Productivity Management

Dr. S. Sidhanta

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Department of Industrial Engineering & Management

Indian Institute of Technology (IIT) Kharagpur

West Bengal, India

“My goal is no longer to get more done, but rather to have less to do.” 

OUTLINE

• What is productivity?
• What is productivity management?
• Why productivity gets affected?
• What are the steps to improve productivity?

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Productivity

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Productivity is the relationship between the amount produced by a given system during a given period of time and quantity of resources consumed to create or produce those outputs over the same period of time.

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Inputs

• Man
• Machine
• Material
• Method etc.

Transformations

System

Outputs

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Goods & Services

In “The New Palgrave : A dictionary of Economics ”, Eatwell and Newman define productivity as a ratio of some measure of output to some index of input use

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Productivity = Output/Input

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• Basic concept of productivity does not change with perspective

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• Based on perspective size ,type and scope of system does change

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• Concept of measuring productivity does not depend on system , for every system relationship will be the same :Output/Input

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• Productivity is the only source of real economic growth and progress

Perspectives on productivity based on discipline

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1. One’s discipline will largely determine the types of systems one in interested in

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• One’s discipline tends to narrow views not only on what productivity really means but more importantly on what should be done to improve it

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Effects of increasing and decreasing Productivity

Productivity decrease

Cost per unit increase

Less competitive

Market and sales decline

Profitability declines

Negative effects on

• Capital
• Materials
• People

Productivity increase

Cost per unit decrease

More competitive

Market and sales increase

Profitability increase

Positive effects on

• Capital
• Materials
• People

• In manufacturing industry low capital productivity growth can be expected because of relatively lower rates of capital investment

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• Capital investment unlike labor costs is not susceptible to easy or quick changes during dynamic periods , so during dynamic and turbulent economic times we can expect most productivity growth to come from the labor side

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• The manufacturing sector of the Japanese economy had led the world , one factor contributing Japan’s success is it’s focus on improving competitive capability, efficiency and striking power in strategically selected target industries

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• Japanese operationalizes the Boston Consulting Group’s theory on product mix and diversification management.

• Boston Consulting Group theory suggests development of a portfolio of products that optimize the performance

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Productivity performance

Productivity growth

Difference between Productivity and Performance

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Productivity is the output of a certain task and Performance is the quality of the work

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Productivity Management

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• Management of productivity requires pragmatic ,effective, participative planning

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• Measurement is an important part of management

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• Measurement necessarily precedes evaluation control and improvement

Standard of living

• The extent to which a person is able to provide the things that are necessary for sustaining and enjoying life.
• Standard of living of a representative family differs greatly in different parts of the world.
• What is considered a necessity in one part of the world could be considered a luxury in the other.
• Basic necessities of a minimum decent standard of living: Food, clothing, housing and hygiene. Also, security and education also considered constituents.

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• Greater the amount of goods and services produced in any community, the higher its the average standard of living.

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Standard of living

• There are two ways of increasing the amount of goods and services produced:

- Increase the employment and investment in creating jobs. So that more people are producing goods required for the society.

- Increase productivity. Same amount of labor produces more goods.

We want:

• More and cheaper food by increase in agricultural productivity
• More and cheaper clothing and housing by increased industrial productivity
• More hygiene, security and education by increasing overall productivity.

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Productivity

• Ratio between output and input.
• Arithmetic ratio of the amount produced to the amount of any resources used in the production.
• The resources may be: land, material, plant, machines, tools, labor. It could be combination of all!
• Over a period of time, one can say that productivity has increased.
• How?
• Combination of improved technology, better planning, greater skills etc.

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Productivity

• Note that, increased production does not mean increased productivity.
• Higher productivity means that more is produced with the same expenditure of resources; that is, at the same cost in terms of land, material, machine, time or labor.
• Alternatively, same amount is produced at less cost in terms of land, labor, material etc; thereby releasing some of these resources for the production of other things.

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Productivity and standard of living

• If more is available at the same cost, or the same amount is available at lesser cost the whole community benefits.

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• As per the ILO, higher productivity provides ways for raising the standard of living by:
• Larger supplies of both consumer goods and capital goods at lower cost and prices
• Higher real earnings
• Improvement in working conditions, e.g. by reduced working hours
• In general, strengthening of the economic foundations of human well-being.

