PRODUCTIVE OPERATIONS SYSTEMS, Efficiency & Productivity & JIT

1. PRODUCTIVE OPERATIONS SYSTEMS,Efficiency & Productivity &JIT Prepared by Prof. Dr. Şevkinaz Gümüşoğlu using different references about POM

2. Productive Operations SystemsProductionsystemusesoperationsresourcestotransforminputsintosomedesiredoutputs.We have also defined operations management as the management of transformation systems which convert inputs into good and services as a productive system. Productive system can be defined as a process for converting resources inputs into goods and services. Resources are combined and transformed in a controlled manner to add value in accordance with organizational objectives. Operations resourcesconsist of whatwetermthefive P; People, plants, parts, processes, planning & Control The systems view of operations also provides insight for the design and management productive systems in functional areas outside the operations function. From the view point of system all (systems) activities are designed to create the value for buyers.

3. PRODUCTIVITY MEASUREMENT • Productivity is a commonmeasure of how well a country, industry, orbusinessunit is usingitsresources ( orfactor of production). • Productivity is defined as OUTPUTS / INPUTS. • Toincreaseproductivity, wewanttomakethisratio of outputstoinputs as large as practical. • Productivity is whatwecall a relativemeasure. Itneedsto be comparedwithsomething else. • Thecompany can compareitselfwithsimiliaroperationswithinitsindustry. • Anotherapproach is tomeasureproductivityover time withinthesameoperation. Here wewouldcompareourproductivity in one time periodwiththat of thenext. • Goods and services have a higher value to consumers than the acquisition and processing costs of the inputs have to the organization. • For these reason transformation is too important. Managing the transformation process in an efficient and effective manner is the task of operation manager in any type of organization. • Productivity is a measure of the effectiveness of the use of resources to produce goods and services.

4. The ratio of output value to input cost should be greater than 1.  • Value is what buyers are willing to pay value of the output is established by consumer in the marketplace. • Cost of inputs is dictated largely by what the firm must pay its suppliers. • On the other hand, suppliers not only deliver a product but also can influence firm’s performance in many other ways. • Thus management often focuses upon the efficiency of the transformation activities. • Some of the principal factor influencing productivity changes one, • Capital/ labor ratio • Resource scarcity • Workforce changes • Innovation and technology • Regulatory and bargaining • Quality of work life

5. Henry Ford’s focus was largely on manufacturing efficiency; • By adopting fixed work-stations, • Increasing task specialisation, • Moving work to the worker. • So he applied scientific management to the production of the Model T in 1913 and reduced the time required assembling a car from high of 728 hours to 1.5 hours. A model chassis moved slowly down a conveyor belt with six workers walking along beside it, picking up parts from carefully spaced piles on the floor and fitting them to the chassis. The short assembly time per car allowed Model be produced T to in high volumes, or “En masse”, yielding the name “Mass Production”.

6. Mass Production is high-volume production of a standardised product for a mass market. • Ford increased productivity and lowered prices. In doing so, he also made the automobile affordable for the average person. • Taylor and his associates concentrated on the problems of foreman, superintendents, and lower middle managers in factories; because it was here that most was mass production and efficiency in the factories to respond to the great western markets. • The key premise of Scientific Management era was that any operation could be improved by breaking it down into components, measuring the work content, and seeking ways to improve work methods. Taylor’s philosophy was to replace “subjective” management by “objective” management based on science. It centred on three ideas: 1. Scientific laws govern how much a worker can produce per year; 2. It is management’s function to discover and apply these laws to productive operations systems; and 3. It is the worker’s function to carry out decisions without question.

7. In the factory a middle-level production department gained much of the control over manufacturing issues formerly handled by the president and foreman. Therefore the basis of scientific management is a focus on economic efficiency at the production core of the organization. Of central importance is the belief that rationality in the part of management will obtain economic efficiency. • Economic Efficiency refers to the ratio of outputs to input. In other words, economic efficiency is getting the most output from the least amount of inputs. • Organizational Efficiencytypically is a ratio of product or service outputs to land, capital or labor inputs. Managers deal with scarce inputs – including resources such as people, money, and equipment- they’re concerned with the efficient use of those resources. • Efficiency (%) = (Output/Input) * 100%

