SYBMS - SEM IVWELCOME

TO LEARN SUBJECT OF

PRODUCTIVITY & QUALITY MANAGEMENT

PROF. YOGESH ZAVERI

INTRODUCTION• Productivity and Quality Management is an extension of

the subject of Production Management. We understand that the production consists of three basic elements viz. Inputs Conversion Output

• Inputs are basic to any production system; they can be raw materials and consumables in a manufacturing system, or infrastructure for providing services in service sector.

• Conversion is considered being achieved only if the process brings in value addition; i.e. when output is worthier than the sum total of all inputs.

• Finally Output of a production system is considered being achieved only if the conversion results into delivering effectiveness, efficiency and customer satisfaction.

• The resultant output of any production system for whatever reason, when fails to deliver the effectiveness, efficiency and customer satisfaction, it is treated as ‘Value Subtraction’. Under such circumstances the process of conversion has resulted in to ‘Waste of Production’ rather than the ‘Production’.

• Specifying it more empathetically, an output of a production system must deliver effectiveness, efficiency and customer satisfaction. This can only be achieved if the inputs are appropriate and the conversion process is carried out with ‘Value Addition’.

• Subject of Productivity and Quality Management focuses on the factor of conversion, as to how economically, efficiently, effectively and qualitatively the inputs to a production system are converted / transformed so as to maximize the output without loosing focus on the quality. During the study of this subject, we will learn several management techniques and principles empowering us to achieve these objectives.

CONCEPT OF PRODUCTIVITY • Productivity is the ratio of out put to input in any

organization. Here output may be utility or goods or services. Inputs are all the resources used, including basic inputs to a production system which are used and/or consumed for the transformation or conversion function.

• Thus output may be in the form of product (utility or services) quantity/quality and price. The inputs may be in the form of raw materials quality/quantity price and/or physical assets such as land, infrastructure, men and machineries.

• Arithmetically: Productivity = Output/Input • In short productivity takes in account output in relation to

input. • Before dwelling further about the productivity let us

understand the role of quality in the field of production and operations management.

QUALITY• Quality is an important dimension of Production and

Operations Management, and is an integral and important parameter for the productivity. Joseph Juran, 20th century’s one of the most valued and respected management guru in the field of quality, suggested that the “past century will be defined by historians as the century of productivity”, while the “current century has to be the century of quality”. Therefore to “talk of the productivity without integrating the importance of quality is to “talk about heart without inclusion of soul”.

• The emphasis of Quality is not new to the business. Back in 1887, Mr. William C. Procter, the grand son of founder of Proctor and Gamble, impressed upon his employees by saying that “The first job we have is to turn out quality merchandise that consumers will buy and keep on buying. If we produce it efficiently and economically, we will earn profit, in which you will share”

Quality is defined in various ways • Quality is the “performance of the product as per the

commitment made by the producer to the consumer”.

• The ‘performance of the product’ relates to the ultimate functions and services, which the final product must give to the consumer. For example a washing machine must wash the clothes efficiently and effectively, a ball pen must function to write smoothly to meet the expectation of the buyer. A customer on purchase of even an economic and a simple ball pen which cost less than Rs.5 test the pen by writing on a rough pad to check if it’s performing the function of writing according to his/her expectations or not? It is this functional parameter for which the consumer buys a product. If it does not write according to his satisfaction, the customer instantly rejects it, treating it to be bad quality and tries out the next ball pen.

COMMITMENT FOR QUALITY– EXPLICIT & IMPLICIT

• The ‘commitment’ may be explicit such as a written contract or it may be implicit in terms of an average consumer’s expectations of a product. A guarantee or a warranty card is an explicit form of commitment to quality. However even a simple ball pen which is not accompanied by any guarantee card, purchased by a customer, can not escape from its implicit commitment to function up to the expectation of the customer’s expectations.

• There is also a ‘service and time dimension’ to the quality.

• The same quality of physical performance should be available over a reasonable length of time. Thus time is also an essential aspect of the quality. A customer must get value for money he spends. When a customer purchases a washing machine, he will expect the machine to work properly for some years. Even for an economic ball pen, a customer will expect it last for some weeks.

