Its initial processing function is to work
backward from planned quantities and completion dates for end items on a master production schedule
to determine what and when individual parts showed be ordered.
MRP is sometimes referred to as “time –phased requirements planning” because “time phasing”
involves working the material requirements backward based on the lead time for each item.
The MRP works with the following three data inputs:
1. The demand for end items is scheduled over a number of time periods and recorded on a
master production schedule (MPS). The MPS tells us how many of and when each items is
wanted. It is developed from the end item forecasts and customer order. It must project a
realistic plan of production so as to accommodate the available capacity.
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2. The bill –of –materials (BOM) records, also known as the “product structure records.: contain
the bills of materials for the end items in levels representing the way they are actually
manufactured: from raw materials to subassemblies to assemblies to end items. The BOM is
shored conveniently in a data file a computer.
3. The “inventory status records” are the third source of data input for the MRP. They contain on-
hand balances of items inventory. Open orders, lot sizes, lead times, and safety stocks.
2.8.5. MATERIALS MANAGEMENT:Materials management is composed all material –related functions, such as purchasing,
transportation, logistics, production control inventory, and sometimes even quantity.
The materials management process in a company depends upon the type of product, the quantity and
reliability levels demanded, the percentage of the product manufactured within the company and the
percentage of the product produced from suppliers, the storage capabilities for purchased and
manufactured parts, subassemblies and finished products, the materials –handling systems available,
the manufacturing and distribution process, the level of knowledge of the users of the materials
management system and so on.
2.8.6. QUANTITY CONTROL:Quantity controls is an effectives system for the growing quantity development, quantity
maintenance, and quantity improvement efforts of the various groups in an organization so as enable
production and service at the most economical levels which allow for full customer satisfaction.
Three aspects of quantity are important:
1. Quantity of design.
2. Quantity of conformance.
3. Quantity of performance.
The quantity of design for a product or service established by the specification of quantity level,
grade, or standard. It is dependent upon the intended use of the product or service. All products or
services are not designed at a high quality level because of the cost –value trade –off involved.
Quantity conformance refers to the degree to which the specified quality of design is satisfied in
producing a product or in delivering a service.
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Quality of performance, or reliability, is controlled by using tests on a sample of production. Defense
equipment, such as missiles, rockets, and space vehicles are the most commonly known items that are
subjected to intensive life tests. Automotive and aircraft engines are further. Examples: in fact, whether
it is desired that performance be consistently high with the greatest possible probability of successful
functioning, the quality of performance becomes important.
To access the quality of conformance, measurement of quality is necessary. This is accomplished by
inspection. Inspection is of two basic forms; 100 percent inspection and sampling inspection. When
every item is inspected, it constitutes 100 percent inspection.
Sampling inspection involves the checking of sample(s) from lots or batches. A formal m\name for
sampling inspection is acceptance sampling. Acceptance sampling is done by attributes by variables.
Acceptance sampling by attributes involves a decision such as go or no go, good or bad, yes or no,
defective or not defective.
1. Single sampling plan, where in a sample of size n is taken at random from a lot. The number of
defectives x in this sample is compared with the number of defectives c. If x ≤ c, the lot is
accepted; if x >c, the lot is rejected.
2. Double sampling plan, where in a sample of size n is taken from a given lot. If it contains c 1 or
less defective, it is accepted; if it contains more than c2 defectives, it is rejected; if the defectives
are greater than c1, but not more than c2, a second sample of size n2 is taken. If in the combined
samples the defectives are c3 or less, the lot is accepted. If not, the lot is rejected. The double
sampling plan may reduce the total amount of inspection, when compared to single sampling
plan.
3. Multiple sampling plans, which are an extension of the double sampling, where in many samples
may be taken.
4. Sequential sampling plans require the observation of items from a lot one at a time. The
sequence of samples is such that the number of samples is determined entirely by the outcome
of the sampling process. Several sequential plans are available to the practitioner.
5. Continuous sampling plans differ from the above in that they are applied to a stream of items
rather than to lots.
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2.8.7. MATERIAL – HANDLING SYSTEMS IMPROVEMENT:The three M’s of material handling are: material, move, and method. Material handling involves
the movement of material by some method.
Material handling and plant layout are closely interrelated. Therefore, whenever productivity
improvement is sought by improving the present material –handling system, care must be taken to
evaluate the expected changes in the facility’s layout configuration that might in turn affect one or more
of the five basic input factors in the total productivity expression.
The effect of material – handling –systems improvement on total productivity may not always
be positive, particularly when the capital investments in sophisticated material –handling-systems are
proportionately larger than the human, material, working capital, energy, and other expense input
factors.
2.8.8. MATERIAL REUSE AND RECYCLING:Depending upon the product or service, material input typically ranges from 5 to 60 percent. It
becomes more challenging to reduce the material input when there is already a good quality control
system for incoming parts, raw materials, and subassemblies. Most of the direct materials cost may be
squeezed out through the value engineering technique. Opportunity To reduce the material input: the
reuse or recycling of raw materials.
One of the most common examples of recycling is the melting of aluminum cans, while one of
the common cases of material reuse is the mixing of aluminum metal trimmings from die casting with
“virgin” metal to reduce the direct cost of the material.
2.9. EMPLOYEE - BASED PRODUCTIVITY IMPROVEMENT TECHNIQUES
2.9.1. FINANCIAL INCENTIVES (INDIVIDUAL)Several individual financial incentive plans have been used in companies, businesses, and other
organisms to increase labor productivity.
2.9.2.PLACE WORK PLAN (PWP)
This plan is characterized by two main features. Pay is directly proportional to the number of units
produced.
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Minimum daily rate is guaranteed. The earnings generated in the PWP is given by
E pw = ∑ (Ni) (PWRi)
Where,
Ni = number of pieces of type i produced.
PWRi = piecework rate for type i item
Let,
SPR, = standard production rate for type i item (pieces per hour)
WRi = wage rate for type i item
Then,
PWRi =
2.9.3.STANDARD HOUR PLAN (SHP)
The standard hour plan overcomes the problems with the piecework plan by using standard hours per
piece instead of rupees per piece.
The earning in this plan are given by
ESH = ∑ (SHEi) X (WRi)
Where,
SHE I = standard hours earned for item type i
SHEi =
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2.9.4.MEASURED DAYWORK (MDW) PLAN:
The MDW plan was introduced in the united stated during the early 1930s when organized labor tried
getting away from time studies and piecework rates.
They are similar to the day work (DW) plan,
Let t = any time period and BRt = base rate in period t. then, in the MDW plan.
BR t+1 = (BRt) ( std i)
std I =
2.9.5. FINANCIAL INCENTIVES (GROUPS)
Scanlon planThis plan works as follow:
Set up a target ratio (or norm),
TR =
Where,
SVOP = sales value of production
= value of receipts for goods sold + value of goods in stock
1. Each month, compute the sales value of production (SVOP) at the selling price.
2. Compute allowable labor cost: (TR) (SVOP).
3. Compile actual labor cost.
4. Compute savings in labor cost: Allowable labor cost – actual labor cost.
5. Share the labor cost savings in an agreed proportion. (A common proportion)
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6. At the end of a year, if the reserve balance is positive, pay it for the employees; if not, wipe out
the deficiency by using the reserve fund.
Rucker plan:The plan establishes a relationship between the total earnings of hourly rated employee’s and
the net production values created in the plant. That is, employee earnings are related to the value –
added output.
1. Compute the standard (target) percentage of labor cost from historical records. The target ratio
is given by
2. Compute the actual percentage of labor cost given by,
3. Pay the bonus on the savings.
Kaiser plan:The Kaiser plan was presented in 1962. It provides employees with a 32.5 percent share of the
savings from increased productivity over base- year costs of labor plus material. This share is guaranteed
even if the company does not make a profit. It guarantees against loss of job and income when
improvements in methods or technology are introduced.
tonnage plan:The plan bases its “standard” on the tons of material produced per man – hour. The norm is a
base period that is established by historical data, and the entire workforces in the percent increase in
succeeding periods.
Profit sharing plan:Profit sharing encourages everyone in the company to work toward increasing profit. Since,
profits can be improved even by simply increasing the selling prices.(causing inflation), it is not a direct
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approach to productivity improvement. If profits are generated due to overall reductions in total
manufacturing costs.
The distribution of profits takes any one of the three forms:
1. Cash plan, wherein profits are paid directly to workers on a periodic basis.
2. Deferred plan, under which the profits are invested for the employee and paid to him or her
upon retirement or separation.
3. Combined plan, under which both forms (1) and (2) are used.
2.9.6. EMPLOYEE PROMOTION:Employee promotion is both a financial and form of motivation to enhance human productivity.
It involves the upgrading of an employee’s status, and is a natural way of recognizing an employee’s
skills, knowledge, proficiency and effort at jib / her present job.
2.9.7. JOB ENRICHMENTJob enrichment is a nonfinancial motivation technique that provides Variety in assigned tasks
Employee autonomy and discretion in performing tasks Feedback on performance the satisfaction of
completing a whole or identifiable portion of work that can be associated with an end product or
service.
2.9.8. JOB ENLARGEMENTJob enlargement involves the enlargement of responsibilities associated with a job. The
proponents of job enlargement argue that jobs, when made very specialized and specific, become so
routine that they get to be boring and monotonous, causing high absenteeism, high turnover, and low
morale, with consequent low productivity.
2.9.9. JOB ROTATIONJob rotation involves the rotation of workers into different jobs for short periods of time.
This method can provide, “all-rounds” in a company’s operations because the workers are given an
opportunity to learn and perform tasks and operations that they were not originally hired for.
Job rotation is not exactly the same as retraining. The need for the latter generally arises out of
the necessity to displace an employee from his or her existing job, whereas job rotation is a conscious
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effort on an on-going basis to provide the opportunity for workers to exercise their freedom in staying
on a given task for a certain length of time.
Participation is an approach to overcoming resistance to change through employee involvement
in planning and implementing.
There are several participation approaches to improving partial or total productivity.
Quality-control 9QC) circlesProductivity quality (PQ) teamsProductivity action teamsProductivity circlesProductivity maintenance groupsEmployee participation groups(EPGs)
2.9.10. SKILL ENHANCEMENTThere is a certain amount of training cost involved whenever skill enhancement has to occur.
Also, this technique may yield productivity improvement more on a long-term than a short-term basis.