8. Example: • The standard in a cafeteria is the preparation of 200 cheeseburgers per hour. If labour input produces 150 cheeseburgers per hour, how efficient is the operation? • Solution: • Labour Efficiency (%) = (Labour Output/Labour Input) * 100% = (150/200) *100%= 75% • Compared with the standard, this operation is 75% efficient in the preparation of cheeseburgers. • Collect data on each element of work and develop standardized procedures for workers,(i.e. establish proper work methods and tools), • Scientifically select, train, and develop workers instead of letting them train themselves, (i.e. provide the proper training), • Strive for a spirit of cooperation between management and the workers so that high production at good pay is fostered,(i.e. establish legitimate incentives for work to be done, and to develop a hearty cooperation between management and the workers), • Divide the work between management and labour so that each group does the work for which it is best suited, (i.e. to match employees to the right job). (Taylor’s Philosophy of Scientific Management)

9. The creation of goods and services requires changing resources into goods and services. Productivity is used to indicate how good an operation is at converting inputs to outputs efficiently. The more efficiently we make this change the more productive we are. • Productivity; is the ratio of outputs (goods and service) divided by one or more inputs ( such as labour, capital or management). • The production/operations manager’s job is to enhance (improve) this ratio of outputs to inputs. • Productivity is a measure of operational performance. Thus improving productivity means improving efficiency. This improvement can be achieved in two ways: • a reduction in inputs while output remains constant , • an increase in output while inputs remain constant.

10. Both represent an improvement in productivity. Production is the total goods and services produced. High Production may imply only that more people are working and that employment levels are high (low unemployment), but it does not imply highproductivity. • To judge the success of an economic system in meeting its goals, economists use one or more of the following measures: • Gross National Product, GNP, • Gross Domestic Product, GDP, • Balance of Trade, • National Debt, • Productivity. • Productivity in this sense, is the measure of economic growth that compares how much a system produces with regard to the resources needed to produce it.

11. EXAMPLES OF PRODUCTIVE SYSTEMS

12. Measurement of productivity is an excellent way to evaluate a country’s ability toprovide an improving standard of living for its people. Only through increases in productivity can the standard of living improve. Moreover, only through increases in productivity can labour, capital and management receive additional payments. If returns to labour, capital, or management are increased without increased productivity, prices rise. On the other hand, downward pressure is placed on prices when productivity increases; more is being produced with the same resources. • e.g. If units produced =1000 units • Labourhours used =250 hrs. • Productivity = 1000/250 = 4units/labour-hour.

13. Productivity measures can be based on a single input (Single-Factor Productivity or Partial Productivity) or on more than one input (Multi-Factor Productivity) or on all inputs. The choice depends on the purpose of the measurement. • Single-factor Productivity: Indicates the ratio of one resource (input) to the goods and services produced (outputs). For example, for labour productivity, the single input to the operation would be employee hours. • Productivity = {Output of a specific Product}/ {Input of a specific Resource} • Example 1. • Three employees process 600 insurance policies in a week. They work 8 hrs. per day, 5-days per week. Find labour productivity. • Solution: • Labour Productivity = [Policies Issued]/[Employee Hours] Plabor= 600 policies/[(3 employees)(40 hrs/employee)] Plabor= 5 Policies/hr.

14. Multi-factor Productivity: Indicates the ratio of many or all resources (inputs) to the goods and services produced (outputs). When calculating multi-factor productivity, all inputs must be converted into a common unit of measure, typically cost. • Example 2. • A team of workers make 400 units of a product, which is valued by its standard cost of 10 MU each (before markups for other expenses and profit). The accounting department reports that for this job the actual costs are: 400 MU for labour, 1000 MU for materials and 300 MU for overhead. Calculate multi-factor productivity. Solution: • Multi-Factor Productivity = [Quantity at standard cost]/[Labour cost + Materials cost + Overhead cost] Pmf= [400 Units x 10 MU]/[400MU+1000MU+300MU] = 4 000MU / 1 700 MU Pmf= 2.35

15. Example 3. • Azim Title Companyhas a staff of 4 each working 8 hours/day (for apayroll costof 640MU/day) and overhead expenses of 400MU/day, Azimprocessand closes on 8 titles each day. The company recently purchased a computerised title-search system that will allow the processing of 14 titles/day, although the staff, their work hours, and pay will be the same , the overhead expenses are now 800MU/day. • Labour-productivity with the old system: =0.25titles/lab.hrs. • Labour-productivity with the new system: =0.4375titles/lab.hrs.

