INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Productivity

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Production and Operations Management MGT613

Lesson 05

Productivity

Productivity is a measure of the effective use of resources, usually expressed as the ratio of output to

input .Also called Efficiency at times

�Productivity ratios are used for

Planning workforce requirements

Scheduling equipment

Financial analysis

Productivity

Partial measures is output/(single input)

Multi-factor measures is output/(multiple inputs)

Total measure is the output/(total inputs)

Productivity Growth = Current Period Productivity Previous Period Productivity

Previous Period Productivity

Productivity Growth = Unit less Quantity

Partial

Output

measures

Labor

Machine

Capital

Energy

Multifactor

Output

measures

Labor + Machine

Labor + Capital + Energy

Total

Goods or Services Produced

measure

All inputs used to produce them

Units of output per labor hour

Labor Productivity

Units of output per shift

Value-added per labor hour

Machine Productivity Units of output per machine hour

Units of output per Rs. input

Capital Productivity

Dollar value of output per Rs. input

Units of output per kilowatt-hour

Energy Productivity

Rupee value of output per kilowatt-hour

Example

What is the multifactor productivity "MFP"? if 7500 Units Produced and Sold for Rs.10/unit with

Cost of labor of Rs.10,000, Cost of materials: Rs.5,000 and Cost of overhead: Rs.20,000.

Production and Operations Management MGT613

Output

MFP =

Solution

Labor + Materials + Overhead

MFP =

(7500 units)*(100)

10,000 + 5,000 + 20,000

MFP =

(750,000)

35,000

MFP = 21.420

Factors Affecting Productivity

Productivity stands tall on four important pillars of Capital, Quality, Management and Technology.

These pillars are also responsible for positively as well as negatively affecting the Productivity of

the Organization.

1. CAPITAL An existing machine or facility if it is not functioning up to full capacity or turning

out products which are not acceptable can lower productivity. A new machine or repair of

existing machine would require capital input.

2. QUALITY Poor quality products would not meet customer requirements and would need

repairs and reworks on the product to meet the standards.

3. MANAGEMENT With better scheduling, planning, coordinating and controlling activities of

management the machine operations can be carried to improve productivity.

4. TECHNOLOGY Technological improvements have increased productivity. A machine of today

would outperform machine of yesterday but may not withstand machines of tomorrow.

CAUTION: Without careful planning technology can reduce productivity as it often leads to

increased costs, inflexibility or mismatched operations. All leads to reduction in value.

Other Factors Affecting Productivity

Standardization We live in a world where for the sake of convenience, reliability and safety,

majority of the products and services have been standardized. If for a moment any process whether

it relates to manufacturing or services is made standard less, the vital concept of compatibility

would be lost. Think for a moment if there is a fire at a Montessori school or at a crowded stadium,

if there is no standardization of fire hose attached to the fire truck and fire hydrant present at the

site, no effort would succeed in putting out the fire and saving the lives of the people.

Use of Internet .Use of Internet/Extranet especially for the services side, even though there are

knowledge base applications available for the manufacturing side as well but primarily it has the

been the services side which has been able to exploit the resourcefulness of the Internet.

Computer viruses. A lot of time IT based services industry have fallen a prey to computer viruses

and hackers.

Searching for lost or misplaced items. This speaks low about the coordinating activities and can

lead to loss in production time and increase in idle time. Often this also leads to increase in

replacement costs

Scrap rates Any aberration in the raw materials or processed product can lead to increase in scrap.

The increase in scrap rate in fact can decrease the utilization of resources in general and raw

material

New workers Organizations spend millions of Rupees every year to train their employees. A

trained workforce is not only reliable and dependable but also ensures good

Host of other Factors Affecting Productivity:

Safety

Shortage of IT Trained Workers

Layoffs

Labor turnover

Production and Operations Management MGT613

Design of the workspace

Incentive plans that reward productivity

E. Bottleneck Operation

Bottleneck is one process in a chain of processes, such that its limited capacity ( increased time

of completion, or increased labour requirement) reduces the capacity of the whole chain

A related concept is critical path (see Project Management) and the Theory of Constraints (from

the field of Industrial Engineering and Operations management).