2.9.11. MANAGEMENT BY OBJECTIVESManagement by objectives (MBO) is a managerial motivation technique that has received
worldwide attention. The MBO process aids motivation of all participants by having superior and
subordinate managers jointly identify common goals, carefully define them, and together monitor
progress toward achieving results.
In setting up the goals, care must be taken not to :
Set simplistic goals
Set goals without adequate resources
Set harsh goals that cause resentment
2.9.12. COMMUNICATIONCommunication refers to the adequate and timely flow of information with a feedback mechanism.
The purpose of effective communication is to achieve mutual understanding between the
employees and management, and to help establish the social conditions that will motivate the employee
to improve productivity.
2.9.13. WORKING CONDITON IMPROVEMENTThe factors that must be audited to assess the present working conditions at each workplace
area are
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1. Temperature, light, and humidity
2. Noise
3. Colors of the surroundings
4. Extent of handling hazardous materials, parts, or products
5. Extent of manual handling of heavy items.
The level of safety for operators depends on the extent to which these five factors are in
the satisfactory zone.
2.9.14. TRAININGSome of the common forms of training are
On-the-job training
Apprenticeship training
Internship training
Outside courses
Visitation training
Training must be an on-going feature if total productivity is to be improved on a consistent
basis.
Training may actually decrease the total productivity initially (because the other expense input
will increase when training expenses are incurred) without offering an immediate increase in the output.
However, the long-term effect of training on human productivity and on total productivity should be
favorable.
2.9.15. QUALITY CIRCLESThe quality-control (QC) circles, or quality circles, are groups of employees who voluntarily
cooperate to solve problems related to production, quality, work environment, maintenance,
scheduling, or anything that affects these areas.
2.9.16. TIME MANAGEMENTTime management is a powerful technique, particularly for white-collar, supervisory, and
management personnel.
Time management involves the minimization of the wasteful elements of a person’s
administrative work.
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1. Interruptions by drop-in visitors (without appointment)
2. Attending lengthy and unnecessary meetings that accomplish very little
3. Inability to say ‘no’ for some tasks.
4. Inability to delegate work
5. Lack of responsibility and authority to do certain jobs
To minimize these “time-wasters”, time management applies simple, common-sensical, but very
effective programming rules to every item of work. Time management always improves human
productivity.
2.10.PRODUCT - BASED PRODUCTIVITY IMPROVEMENT TECHNIQUES
2.10.1. VALUE ANALYSIS / VALUE ENGINEERINGValue analysis (VA) is concerned with the modification of the existing design of a product or
service with the objective of reducing the overall cost of manufacturing or delivering of the service. On
the other hand, value engineering (VE) is concerned with the development of a new design for a product
or service with particular emphasis on the ease of use and cost of manufacturing or delivering value
analysis and value engineering, the primary objective is to design for functional value. Improvements in
the design of the products or service without sacrificing, the functional value in terms of quality,
reliability, and functional capabilities are most likely to decrease total input for the same amount of
output.
Value engineering, the role of the design engineer is greater. Depending upon the type of
product for which value engineering is being applied, there may be as few as one or two individuals to a
large group on a VE team from design engineering, research and development, marketing, and
purchasing.
Value analysis and value engineering involve two basic features:
1. Component elimination
2. Material substitution
2.10.2. PRODUCT DIVERSIFICATIONProduct diversification involves the addition of new product types of models to the existing
ones. The reasons for product diversification may:
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1. The competition introduced a new product recently
2. The existing models of products are not sustaining the market share
3. The consumer’s perception of quality for the existing products has been poor in recent months
and years.
4. Raw materials, component parts, and energy supplies have unexpectedly become scarce.
5. The company has developed product that is far ahead of the competition.
2.10.3. PRODUCT SIMPLIFICATIONProduct simplification: the elimination of extraneous or marginal lines, types, and models of
products, it includes a reduction in the range of materials and component parts used, and a reduction in
the complexity of methods and processes of manufacture.
2.10.4. PRODUCT STANDARDIZATIONProduct standardization is a systematic effort on the part of design engineers, industrial
engineers, and marketing managers to create a product mix that minimize manufacturing, distribution,
selling, and maintenance costs.
2.10.5. RESEARCH AND DEVELOPMENTResearch and development (R&D) takes two forms: basic and applied, basic research tends to
focus on the development of fundamental knowledge, while applied research attempts to explore the
potential applications for the fundamental knowledge so developed. Although business organizations
mostly emphasize applied research, there are many organizations that invest to a considerable extent in
basic research.
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UNIT - III ORGANIZATIONAL
TRANSFORMATION
Principles of organizational transformation and reengineering
Fundamentals of process reengineering
Preparing the workforce for transformation and reengineering
Methodology
Guidelines
DSMCQ and PMP model.
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4.1. PRINCIPLES ORGANIZATIONAL TRANSFORMATION AND REENGINEERING
Organizational transformation and process reengineering require eliminating old and
archaic processes, policies, procedures, technologies, principles and structures that affect
organizational operations. The organizational transformation and process reengineering effort
can be seen as the continuous rethinking, assessment, evaluation, redesign and improvement
of structures, work process elements, procedures, technologies, management systems, right-
sizing and core competencies to achieve competitive performance.
Figure 3.1 Edosomwan organizational and process transformations
As shown in Figure 3.1, the transformation process must focus on the management system,
the social system, the technical system, the behavioral system and critical competitive factors.
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The management system pertains to the way that policy, Procedures, practices,
protocols and directives are established, enforced and maintained. The leadership system of the
organization sets the tone, vision and indicators of what should be done, how it should be done
and what should be accomplished. The management system carries into effect strategies,
processes and project management, and it encompasses the vision, mission and values of the
organization.
The social system has a significant impact on motivation and the ability to implement
new ideas; it addresses organizational culture, structure, rewards, teamwork, values and the
creativity of individuals and groups. The social system is influenced by the values of the
founders, leaders, families, peers and supervisors, as well as group behaviors.
The technical, system includes the tools and mechanisms necessary to achieve
excellent products and services. It pertains to measures which serve as the basis for
improvement and planning.
The behavioral system relates to the fundamentals of the human side of quality, as
characterized by the habits, attitudes, work patterns and behaviors of individuals and groups.
Through modification of the elements in the behavioral system, it is possible to implement
change that can lead to a significant breakthrough in performance. The behavioral elements
are often difficult to change, and when a change is made, it positively influences the speed
of organizational and process transformation.
4.2. THE 6 R'S OF ORGANIZATIONAL TRANSFORMATION AND REENGINEERING
4.2.1. REALIZATIONThis phase of transformation and process reengineering involves recognition of the needs
and challenges that face the organization and individuals. This phase requires a detailed
understanding of the competitive environment, products and services, socio-cultural factors,
economic and political factors, values, ethics and quality of working life issues. The
realization phase should serve as a wakeup call to the organization and its individuals,
bringing to their attention the fact that if an organization is to continue to operate in a
competitive, global economy, it must constantly seek a means for incremental and radical
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improvement. This phase also should involve the use of comparative data and information to
alert decision makers and the organizational workforce that there is a sense of urgency for
incremental and radical performance improvement. The foundation premise which must be
encouraged at all levels is that organizational transformation starts with individual initiative
and leadership. This leadership for positive change is essential, especially at the highest
level of the organization but also at every other level and in every function.
Figure 3.1 Edosomwan 6 R’s Organisational Transformation and Reengineering
4.2.2. REQUIREMENTSBefore beginning the process reengineering effort, an organization needs to define its
mission, vision, values and the key requirements to satisfy and exceed customer expectations. In
defining the total requirements, the voice of the customer must be heard. The requirements of the
internal customer (voice of the business), suppliers and process owners as well as external
customers must be captured. Following this, key product and service performance indicators
and specifications are established to support the requirements. The key requirements are then
used to define the ideal primary, secondary and auxiliary work processes.
4.2.3. RETHINKThe rethinking phase of process reengineering involves reexamining all current and
existing conditions of the organization. Current processes are evaluated against objectives and
expected outcomes. The sources of process weaknesses and variations are identified. A careful
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reevaluation of outdated procedures, policies, structures, technologies, methods and work
habits is performed.
4.2.4. REDESIGNThe process reengineering phase of redesign involves a careful understanding of the
content, make-up, behavior, pattern and elements of work- processes. To understand and
proceed with process redesign, the organizational process must be seen as a set of logical,
related tasks performed to achieve a desired outcome. A set of processes forms an
organizational system. The processes are used to transform inputs into useful outputs.
A careful review of the entire system of an organization's procedures, products and services
should be done. Each work element, task and job must be analyzed to determine how best
to redesign the key processes in order to achieve desired outcomes. The process redesign
efforts must obey three important rules.
Rule 1: All the requirements of the organization and customers must be met.
Rule 2: The redesign process must eliminate all sources of waste and improve the
competitive position.
Rule 3: The redesign process must fulfill job satisfaction requirements. Process redesign can be
radical, which means that all current processes are eliminated and replaced by new ones, or
incremental, which means that some of the existing process elements are adapted as part of
the new, redesigned process
4.2.5. RETOOLThe retool phase involves the evaluation and adaptation of more competitive
systems, such as technologies, machinery and other critical tools required to improve the
production or service work processes, in order for the retooling efforts to be adequate.
Current technologies are mapped according to prequalified process characteristics. Items such
as mean time to failure, mean time to repair, mean time to dismantle and output per
technology or machine are identified. The new set of tools is based on ideal, redesigned
processes that were derived after reviewing the weaknesses of current processes and tools.
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4.2.6. REEVALUATEThe final phase of process reengineering requires the reevaluation of the entire
process to ensure that once the redesign and retool efforts are completed, the new process
has met its objectives. The best way to reevaluate process performance is to collect data on
critical performance success factors, such as quality, productivity, customer satisfaction, market
share, variation levels, profitability indexes, job satisfaction indexes and cost reduction savings.
Those who perform the work have responsibility for monitoring the performance of the process
because they are best qualified to control the sources of variation in the process .
4.3. FUNDAMENTALS OF PROCESS REENGINEERINGA coordinated, continuous improvement approach is required to rethink, redesign, retool
and reinvent new processes that will perform better than existing ones. The fundamental
definitions and basic elements which must be understood include the following.
4.3.1. THE ORGANIZATION PROCESS ELEMENTSThese elements are comprised of activities and tasks. A process element may be
referred to as a sub process when it is subordinate to, but part of, a larger process. A sub
process can also be defined as a group of activities within a process which comprise a
definable component.
