Productivity

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Productivity Concept, Relevance in Competition, Tools & parameters Indian Oil Corporation Ltd. November 10, 2014

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What is……..?

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What is……..?

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What is

Productivity is the relationship between the outputs generated from a system and the inputs that are used to create those outputs. Mathematically

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Seven Performance Criteria 1.

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Efficiency Effectiveness Quality Productivity Quality of work life Innovation Profitability (Budgetability)

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Efficiency • Measures the resources expected to be consumed to the resources actually consumed.

• Hence, it focuses on the input side of the system.

(To what degree did the system utilize the “right” things.)

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Effectiveness • Measures what the system sets out to accomplish (objective) with what was actually accomplished; plan vs. actual • Hence, effectiveness is an output measure. (Is the output “right” - right quality, right quantity, on time, etc.)

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Quality • Degree to which the outputs (products and services) from the system conform to requirements or meet customer expectations. • The focus is on quality attributes (e.g., conformance, performance, convenience, responsiveness, perceived quality.)

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Quality of Work Life (QWL) • Measures the way that employees in a system respond to the sociotechnical aspects of that system.

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Definition‌‌productivity Previously, the concept of productivity was about the efficiency ratio. The concept has evolved to include the element of human endeavour and development.

The definition of productivity as converting resources (inputs) into products and services (outputs) efficiently, effectively and with optimum utilisation of human capital and physical resources for the benefit of society, the economy and the environment.

Enhanced Productivity

Value adding

Wealth Generation

Shared Equitability

Improved Standard of living 11

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System concept

inputs • • • • • • • • •

Land people capital facilities equipment tools energy materials information

Transformation SYSTEM

outputs

Customers

• Goods • Services

O I productivity 12

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Example of Output

• • • • •

Accomplishment of a task Length of an output Distance travelled Number of pieces produced Weight of production

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Example of Output

• • • • • •

Volume of output Value of output No. of documents processed Time taken to carry out a job No of jobs attended No. of customers served

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Example of Input

• • • • • • • • •

Labour force or man hours, man days. Etc..

Labour cost (Rs) Area of land(in hectares) Kg. Of material or material cost in Rs. Volume of material or fluid Length of material square area of space Units of power Time etc.

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Other Thoughts of Productivity

• “Productivity is an attitude of mind” • “Productivity means doing something better today than yesterday” • “Productivity means continuous improvement”

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Other Observations

• “…The wealthy nations they are the productive nations…”

• “…Productivity makes you wealthy, it allows you to support high wages, it allows you to support high returns on capital…”

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Productivity and Self Management

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Two Aspects of Productivity

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The “soft” or qualitative aspects to create an environment conducive to productivity The technical or quantitative aspect to measure productivity

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Soft Aspects of Productivity

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Productivity culture Team work Quality work “Delighting” customers Work ethic Caring for the work force

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Factors of Productivity

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Productivity Improvement

Productivity Improvement (PI) is the result of managing and intervening in transformation or work processes.

PI will occur if:

O I

O I

O I

O I

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Measuring Productivity

• Static: P=O/I in a given period of time (t). Useful for benchmarking purposes. • Dynamic: p(1)=O(1)/I(1); p(2)=O(2)/I(2); then p(2)/p(1) yields a dimensionless index that reflects change in productivity between periods. ((p(2)-p(1))/p(1))*100 yields the percentage change between periods.

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Measuring Productivity (Continued)

• Partial-Factor: Uses a single “I” factor; e.g., output/labor-hour, sales/employee • Multi-Factor: Uses more than one “I” factor; e.g. output/direct costs (labor, materials, and overhead).

• Total-Factor: Uses all “I” factors.

(Note: Total-Factor captures “trade-offs” between input factors.)

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Productivity measurement examples

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- Number of goods produced in some fixed amount of time (usually in hours).

- (service industry) income generated by an employee

Indicators of higher productivity • Best utilization of available human & material resources • Minimum wastage and losses of materials • Quantitative & qualitative production of goods at lower cost

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Measurement Problems

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• Multiple products/services (aggregation-O) • Varied categories, types, and levels of input resources (aggregation-I) • Price/cost changes of outputs & inputs • Redesigned products, services, processes • “Hard-to-measure” factors (e.g., quality)

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Approach to productivity improvement?

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Customer-focused and people centred; Promotes collaboration between management & labour Encourages a productivity mindset that is internalised; Is multidisciplinary and integrative; Promotes social and environmental sustainability; Sector and cluster based; Alignment to national priorities; and Delivery through partnerships/networks/alliances

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Equipment Productivity

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Service Productivity

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Productivity Management

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Objectives of Management of Productivity •

Align resources with activity levels

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Develop accountability and ownership

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Communicate transparent philosophy

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Align long-term labor expense performance goals with long-term forecast

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Identify areas/opportunities for process improvement and redesign

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Leverage data/benchmarks

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Share best practices

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Application of Productivity Measures • Individual level • Group level • Department level • Corporate level • National level • Global level

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Impact of Competition on Prices and Cost

• Competition brings about allocative efficiency gains by forcing price to converge to marginal cost p

