9/11/2011

LECTURE 4
10/09/11

Productivity

RECAP
LEADERSHIP
YOU

WITHOUT TITLE

CAN BRING POSITIVE CHANGE Statistical Control

INCREASE YOUR INFLUENCE/ SATISFACTION

Importance

A system NOT under control is erratic & out of limits

Cannot be used for anything! Should be stabilized by removing special causes

A System under control is predictable

Can be used for accurate estimates, sampling, forecasts, The average cannot improve by itself Improving the average is the real management challenge

HOW IS THE PLAN?

accurately are you following your roadmap? Within what time limit would you reach your destination? How do you know you are on the right track? What is the right track? If you do not know where you are going, you would reach anywhere.
How

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RECAP LECTURE 1- ESSENCE OF MANAGEMENT we do marketing and innovate effortlessly? The enterprise should discharge its purpose of creating a customer efficiently Utilizing the resources productively Productivity means balance between all factors of production that will give the greatest output for the smallest effort.
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Can

ENTERPRISE PRODUCTIVITY PART 1

do you know your enterprise/ dept is functioning? How would you know that it is functioning well? How well? When can you tell? What are its functions supposed to be?
How

ENTERPRISE PRODUCTIVITY
Howdoyouknow yourorganization/ deptisfunctioning? Howwouldyou knowthatitis functioningwell? Howwouldyou Whencanyou knowhowwellitis tell? functioning?

Group1 Group2 Group3 Group3

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PRODUCTIVITY
do you measure productivity in your organization? Measures Industry I d t Specific S ifi Methods M th d Key Success Factors
How

WHY PRODUCTIVITY?
TYPICAL
WHAT WHAT WHY

QUESTIONS ON ANY INITIATIVE

WOULD THIS BRING? WOULD THIS CHANGE?

IS THIS IMPORTANT?

WHY PRODUCTIVITY?
Productivity A measure
Any

an objective of TQM of TQMs effectiveness

program's effectiveness

the long g term, , TQM should bring g tangible g benefits TQM in the path of Productivity Search, Vice Versa

In

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WHY PRODUCTIVITY?
is the ONLY True Source of Competitiveness Competitiveness ability to compete in the market, in the world & prosper The most competitive countries are the most productive The most prosperous
Productivity

COMPETITIVENESS
Industrial the

Competitiveness immediate and future ability of, and opportunities for, entrepreneurs to design, produce and market goods within their respective environments whose price and non-price qualities form a more attractive package than those of competitors abroad or in domestic markets. EU Management Forum.

DEFINITIONS OF PRODUCTIVITY
Traditional
Output

definition

Input = Productivity Accomplishing more with the same amount of resources Achieving higher output in terms of volume and quality for the same input Applies to all sectors

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DEMINGS CHAIN REACTION

Quality,

Market Share & Social Prosperity

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PRODUCTIVITY & VARIATION

VARIATION ENNEMY

IS EVIL OF PRODUCTIVITY THE MOMENT WE EXPECT VARIATIONS, THERE WOULD BE COSTS TO MANAGE THE VARIATIONS
THE

GREATER THE VARIATIONS, THE GREATER THE COSTS

APPRAISAL COSTS EXTERNAL COSTS

IMPACT OF QUALITY

PRODUCTIVITY

REALITY REALITY
LIFE

& DEATH

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NORMAL VARIATIONS & AVERAGE SHIFT

1.5

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VARIATION IS EVIL
Suppose

a critical component needs to be activated in a process/ operation:

With mean of reaction time of 7 seconds, Upper Specification of 10 seconds Lower Spec of 4 seconds Stdev of 1 seconds

Process
USL =

is Three Sigma:

7 + 3 X 1 = 10 LSL = 7 3 X 1 = 4
At

Z = -3, Area outside normal curve= 0.00135

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VARIATION IS EVIL
there are 27,000 processes in a year At 3, 99.73% would be OK 73 would be Defective
If

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VARIATION IS EVIL 3
mean shifts by 1.5 , in either direction, Area outside normal curve at -1.5 = 0.0668 0 0668 This means 86.64% or 3607 defective operations Hence a shift of the mean, at 3 level, is dangerous!
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If

VARIATION IS EVIL 4
If

however, the process is improved and is halved so that the process variation takes only half of the distance between specs

VARIATION IS EVIL 4
this case, area of Normal curve outside specs, Z = - 6 = 0.000000001 Six Sigma Level
In

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VARIATION IS EVIL 4
if the mean shifts by 1.5 , Area that would be outside specs, specs Z = -4.5 = 0.0000034 3.4 Million DPO is Six Sigma definition
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Even

HOW VARIATION IS EVIL?

27,000 3

flights at SSR Airport aircraft critical parts performance? 1.4 critical malfunction per week!

HOW VARIATION IS EVIL?

6 level & 27,000 flights per year, malfunction per year, or 1 critical malfunction in 11 years!
At 0.0918 Any

doubt about link between Quality & Productivity/ Safety/ Life & Death?