4.3.2. THE ORGANIZATION PROCESSThis can be defined as the organization of inputs, such as people, equipment, energy,
procedures and materials, into work activities needed to produce a specified end result or
output. It can also be viewed as a sequence of repeatable activities characterized as having
measurable inputs, value-added activities and measurable outputs. It is a set of interrelated
work activities characterized by a set of specific inputs and value-added tasks to produce a set
of specific outputs.
4.3.3. THE ORGANIZATION PROCESS OWNERThe process owner coordinates the various functions and work activities at all levels
of a process. The process owner has the authority or ability to make changes in the process
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as required and manage the process end to end, so -is to ensure optimal overall
performance. The process owner coordinates the inputs and outputs related to a given
process.
4.3.1. THE ORGANIZATION PROCESS ASSESSMENT AND ANALYSISThis involves an objective assessment of how well a methodology identifies the
strengths and weaknesses of the organization. The analysis involves a systematic examination
of a process to establish a comprehensive understanding of the process itself. The analysis
should include consideration of process simplification, eliminating unneeded or redundant
elements and improving all elements involved in the process.
4.3.4. THE ORGANIZATION PROCESS OUTPUT MEASURESThese are measures that pertain to how well a particular process is meeting or
exceeding the requirements of self-unit internal or external customers. The organization
process output measures could include, but are not limited to, quality of products and
services, productivity, efficiency, effectiveness, job satisfaction, morale, revenue growth,
profitability, cost of quality, cost reduction indexes, reliability of systems and technology,
market share, improvement indexes and process variation indicators.
4.3.5. PROCESS MANAGEMENT, CONTROL AND IMPROVEMENTThis can be defined as the disciplined management approach of applying
prevention methodologies to the implementation, improvement and change of work processes
in order to achieve performance objectives, such as productivity, efficiency, effectiveness and
adaptability. A critical element in the success of process management is the concept of cross-
functional process focus improvement, which involves all stockholders in achieving designed
performance improvement.
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4.4. PREPARING THE WORK FORCE FOR TRANSFORMATION AND REENGINEERING
People may resist change for reasons connected to their own activities. Change
sometimes disrupts other plans, projects or even personal and family activities that have nothing
to do with the job. The anticipation of those disruptions causes resistance to change.
The following steps are recommended to prepare the organization team for transformation
and reengineering.
STEP 1: PEOPLE INVOLVEMENTIn beginning the organizational transformation and reengineering effort, it is important
to identify the critical voices (such as customers, unions, suppliers, process owners, managers
and employees) and involve them in the process of diagnosing for change. In diagnosing for
change, employees should understand the business thoroughly and find out what is
happening, what is likely to happen in the future and how the anticipated changes will affect
their own organization. Specific attention should be paid to market-driven changes, customer
expectations, technology changes, skill mix changes, product development cycles, regulations,
competitors. Cultural changes and service and manufacturing capability, among others
STEP 2: PLANNING AND PREPARATION
Most change effort begins with the identification of a problem or stems from a need
presented by a new market requirement. Change efforts involve attempting to reduce
discrepancies between the real and the ideal. It should be pointed out those reducing
discrepancies between the actual and the ideal means thinking the change through
thoroughly and carefully. In this step, the participative management style works very well.
Planning and preparation include the following:
Description of the change and communication of the anticipated benefits.
Obtaining input from those who will be affected by the change, those who will
help to implement the change and those who will benefit from the change. Input
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from customers, employees, peers, superiors and subordinates should be
encouraged.
Assess the organizational readiness to make the change. This usually requires
answering the following questions:
o What is the maturity level of the people involved?
o Are they willing and able to make the change?
o What leadership, decision-making and problem-solving skills are available, and
what are the assumptions behind the change?
o What are the expected risks and benefits?
o Is everyone ready to undertake the change?
Prepare the change plan with different options and highlight the preferred plan and
timetable.
Anticipate the skills and knowledge required to master and implements the change.
Focus on the changes that are critical for success. Change the most important things
once, if possible, to encourage stability, and change routine and minor operations
when appropriate.
STEP 3: DEVELOP CHANGE AGENTS AND TRANSITION STRUCTURESChange agents must have the skills and ability to diagnose a given situation and
develop acceptable solutions. The essential skills and abilities include, but are not limited to,
the following: facilitating, listening, participative designer, team leader, catalyst and courage.
The wisdom to know when to push the change versus when to step back and let people accept
the change over time is also required. Humility can easily facilitate the implementation of
change. Successful change management cannot be achieved without the proper
communication channels. Appropriate new communication channels are required to get
people involved and to let them know why the change makes sense. When appropriate,
create a transition team to oversee the change and develop policies and procedures that make
implementation of the change easy.
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STEP 4: CHANGE EXECUTION AND IMPLEMENTATIONMost change fails to yield expected results, not because it is not good but because
the ingredients and mechanisms for implementation were not executed properly. Leadership,
vision, courage, empathy, humility and wisdom are required to implement transformation and
reengineering projects. The work force must be inspired and motivated to change. Everyone
within the organization must he helped to understand the environment and how to implement
the desired change. Everyone in the organization needs to know how to implement the aspects
of the change that affect their own work. In addition, the following must be done to ensure
effective implementation:
Help the managers and the members of the work force understand how to define
the change and how to understand the management, communication and training
process involved in managing the change.
Develop the managerial tools and skills required to manage the change. These include
analytical, behavioral and organizational management skills; willingness to change;
commitment to change and the desire to manage the change.
Recognize the informal organization and provide a positive climate for those affected to
respond and accept the change quickly. An organization can be viewed as a social
system consisting of a loose network of small groups of people. People in these
groups can form a strong bond of loyalty to each other. These groups should be
used to institute the change. If the informal groups and the informal leaders accept
the proposed change, the change will occur much more smoothly. If they oppose
the change, it may be nearly impossible to implement. Therefore, it is important to
identify and get the informal groups involved in the change execution and
implementation.
Develop "change agents" for change execution and effective implementation. It is very
important for the leader of the change to seek the active support of the critical mass of
the work force. The critical mass usually "represents a sufficient number of influential
people who support the proposed change. When the critical mass support is
obtained, the change execution and implementation occur much more smoothly.
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Assess the readiness of the enterprise to make the change, allowing enough flexibility
for people to prepare for the change and deal with the consequences. Plans should be in
place to deal with the logical, rational and irrational sides of change.
In order to implement a change successfully at any level of the organization, the following steps
are suggested:
Step 1: Assess the magnitude of the proposed change and the vision for it.
Step 2: Divide the change into manageable and familiar steps and specify Implementation
timing.
Step 3: Communicate the change effectively.
Step 4: Assess the potential response to the change. Identify potential avid supporters, those
who are undecided and the resisters.
Step 5: Develop and implement strategies to win the support of everyone, including the
undecided and resisters. Step 6: Develop and implement actions to assist those affected by the
Change and follow up on open issues.
4.5. PRINCIPLES AND METHODOLOGY FOR ORGANIZATIONAL TRANSFORMATION AND REENGINEERING
Organizations and people are led by vision and guided by mission and purpose. The
organizational continuous improvement process must be guided by results-oriented
principles and methodology.
PRINCIPLE 1: LEADERSHIP AND WORK FORCE FOCUS ON CONSTANCY OF PURPOSE AND CONTINUOUS IMPROVEMENT
The organization leaders should create a sense of urgency for continuous- improvement
and constancy of purpose. Including goal setting, planning, policy deployment and efficient
implementation of improvement projects. Strategic, tactical and operational transformation
plans must address both the needs and means to achieve meaningful results. It is
important that the voices of the customers, suppliers, process owners, unions, management
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and work force be heard and incorporated in the transformation plans. The policy deployment
process also should be used to set priorities, including a focus on the following task
Promote the transformation and reengineering vision, policies, goals, objectives and
expected benefits.
Ensure that comprehensive plans are in place at all levels to manage transformation
projects.
Develop a comprehensive guideline for reengineering and restructuring work processes.
Provide training to everyone on the skills required to achieve successful
transformation.
PRINCIPLE 2: SIMPLIFY STRUCTURES, PROCESSES, PROCEDURES, POLICIES, SYSTEMS AND PROGRAM
Organizational and process reengineering efforts should focus on reducing layers of
management and structures that cause delays. Processes that have too many steps should
be redesigned achieve steps and improvement in cycle time. Outdated procedures,
policies, systems and programs need to be evaluated, simplified or eliminated when they no
longer serve any useful purpose.
PRINCIPLE 3: ELIMINATE AND MINIMIZE WASTEEvery member of the organization should take it as a personal responsibility to
eliminate waste. Any activity, task, work elements system or process that does not add
value to the final output or outcome desired by an organization or individuals can be defined
as waste. Waste results in delays increased costs, increased cycle time, decreased productivity
and an increase in rework. Excessive transportation, storage steps and duplicate machines.
PRINCIPLE 4: DESIGN AND IMPLEMENT PARALLEL PROCESSESLinear processes produce long cycle times. The linear process requires that everything
must wait for the completion of a previous step before the next step can begin. The parallel
process reduces cycle time, process bottlenecks and delays that affect customer satisfaction.
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PRINCIPLE 5: FOCUS ON CONSTANT INNOVATIONS AND USE OF TECHNOLOGY TO IMPROVE PROCESSES
Constant innovation of work processes can lead to breakthrough and improvement.
Everyone should be encouraged to examine their own job and work habits to find better ways
to creatively accomplish the same work Technology should be utilized to increase productivity
and improve quality when the benefits far outweigh the costs. However, the social aspects and
impact of new technology should be analyzed thoroughly before introduction to the work
environment.
PRINCIPLE 6: CREATE AND IMPLEMENT PERFORMANCE-BASED MEASURES TO ASSESS PROCESS OUTCOMES
1f the performance of any system or process is not measured, it cannot be meaningfully
improved. Quantitative and qualitative measures that address both objective and subjective
elements should be implemented. The measures recommended should include, but are not
limited to, the following:
Revenue per employee
Percent defectively
Process control limits
Cost of quality
Total factor and partial productivities
Profitability ratios
Customer satisfaction indexes
Reliability rates
Morale and job satisfaction indexes
PRINCIPLE 7: IMPLEMENT ERROR AND DEFECT PREVENTION PHILOSOPHY AT ALL LEVELS
Error and defect prevention mechanisms are the primary source of controlling process
variation. Everyone should be trained to prevent errors and defects at the source. Processes
that have no errors and defects produce error- and defect-free outputs. An error and defect
prevention philosophy can best be implemented when the following mechanisms are in place:
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Appropriate tools and techniques for solving problems
Adequate training provided to handle the challenges and process problems
Decision-making latitude and constructive empowerment provided to people to handle
their own responsibilities effectively
Existence of a support structure for implementing new process improvement ideas
Several types of errors and defects can occur due to technology, methods, data, process
complexity, training, techniques, materials, machines, manpower, environmental factors,
design flaws, policies, procedures, decision-making process and lack of experience and
attention to detail. Errors and defects can be prevented and corrected by reviewing
process and performance data, evaluating the skill base, examining causes and effects of
problems, and implementing variation control mechanisms within the process.