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Productivity in industry

• Many factors affecting productivity of each organization; also, they are dependent.
• Depending on the individual environments, decisions are to be made.
• Industries where labor and capital costs are low compared to the material costs, better use of material and plant gives the greatest scope of cost reduction.
• In countries where capital and skilled labor are in shortage compared to unskilled labor, one should look to increase the output per machine or per skilled worker.
• Increasing the number of unskilled workers may be beneficial if by doing so an expensive machine or skilled craftsmen are enabled to increase production.

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Government’s responsibility

• Government can create conditions favorable to raise productivity. It can:
• Have a balanced programs of economic development
• Take steps necessary to maintain employment
• Make opportunities for employment.
• Last step is specifically important for a developing country like India.
• Government should make provisions for workers who are going to loose jobs because of technology improvement – training and education programs.
• Example: India’s First Five-Year Plan (1952).

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Management’s responsibility

• The main responsibility for raising productivity in an individual organization lies with the management.
• It can implement productivity programs.
• It can create a positive environment and obtain co-operation of the employees.
• Trade unions should encourage its members to provide such co-operation when the productivity program is beneficial to workers, as well as the organization on the whole.

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• We will look at management’s role in increasing productivity of individual resource:

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Productivity of material

At the design stage:

• Ensure least consumption of material,
• Purchase equipments and plants such that consumption of material is economical.

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At the operation stage:

• Use of correct process
• Right use of the process
• Operator training
• Proper handling and storage of products at all stages
• Proper packaging to reduce damage in transit

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Productivity of land, machines and manpower

• Effective utilization and maximum productivity is an important source of cost reduction.
• Reduction in the original specification, before the land is purchased saves capital outlay (as well as interest expenses)
• A savings in material which has to be imported saves import duty and excise.

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• Productivity of manpower and machines is typically measured in terms of time (man-hours; machine-hours).

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Work Content and Ineffective Time

• Basic work content is the irreducible minimum time theoretically required to produce one unit of output
• Total work content = Basic work content + Excess time
• Excess work content = Time due to defects in design or specification of the product + Time due to inefficient methods of manufacture or operation
• Ineffective time is the time for which the worker or machine or both are idle due to shortcomings of the management or the worker

Opportunities for Savings

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Dr. Jitesh Thakkar, IIT Kharagpur

Factors tending to reduce productivity

Work content added due to the product for a manufacturing firm:

• The product or its components are designed such that it is impossible to use most economical manufacturing processes.
• Excessive variety or lack of standardization.
• Incorrect quality standards.
• Excessive amount of material removal required.

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Factors tending to reduce productivity

Work content added due to process

• Incorrect production process (and/or machine) used
• Process not operated properly
• Non-optimal layout with wasted movements.
• Working methods of operation causing wasted movements, time and efforts.

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Factors tending to reduce productivity

Ineffective time due to management

• Marketing policy which demands unnecessarily large number of products.
• No standardization of components between as well as within products.
• Failing to meet customer’s requirement from the beginning.
• No plan for flow of work.
• Improper supply of material, equipment.
• Improper maintenance of plant and machines.
• Insufficient safety measures.
• Improper working conditions resulting in interrupted work.

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Factors tending to reduce productivity

Ineffective time within the control of worker

• Taking time off without good cause: by lateness, by idling at work etc.
• Careless workmanship causing scrap or rework.
• Failing to observe safety standards.

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Productivity is the quotient (ratio) obtained by dividing output by one of the factors of production. Thus, it is possible to speak productivity of capital, investment of raw materials according to whether output is being considered in relation to capital, investment or raw materials, etc.

EXAMPLE#1

A company is manufacturing 24,000 components per month by employing 100 workers in 8 hour shift. The company gets additional order from government to supply additional 6000 components. The management decides to employ additional workers. What will be production and productivity level when the number of additional workers employed are:

i) 30 ii) 25 iii) 20

Effect of Production Volume and Workers on Productivity

PRODUCTIVITY, EFFICIENCY AND EFFECTIVENESS

TYPES OF PRODUCTIVITY INDEX

Different Forms of Partial Productivity

EXAMPLE#2

EXAMPLE#2

EXAMPLE#3

EXAMPLE#3

WAYS TO IMPROVE PRODUCTIVITY

Means to improve productivity for different planning horizons