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PART 2 - MISCONCEPTIONS
doest NOT concern only Labour Productivity is NOT only Output Profitability is NOT the absolute measure, because it is in b i affected ff t d by b variations i ti i price i & exchange rates Efficiency means producing high-quality goods/ services in the shortest time
Productivity

MISCONCEPTIONS
Productivity

is NOT Working more

MISCONCEPTIONS

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DEFINITIONS
Productivity Productivity

is a complex concept could be considered as a comprehensive measure of how organizations satisfy the following criteria:
Objectives: Efficiency:

degree to which they are achieved how resources are used to generate useful output Effectiveness: what is achieved compared to what is possible Comparability: how productivity performance is recorded over time

PRODUCTIVITY FACTORS

HARD FACTORS
Product
Quality Cost Continuous Marketing

Dimensions Mix Improvements

Plant

& Equipment
Excellence Productive Maintenance

Operational Total

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HARD FACTORS
Technology
Can

make the difference

Automation

Materials
Input

& Energy

Quality Cost of energy

SOFT FACTORS
People
Application
Values Motivation
Willingness to give maximum performance, Willingness to learn Attitude at all levels

Degree to which people apply themselves to work

Standard of Performance
Expectation

ENTERPRISE PRODUCTIVITY
Whatarethefunctionsofthe organizationsupposedtobe? Whydoesitexist?

Group4,Group 5

Group4,Group 5

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BREAK

KEY SUCCESS FACTORS (KSF)

Industry specific keys to success Industry specific measures

Industrial Printing capital intensive

Machine productivity Machine Utilization
Time ratios, ratios standard time for machine settings,etc settings etc

Pizaa, KFC,
Standard Baking time, Frying time

Industry-independent measures

Overall productivity
Labour, Capital, Productive Time

Benchmarking
The method of customer satisfaction and use made thereof

KEY SUCCESS FACTORS (KSF)

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SOFT FACTORS
People
Effectiveness
Methods Techniques Skills Knowledge Attitude Aptitude

Extent to which application human effort brings desired result

SOFT FACTORS
Organization

Structure
Silos

Rigidity Strategic Blindness to market changes Compartmentation/ Sub-optimization Sub optimization

Systems
Management Quality

Systems systems Work methods

Industrial Engineering

SOFT FACTORS
Obsolete
Formal Hierarchical Rigid Open Good

Management Styles

but closed door policy for very stable, unchanging environments in Paradise

Distant Dodo

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SOFT FACTORS

Adaptive Management Styles Flexible Flat Matrix Management by Walking Around Proximity Management Informal

INTERNAL PRODUCTIVITY FACTORS CHECKLIST

Hard Factors Product People Soft Factors

Plant & Equipment Organization & Systems

Technology Work Methods

Materials & Energy Management Systems

PRODUCTIVITY & PROFITABILITY

Output Value = Quantity Sold x Unit Price

Profitability = Productivity x Price Recovery

Input Value = Quantity Used x Unit Cost

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PRODUCTIVITY & PROFITABILITY

PRODUCTIVITY ANALYSIS

PRODUCTIVITY ANALYSIS EXERCISE

CRITERIA Output of Production Project Costs ACTUAL THEORECTICAL PRODUCTIVITY

Success Rate

Dept Budget

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PRODUCTIVITY ANALYSIS

PRODUCTIVITY ANALYSIS
Ls

= Standard work hrs (qty produced x standard time) Lr = Total input hrs (number of workers on payroll x duty hrs)
Ls/Lr

= Ls/Le x Le/Lr x Lr/Lr

PRODUCTIVITY ANALYSIS EXAMPLE

No of employees 25 8 x 60 x 25 12000 mins 500 11500 60 mins 1500 10000 11 mins 900 900 x 11 10800/ 12000 Le/Lr 0.869 Lr/Lr 0.958 9900 0.825 0.825 Total Input Hrs (Lr) 8hr x 25 Break times (Lo) Input Time (Lr) Waiting time (Lw) Effective Hrs (Le) Std time/unit Total Qty Std time (Ls) Ls/ Lr Ls/Le 0.99 20 mins

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PRAGMATIC PRODUCTIVITY MEASUREMENT = Gross Sales/ Total Costs Productivity = Total Output/ Total Input Partial Productivity = Total Output/ Partial Input Total Productivity = Total Output
Total Productivity

Labour Input + Capital Input + Raw Materials + Other goods & Services inputs

PRODUCTIVITY IN SERVICES
Efficiency
Output Number Goal

per input of clients served/hour

Effectiveness

attainment of Satisfaction Time between order & delivery

Degree

Equity
90%

of population attends school

PRODUCTIVITY MEASURES - HOTEL

Overall Performance

Sales per Employee Profit to value added %Occupancy p y Rooms revenue / Cost of room sales Food Covers / Waiter Regular Guest as % of Total Guests Regular Customers as % of Total Customers

Operational

Labour Utilization

Customer Service

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PRODUCTIVITY-EFFICIENCY AND EFFECTIVENESS

Effectiveness
Defined What

mission, objectives to do?

Efficiency
How

to do?

Productivity

measures both TQM is concerned with all of them!

CONCLUSION
Productivity

is the ONLY True Source of Competitiveness Profitability is not sufficient

Consistency

of purpose

Hard KSF

& soft factors

specific

Industry

ASSIGNMENT 1

Choose any real organization, or the organization in which you work for this assignment.
1. 2.

Research, define and describe its Key Success Factors (KFS)

a)

Give the references

Give measures of relevant productivity factors & trends in a table

a)

Ref to Organization Profile given in Lecture1

3. 3 4. 5.

Select one key process, process identifying the inputs and outputs, outputs and a specific part of that process for data analysis Select and analyze data with relevance to the productivity trends, the KSFs and market conditions/ social responsibilities Which specific TQM concepts & principles would be most relevant for significant improvements, if needed?
a)

describe how in a concise manner

Avoid long prose, be concise, and make use of diagrams, bullet points and charts.

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