PRINCIPLE 8: DEFINE PROCESS OWNER(S), STAKEHOLDERS AND SUPPLIERS
No process can be fully reengineered without defining the key owners. A process owner
is the person responsible for overseeing the evaluation, assessment and implementation of
process improvement ideas. When there is no process ownership, the responsibility for
reengineered, new ideas has no home. In order to avoid this, primary, secondary and
auxiliary process owners must be defined at all levels. The definition of the process owners
should also include key process outcomes, measures, suppliers, process customers, process
dependencies, decision-making-gates and problem resolution sources.
PRINCIPLE 9: INVOLVE CUSTOMERS, PROCESS OWNERS, SUPPLIERS AND UNIONS IN REENGINEERING EFFORTS
Understanding and responding to the needs, inputs and expectations of these voices
are essential in order to identify potential beneficial areas for reengineering as well as identify
sources of implementation obstacles to new ideas. The dialogue between these voices also
ensures that no inputs, process variables or outputs are ignored in the process reengineering
effort In order to achieve the full involvement process, the reengineering team must
take the following actions:
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Provide a framework for defining and identifying process owners, customers, suppliers and
unions
Provide policy that requires each individual and organizational work unit to know its
suppliers, process owners, customers and unions
Define a measurement system that evaluates total performance and the relationship
between process owners, customers, suppliers and unions.
PRINCIPLE 10: PROMOTE RADICAL AND INCREMENTAL IMPROVEMENTSThe radical redesign of a process involves the complete elimination of all process
steps and elements and the substitution of a complete new process package. This approach is
only cost effective and beneficial if the benefits of the radical new process clearly outweigh the
costs of maintaining and improving the old process. Incremental process reengineering calls for a
careful approach to promote improvements; a systematic approach is needed for the
identification of small improvement opportunities in existing structures, processes; tools and
systems in order to incrementally change the performance outcomes.
4.6. TRANSFORMATION AND REENGINEERING METHODOLOGYOrganizational transformation and reengineering cannot be achieved in a crisis
management manner. All aspects of the transformation and reengineering effort must be
coordinated properly. The final outcomes can be achieved if the ten-phase methodology.
PHASE 1: CURRENT ENVIRONMENT ASSESSMENTThe assessment provides a baseline for product, process and information quality, as well
as human resource utilization. The next step is to break down the product and service system
into part or process characteristics and determine qualitative and quantitative issues and target
values for the defined characteristics.
The following suggestions are recommended for enhancing the partnership among the supplier,
process owner and customer. First, maintain continuous communication with customers and
suppliers. This requires one-on-one contact, an on-line communication channel, telephone
contact and periodic site visit. Second, encourage customer participation in developing quality
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excellence strategies for new products and services. Encourage suppliers to participate in
implementing a quality excellence and total customer satisfaction program.
Organizational Structure: The effectiveness of the organizational structure, span of control,
policies, procedures and decision-making processes.
Leadership for Transformation and Reengineering: The senior management vision and
commitment to organizational transformation and improvement
Culture and Environment: The culture that promotes continuous improvement and building
blocks and values that guide the organization toward excellence. This also includes the
operating philosophy at all levels of the organization, including work force empowerment,
ability to encourage partnership for progress at all levels and a customer-driven culture of
excellence.
Information Utilization and Analysis: The effectiveness of the company's collection and
analysis_ of quality improvement and planning.
Strategic Quality Planning: The effectiveness of the company's integration of the customers'
quality requirements into its business plan.
Human Resource Utilization: The success of the company's efforts to realize the full potential
of the work force for quality management.
Quality Assurance Results: The effectiveness of the company's systems for assuring quality
control in all its operations and in integrating control with continuous quality improvement. The
demonstration of quality excellence is based upon quantitative measures and results.
Customer Satisfaction: The effectiveness of the company's utilization and integration of new
technology into new and mature products and processes.
Innovation, Technology and Process Management: The ability and commitment of the company to
encourage and manage innovation at all levels of the organization.
Supplier Management: The successes of the company's efforts to encourage and develop a
supplier network that utilizes effective quality assurance and management techniques and
controls.
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PHASE 2: DEFINE ORGANIZATIONAL MISSION, VISION, VALUES AND PROCESS OBJECTIVES
The senior management of the organization has the ultimate responsibility to define a
clear and shared vision of where the organization is headed. It is very important that the vision is
written, disseminated and understood by everyone. The organization's values should extend
beyond the basic requirements for legal behavior. These values should include, but are not
limited to, customer satisfaction priorities, honesty, fairness, teamwork, strength, business ethics
and integrity, and commitment to growth.
PHASE 3: TRAIN REENGINEERING TEAM AND DEFINE PRIMARY, SECONDARY AND AUXILIARY WORK PROCESSES
The creation of an organizational transformation and reengineering team is an
excellent way to achieve results quickly. The team must be trained in change
management, cohesiveness, tools, techniques for problem solving and decision making,
measures and critical success factors, people sensitivity and project management. Once the
team is trained, the various levels of the process should be identified. The following are
three recommended levels of processes:
Primary Processes: Primary processes are the key processes within an organization which
produce the main products, services or final output for the external customer.
Secondary Processes: These are the second-level work processes within an organization. They
support the key processes to deliver the final output to the external customer.
Auxiliary Work Processes: These are the third-level work processes which support the
secondary work processes to deliver the final output.
PHASE 4: DEFINE KEY PROCESS OWNERS, SUPPLIERS AND CUSTOMERSThe Edosomwan tri-level definition of processes, suppliers, process owners and
customers represents an organization as a total system, which contains inputs, processes and
outputs. The system is maintained by suppliers, process owners and customers.
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Figure 3.2 The Edosomwan Tri level definitions of process, suppliers, process owner
and customer
External Customer: The final arbiter who receives the work output. The external customer is
the judge of whether or not the quality, price, delivery, schedule, service and other
specifications are exceeded and met.
Internal Customer: The internal judge of the output that comes from another department or
individual.
Self-Unit Customer: Every individual is a self-unit customer of themselves. Excellence at the
individual level calls for self-inspection, a disciplined attitude, better work habits, self-
measurement and evaluation, and self-ownership and accountability for the final output.
Supplier: Anyone responsible for supplying inputs to a process or system. There are also
three levels of suppliers: (a) external suppliers, who provide desired inputs from outside the
organization (also called external vendors); (b) internal suppliers, who provide input from one
department or one individual to another within the same organization and (c) self-unit
suppliers, which means every individual supplies himself or herself with critical input, such as
personal time and materials.
Process Owner: The person charged with the ultimate responsibility for a set of primary,
secondary or auxiliary work processes. The process owner is also the final decision maker on
process improvement implementation and allocation of resources and can take the blame or
credit for the problems or progress involved in the process.
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PHASE 5: DOCUMENT, MAP AND ANALYZE CURRENT PROCESS ELEMENTS AND SYSTEMS
The key tasks in this phase include (a) identify and record all steps in the process; (b)
detailed description of each process step; (c) arrange each process step in its correct order;
(d) identify each process step by type, such as operation, delay, inspection, transportation
and decision gates; (e) determine the process beginning and end; (f) identify process inputs and
outputs and (g) determine the process metrics. At the completion of this phase, the process
analysis team or individual should gain general familiarity with the process, identify the key
purpose for analysis and identify opportunities for improvements and current strengths.
PHASE 6: DEFINE KEY RESULTS AREAS AND CRITICAL SUCCESS FACTORS FOR PROCESSES
The success factors include, but are not limited to, the following: customer satisfaction,
financial measures, productivity measures, quality measures, job satisfaction measures and
profitability measures. It is strongly recommended that critical measures be monitored
periodically.
PHASE 7: SELECT PILOT PROJECTS FOR REENGINEERINGTHAT FOCUS ON CUSTOMER-DRIVEN RESULTS
The goal of process reengineering is to eliminate waste, delays, redundancies and
excessive bottleneck . Focus on opportunities for improving the following: (a) inefficiency in
process steps; (b) time-consuming delay steps; (c) redundant inspection steps; (d) sources of
rework and repairs, (e) excessive paperwork, policies and procedures; (f) sources of lost
productivity and efficiency and (g) excessive process steps that increase cost of quality.
PHASE 8: DESIGN, IMPROVE AND PROTOTYPE NEW PROCESSESReengineering has a cross-functional perspective is to assemble a team that
represents the functional units involved in the process being reengineered and all the units
that depend on it. Rather than looking for opportunities to improve the current process, the
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team should determine which of its processes really add value and search for new ways to
achieve the end result. When looking for improvement opportunities.
Questioning the value of every process step
Eliminating non-value-added work elements and activities
Reducing process complexity
Using technology or systems to improve performance
Combining process steps through linear or parallel design
Selecting the most efficient method of transportation, movement and sequencing
PHASE 9: IMPLEMENT IMPROVEMENT AND REEVALUATE PROCESSES FOR CONTINUOUS IMPROVEMENT
The key to achieving radical quantum performance and results is implementing
improvement ideas at all levels. Improvements often reflect drastic changes in culture, structure,
systems, policies, procedures, technologies and tasks. The improvement may also reflect
significant changes in existing jobs by integrating task elements and empowering workers with the
authority to deliver better results. Process improvements can be implemented in four ways:
Radical switch to the new method
Incremental or gradual switch to the new method
Controlled implementation of portions of recommended improvements
Pilot testing of total improvements
PHASE 10: CONTINUOUS REENGINEERING AND PERFORMANCE IMPROVEMENT
The vision for improvement should be continuous. Everyone within the organization
needs to be involved in the ongoing identification of new improvement opportunities; the
improvement effort, responsibilities and ownership of results are clearly defined. It is
recommended that a breakthrough in new knowledge and the pilot approach to testing should
be encouraged. In order to avoid a sudden stop in process improvement progress, strategies for
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overcoming resistance to change must be implemented. Continuous measurement, evaluation,
planning and improvement of process improvement ideas are recommended.