DEFINITION OF QUALITY AS PER

C. D. LEWIS

• C. D. Lewis defined quality as ‘an asset, which may be offered to the potential customer of a product or service.’

• Take the illustration of an advertisement of marine ply shown on television. It sarcastically and to the viewer’s delight displays frequent hammering by a high court judge, uttering order…order…in a courtroom on a table top made of the marine ply manufactured by the advertiser’s company. The wooden table top is, hammered again and again by the judge for innumerable times and for several years, representing an unending law suit. The suit was initiated in the court when the prosecutor, accused, their lawyers and the judge were seen to be young. All of them became old during the course of the case. Manufacturer of the marine ply sarcastically says quality of our marine ply on the table top of the judge will lasts forever (chalta hi rahe) as the unending case in the court. The add shows in the end that in the courtroom, the prosecution and judge became so old, that they can barely speak and present their arguments but the marine ply used as table top remains in tact even after so many brutal strokes of the judge’s hammer during the course of unending court drama.

• Another similar advertisement is from a popular refrigerator manufacturer, it displays story of a young boy who purchases a refrigerator of the advertiser’s company. After a quantum jump on the time scale of several years, the same young man is shown as a grandfather. Now his grandson comes in the scene and opens the door of the same refrigerator purchased by his grandfather, when young. A representative of the manufacturer peeps out on the screen and says our product lasts from generations to generations.

• Illustrations of these advertisements explain the asset quality of the products advertised.

• When a customer spends money on valuable product, they want its quality to be an asset and not an expense.

ANOTHER DEFINITION OF QUALITY

• Quality means the degree to which a specific product satisfies a particular class of customers or consumers in general or the degree to which it conforms to a design specification or distinguishing feature of a product’s taste, colour, appearance etc.

QUALITY CONTROL• Having understood about quality, let us now understand

‘Quality Control’. Quality control is one of the most important aspects of the production planning and control. It is basically concerned with the “quality production” through regular inspection techniques for Input Raw Materials, Production Process, in Process Products and Final Output Products.

• “According to Alford and Beatty Quality Control is “that technique of industrial management by means of which products of uniform acceptable quality are manufactured”

• According to Broom Quality Control is a “systematic control by management of the variables in the manufacturing process that affect goodness of the end product”

QUALITY ASSURANCE

Quality Assurance means an assurance given to a customer that the products, parts, components, tools, etc. contained specified characteristics and are fit for the intended use.

QUALITY ORGANIZATION

• Quality is everyone’s business it is not just the concern of only manufacturing department. Each department has to contribute for quality. Quality is built into the product at the product concept stage and it is ubiquitous all through out its life.

• Poor quality can occur because of organizational problems anywhere, or even outside the organization.

• A right beginning to build a Quality Organization is commitment for quality by the top management of the organization.

• Quality improvement should be viewed by every one in the organization as a positive effort. Continuous training of all concerned is one of the key to build a quality organization. With due training several alternative methods can be implemented in order to achieve quality function in an organization.

QUALITY AND PRODUCTIVITY• There is a clear relationship between quality and

productivity. • Poor quality of goods results into wastage and scrap

lowering productivity. • Those products, which are salvageable, will consume

additional labour and materials, resulting into further reduction of the material and labour productivity.

• In short poor quality of goods and services will add to the cost through a) disruptive schedules, b) delayed deliveries, c) product returns and costs associated with it, d) generation of scraps, e) wastage of man power and materials and f) losing on machine times, thus reducing productivity and profitability.

• Finally all these will end up with dissatisfied customer and loss of goodwill for the organization.

PRODUCTIVITY AND QUALITY MANAGEMENT - PQM

With the knowledge of productivity, quality, quality control, quality assurance, quality organization and relationship between quality and productivity, we can now state that PQM is the “Art of Enhancement of Productivity and Quality, while carrying out Production & Operation Functions”.

PRODUCTION V/s PRODUCTIVITY

• Having understood the importance of quality in the process of production and its significance in the productivity, let us understand the difference between production and productivity.

• Production is conversion of inputs to output. It takes into account output alone, whereas Productivity is putting life in the process of production. Productivity is like evaluation and/or measurement of results of conversion (value addition) process in relation to the inputs.