Marginal Cost

Average Cost

pa

Demand = Price = Marginal Revenue

Ď€a

q

qa

Firms subject to intense competition will take advantage on any opportunity to produce as long as price (mg revenue) exceeds (equals in the margin) 36 mg cost 36

AXELL Impact of Competition on Prices and Cost (Short Run Equilibrium)

Marginal Cost

p

pb < pa

Average Cost

πb < πa

pb

Demand = Price = Marginal Revenue

πb

In the absence of market barriers, new entrants will force price downwards reducing above mkt profits

q

qb

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Impact of Competition on Prices and Cost Long Run Equilibrium Marginal Cost

p

pc < pb

Average Cost

Ď&#x20AC;c < Ď&#x20AC;b

In the limit, competition will lead to operate at the minimum cost

pc

Demand = Price = Marginal Revenue

q

qc

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Innovation

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“Productive (or, technical) efficiency” gains come from productivity-enhancing innovations which introduce new and better production methods, and successful innovations will eventually raise the level and growth rate of productivity in the long run (i.e., “dynamic efficiency” gains).

• Need to review recent studies on the links between – competition, – innovation and – productivity growth in the long run.

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Creative Destruction •

There are numerous types of innovation generating creative destruction in an industry: – New markets, products or equipment – New sources of labor and raw materials – New methods of organization, management, or methods of inventory management – New methods of transportation or communication (e.g., the internet) – New methods of advertising and marketing – New financial instruments and/or scams

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Productivity Tools

Productivity tools can be applications that help employer increase their business productivity: a few examples might be project management tools, to do lists, cost management applications, employee monitoring software, print manager software and so on.

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Cause-and-Effect Chart for Flight Departure Delay (Fishbone Chart) Equipment

Personnel

Aircraft late to gate Late arrival Gate occupied

Other Weather Air traffic

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Gate agents cannot process passengers quickly enough Too few agents Agents undertrained Agents undermotivated Agents arrive at gate late

Mechanical failures Late pushback tug

Late cabin cleaners Late or unavailable cabin crews Late or unavailable cockpit crews

Delayed Flight Poor announcement of departures Departure

Weight and balance sheet late Late baggage to aircraft Late fuel Late food service

Delayed checkin procedure Confused seat selection Passengers bypass checkin counter Checking oversize baggage Issuance of boarding pass Acceptance of late passengers Cutoff too close to departure time Desire to protect late passengers Desire to help companyâ&#x20AC;&#x2122;s income Poor gate locations

Material

Procedure

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AXELL Value Engineering (VE) is the process of improving the value of a product at every stage of the product life cycle. VE tries to give maximum value for the lowest price. This enhances the productivity.

Quality Circles (QC) was introduced in 1960 in Japan. QC is a small group of employees who meet regularly to identify, analyze, and solve problems in their department. The QC members advise the management to implement new methods to solve work-related problems. QC increases the productivity.

Financial and non-financial incentives : The organization must motivate the employees by providing financial and non-financial incentives.

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AXELL Operations Research (OR) uses mathematical and scientific methods to solve management problems, including problems of productivity. OR technique uses a scientific method to study the alternative courses of actions and to select the best alternative. OR helps to improve productivity.

Training is a process of increasing the knowledge and skills of the employees.

Training is a must, for new employees and experienced employees. It increases the efficiency of the employee. Thus, it results in higher productivity.

Job Enlargement is a horizontal expansion of a job. It is done to make jobs more interesting and satisfying. It involves increasing the variety of duties.

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AXELL Job Enrichment is a vertical expansion of a job. It makes routine jobs more meaningful and satisfying. It involves providing more challenging tasks, and responsibilities. For e.g. A manager who prepares performance reports is asked to make plans for his department. The Job Enrichment technique is used for higher-level jobs.

Inventory Control : There must be a proper level of inventory. Overstocking and under stocking of inventories must be avoided: Overstocking of inventories will result in blocking of funds and there are chances of spoilage or misuse of materials. Under stocking of inventories will result in shortages. This will block the smooth flow of production, and so the delivery schedules will be affected.

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AXELL Materials management deals with optimum utilization of materials in the manufacturing process. It involves scientific purchasing, systematic store keeping, proper inventory control, etc.

The main objective of materials management is to purchase the right quantity and quality materials, at the right prices, at the right time, to maintain favorable relations with suppliers, to reduce the cost of production, etc.

Quality Control's main objective is to produce good quality goods at reasonable prices, to reduce wastages, to locate causes of quality deviation and to correct such deviations, to make the employees conscious of quality, etc.

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Job Evaluation is a process of fixing the value of each job in the organization. It is done to fix the wage rate for each job.

A proper job evaluation increases the moral of the employees. This increases the productivity.

Human factor engineering refers to the man-machine relationship. It is designed to match the technology to a human requirement. The term Ergonomics has originated from the Greek word Ergos meaning work and Nomikos implies law. So, it means â&#x20AC;&#x2DC;Law of Workâ&#x20AC;&#x2122;. It tells us how to fit a job to a man's psychological and physiological characteristics to increase human efficiency and well-being.

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