4.7. ORGANIZATIONAL TRANSFORMATION GUIDELINES
It is important to have guidelines for organizational transformation because they
facilitate integration, execution and transition from the current state to the future
organizational state in the most effective manner. The following guidelines are recommended
for handling the organizational transformation process.
4.7.1.OBTAIN COMMITMENT TO THE TRANSFORMATION EFFORT
Perform a thorough evaluation to understand the organization's climate and culture.
Secure and obtain total support of everyone who will be affected by the transformation and
changes. The process of building commitment begins with the senior management of the
organization and is continued until all the stakeholders and members of the work force are
committed.
Stage 1. Visualization and Awareness: People have a sense of what needs to be done
differently. They can visualize the elements of the future, but they are uncertain how the vision
for transformation can be realized.
Stage 2. Apprehension and Self-Concern: The means for realizing the transformation
effort becomes very clear, and people are concerned about how they will be affected by the
transformation and changes. Several personal questions are asked: How will the changes affect
careers?.. .compensation?. . job security?.. decision making latitude?.. .the quality of work life?
Stage 3. Reality and Mental Tryout: People now view the transformation effort as
reality and know that changes are inevitable. People's attitudes begin to shift to either avid
supporters or resisters. The supporters will find ways to make the perceived changes work for
them, and the resisters will find ways to defeat the new ideas. At this point, most resisters are
converted to supporters if the benefits of the changes are explained properly.
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Stage 4. Transformation and Change Acceptance: People accept the changes and are
willing to deal with the consequences. Stage 4 is easier to achieve if there are specific
implementation steps for the change4 and the timing and content are realistic and open to
new opportunity.
4.7.2. LMI CIP TRANSFORMATION MODELBroad goals are focused down through all the organization’s layers, and
improvement practices follow a structured, disciplined methodology. Training and tread
building have fundamental, supporting roles throughout the LMI CIP Transformation
Model, as people and groups in the organization must be trained in appropriate subjects at
the appropriate times and groups must learn to function as teams. The ultimate objectives
are to (1) establish a perpetual and total commitment to continuous improvement
throughout the organization and (2) involve everyone. Continuous process improvement
should become the organization’s way of life. Envisioning, shown in is a process that includes
developing the organization's overall mission and goals and, within the context of that overall
mission, building individual and group awareness of positive transformation and reengineering
objectives, philosophy, principles and practices. Creating a customer focus is a key element of
improving the organization's effectiveness. Each individual must demonstrate belief in the
organization's mission and ownership of its vision. An Executive Steering Committee (ESC), led by
the head of the organization, guides and leads the overall transformation and reengineering
effort, which becomes integrated into the organization's way of doing business. The ESC is also
instrumental in enabling the achievement of the mission.
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Figure 3.3 LMI CIP Transformation model
Top management must become committed to the implementation and must demon-
strate that commitment; highly visible and vocal champions can help publicize that
commitment. Everyone must work toward removing the barriers to transformation and
establish support, rewards and recognition systems that encourage positive behavior and
drive out the inherent fear of change. Training and time resources for the entire work force are
essential. Finally, the organization must empower individuals and groups at all levels by
providing them the authority necessary to meet their responsibility for process improvement
Figure 3.4 Envisioning
Improving the processes, illustrated in Figure 3.6, is the result of envisioning a
new way of doing business, enabling that vision and focusing the effort to achieve
specific goals and objectives. The organization’s improvement activities include many of
the more mechanical processes to define and standardize processes, to assess
measurement are critical elements throughout the continuous improvement process.
Learning is one of the fundamental elements supporting the organizational
transformation and continuous improvement effort. It comprises training and education.
Team building begins with the establishment of the ESC and continues through all levels to the
bottom of the organization. In many cases, team building simply means training existing work
groups to act as teams; in other situations, common problems and concerns may be addressed
through creating cross-functional teams which dram participants from all interested areas. All
teams should be linked, horizontally and vertically, and should follow the structured process
improvement cycle within the framework of the common organizational goals
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4.8. DSMC Q&PMP TRANSFORMATION MODELThe DSMC Q8PAMP Transformation Model, is a broad conceptual model with
interrelated actions and emphases that describe a general process for transformation from the
point v,-hen an organization recognizes a need to change to the point at which it becomes a
competitive organization of the future The model depicts an organization as an open system
with various feedback loops from the environment, and it highlights the interrelationships
between the various components of a quality and productivity management effort.
Figure 3.5 DSMC Q & PMP Transformation model
4.8.1.ORGANIZATIONAL SYSTEM
The "organizational system" box in the middle of the model represents the system that
exists; it could be an entire company, a division, a plant, a department or just individual day-
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to-day activities. The system has upstream systems (internal and external suppliers) which
provide inputs in the form of labor, material, capital, energy and data/information. The system
takes these inputs and converts them into outputs in the form of products or services.
Downstream systems (internal and external customers) then react to those outputs, creating
outcomes, such as customer satisfaction, readiness, profitability, etc.
4.8.2. INCENTIVE AND STRATEGIES FOR CHANGE
At the top of the diagram is the new competition the organization must respond to in
order to compete in a global economy. This new competition and global economy influence
the business strategy and visions of the organization and the future. Key performance
indicators are identified to provide feedback on performance progress.
The following steps are included in ,in effective strategic planning process: (a) develop a
collective strategic awareness among the management team; (b) convert that awareness into
specific planning assumptions; (c) create a set of agreed-upon, prioritized, strategic objectives;
(d) focus those objectives into a series of action items, (e) determine who will be accountable
and responsible for each action item and develop teams to take action; (E) measure, assess and
evaluate the effectiveness of improvement actions and (g) continuously support the
improvement effort.
4.8.3. PERFORMANCE IMPROVEMENT METHODOLOGY AND TECHNIQUES
Interventions happen at five checkpoints: upstream systems, inputs, process, outputs
and downstream systems. Quality management efforts must be defined relative to these five
checkpoints. In effect, transformation and continuous improvement efforts are commitments
to a practice of managing all five quality checkpoints. The management team then develops,
through the performance improvement planning process, a balanced attack to improve total
system performance, not just system subcomponents.
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4.8.4. MEASUREMENT AND EVALUATIONAfter interventions are made to the system, - measure, and access and analyze
performance at the five checkpoints to determine whether the expected impact actually
occurred. Based on these data, make an evaluation relative to the business strategy, the
environment (both internal and external), the vision, the plan and the improvement
actions themselves.
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78
UNIT IV REENGINEERING PROCESS IMPROVEMENT
MODELS
PMI MODEL
EDOSOMWAN MODEL
MOEN AND NOLAN STRATEGY FOR PROCESS IMPROVEMENT
LMICIP MODEL
NPRDC MODEL
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5.1. PMI MODEL
The PMI Leadership Expectation Setting (L.E.S.) Model revolves around the continuous
improvement of quality indicators the primary expectation of this eight-step model is the
continuous improvement of processes and systems within an employee's own function. Leaders
and co-workers participate and are expected to provide constructive help and support. L.E.S. is
predicated on the belief that individuals in organizations are leader’s just as much as top
management.
STEP 1: DEVELOP A MISSION STATEMENT
The first step is to develop a personal mission statement which is consistent with the
mission of the entire organization. Make it explicit, but remember that it is to be a guideline for
future decision making As a leader, a personal vision and mission must be understood by other
individuals in the organization. A vision understood only by one individual will not move others.
A feeling of employee ownership in the organization's future must be cultivated.
STEP 2: IDENTIFY KEY LEADERSHIP FUNCTIONS
The main improvement priority should be to focus process improvement efforts on the
highest priority functions. To do this identifies the responsibilities of the job which have the
greatest effect group's results. From this identification, determine specific opportunities for
improvement in the personal leadership processes.
STEP 3: IDENTIFY IMPROVEMENT OPPORTUNITIES
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In identifying improvement opportunities, understand what the major job functions and
tasks are, focus on the customers' requirements and priorities and, using those requirements,
define personal improvement efforts. Finally, identify factors that indicate the level of quality
in the work, establish a basis for results and measure the level of improvement achieved.
STEP 4: SHARE THE RESULTS WITH MANAGERDiscuss the personal improvement plan with a manager to ensure that it is meaningful to
the organization as a whole and that it contributes to overall organizational goal s-f-he
manager should agree with the proposed plan for improvement and should provide comments
on the approach where appropriate Since the time and resources available for improvement
depend l0 a large extent on the manager's support, it is essential to obtain the manager's
agreement before proceeding.
STEP 5: SHARE THE L.E.S. PLAN WITH SUBORDINATESLeadership improvement is meaningless absent the context of those individuals being
led. Subordinates are the ultimate purpose of the improvement plan; in effect, they are the
major customer. share the plan with subordinates and ask for their comments and perceptions.
Invite them and individual leaders to begin the L.E.S. process themselves. Encourage each
individual to share his or her progress with the group.
STEP 6: USE A SYSTEMATIC APPROACHTo provide consistency to the improvement process, adopt a structured, systematic
approach An approach, such as this one, enables individuals to display progress in a manner
understandable by all. A disciplined method of defining a problem, observing it, determining its
causes, taking action, checking the effectiveness of that action, standardizing the solution
and evaluating the process is a key to providing consistency.
STEP 7: SHARE PROGRESSLeadership Expectation Setting is not only a model for individual improvement; it is also
a basis for continuous performance communication and feedback between employees and
supervisors. When sharing progress, do not focus on completing or updating forms; rather,
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engage in substantive discussion of improvement objectives obstacles to meeting those
objectives and lessons learned along the way. Often, more important lessons are learned in
failure than in success; therefore, the performance assessment, both with the
supervisor and with the subordinates, should focus on the underlying causes of failure instead
of the fact of failure itself.
STEP 8: CASCADE L.E.S. MANAGEMENT THROUGH THE ORGANIZATIONSet the expectation that L.E.S. and individual improvement can be applied at any level in
the organization However, personal leadership and adherence to the process are crucial to its
success in the organization. Demonstrate a belief in, and commitment to, the improvement
process to help inspire its adoption by others.
