Time, Rate, and Productivity

1. Time, Rate, and Productivity Management of Operations Brad C. Meyer Summer 2002

2. Introduction • Time, Production Rate, and Productivity are basic measures critical to managing operations. • Operations can be considered a transformation process. • “Throughput” items are transformed by “processors” in activity that takes time. Summer 2002

3. Time • Expressed in duration units: • minutes • hours • days • months • Activity time is expressed as number of duration units per throughput item. Summer 2002

4. Why determine activity time? • To pay fair wages • To know how much to rightfully expect from an employee • To promise completion dates to customers • To schedule processors and material purchases, to do capacity planning Summer 2002

5. Example times • 5 minutes per customer • 10 seconds per part • 7 weeks per installation time duration per throughput unit Summer 2002

6. Rate • the reciprocal of time • number of throughput units per unit of time duration • can be a measure of capacity or of actual output generated Summer 2002

7. Example rates • 12 customers per hour • 6 parts per minute • 7 installations per year number of throughput units ------------------------------------------------------------------------------------------------------------- unit of time duration Summer 2002

8. Question… • Suppose a barber can cut a head of hair in 15 minutes. How many customers does he serve per 8 hour day? Summer 2002

9. And the answer is…. • We don’t know. All we know is that his capacity is 4 per hour or 32 per day. How many he serves depends on how many come to the shop looking for service. • Be careful to distinguish between capacity and actual performance. Summer 2002

10. Example 1 • one customer every 6 minutes – time or rate? This is expressed like a rate: throughput per time, but the number “6” is a time: 6 minutes per customer. Rates should be expressed with a simple unit denominator, like “per minute”, not “per 6 minutes” Summer 2002

11. One customer every six minutes: • Time = 6 minutes per customer • Rate = .16667 customers per minute or change time units to get: Rate = 10 customers per hour Summer 2002

12. Example 2 • A crew can clean 10 apartments in a four-hour morning. Time? Rate? Summer 2002

13. Example 2 • A crew can clean 10 apartments in a four-hour morning. Time? 4 hours / 10 apartments = .40 hours per apartment (or 24 minutes per apartment) Summer 2002

14. Example 2 • A crew can clean 10 apartments in a four-hour morning. Rate? 10 apartments / 4 hours = 2.5 apartments per hour. Summer 2002

15. Example 2 - extended • A crew can clean 10 apartments in a four-hour morning. The crew has 3 people. What is the time and rate per person? Time: 3 people working 4 hours is 12 hours total. 12 hours/ 10 apartments = 1.2 hrs per person per apartment Summer 2002

16. Example 2 - extended • A crew can clean 10 apartments in a four-hour morning. The crew has 3 people. What is the time and rate per person? Rate: 10 apartments per 12 total hours = 10/12 = .833 apartments per person per hour. Summer 2002

17. Productivity • a measure of ability to turn inputs to outputs. output productivity = ------------ input Summer 2002

18. Productivity examples • restaurant: customers per labor hour • retail: sales per square foot • utility plant: kilowatts per ton of coal • bank: new loan $ per employee month Summer 2002

19. Three kinds of productivity • labor productivity • value-added labor productivity • multifactor productivity Summer 2002

20. labor productivity • amount a worker accomplishes units/ hr or $ / hr Summer 2002

21. Example • 128 garments produced in 360 hours 120 without defects, sell @$200 each 8 with defects, sell @ $90 each Material cost = $70 per dress labor prod. = 128 garments/360 hrs =.355 garments/hr or labor prod. = (120*200 + 8*90)/360 hrs = $68.67/hr Summer 2002

22. Note: this ignores the $70 material cost of the garments. To adjust for this, there is another kind of productivity: value-added productivity… Summer 2002

23. Value added labor productivity • =(ending value – starting value)/hrs such as: (selling price – cost of materials)*units made / hrs Summer 2002

24. For garment problem: va prod. = [(200-70)*120 + (90-70)*8]/360 = $43.77 / hr Summer 2002

25. Other assumptions: For value added labor productivity, some subtract overhead (from sales revenue) and some don’t. For purposes of this class, I will specify in the problem which costs to subtract and which to ignore. Summer 2002

26. Multifactor productivity Multifactor productivity = value of outputs/cost of inputs (a ratio, hopefully > 1) value of outputs = price*number of units cost of inputs = labor+material+overhead Summer 2002

27. Example • Making CD players, sell for $300 • Quantity made was 2000. • Labor = $30 per unit • Material = $70 per unit • Overhead = $50 per unit Multifactor productivity = (300*2000)/((30+70+50)*2000) = 2.0 Summer 2002

28. Example continued • what percentage increase in productivity would occur with a 25% savings in material cost? • .25*70 = $17.5 reduced material cost • 70 – 17.5 = 52.5 • Mf prod = 300*2000 / (30+52.5+50)*2000 = 2.264 % change = 100*(new – old)/old = 100*(2.264-2)/2 =13.2% Summer 2002

29. Throughput time • The term “throughput time” is commonly used to describe how long a customer or part stays in a system. It includes both processing time and waiting time. It could include transportation and handling time as well. Summer 2002

30. Example • At a dental office, a customer spends 8 minutes on average in the waiting room, 25 minutes in the dentist’s chair, and 5 minutes with the receptionist, checking in before the appointment and paying after the appointment. • What is the throughput time for a customer at the dental office? Summer 2002

31. Total time = 8 + 25 + 5 = 38 minutes. • Note, in a situation like this, the dentist’s processing rate would be based on the 25 minutes she spends per customer, not the 38 minutes in total that the customer spends at the office. Summer 2002