Productivity Concept, Measurement and Improvement

1. Productivity Concept, Measurement and Improvement What is Productivity? ILO defines Productivity as the ratio between “Output of Work” and “Input of Resources. Productivity= Output  Input Process Input Output Waste

2. This definition applies to an enterprise, an industry or an economy as a whole. • Productivity is simply the ratio between the amount produced and amount of resources used in the course of production. • These resources can be: (Unit of resources is in brackets.) • Land (Hectares) • Material (Metric Tonne) • Plant and Machinery (Machine Hours) • People (Man Hour) • Capital (Rupees)

3. Is Productivity different from Performance? • Productivity takes into account output in relation to input. • Performance takes into account output alone. • Productivity =Output÷ Input • In performance, we consider only the output and not the input. • A performance index becomes comparison of actual output with some standard or expected output. • Performance Index = Actual work done÷ Ideal or standard expected work.

4. →Case: It takes 3 Mtrs. of cloth to make a coat. In a day Prashant is expected to make 50 coats. He makes 40 coats from 111 Mtrs. Of cloth. • What is Prashant’s Performance ? • 40 coats • Performance Index ? • {40 ÷ 50} x100= 80% • What is Prashant’s cloth productivity index?

5. Normally Prashant should have consumed 120 Mtrs. of cloth. However he managed to make 40 coats in 111 Mtrs. Of cloth. • Cloth Productivity Index = {120÷ 111} x 100= 108% • What is productivity of cloth? • Cloth productivity= {40÷ 111} = 0.36 Coats/Mtr.

6. Case: Shalini was busy going through the production and machine hour consumption report of the past three months. The reports clearly showed that there had been an increase in production with a simultaneous increase in machine hour consumption. Shalini was not sure whether it really indicated a rise in productivity or merely increase in production. How should she get an answer to this?

7. Solution: • Productivity per Machine Hour= Production Units÷ Machine Hours • Productivity for September= 99,000÷ 90,000= 1.1 • Productivity for October= 1,00,000÷ 1,00,000= 1.0 • Productivity for November = 1,35,000÷ 1,50,000= 0.9

8. We can see from the table that while production is rising from September to November; productivity is falling.

9. Typically when markets are booming it is worth increasing production so as to capture market-share even if productivity does not increase. • Conversely, during the lean periods when selling becomes difficult, increasing production will only result in increasing unsold stocks. • It is, therefore, important to focus on increase in productivity a it helps in maintaining profitability. • Today’s organizations are looking at Productivity improvements by cost reduction thereby protecting their profit margins.

10. Partial Productivity →Definition • Ratio of output to one class of input. • At a given time it considers only one input and ignores all other inputs. • Its significance lies in its focus on utilization of one resource. • For instance, labour productivity is measured using utilization of labour hours; whereas capital productivity is measured in Rupees.

11. →Case: • As a part of new assignment, Parag of Pop-Corn Products was asked to identify areas for productivity improvements. He collected data on all inputs and outputs of previous year’s operations being transferred into equivalent of money units. The table below gives details with all figures in lakh rupees. Parag plans to calculate values of partial productivity to aid in his study. Please help him in his endevour.

12. →Solution: • Partial productivity of various inputs is as follows: • Human productivity= 1000÷300= 3.3 • Material Productivity= 1000÷200=5.0 • Capital Productivity= 1000÷ 300 =3.3 • Energy Productivity= 1000÷ 100= 10.0 • Productivity of other expenses= 1000÷50=20.0

14. Total Factor Productivity • In an effort to improve productivity of labour, company may install more machinery. • Then productivity of labour will go up bringing down the capital productivity. • Partial productivity that typically uses only one resource at a time fails to grasp this paradox. • Historically labour and capital were considered to be the most significant in contribution in the process of production.

15. Therefore, in The Total Factor Productivity model developed by John W. Kendrick in 1951, he has taken only labour and capital as only two input factors. → For instance, Products worth Rs 100 lakhs were manufactured and sold in a month. It consumed Rs 20 lakhs worth labour hours and Rs 55 lakhs worth capital. - The Factor Productivity = 100÷ (20+55)= 1.33

17. Multi-factor Model of Productivity • Developed by Scott D. Sink Multi-factor Productivity Measurement Model considered Labour, Material and Energy as major inputs. • Capital was deliberately left out as it is most difficult to estimate how much capital is being consumed per unit/ time. • The concept of depreciation used by accountants make it further difficult to estimate actual capital being consumed.

18. Total Productivity Model • Total Productivity Model developed by David J. Sumanth in 1979 considered 5 items as inputs. • These are Human, Material, Capital, Energy and other expenses. • This model can be applied in any manufacturing or service organization. • Total Productivity= Total Tangible Output÷ Total Tangible Input.