5.2. EDOSOMWAN PRODUCTION AND SERVICE IMPROVEMENT MODEL (PASIM)
The Production and Service Improvement Model (PASIM is a disciplined process
improvement approach which requires continuous process assessment and an organized use
of common sense to find easier and better ways of doing work, as well as streamlining the
production and service processes to ensure that goods and services are offered at minimum
cost. The PASIM concept is shown in Figure 4.2. The PASIM improvement strategy focuses on
the following areas:
Elimination of bottlenecks
Reduction in production costs, wasted materials, engineering changes, non-value-added
operations, the amount of paperwork, chronic overtime, error rate, work repetition, work-in--
process inventory, transportation and materials handling, and training time
Improved job safety, employee morale, customer service, and productivity and quality at the
source
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Figure 4.1 PASIM Conceptual frame work
THE PASIM PRINCIPLES ARE AS FOLLOWS:
Principle 1: Management and employees must have the positive attitude that
productivity and quality improvement can result from the organized use of common sense to
address service and production problems. Management support must be shown through ex-
ample, practice and an organization policy statement.
Principle 2: A total teamwork approach among functional organizations, such as
research and development, marketing, personnel, purchasing, manufacturing, information
systems, quality, facilities and distribution, maintenance, finance, production control, service
centers, engineering and others, must be used to address all problems.
Principle 3: There must be total productivity and quality improvement at the source
of production and service. Heavy reliance on inspection and other non-value-adding operations
within the work organization must be discouraged. The required basic training must be provided
to obtain high-quality goods and services at the source of production or service.
Principle 4: Reduction in the layers of management at all levels must be encouraged. Too
many levels of management cause additional bottlenecks. A level of management must be
instituted within the organization only if it will add value to the improvement of the production
and service function.
Principle 5: A total impact assessment must be done for all service and process
changes, policy changes and implementation of new ideas and techniques.
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Principle 6: A total reward system, based on contribution to improving and managing all
aspects of a task to obtain acceptable goods and services, must be in place.
Principle 7: Production and service errors that affect productivity and quality are
controllable through common sense and good judgment. The production rate must be
equal to the consumption rate.
Principle 8: Both management and explodes must be encouraged to question
every task and job in detail.
Principle 10: Both management and employees should adopt the practice of
seeing every job as make-ready, do it and put it away.
5.3. MOEN AND NOLAN STRATEGY FORPROCESS IMPROVEMENT
The eleven steps begin with the selection of a process to improve and result in
the implementation of a continuous improvement cycle which operates on the process.
The model looks at an organization as a network of linked processes run by internal
producers and customers.
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Figure 4.2 Moen and Nolan Strategy for process improvement
STEP 1: DETERMINE TEAM OBJECTIVEThe team must begin with a clear statement of the objective it hopes to achieve.
Each member of the team should view the accomplishment of this objective as
important and worthwhile.
STEP 2: DESCRIBE THE PROCESSOnce the team has determined and agreed upon its objective, it should describe
and document the process it intends to improve.
STEP 3: FLOW CHART THE PROCESS
The flow chart visually demonstrates the flow of the process over time. Flow
charts work best when simple, including only enough detail to give a basic
understanding of what is happening.
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STEP 4: IDENTIFY SUPPLIER/CUSTOMER RELATIONSHIPSOverall performance is improved as [producers work in teams with their suppliers
(internal and external) to improve internal customer satisfaction and, hence, external
customer satisfaction.
STEP 5: IDENTIFY MEASURES OF PERFORMANCEIt must identify basic measures of performance for the outcome of each stage. These
measures are identified as checkpoints on the flow chart. Each measure must be clearly defined as
to what specifically is being measured and, more importantly, what that measure means. Identi-
fying performance measures creates windows through which processes can be observed.
STEP 6: DEVELOP POSSIBLE CAUSE FACTORSMeasurements provide key indications of process performance prob lems and their
causes. Use a number of tools to keep track of and assess these possible cause factors, which will
identify opportunities for improvement.
STEP 7: DOCUMENT WHAT WAS LEARNEDStrict, consistent documentation is essential to maintaining control over the
improvement process. Once improvements have been implemented, maintain a history of
the entire improvement effort." This history serves to provide lessons which might be
applied to other projects and also provides a data trail to analyze the success or failure of the
improvement efforts.
STEP 8: PLANOnce a project has been selected, the theory phase of the planning step begins. Theory
may range from a hunch or "gut feeling" to well accepted scientific principles at various times
throughout the cycle. The next phase is to plan data collection. Data will be used to increase
process knowledge and help establish a consensus among team members. The questions to be
answered by the data will guide the data collection process.
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STEP 9: OBSERVE AND ANALYZEThe observation phase begins when the plan for data collection is put in place. The
data should be observed as soon as they become available. Any data collection process has
many opportunities for error and many opportunities for special causes to occur. Plotting the
data chronologically as they are obtained is vital in order to recognize problems.
Once the data are obtained, they are analyzed to help answer the questions posed in the
theory phase. In preparing for this analysis, the team should determine the resources
needed. They will usually be able to analyze their own data, but there will be times when help
from a statistician or other expert is needed.
STEP 10: SYNTHESIZEThis phase brings together the results of the data analysis and the existing knowledge of
the process. The theory is modified if the data contradict certain beliefs about the process. If
the data confirm the existing theory about the process, then the team will be confident that
the theory provides sufficient basis for action on the process.
STEP 11: ACTAgreement on the suitability of improvement action is obtained by repeating the
improvement cycle; it is the repeated use of the cycle that is important.
5.4. LMI CIP PERSONAL IMPROVEMENT MODELIt involves establishing a vision for the personal improvement effort and enabling that
effort, focusing on personal behavior and the expectations to achieve continuous improvement
in performance, and finally evaluating the efforts to improve.
87
Figure 4.3 LMI CIP Personal improvement model
STEP 1: ENVISION PERSONAL IMPROVEMENTBuild self-awareness of the need to improve and the individual ability to improve.
Assessing relationships within the organization as well as customers and suppliers provides a
fundamental understanding . Develop expectations for personal behavior and begin creating the
personal vision for improvement.
STEP 2: ENABLE PERSONAL IMPROVEMENTThis effort starts with educating oneself about improvement goals and about
performance improvement concepts, principles and practices. Process of learning-learning
about using performance improvement tools, about the processes, about the collection and
use of data and about the process of learning itself.
STEP 3: FOCUS ON IMPROVEMENTMaking improvement a high personal priority and creating time in the schedule for
improvement activities are vital to this effort and are a clear demonstration of a personal
commitment to improvement.
88
STEP 4: IMPROVE YOUR JOBDefine your job as the collection of the processes owned. By removing complexity from
the personal processes and pursuing small, incremental improvements, a substantial increase
in the effectiveness of personal performance can be achieved.
STEP 5: IMPROVE YOURSELFFacilitate communication between yourself and others, as well as among others.
Remove personal barriers, seek the assistance of others to remove the barriers you do not
control and work to eliminate your personal fears of change and improvement. This is best
done through education and through communication with others. Depend on the vision to
guide the improvements, and use that vision to maintain momentum.
STEP 6: HELP OTHERS IMPROVEThrough the personal improvement effort, the organization as a whole can improve. By
training and coaching others, by creating more leaders, by working to create teams and
eliminate barriers and by encouraging the improvement activities of others.
and enabling that effort, focusing on personal behavior and the expectations to achieve
continuous improvement in performance, and finally evaluating the efforts to improve.
STEP 7: EVALUATE PERSONAL IMPROVEMENT PROGRESSThe value of improvement lies in the effort to improve beyond the results and by
documenting personal improvement efforts so they may be shared with and used by others, you
will derive the most from your own efforts. Celebrate personal success and the success of others.
Ensure through personal evaluation that the improvement effort itself is rewarding and provides
further incentive for continuous improvement effort.
5.5. NPRDC PROCESS IMPROVEMENT MODELThe NPRDC Process Improvement Model is also a PDCA-based model. It begins by stating a
goal for improving a process and proceeds through institutionalizing successful process changes
in documented process standards.
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Figure 4.4 NPRDC Process improvement model
STEP 1: PLANDocumenting the current understanding of how the process functions, defining the
customers of the process and understanding customer needs and requirements. Once the
process is understood, make the improvement goals more specific; define the actual desired
changes in process outcomes.
STEP 2: DODefine the structure for improving the process. Identify the elements of the
process, both internal and external, that potentially have an effect on the quality of the process
and its products. To verify the theoretical causes of quality, identify measures of process perfor-
mance. In defining measurement points, ensure that they are specific, repetitive and consistent.
Before obtaining measurement data, establish clear, concise data collection procedures to
ensure that the data are collected periodically and consistently. ,
90
STEP 3: CHECKCheck the process performance to ensure that the process is understood and, more
importantly, to improve the process. Collecting and analyzing data is the primary tool for doing
this. Data collection must be focused and consistent, performed in accordance with the
procedures established in the Do phase. Analyze the data aggressively and thoroughly,
STEP 4: ACTSelect the causes to be changed, taking one-time action on special causes and
developing remedial changes for common causes. Implement both types of actions on a trial
basis and evaluate their effects. For ineffective changes, go back and identify new causes of poor
quality or causes of performance problems. Document effective changes and build them into
the normal way of performing the process; this usually entails modification of existing process
standards. Finally, set in place a means of monitoring process performance over the long
term, ensuring that the suggested changes continue to have their desired effects and that
people are performing the process according to the new standard. The process improvement
cycle continues forever...without end.
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UNIT V REENGINEERING TOOLS AND
IMPLEMENTATION
ANALYTICAL AND PROCESS TOOLS AND TECHNIQUES
INFORMATION AND COMMUNICATION TECHNOLOGYENABLING ROLE OF IT
RE OPPORTUNITIES
PROCESS REDESIGN - CASES SOFTWARE METHODS IN BPR
SPECIFICATION OF BP
CASE STUDY – ORDER
PROCESSING
USER INTERFACE
MAINTAINABILITY AND REUSABILITY
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5.1. PROCESS ANALYSIS TECHNIQUE (PAT)This is a systematic approach to defining all tasks required to execute a process (Figure
5.1 and Table 5.1). The following steps are recommended for performing the PAT:
Step 1: Select a particular process based on the degree of performance problem.
Step 2: List the value-added and a non-value-addled. task within the process.
Step 3: Record process times for all activities.
Step 4: Based on the information obtained in Steps 2 and 3, determine which task or activity
is required to produce the final output.
Step 5: Seek alternative approaches or methods to perform existing task at reduced cost and
improved quality levels.
Step 6: Eliminate the waste and non-value-added tasks, and implement improved value-added
methods in the process.
Step 7: Implement the right controls for process monitoring and follow-up on continuous
improvement actions.