16. Example 3- continued… • Multi-factor productivity with the old system: = 0.0077 titles/MU • Multi-factor productivity with the new system: =0.0097 titles/MU • Labour productivity has increased from 0.25 to 0.4375. The change is = 1.75 or 75% increase in labour productivity. • Multi-factor productivity has increased from 0.0077 to 0.0097. This change is 0.0097/0.0077 = 1.259 or a 25.9% increase in multi-factor productivity.

17. Example 4. • a. Productivity can be measured in a variety of ways, such as labour, capital, energy, material usage, and so on. At Modern Lumper, Inc. Ali Caliskan, president and producer of apple crates sold to growers, has been able, with his current equipment, to produce 240 crates per 100 logs, the current purchases 100 logs per day and each log requires 3 labour-hrs to process. • He believes that he can hire a professional buyer who can buy a better-quality log at the same cost. If this is the case, he can increase his production to 260 crates/100logs, this labour-hours will increase by 8 hrs per day. • What will be the impact on productivity(measured in crates per labour-hour) if the buyer is hired?

18. Solution: a. aa) Current Labour Poductivity = 240crates/(100logs*3hrs)=0,8 crates/lab-hr. ab) Labour Productivity with buyer= 260crates/[(100logs*3hrs)+8hrs]=0.844 crates/lab-hr. Using current productivity (0.8 from (a)) as a base, the increase will be 5.5% (0.844/0.8=1.055 or a 5.5% increase)

19. b. Ali Caliskan has decided to look at his productivity from a multifactor (total factor productivity) perspective. To do so, he has determined his labour, capital, energy and material usage and decided to use money units (MU for dollars or TL) as the common denominator • His total labour-hours are now 300 hrs/day and will increase to 308 hrs/day. His capital and energy costs will remain constant at 350MU and 150MU per day, respectively. Material costs for the 100 logs per day are 1000MU and will remain the same. • Because he pays an average of 10 MU/hr (with fringes), Caliskan wants to determine his productivity increase?

20. b. Current SystemSystem with Professional Buyer • Labour 300hrs@10MU=3000308hrs@10 MU = 3.080 MU • Material 100logs/day 1.000 1.000 • Capital 350 350 • Energy 150 150 Total Cost 4.500 MU 4.580MU Productivity of current system=240crates/4500=0.0533 Productivity of proposed system=260crates/4580=0.0567 • Using current productivity (0.0533) as a base, the increase will be 0.047. That is, 0.0567/0.0533=1.064 or 6.4% increase.

21. Example 5. • Sergio Farmerson makes billiard balls in his famous Boston plant. With recent increases in his costs, he has a new-found interest in efficiency. Sergio is interested in determining the productivity of his organisation. He would like to know if his organisation is maintaining the manufacturing average of 3% increase in productivity. He has the following data representing a month from last year and an equivalent month this year. • Last Year This Year • Units produced 1 000 1 000 • Labour (hours) 300275 • Resin (kgs) 5045 • Capital invested (MU) 10 000 11 000 • Energy (kw) 3 000 2 850 • Show the productivity change for each category and then determine the improvement for labour hours, the typical standard for comparison. • Sergio determines his cost to be as follows: • Labour 10 MU/hour • Resin 5 MU/kg • Capital 1% per month of investment • Energy 0.50 MU/kw • Show the productivity change, for one month last year versus one month this year, on a multifactor basis with money units (MU) as the common denominator.

22. Solution: a. Resource Last YearThis Year Change Percent Change Labour 1000/300 = 3.33 1000/275 = 3.64 0.31 0.31/3.33 = 9.3% Resin 1000/50 = 20 1000/45 = 22.22 2.22 2.22/20 = 11.1% Capital 1000/10000 = 0.1 1000/11000 = 0.09 -0.01 -0.01/0.1= -10.0% Energy 1000/3000 = 0.33 1000/2850 = 0.35 0.02 0.02/0.33 = 6.1% b. Last Year This Year Production1.000 units 1.000 units Labour hrs@10 MU 3 000 MU 2 750 MU Resin@5 MU 250 MU 225 MU Capital cost/month100 MU 110 MU Energy@ 0.50 MU 1 500 MU 1 425 MU TOTAL……………….. 4 850 MU 4 510 MU Percentchange in productivity = {1000/4850 – 1000/4510}/1000/4850 = -0.0752 fewer resources = 7.5% improvement