Theory of constraints (TOC) is a body of knowledge on the effective management of (mainly

business) organizations, as systems.

The figure below clearly shows that a machine requiring 12 hours to complete the job is the real

bottleneck. A manufacturing bottle neck like this normally leads to delayed completion and extended

time for job. Similar bottlenecks are observed in the Service side as well.

10/hr

Machine A

10/hr

Machine B

Bottleneck

30/hr

Operation

Machine C

10/hr

Machine D

10/hr

Develop productivity measures

Determine and isolate critical (bottleneck) operations

Develop methods for productivity improvements

Establish reasonable goals

Get management support

Measure and publicize improvements

Clearly differentiate between productivity and efficiency

Example of Productivity Measurement

You have just determined that your 20 Operations ( Service) department employees have used a total of

2200 hours of labor this week to process 480 insurance forms. Last week the same crew used only 2000

hours of labor to process 400 forms.

Which productivity measure should be used?

Answer: Could be classified as a Total Measure or Partial Measure and Time/Labor productivity.

Is productivity increasing or decreasing?

Answer: Last week's productivity = 400/2000 = 0.2, and this week's productivity is = 480/2200 = 0.22.

So, productivity is increasing slightly.

Production and Operations Management MGT613

Pakistani Productivity Example 1

Calculate the change in productivity of Pakistani Textile Industry between the years 2003-04 and 2004-

05? (Installed Capacity)

Parameter

2003/4

2004/5

Change

Number of mills

399

426

6.77

Spindles (000)

9286.8

9815.5

5.69

Rotors(000)

145.6

151.6

4.12

Pakistani Productivity Example2

Calculate the change in productivity of Pakistani Textile Industry between the years 2003-04 and 2004-

05? ( Working Capacity)

Parameter

2003/4 2004/5 % Change

Number of Looms(000)

4.3

4.9

13.95

Spindles (000)

7710.0 8531.0

10.65

Rotors(000)

67.3

75.1

11.59

Textile Productivity Example 3

Calculate the Productivity of Pakistani Textile Industry between the years 2003-04 and 2004-05?

(Weaving Sector Capacity)

Parameter

Installed

Working

% Effectiveness

W/I

Power Loom Sector

225258

220447

Independent Weaving Unit

26034

25500

Integrated Textile Unit

10249

4947

Total

261541

220447

Pakistan Automobile Industry

Calculate the Productivity Change for Pakistani Automobile Industry between the years 2003-04 and

2004-05?

Type

2003-04

2004-05

% change in

Productivity

Cars

79,655

100,213

Motorcycles

263,149

386,589

Trucks

1,669

1,999

Buses

1,151

1,503

Tractors

28,583

35,308

How countries/nations can improve productivity

As students of Operations Management in Pakistan we need to know and understand how the concepts

of productivity can help nation improve its quality of life and economy.

Production and Operations Management MGT613

Increase capital formation by saying no to foreign goods. This would increase savings and

decrease consumption. Foreign goods only make why to a market if there is high consumption.

BE PAKISTANI BUY PAKISTANI

Decrease in administrative ( non productive) regulations of the government. Self explanatory.

Right balance between Services and Manufacturing activities. In the city of Lahore, there is an

availability of surplus services, which is often less productive than manufacturing operations

An emphasis on both long term and short term objective based performance. (Closely monitor

and audit the variances between planed and actual results).

Exploit the inherent resources of domestic market .Let it be known to all that the best

productive market for Pakistani Producer is Pakistani market.

SUMMARY

The important concepts of Productivity, Competitiveness and Strategy when considered in cohesion

enhance the overall performance of any service based or manufacturing organization. Organizations

formulate operational and organizational strategies to achieve competitive advantage over its

competitors. Different types of competencies allow organizations to formulate time or quality based

strategies to achieve competitive

advantage and increase their revenues. The same concepts find equal application for a country to gain

competitive advantage over other countries.

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