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Figure 5.1 the components and characteristics of a typical process
5.1.1. FLOW CHARTING AND PROCESS ANALYSIS TECHNIQUEThe flow chart shown in Figure 5.2 provides an example of how the various factors and
steps can be interrelated in an assembly process. It provides the basis for understanding the
standard process procedures and the relationship between the people and the work to be
done. When constructed accurately and analyzed properly, a flow chart can help to understand
and identify process bottlenecks, such as delays, excessive transportation, waiting time and
queuing time. It also is used to identify key customers, suppliers and process owners by
operational work-unit performance level, quality level.
Step1: Understand the process and the relationship between all process parameters
(manpower, machines, materials, methods, procedures, technology, systems and policies).
Step 2: Understand the flow chart process symbols (Process, transportation, delays and
decision points).
Figure 5.2 sample flow chart
Step 3: Construct the flow chart starting with the first activity or event. Connect all activities or
processes using arrows in a chronological order.
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Step 4: Identify the key problems by reviewing every step and element specified.
Step 5: Develop a solutions strategy for problems, identifying and implementing corrective
actions for continuous improvement.
5.1.2. WORK FLOW ANALYSIS (WFA)WFA is a structured system which improves work process by eliminating unnecessary
tasks and streamlining the work flow. WFA identifies and eliminates unnecessary process steps
by analyzing functions, activities and tasks. It uses cross-functional teams and is implemented in
seven steps.
Figure 5.3 sample workflow diagram
Step 1: Define the process in terms of purposes, objectives and start end points.
Step 2: Identify functions and major responsibilities of the organization, including manpower
and planning.
Step 3: Identify activities below functions.
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Step 4: Identify tasks or basic steps used to perform each activity and to provide the most
specific description of a process.
Step 5: Analyze the proves with a cross-functional team.
Step 6: Identify lengthy tasks, choke points, repetitious tasks, etc.
Step 7: Determine and implement an action plan for improvement.
5.1.3. VALUE ANALYSIS APPROACHThe value analysis is a systematic approach to examining the functional design of a
product or specific part, to develop a more efficient, less costly alternative. The following steps
are recommended for implementing the value analysis approach.
Step 1: Select the product or part for analysis and evaluate its importance.
Step 2: Develop a functional definition of the part and describe its purpose and use in the
product in question. Specific questions to ask when analyzing parts are:
Does it contribute to the use of the product?
Is it cost effective?
Are all the features required?
Are there alternative parts that are better?
Can recycled material be used?
Can another supplier provide the part for less cost?
Can the function of the part be combined with something else?
Step 3: collect data on part performance and cost, and evaluate the contribution of the part to
the final product.
Step 4: Develop alternatives. Conduct a brainstorming session to determine the function of the
part and to develop ways to overcome any apparent roadblocks.
Step5: Design or establish specifications for the proposed new component or part.
Step 6: Evaluate the new part through prototype testing, and compare the cost of new and
existing parts. Select the best alternative.
Step 7: Implement the preferred part in the product and subassembly, and put it into
operation. Follow up to ascertain that the new part is performing the same function at a lower
cost and improved quality.
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5.1.4. NOMINAL GROUP TECHNIQUEThe nominal group technique (NGT) is a proactive search process that involves a
participative group approach to identifying specific problems and issues, or providing ideas and
solutions to resolve problems previously identified. It is a methodology for generating ideas,
recording those ideas and prioritizing them to move toward consensus decisions, NGT can be
especially useful when resolving complex problems, when a group is under time pressures or to
avoid potential conflicts associated with discussing and prioritizing sensitive issues. The steps
for using NGT are displayed in Figure 5.7 and described below.
Step 1: Idea Generation Process
The group leader resents the purpose of the meeting, which may be to generate ideas
for resolving a specific productivity or quality problem. The ground rules for proactive group
participation are provided, and time is given for group members to silently record ideas on
paper individually without comment.
Step 2: Round Robin Silent Reporting of ideas
Ideas are collected by the facilitator. Two methods are commonly used:
If the ideas tare sensitive or if the quantity of participants or ideas is very- large, facilitator
collects the ideas and records them individually and anonymously for the group.
Each person can present his or her ideas one at a time in turn, with no evaluation or
prejudgment by other team members, while the facilitator records the ideas.
Step 3: Clarification of Ideas and Group Discussion
Once all ideas have been recorded, each is discussed for accurate interpretation, to
clarify misunderstandings and to combine any lams that are repetitious in nature.
Step 4: Ranking of ideas
The ideas are then prioritized by each participant. There are many methods for ranking, the
most common being simple voting or weighted voting and pare to prioritization. The goal of
this step is to use ranking techniques to reach a consensus decision by the group on the ideas
of interest.
Step 5: Implementation
Once an idea is selectee for recommendation or implementation, the group works together to develop an implementation plan and establish an expected results time line.
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5.1.5. FISHBONE DIAGRAM OR CAUSE-AND-EFFECT DIAGRAMThe fishbone diagram or cause-and-effect diagram, helps to relate the elements of a
process. It relates possible causes to specific effects. All variation levels are identified by
examining all the possible cause. All the possible causes that add to the variation level of the
resulting effect are identified using; a brain storming approach. The cause-and-effect diagram
provides a method to involve all the people and factors in ale service or manufacturing process to
see how the various factors come together to make up flat ideas are then prioritized by each
participant. There is many the total performance.
Figure 5.4 Fish Bone Diagram
HOW TO CONSTRUCT A CAUSE-AND-EFFECT DIAGRAM
The steps for constructing a fishbone diagram and implementing recommended solution
strategies are as follows:
Step 1: Perform a thorough analysis of the production service operation work unit and
define the purpose and problem for using the fishbone diagram.
Step 2: Initiate group meetings involving all parties likely to be affected by the problem.
Step-3: Use the brainstorming or nominal group technique to identify all possible causes of
the specific problem and identify potential effect and impact on quality, performance,
productivity and total customer satisfaction.
Step 4: Pinpoint the main causes of the problem. Identify the key contributor (machine,
material, methods, technology systems, people, policies or procedures).
Step 5: Develop alternative solutions to fix the problem identified.
Step 6: Implement the solution and follow up with continuous corrective action and
improvement.
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5.1.6. PARETO ANALYSISA Pareto diagram can be described as a graphic representation of identified causes,
shown in descending order of magnitude or frequency, as depicted in Figure 5.9. The
magnitude of concern is usually plotted against the category of concern. The Pareto diagram
enables the process improvement analyst to identify the vital key problems, projects or issues on
which to concentrate.
Figure 5.5 pare to diagram
HOW TO CONSTRUCT A PARETO DIAGRAM
The following steps are recommended for constructing a Pareto diagram.
Step 1: Specify why a Pareto diagram is required, and create a clear definition of the items to be
ranked, the-criteria to be used and the factor. The Motivation for Pareto analysis usually comes
from too many complex problems occurring within an operation unit or a specific process. The
Pareto diagram is then used to categorize the various problems in their order of magnitude. For
example, a computer manufacturer wanted to understand the repair and analysis cost
associated with specific types of computer products. The Pareto analysis technique was applied
in order to understand the magnitude of tins problem. Steps 2 through 4 give specific examples
of the application of the Pareto analysis technique.
Step 2: Perform data collection and record the data by item. In this step, the number of
occurrences of each problem and the associated magnitude in weight, cost or time are
99
collected and recorded. For the computer products example, the repair and analysis cost for
each type of computer is presented in Table 5.2.
Step 3: Calculate percentages for each item and rank them in order. The percentages for each
item and the total cumulative percentages for all items are calculated as follows:
each
item % = x 100
Item % = x 100 total items (weight or value)
Example for computer type C2:
Item % = x 100% = 47.5%
Cumulative % = (each item % + previous cumulative %)
Table 5.1 Repair and analysis Costs for Computer Products
Computer Type Defect
Occurrence
(Total Number)
Average Cost Per
Occurrence (s)
Total Repair Cost
Pert Computer Type
(s)
C1
C2
C3
C4
C5
C6
Total
15
18
20
14
10
5
82
20
40
10
5
10
25
300
720
200
70
100
125
1515
The product and cumulative percentages for the computer example are presented in
Table 5.1
Step 4: Construct graph axes, and plot bars and a cumulative percent line. Based on the values
of items obtained in Step 3, the Pareto diagram is constructed. The Pareto diagram for the
computer examples is presented.