23. Example 6: • The weekly output of a production process is shown below, together with data for labour and material inputs. The standard inventory value of the output is 125 MU/unit. Overhead is charged weekly at the rate of 1500 MU plus 0.5 times direct labour cost. • Assume a 40-hr/ week and an hourly wage of 16 MU. Material cost is 10 MU per running meter. Compute the average multi-factor productivity for this process.

24. Solution: Week 1 = 412 (125) MU = 1.444 [6*40*16]MU+[2840*10]MU+ [0.5*6*40*16]MU + 1500 MU Week 2 = 364 (125) = 1.431 5*40*16 MU+ 2550*10 MU+ 0.5*5*40*16 MU + 1500 MU Week 3 = 392(125) = 1.463 5*40*16 MU + 2720*10 MU+ 0.5*5*40*16 MU+1500 MU Week 4 =408 (125) = 1.457 6*40*16 MU + 2790*10 MU+ 0.5*6*40*16 MU+ 1500 MU Average = [1.444 + 1.431 + 1.463 + 1.451] / 4 = 1.447

25. Example 7: • Student tuition at EMU is $100 per semester credit hour. TRNC supplements school revenue by matching student tuition $ per $. Average class size for a typical 3-credit course is 50 students. Labor costs are $ 4 000 per class. Material costs are $ 20 per student per class and overhead costs are $ 25 000 per class. • What is multifactor productivity? • If instructors work an average of 14hrs/week for 16 weeks for each 3-credit class of 50 students what is the labor productivity ratio? • Solution: Multifactor productivity is the ratio of the value of output to the value of input resources. Value of output = (50stds/class) * (3credit hrs/student) * ($100tuition + $100 state support/credit hr) = $30 000/class Value if input = Labour + Materials + Overhead = [$4000 + ($20/std * 50stds) + $25000] / class= $30000/class Multifactor productivity = Output / Input = $30000/class / $30000/class = 1.00 Labor productivity is the ratio of the value of output to labor hrs. The value of output is same as in part a), that is $30000/class, so Labor input= (14hrs/week) * (16weeks/class) = 224hrs/class Labor productivity = Output/Input = ($30000/class) / (224hrs/class) = $133.93/hr

26. JIT In Services • Competition on speed & quality • Multifunctional department store workers • Work cells at fast-food restaurants • Just-in-time publishing for textbooks • Construction firms receiving material just as needed © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 15 - 36

27. What is JIT ? • Producing only what is needed, when it is needed • A philosophy • An integrated management system. • JIT’s mandate: Eliminate all waste. © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 15 - 2

28. Basic Elements of JIT 1. Flexible resources 2. Cellular layouts 3. Pull production system 4. Kanban production control 5. Small-lot production 6. Quick setups 7. Uniform production 8. Quality at the source 9. Total productive maintenance 10. Supplier networks © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 15 - 3

29. Examples of Waste • Watching a machine run • Waiting for parts • Counting parts • Overproduction • Moving parts over long distances • Storing inventory • Looking for tools • Machine breakdown • Rework © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 15 - 4

30. Flexible Resources • Multifunctional workers • General purpose machines • Study operators & improve operations © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 15 - 5

31. Kanban Production Control System • Kanban card indicates standard quantity of production • Derived from two-bin inventory system • Kanban maintains discipline of pull production • Production kanban authorizes production • Withdrawal kanban authorizes movement of goods © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 15 - 10

32. A Sample Kanban Part no.: 7412 Description: Slip rings Box capacity 25 Box Type A Issue No. 3/5 From : To: Assembly A-4 Machining M-2 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 15 - 11

33. R The Origin Of Kanban a. Two-bin inventory system b. Kanban Inventory System Bin 1 Bin 2 Kanban Reorder Card Q - R Q = order quantity R = reorder point = demand during lead time © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 15 - 12

34. JIT Implementation • Use JIT to finely tune an operating system • Somewhat different in USA than Japan • JIT is still evolving • JIT isn’t for everyone © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 15 - 35