19. Total tangible output= Value of finished units produced + partial units produced + Dividends from securities + Interests from bonds +Other incomes. • Total tangible inputs= Value of human inputs+ capital inputs+ materials purchased+ energy inputs + other expenses (taxes, transport, office expenses etc.)

20. American Productivity Centre (APC) Model • American Productivity Centre has been advocating a productivity measure that relates profitability with productivity and price recovery factor. • Profitability= Sales  Costs • {Output Quantities x Prices}  {Input Quantities x Unit Costs} • Productivity x Price Recovery Factor. • The APC model is different from other models in its treatment, by inclusion of Price Recovery Factor.

21. What is price recovery factor? • It is a factor that captures the effect of inflation. • The changes in this factor over time indicate whether changes in input costs are absorbed, passed on, or overcompensated for, in the price of the firm’s output. • Thus 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 material consumed and sold.

22. Sumanth’s Five Pronged Model • All efforts towards productivity improvement have always been focused on the resources i.e. men, material, money, time, machinery, etc and the processes through they undergo to give output. • In 1982, Sumanth and Omachanu proposed Five Pronged Approach, classifying fifty four different techniques based on the five basic types: • Technology • Employee • Product • Process, and • Material

23. In the areas of product and process improvement: value analysis aids in eliminating non-value adding function i.e. those function resulting in low performance at high costs from the product and processes. • On the technology front, extremely precise and accurate high-speed machines and systems like CAD,CAM,CIM,FMS etc have drastically reduced the processing time. • On the human front, incentive plans, job enrichment, fringe benefits etc are used to encourage value-adding inputs from people.

24. Inventory control, MRP, material handling systems etc. reduce the time, space, effort and money involved in making material available for its time and place utility. • Techniques like work-study, ergonomics, etc eliminate motions that are non-productive or make them easy to perform are included in the human factor. • Today, Lean Production System approach is a holistic one, which covers all areas of productivity improvement.

25. In order to sustain, a few other techniques like JIT, TPM, TQC, KAIZEN, Quality Circles etc can be applied simultaneously. Summary A. Technology Based • CAD, CAM, Integrated CAM, Robotics, Laser Beam Technology, Energy Technology, Group Technology, Computer Graphics, Simulation, Maintenance Management, Rebuilding Old Machinery, Energy Conservation.

26. B. Employee Based • Financial Incentives, Group Incentives, Fringe Benefits, Promotions, Job Enrichment, Job Enlargement, Job Rotation, Worker Participation, MBO, Skill Enhancement, Learning Curve, Working Condition Improvement, Communication, Zero Defects, Punishment, Recognition, Quality Circles, Training, Education, Role Perception, Supervision Quality.

27. C. Product Based • Value Engineering, Product Diversification, Product Simplification, R&D, Product Standardization, Reliability Improvement, Advertising & Promotion. D. Task Based • Method Engineering, Work Measurement, Job Design, Job Evaluation, Job Safety Design, Ergonomics, Production Scheduling, Computer Aided Data Processing. E. Material Based - Inventory Control, Material Requirement Planning, Materials Management, Quality Control, Material Handling and Recycling.

28. ILO Approach to Productivity Improvement • The classic ILO approach is Task Based. • It breaks manufacturing time into basic work content, added work content, and ineffective time. • The main focus is on reducing inefficient time in the total work content. • The Basic Work Content - The amount of work “contained” in a given product or process measured in man-hours or machine hours.

29. The basic work content is the irreducible minimum time theoretically required to produce one unit of output. B. Added Work Content • Work content added by defects in the design or specification of the product. It may be due to lack of standardization and/or incorrect quality standards. - This additional work content is the time taken over and above the time of the basic work content due to features inherent in the product which could be eliminated.

30. (2) Work content added by inefficient methods of production or operation. • This is the time taken over and above the basic work content plus (1), due to inefficiencies inherent in the process or method of manufacture or operation. • This includes wrong machine used, processes operated in bad conditions, wrong tools used, bad layout, operator’s bad working methods etc.

31. C. Ineffective time • All interruptions which cause the worker or machine or both to cease producing or carrying out the operations on which they are supposed to be engaged. • Irrespective of the cause, these must be regarded as ineffective time because no work towards completing the operation in hand is being done during the period of the interruption.

32. (1) Ineffective time due to shortcomings on the part of the management. • Time during which man or machine or both are idle because management failed to plan, direct, coordinate or control efficiently. (2) Ineffective time within the control of the worker. • Time during which man or machine or both are idle for the reasons within the control of the worker himself.

33. Focus on reducing added work content & inefficient time in the total work content • Following are the methods by which added work content & inefficient time can be reduced. →By reducing • Poor design and frequent design changes • Waste of materials • Incorrect quality standards • Poor layout and poor utilization of space • Inadequate material handling

34. Frequent stoppage in production • Ineffective method of work • Poor planning of work • Frequent breakdowns • Absenteeism & late coming • Poor workmanship • Accidents and occupational hazards.