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ContentsUNIT-I INTRODUCTION.......................................................................................................................1
1.1. PRODUCTIVITY..................................................................................................................2
1.1.1. COMMON MISUSE OF THE TERM............................................................................................2
1.1.2. BASIC DEFINITIONS OF PRODUCTIVITY...................................................................................4
1.1.3. PARTIAL PRODUCTIVITY:........................................................................................................4
1.1.4. TOTAL FACTOR PRODUCTIVITY:..............................................................................................4
1.1.5. TOTAL PRODUCTIVITY:...........................................................................................................4
1.2. PRODUCTIVITY BENEFIT MODEL........................................................................................6
1.3. THE PRODUCTIVITY CYCLE.................................................................................................7
1.4. MACRO AND MICRO FACTOR OF PRODUCTIVITY:..............................................................8
1.4.1. Micro level productivity:........................................................................................................8
Micro data analysis:.........................................................................................................................9
2.1. PRODUCTIVITY MEASUREMENT AT THE INTERNATIONAL LEVEL..............................................11
2.1.1. MEASUREMENT APPROACHES.........................................................................................11
2.1.1.2. Shelton and Chandler’s Measures.........................................................................................11
2.2. PRODUCTIVITY MEASUREMENT AT THE NATIONAL LEVEL.......................................................12
2.2.1. Index approach................................................................................................................12
2.3. PRODUCTIVITY MEASUREMENT IN ORGANIZATIONS LEVEL.....................................................12
2.3.1. Index Approach:..............................................................................................................13
2.3..1.1. Kendrick – Creamer Model:..................................................................................................13
2.3..1.2. Craig – Harris Model.2...........................................................................................................14
2.3..1.3. APC Model.4........................................................................................................................14
2.3..1.4. Mundel’s Model...................................................................................................................14
101
2.3.2. Production Function Approach.................................................................................................15
2.3..2.1. The Cobb-Douglas function...................................................................................................15
2.3..2.2. The constant elasticity of substitution (CSE) function............................................................15
2.3..2.3. The variable elasticity of substitution (VES) function.............................................................16
2.3.3. Input – Output Approach.................................................................................................16
2.3.4. Servo-System Approach...................................................................................................16
2.3.5. Capital Budgeting Approach............................................................................................16
2.3.6. Unit Cost Approach.........................................................................................................16
2.4. TOTAL PRODUCTIVITY MODEL (TPM)......................................................................................17
2.4.1. Notation for the Total Productivity Model.......................................................................19
2.4.2. Tangible Output Elements...............................................................................................21
2.4.3. Tangible Input Elements:.................................................................................................22
2.4.4. STEPS IN IMPREMENTING THE TOAL PRODUCTIVITY MODEL............................................23
2.5. PRODUCTIVITY EVALUATION IN COMPANIES AND ORGANIZATIONS.......................................24
2.5.1. EXPRESSION FOR TOTAL PRODUCTIVITY CHANGE............................................................24
2.5.2. THE PRODUCTIVITY EVALUATION TREE (PET)...................................................................25
2.6. PRODUCTIVITY IMPROVEMENT MODEL..................................................................................26
2.6.1. Goodwin’s Model............................................................................................................26
2.6.2. Sutermeister’s Model......................................................................................................27
2.6.3. Hershauer and Ruch’s Model...........................................................................................28
2.6.4. Crandall and Wooton’s Strategies....................................................................................29
2.6.5. Stewart’s Strategy...........................................................................................................29
2.6.6. Aggarwal’s Approach.......................................................................................................31
2.7. TECHNOLOGIES – BASED PRODUCTIVITY IMPROVEMENT TECHNIQUES...................................33
2.7.1. COMPUTER - AIDED DESIGN (CAD)...................................................................................33
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2.7.2. COMPUTER – AIDED MANUFACTURING (CAM)................................................................34
2.7.3. COMPUTER –INTEGRATED MANUFACTURING (CIM)........................................................34
2.7.4. ROBOTICS........................................................................................................................34
2.7.5. LASER TECHNOLOGY........................................................................................................35
2.7.6. ENERGY TECHNOLOGY.....................................................................................................35
2.7.7. GROUP TECHNOLOGY......................................................................................................35
2.7.8. MAINTENANCE MANAGEMENT.......................................................................................35
2.7.9. REBUILDING OLD MACHINERY.........................................................................................36
2.8. MATERIALS - BASED PRODCUTIVITY IMPROVEMENT TECHNIQUES..........................................36
2.8.1. INVENTORY CONTROL.....................................................................................................36
2.8.2. TYPES OF INVENTORY CONTROL SYSTEMS:...........................................................................36
2.8.3. THE ABC ANALYSIS:.........................................................................................................38
2.8.4. MATERIAL REQUIREMENT PLANNING (MRP):..................................................................38
2.8.5. MATERIALS MANAGEMENT:............................................................................................39
2.8.6. QUANTITY CONTROL:......................................................................................................39
2.8.7. MATERIAL – HANDLING SYSTEMS IMPROVEMENT:..........................................................41
2.8.8. MATERIAL REUSE AND RECYCLING:..................................................................................41
2.9. EMPLOYEE - BASED PRODUCTIVITY IMPROVEMENT TECHNIQUES...........................................41
2.9.1. FINANCIAL INCENTIVES (INDIVIDUAL)..............................................................................41
2.9.2. PLACE WORK PLAN (PWP)....................................................................................................41
2.9.3. STANDARD HOUR PLAN (SHP)..............................................................................................42
2.9.4. MEASURED DAYWORK (MDW) PLAN:...................................................................................42
2.9.5. FINANCIAL INCENTIVES (GROUPS)...................................................................................43
Scanlon plan.........................................................................................................................43
Rucker plan:.........................................................................................................................43
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Kaiser plan:..........................................................................................................................44
tonnage plan:.......................................................................................................................44
Profit sharing plan:...............................................................................................................44
2.9.6. EMPLOYEE PROMOTION:.................................................................................................45
2.9.7. JOB ENRICHMENT............................................................................................................45
2.9.8. JOB ENLARGEMENT.........................................................................................................45
2.9.9. JOB ROTATION................................................................................................................45
2.9.10. SKILL ENHANCEMENT......................................................................................................46
2.9.11. MANAGEMENT BY OBJECTIVES........................................................................................46
2.9.12. COMMUNICATION...........................................................................................................46
2.9.13. WORKING CONDITON IMPROVEMENT.............................................................................46
2.9.14. TRAINING........................................................................................................................47
2.9.15. QUALITY CIRCLES.............................................................................................................47
2.9.16. TIME MANAGEMENT.......................................................................................................47
2.10. PRODUCT - BASED PRODUCTIVITY IMPROVEMENT TECHNIQUES........................................48
2.10.1. VALUE ANALYSIS / VALUE ENGINEERING.........................................................................48
2.10.2. PRODUCT DIVERSIFICATION.............................................................................................48
2.10.3. PRODUCT SIMPLIFICATION..............................................................................................49
2.10.4. PRODUCT STANDARDIZATION.........................................................................................49
2.10.5. RESEARCH AND DEVELOPMENT.......................................................................................49
UNIT-III ORGANIZATIONAL TRANSFORMATION..................................................................................50
4.1. PRINCIPLES ORGANIZATIONAL TRANSFORMATION AND REENGINEERING...............................51
4.2. THE 6 R'S OF ORGANIZATIONAL TRANSFORMATION AND REENGINEERING.............................52
4.2.1. REALIZATION...................................................................................................................52
4.2.2. REQUIREMENTS...............................................................................................................53
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4.2.3. RETHINK..........................................................................................................................53
4.2.4. REDESIGN........................................................................................................................53
4.2.5. RETOOL...........................................................................................................................54
4.2.6. REEVALUATE...................................................................................................................54
4.3. FUNDAMENTALS OF PROCESS REENGINEERING.......................................................................55
4.3.1. THE ORGANIZATION PROCESS ELEMENTS........................................................................55
4.3.2. THE ORGANIZATION PROCESS.........................................................................................55
4.3.3. THE ORGANIZATION PROCESS OWNER............................................................................55
4.3.1. THE ORGANIZATION PROCESS ASSESSMENT AND ANALYSIS............................................56
4.3.4. THE ORGANIZATION PROCESS OUTPUT MEASURES.........................................................56
4.3.5. PROCESS MANAGEMENT, CONTROL AND IMPROVEMENT...............................................56
4.4. PREPARING THE WORK FORCE FOR TRANSFORMATION AND REENGINEERING........................56
STEP 1: PEOPLE INVOLVEMENT............................................................................................................57
STEP 3: DEVELOP CHANGE AGENTS AND TRANSITION STRUCTURES....................................................58
STEP 4: CHANGE EXECUTION AND IMPLEMENTATION........................................................................58
Step 5: Develop and implement strategies to win the support of everyone, including the undecided and resisters...................................................................................................................................60
4.5. PRINCIPLES AND METHODOLOGY FOR ORGANIZATIONAL TRANSFORMATION AND REENGINEERING.................................................................................................................................60
4.6. TRANSFORMATION AND REENGINEERING METHODOLOGY.....................................................64
4.7. ORGANIZATIONAL TRANSFORMATION GUIDELINES................................................................69
4.8. DSMC Q&PMP TRANSFORMATION MODEL.............................................................................72
UNIT IV REENGINEERING PROCESS IMPROVEMENT MODELS.............................................................76
5.1. PMI MODEL............................................................................................................................77
STEP 1: DEVELOP A MISSION STATEMENT..........................................................................................77
STEP 2: IDENTIFY KEY LEADERSHIP FUNCTIONS...................................................................................77
105
STEP 3: IDENTIFY IMPROVEMENT OPPORTUNITIES.............................................................................77
STEP 4: SHARE THE RESULTS WITH MANAGER....................................................................................78
STEP 5: SHARE THE L.E.S. PLAN WITH SUBORDINATES........................................................................78
STEP 6: USE A SYSTEMATIC APPROACH..............................................................................................78
STEP 7: SHARE PROGRESS...................................................................................................................78
STEP 8: CASCADE L.E.S. MANAGEMENT THROUGH THE ORGANIZATION...........................................79
5.2. EDOSOMWAN PRODUCTION AND SERVICE IMPROVEMENT MODEL (PASIM)......................79
5.3. MOEN AND NOLAN STRATEGY FORPROCESS IMPROVEMENT..................................................81
STEP 1: DETERMINE TEAM OBJECTIVE................................................................................................81
STEP 2: DESCRIBE THE PROCESS..........................................................................................................82
STEP 4: IDENTIFY SUPPLIER/CUSTOMER RELATIONSHIPS....................................................................82
STEP 5: IDENTIFY MEASURES OF PERFORMANCE................................................................................82
STEP 6: DEVELOP POSSIBLE CAUSE FACTORS......................................................................................82
STEP 7: DOCUMENT WHAT WAS LEARNED.........................................................................................82
STEP 8: PLAN......................................................................................................................................83
STEP 9: OBSERVE AND ANALYZE.........................................................................................................83
STEP 10: SYNTHESIZE..........................................................................................................................83
STEP 11: ACT......................................................................................................................................83
5.4. LMI CIP PERSONAL IMPROVEMENT MODEL.............................................................................83
STEP 1: ENVISION PERSONAL IMPROVEMENT.....................................................................................84
STEP 2: ENABLE PERSONAL IMPROVEMENT........................................................................................84
STEP 3: FOCUS ON IMPROVEMENT.....................................................................................................84
STEP 4: IMPROVE YOUR JOB...............................................................................................................85
STEP 5: IMPROVE YOURSELF...............................................................................................................85
STEP 6: HELP OTHERS IMPROVE.........................................................................................................85
106
STEP 7: EVALUATE PERSONAL IMPROVEMENT PROGRESS..................................................................85
5.5. NPRDC PROCESS IMPROVEMENT MODEL................................................................................85
STEP 1: PLAN......................................................................................................................................86
STEP 2: DO ........................................................................................................................................86
STEP 3: CHECK....................................................................................................................................87
STEP 4: ACT ........................................................................................................................................87
5.1. PROCESS ANALYSIS TECHNIQUE (PAT).....................................................................................89
5.1.1. FLOW CHARTING AND PROCESS ANALYSIS TECHNIQUE....................................................90
5.1.2. WORK FLOW ANALYSIS (WFA).........................................................................................91
5.1.3. VALUE ANALYSIS APPROACH...........................................................................................92
5.1.4. NOMINAL GROUP TECHNIQUE.........................................................................................93
5.1.5. FISHBONE DIAGRAM OR CAUSE-AND-EFFECT DIAGRAM..................................................94
5.1.6. PARETO ANALYSIS...........................................................................................................95
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