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1. productivity concept and calculation.


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production and quality management chapter

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1. productivity concept and calculation.

  2. 2. INTRODUCTION  The ratio between “Output of Work” and “Input of resources” used in the process of creating wealth. – ILO  Productivity = Output (within a defined time and good quality) Input  It is the ratio between the amount produced and amount of resources used in production  This definition applies to an industry or an economy as a whole. Input Output Waste (Muda) Process
  3. 3.  Units of Input means resources utilised  Units of output means anything generated from production  Land – Hectares  Material - Metric ton  Plant and Machinery – machine hours  People – Man Hours  Capital – Rupees Eg: a worker producing 100 pieces is now able to produce 130 pieces after undergoing a training session. Productivity of worker has increased by 30%
  4. 4. FACTORS AFFECTING PRODUCTIVITY  Controllable or internal factors  Product – extent to which it meets requirements  Plant and equipment – availability and reduction of idle time  Technology – automation  Material and energy – reduce material and energy consumption  Human factors – motivation and training  Work methods – improvement in the way of doing things  Management style – communication, policy and proceedure  Uncontrollable or external factors  Natural resources – manpower land and raw materials  Government and infrastructure – government norms. Transport, power, etc.
  5. 5. DIFFERENCE BETWEEN PRODUCTIVITY AND PERFORMANCE  Output in relation to input  Productivity = Output Input  Considers output alone  Performance Index = Actual work done expected or standard work Productivity Performance Eg: It takes 3mts. Of cloth to make a coat. In a day Prashant is expected to make 50 coats. He makes 40 coats from 111mts. of cloth Performance Index is = 80% Prashant’s productivity is = 108% Cloth Productivity = 0.36 coats/mt.
  6. 6.  Performance Index = 40/50 * 100 = 80%  Prashant’s productivity = 120/111*100 =108%  Cloth productivity = 40/111=0.36 coats/mt.
  7. 7.  To workers:  Yields more wages  Better standard of living  Improved morale  Satisfied worker  Resulting into goodwill  To the organisation:  Higher production of goods and services.  Reduction in costs  High turnover, More profits and dividends  Cheaper goods to customers  Revenue to government  Wide spread markets and overall prosperity BENEFITS OF INCREASED PRODUCTIVITY
  8. 8.  To the nation  High employment opportunities  Increased Gross National Produce  Improved utilisation of resources  Expansion in international markets  To Consumers and Society in General  Increase in supply of quality goods and services  Reasonable cost of goods and services  Greater customer satisfaction
  9. 9. WAYS AND MODELS OF CALCULATING PRODUCTIVITY 1. Partial productivity  Ratio of output to one particular class of input.  Partial Productivity = Output A particular class of input  Often there is a factor which plays an important role.  There is one factor which is an appropriate factor for comparison, this is called an “apple to apple” comparison  Such ratios are used for selection of a particular area of improvement.  Organistions can use this formula to determine performance of labour, machines, energy, capital, department, organisation, etc.
  10. 10. EXAMPLES  Bajaj Auto produces 5000 scooters in a shift employing 200 workers, whereas Hero motors manufactures 9000 scooters employing 300 workers. The productivity in relation to manpower of Hero motors is higher compared to Bajaj Autos.  R. petroleum sells its petrol at Rs.30000 with the help of three pumps in an area of 1000sq ft. whereas Y petroleum sells its petrol worth Rs.40000 with the same parameters. Partial Productivity space Y petroleum is better than R because of better layout and an appropriate entry and exit system.
  11. 11.  Easy to understand.  Easy to obtain the data.  Easy to compute the productivity indices  Easy to sell to management because of the above three advantages.  Some partial productivity indicator data is available industry wide.  Good diagnostic tools to pinpoint areas for productivity improvement, if used along with total productivity indicators  Profit control through partial can be a hit- and-miss approach.  Tend to shift the blame to the wrong areas of management control.  Do not have the ability to explain overall cost increases  If used alone, can be very misleading and may lead to costly mistakes. Advantages Limitations
  12. 12. 2. Total Productivity  is the ratio of Total Output and Total Input  Total Productivity = Total Output (Value of Produce) Total Input (Value of Input) 3. Total Factor Productivity  Labour and capital are always considered important contributors to the process of production.  In TFP model was developed by John W. Kendrick  He has taken labour and capital as only two input factors for calculating TFP  Data is easy to obtain in TFP  It does not consider the impact of material and energy input, even though materials constitute 60% of the cost
  13. 13.  Example: production worth Rs.80 lakhs was manufactured and sold in a month. It consumed labour hours worth Rs.12 lakhs and capital worth Rs.48 lakhs  TFP = Output Inputs of (Labour + Capital) = 80 = 1.33 (12+48)
  14. 14. 4. Multi Factor Productivity  Scott D. Sink further developed the total factor productivity model  MFP model considers labour, material and energy as major inputs  Capital was left out since it is very difficult to estimate how much capital is being consumed in a unit of time.  MFP = Output Inputs (labour + energy + material)
  15. 15. 5. V. Sumanth’s Total Productivity Model  It is the ratio of tangible output to tangible input  Total Productivity (Pt) = Total Tangible Output (Ot) Total Tangible Input (It)  Pt = 01 + 02 + 03 + 04 + 05 H + M + FC + WC + E + X Where, Total tangible Output (Ot) 01 – finished goods produced 02 – partial units produced 03 – dividends from securities 04 – interest from bonds 05 – other incomes Total tangible Input (It) H - human inputs M – material purchased FC – fixed capital WC – working capital E – energy inputs X – other expenses (taxes, transport, office cost, etc.)
  16. 16.  Disadvantages  Data is difficult to compute  Does not consider intangible inputs and outputs  Advantages:  All quantifiable inputs are considered  Provides firm level and operational unit level productivity
  17. 17. 6. APC Model  American Productivity Center (APC) has been advocating a productivity measure that relates profitability with productivity and price recovery factor.  The price recovery factor takes care of inflation  Over a period of time changes in this factor indicate:  Whether the firm has been able to absorb the changes in the cost inputs  Has passed on or has over compensated the same price of the company’s output Profitability = Sales = Quantities of Output * Price Costs Quantities of Input * Price = Productivity * Price Factor
  18. 18. Price Recovery Factor:  Captures the effect of inflation.  Inclusion of this factor will show whether gains or losses of a firm are due to changes in productivity or it merely indicates the fluctuations in the prices of the material consumed and sold
  19. 19. WAYS TO IMPROVE PRODUCTIVITY  Technology based  CAD, CAM, integrated CAM, Robotics, laser beam technology, energy technology, group technology, computer graphics, simulation, maintenance management, rebuilding old machinery, energy conservation  Employee Based  Financial incentives, group incentives, fringe benefits, promtions, job enrichment, job enlargement, job rotation, worker participation, MBO, Skill enhancement, learning curve, working condition improvement, communication, zero defects, punishment, recognition, quality circle, training, education, role perception, supervision quality.
  20. 20.  Material Based  Material planning and control, purchasing, logistics, material storage and retrieval, source selection and procurement of quality material, waste elimination  Process based  Methods engineering and work simplification, job design evaluation, job safety, human factors engineering  Product based  Value analysis and value engineering, product diversification, standardisation and simplification, reliability engineering, product mix and promotion  Task based  Management style, work culture, communication in the organisation, motivation, promotion group activity