• Many times it is observed that with increase in production; productivity starts decreasing.

• Let us understand this through an illustration:

Illustration:

MONTH INPUT (Men

Hours)

OUT PUT Production

(Nos. of articles Produced)

PRODUCTIVITY Output = ------------- Input

REMARKS Production Productivity

April 40000 80000 2

May 50000 95000 1.9 Increase Decrease

June 60000 108000 1.8 Increase Decrease

Let us understand as to why (as illustrated above), when the production is increasing, the productivity is decreasing?

WHY PRODUCTIVITY REDUCES WHEN PRODUCTION INCREASES?

• This happens mostly because to increase the production, usual practice is to increase the work hours close to the month/quarter/year end, of the same number of workmen, keeping them overtime and asking them to produce and comply with the additional orders or unfulfilled targets etc. Naturally, having worked for the entire day, their efficiency during the overtime is low and they can not give same output. Lots of men hours wasted. As seen from the above illustration that when markets are rising; employing additional resources and incurring heavy expenditure does boost production, but decreases productivity.

• Objectivity of PQM is to arrest this trend of decreasing productivity Vs increasing Production.

• Various techniques such as Kaizen – (Japanese word - Kai means Change and Zen means Betterment), TQM- Total Quality Management, JIT – Just In Time, QC – Quality Circles - etc are employed in present day management to achieve this objective. We will be learning many of such techniques during course of this subject.

IMPORTANCE OF PRODUCTIVITY - 1

1. Profit Margins: - The profit margins in the buyer markets are diminishing and there is ever looming threat to survival.

2. Globalizations of Markets: - They have increased multi fold competitions from National and International players.

3. Cost of Failure: - The challenges and cost of failure are greater than ever before.

4. Resources are becoming scarce: - Fundamentally it is necessary to improve the productivity because resources are becoming scarce and costly, and hence main aim of the productivity is to optimize the utilization of the same.

IMPORTANCE OF PRODUCTIVITY - 25. Customers:- Are more educated, informed,

demanding and efficient, posing greater challenges to the business.

6. Comparison of products and price: - Internet and expanding media exposures have brought world before the consumer and with a touch of finger they are able to compare the products and price across the globe.

7. Economy of the Nation: - To increase National Productivity, Prosperity and Economy of the Nation, which is directly, proportionate to the productivity of the business houses and entrepreneurs in the country hence it is pertinent for every entrepreneur to increase the productivity.

IMPROVEMENT IN PRODUCTIVITY - 1It is obvious that in any organization, efforts have to be taken to improve the productivity at all levels. The motivated atmosphere to optimize the utilization of all the resources like men, material time, machine, place etc needs to be done constantly to prevail in a progressive and advanced company. Major cost savings can be generated by the product and process improvements.

Reduction in time span of a new product’s development is considered as one of the most important requirement for improvement in present day economy. To avoid manual efforts and fatigue a low cost automation is used along with number of advanced management techniques to supplant the labour force. Such techniques reduce non-value added activities and costs thereof.

IMPROVEMENT IN PRODUCTIVITY - 2

Productivity is viewed as improving health or profitability of the enterprise. Many advanced countries, have started employing more and more electronics and computer controlled processes to avoid loss and waste due to human errors and inefficiency.

IMPROVEMENT IN PRODUCTIVITY - 3

IMPROVEMENT IN PRODUCTIVITY - 4 New Technologies

New technologies such as: • CAD (Computer Aided Designs), • CAM (Computer Aided Machines), • FMS (Flexible Manufacturing

Systems), • Unmanned Production Lines, etc are

replacing old technologies.

IMPROVEMENT IN PRODUCTIVITY – 5

It is observed that at any given point of time every business either grows up or sinks down. The overall health of the company will certainly deteriorate when organization does not strive and improve the productivity and growth. Obviously to cover the losses incurred due to lost productivity, people will be compelled to sell the company, or to shut down or face natural (financial) death. Hence for organizations to survive it is necessary to grow, expand and improve productivity.