35. Quality Circles • Quality Circles were the logical consequence of the various waste elimination programmes that were run in many Japanese corporations in early fifties. • It provided a platform for the workers to get together and use techniques for their quest for continuous self-development and organizational improvement. • In 1980, the first Quality Circle was launched in Hyderabad plant of Bharat Heavy Electricals Limited.

36. Definition and Meaning • Quality Circle is a small group of employees in the same work area or doing a similar type of work who voluntarily meet regularly for about an hour every week to identify, analyze and resolve work related problems, leading to improvement in their total performance ad enrichment of their work life. • This definition is quite comprehensive and most commonly accepted. • Every part of the definition is significant.

37. → Why small group of employees? • Experience indicates that the optimum number of a Q.C. is about eight to ten. • If a circle is formed with less than five members, one can imagine the strength of the group when absenteeism is high. • Interaction and participation becomes more pronounced when group members are more than say, six.

38. → Why in the same work area or doing similar type of work? • This ensures Q.C. to be a homogeneous and cohesive group • The discussion that takes place remains interesting to everyone only if members are from the same background. • It also helps the members to understand the intricacies of the problem. • Also the application of QC tools that are recommended require the expertise in the field.

39. → Why is participation voluntary? • ‘Voluntary’ in the Japanese context has a different interpretation as compared to what is normally understood in the Indian context. • To the Japanese , the very word ‘voluntary’ implies 100% participation. • Hence, when a company in Japan decides to implement Quality Circle, every body has to enroll as a member. • Japanese have refrained from using from using the word ‘compulsory’ as it indicates not just 100% participation but achievement of targets as well.

40. Quality circle requires some amount of creativity that is not under control, therefore, the word voluntary is used to indicate that achieving targets is not mandatory, but participation is compulsory. • In India the term ‘voluntary’ has been used to circumvent the possible opposition from the trade unions. → Why to meet regularly for an hour every week? • Meeting regularly is absolutely essential for the success of Q.C.

41. If the meetings are kept at longer intervals then cancellation of one or two meetings will further lengthen the interval leading to complete stoppage of work. → Why to analyze and resolve work related problems? • As employees know more about their own work area than any body else, they are in a better position to solve problems occurring there.

42. Structure of Quality Circle Steering Committee/ Departmental Committee Top Management TM Steering Committee Facilitator Leader/Deputy Leader Member Non Member Coordinating centre

43. Role of Each Element 1. Non-Members • Initially, all the employees in a particular work area may not volunteer in joining QC activity. • Some others may not be interested in activity but prefer not to get directly into it. • QC members must understand that solutions they find cannot be implemented without the cooperation of these non-members. • Members must encourage non-members to participate in activities so that they change their attitudes and form circle on their own.

44. 2. Members • Members must be restricted to grass root level persons. • If membership is kept open only to officers and executive, the very purpose of QC gets defeated. • Members actively participate in selecting problems of their concern, analyzing it, finding solution to it and finally making presentation to the management.

45. 3. Leader/Dy. Leader • In Japan, first line supervisors are nominated as leaders. • However, in India, it is advisable to make members choose their own leader. • Earlier there used to be only one person as leader. • But considering heavy absenteeism that prevails in our country, there can be one deputy leader who will take charge in absence of leader.

46. The leader or the deputy leader’s endeavour is • To maintain cohesiveness of the team. • To plan agenda for meetings. • To ensure participation from every member by assigning them work. • To encourage consensus decision making process. 4. Facilitator • Facilitator is the senior officer of the department where QC is working and is nominated by management.

47. The facilitator • Can facilitate more than one QC. • Is responsible for success of QC’s operating in his area. • Ensures necessary facilities are available to the team for operation. • Joins Steering Committee meetings and gives results of activities of QC.

48. Steering Committee • The committee comprises of heads of major functions as members and chief executive as the chairman. • The committee makes top management’s support visible. • Steering committee • Meets regularly once in two months. • Takes overview of QC activity in entire organization. • Gives policy guidelines fr the propagation of movement

49. 6. Coordinating Agency • The job of coordinating agency is similar to facilitator but on a large scale. • It coordinates QC activities throughout the organization. • Steering committee decides the composition of coordinating agency. • Coordinating agency • Organizes a training programme for members when QC is formed. • Evolves norms to assess performance of different QCs.

50. Prepares budget for QC activity. • Arranges guest speaker or library facility for members. 7. Top Management • Top Management does not fall within the formal structure of QC. • Its main job is to • Convey its commitment to all employees • Extend necessary support by attending conventions and sanctioning funds. • Form quality council and establish a conducive atmosphere.