PRODUCTIVITY AND PROFITABILITY - 1• Profitability is the most important objective

for any company. The Profitability depends on integration and control of various factors. It is necessary to determine the Break Even Point (BEP) for each production unit. BEP is that point (or numbers) of production, at which the company neither makes profit nor loss. BEP is the level of production volume beyond which the product starts yielding profit to the company.

PRODUCTIVITY AND PROFITABILITY - 2

• To start the profit for the company early, it is very important to bring down the break-even point. Productivity is one of the major tools to help bring down the BEP. This is because, higher the productivity, lower will be the costs of the product. Thus increased productivity will bring down the costs, lower the BEP, and increase the profitability of the company.

PRODUCTIVITY AND STANDARD OF LIVING

• By increasing the productivity, industries will be able to produce more goods from fewer resources.

• This will help to reduce the costs of production as a whole, which will increase the profits of a company.

• Companies will be able to afford higher wages, bonus etc. to the employees, providing them more surplus income and purchasing power.

• Employees will then purchase more luxury goods such as car etc., which will increase demands.

• This will in turn help industries to increase production and will help take benefit for economics of scale.

• Therefore it triggers a positive cycle of economy which leads to a better standard of living.

BENEFITS OF INCREASED PRODUCTIVITY

TO THE ORGANIZATION

Higher productivity in an organization means higher production of goods and services. With reduction in costs, it gives a high turnover, more profits and dividends, more revenues to the Government, cheaper goods to the customers, greater stability and incentive to expand, vide spread markets and over all prosperity.

BENEFITS OF INCREASED PRODUCTIVITY TO WORKERS

• Higher productivity yields more wages and better standard of living, better working conditions, better and improved morale, and highly satisfied work force, resulting into goodwill.

• Productivity thus acts as a tool for Economic Development. It generates surplus in the economic system, which can be used for industrial growth.

• Also a national development programme can be carried out to help the nation overcome problems of unemployment, hunger, disease, illiteracy, population development etc.

BENEFITS OF INCREASED PRODUCTIVITY

TO CONSUMERS AND SOCIETY IN GENERAL

Higher productivity means increase in supply of quality goods and services at lower cost, even higher surplus money and purchasing power, greater satisfaction and improved standard of living.

BENEFITS OF INCREASED PRODUCTIVITY

TO THE NATION

Higher productivity means high employment opportunities for its citizens, increased GNP (Gross National Produce), higher per capita income, better standards of living, improved utilization of resources, and expansion in international markets.

TOTAL PRODCTIVITY MANAGEMENT• Total Productivity Management is a systematic and

quantitative approach to compete in quality, price and time.

• Total Productivity Management deals with a human resource situation with caring, customer-oriented, yet competitive attitude through integration of technical and human dimensions. This uses a set of proven models and provides a systematic framework and structure to consider total productivity to an organization’s profit.

• Total Productivity Management describes the tasks of all constituents, all resource categories including direct labour, administrative staff, managers, professional, personnel, materials, liquid assets, technologies, energy and other areas. In both input and output all the tangible factors have to be taken into account. Often it is found that they are difficult to calculate.

VARIOUS WAYS /MODELS OF CALCULATING PRODUCTIVITY

There are various measures of calculating the productivity such as:

• Productivity • Partial Productivity, • Multi Factor Productivity Model & • Total Factor Productivity Models

PRODUCTIVITY• Simple definition of productivity is ratio of output to

input. Output

Productivity = ----------- Input• Example:

In an appliance manufacturing company, Unit A produces 1000 articles at the gross cost of Rs.1, 00,000 and Unit B manufactures 900 articles at the same gross cost of Rs 1, 00,000. Both are of the same quality and design. Then we can state that Productivity of Unit A is 1000/100000 nos. per rupee and Productivity of Unit B is 900/100000 nos. per rupee thus Productivity of Unit A is higher than the Productivity of Unit B. The above comparison can also be made for Month A, and Month B of the same unit.

PARTIAL PRODUCTIVITYPartial productivity is a ratio of output to only a particular class of input. Output Partial Productivity = -------------------------------- A particular class of Input

• In any production system there is generally more than one input factor and only one output factor involved. The ratio of output to one of these input factors is productivity related and is called partial productivity. Often we find that a certain particular factor plays an important role and is an appropriate factor for comparison, this is called an ‘apple to apple’ comparison. This is good only for a comparison of different cases, and as such may not be meaningful if used only for a case. Such productivity ratios are used for selection of a particular area of improvement.

• Organizations can use this formula to determine the performance of labour, machines, energy, capital, a department, an organization or even a country.

Exampleof Partial Productivity

• B. Auto produces 5000 scooters in a shift employing 200 workers, where as HH Auto manufactures 9000 scooters employing 300 workers. If we compare the results of partial productivity in relation to a number of men power, HH Auto has a higher productivity of 30 compared to the productivity of B Auto which is 25.

• However in the case of HH Auto, capital investment in plant and machinery is higher than B. Auto. Hence this particular comparison does not mean that HH Auto is better than B. Auto, but it does say that there is scope of improvement of productivity per worker in B. Auto.

OTHER EXAMPLES OF PARTIAL PRODUCTIVITY - PRODUCTIVITY OF LAND:

Yield of Maize (In quintals) POL = -----------------------------------

Area of plot (Hectors)

• Let’s compare the farms of two farmers ‘A’ and ‘B’ .Farmer ‘A’ to cultivate maize uses advance techniques for agriculture production whereas Farmer ‘B’ uses traditional techniques. Farmer ‘A’ achieves higher production of maize per hector of land compared to. Farmer ‘B’ This is where Farmer ‘B’ can learn for improving the use of his land.

• Now if maize is replaced and some other high value crop of the same weight is being produced from the same area of plot, then the partial productivity comparison will give us an idea that the turnover from the same piece of land can be increased by changing the product for the same farm. However it should also be seen in terms of other inputs.

• Similarly we can find out productivity of floor space of a factory/or of an office/or of a petrol pump.

Partial Productivity of floor areaExample

• R. Petroleum sells its petrol at Rs. 30000 with the help of three pumps in an area of 1000 sq. ft., where as Y. Petroleum sells its petrol worth at Rs. 40000, with the same parameters. Partial Productivity of space for Y. Petroleum is better than R because of a better layout and an appropriate entry and exit system.

• We can compare productivity of Material, Men, Energy, Machines, Time, Salesman, Students, and Money etc. In case of money one can compare one’s investment in a particular share V/s another share or a Bank F.D.

TOTAL PRODUCTIVITY

• Total Productivity is the ratio of Total Output and Total Input

Total Output (Value of Produce)Total Productivity = ------------------------------------------

Total Input (Value of Input)

TOTAL FACTOR PRODUCTIVITY (‘JOHN W. KENDRICK’)

• In an effort to improve productivity of labour, company should install more machines. Only then will the productivity of labour go up bringing down the capital productivity. Partial productivity, which typically uses only one resource at a time, will fail to grasp this paradox.

• Labour and capital are always considered to be the most significant contributors to the process of production. Therefore in the Total Factor Productivity Model developed by ‘John W. Kendrick’ in 1951, he has taken labour and capital as only two input factors for calculating Total Factor Productivity.

• EXAMPLE: Production worth Rs. 80 lakhs was manufactured and sold in a month. It consumed labour hours worth Rs. 12 lakh and capital worth Rs. 48 lakh Output

• Total Factor Productivity is = -------------------------------------(As per ‘John W. Kendrick’) Inputs of (Labour + Capital)

EXAMPLE

• Total Factor Productivity = 80 / (12 + 48) As per John W. Kendrik = 80 / 60 = 4 / 3

= 1.33The Advantages of working out Total Factor Productivity in this manner are as follows:

• Data is easy to obtain,• Appealing from the viewpoint of the Corporate and

the National Economist.

A Disadvantage of working out Total Factor• Productivity It does not consider the impact of

Material and Energy inputs, even though material typically forms 60% of the product cost.

TOTAL FACTOR PRODUCTIVITY ‘SCOT D. SINK’

• ‘Scott D. Sink’ has further developed total Factor Productivity Model as Multi Factor Productivity Measurement Model. In this he considered Labour, Material and Energy as major inputs. He deliberately left out Capital, as it is very difficult to estimate how much capital is being consumed in a unit of time. The concept of depreciation used by accountants makes it further difficult to estimate actual capital being consumed.

OutputMulti Factor Productivity is = ------------------------------------------------------(As per ‘Scot D. Sink’) Inputs of (Labour + Material + Energy)

TOTAL PRODUCTIVITY MODEL(‘David J Sumanth’)

• In 1979 ‘David J Sumanth’ suggested a further extension of the earlier models. He considered 5 items as inputs; which were Human, Material, Capital, Energy and an item called Other Expenses.

• According to Sumanth “Total Productivity is a relationship between outputs and sacrificed different input items to create these outputs”. This model can be applied both, in any manufacturing or service organization.

TOTAL PRODUCTIVITY MEASURE(‘Craig and Harris’)

• Craig and Harris (1972, 1973) defined total productivity measure as a model which can be summarized as follows: He included Labour, Capital, Raw Materials and Purchased Parts as Inputs. Total Tangible Output (Ot)

• Total Productivity (Pt) = -------------------------------- = -------------(As per ‘Craig and Harris’) Total Tangible Input (L+C+R+Q)

Where: • ‘Pt’ is Total Productivity, • ‘Ot’ is Total Output.• ‘L’ is Labour Input Factor, • ‘C’ is Capital Input Factor,• ‘R’ is Raw Materials and• ‘Q’ is Purchased Parts of an Input Factor

TOTAL PRODUCTIVITY MEASURE(‘V. Sumanth’)

• V. Sumanth’s Total Productivity Model (1979):• Mr. Sumanth considered Total Productivity as the

ratio of Total Tangible Output and Total Tangible Input.

• Total Productivity Total Tangible Output (Ot)(As per ‘V. Sumanth’) Pt = ------------------------------- =

-------- Total Tangible Inputs. (It)

(O1) + (O2) + (O3) + (O4) +

(O5) Total Productivity: Pt = --------------------------------------------- (As per ‘V. Sumanth’) (H) + (M) + (FC) + (WC) + (E) + (X)

TOTAL PRODUCTIVITY MEASURE(‘V. Sumanth’)

• (O1) + (O2) + (O3) + (O4) + (O5)

• Total Productivity: Pt = -----------------------------------------------• (As per ‘V. Sumanth’) (H) + (M) + (FC) + (WC) + (E) + (X)• Where:• Total Tangible Output (Ot) includes:• Value of Finished Units produced (O1) • + Partial Units Produced (O2)• + Dividends from Securities (O3)• + Interest from bonds (O4)• + Other-Incomes. (O5)• Total Tangible Input (It) includes:• Value of human inputs (employees) (H)• + Materials purchased (M)• + Capital Inputs [(FC) Fixed Capital + (WC) Working Capital]• + Energy Inputs (E)• + Other Expenses [(X) includes Taxes, Transport, office etc.]

TOTAL PRODUCTIVITY MEASURE(‘V. Sumanth’)

The Advantages of working out Total Productivity Factor are as follows:

• All quantifiable inputs are considered.• Sensitivity analysis can be done• Provides both firm level and operational unit

level productivity.Disadvantages of working out Total Productivity Factor are as follows:

• Data is difficult to compute.• Does not consider intangible factors of input

and output.

AMERICAN PRODUCTIVITY CENTER (APC) MODEL

• American Productivity Center has been advocating a productivity measure that relates profitability with productivity and price recovery factor.

• Price Recovery Factor is a factor that takes care of a result of inflation.

• Over a period of time the changes in this factor indicate whether the firm has been able to absorb the changes in the costs of inputs, or has passed on, or has over compensated the same price of the company’s output.

• Thus Productivity as per APC Model is calculated as follows:

Sales Quantities of Output x Price• Profitability = -------- = ----------------------------------- Costs Quantities of Inputs x Price

= Productivity X Price Recovery Factor.

PERFORMANCE INDEX

• Performance is associated to personal, where as production and productivity is related with the quantity produced and the quantity of input. A performance index is the ratio of a same parameter i.e. the ratio of actual production of work done to the standard expected production of work done.

• A perfect example of performance index is of the marks obtained by a student in an examination

Actual Quantum of OutputPerformance Index = ----------------------------------- X 100

(Percent) Standard Quantum of Output