SBCO 6240 Productivity HB Student

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1 D. Anthony Chevers SBCO 6240 - Production and Operations Management Productivity

Transcript of SBCO 6240 Productivity HB Student

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D. Anthony Chevers

SBCO 6240 - Production and Operations Management

Productivity

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Lecture #3b – Productivity

Definitions Productivity; Production Efficiency; Effectiveness

Equations & Exercises - Productivity

Factors Affecting Productivity The Productivity Cycle Time Wasters Exercises and Case Analysis

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The rapid pace of globalisation and the forces

driving it have created new market

conditions. Productivity is going to be a

determinant of success. However, the

changing nature of business and its

organisation as well as the changing nature of

the markets require new concepts of

productivity, its improvement and

management.

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The Productivity Challenge

Productivity is the enhancement of the production process. It is a measure of how efficiently we can convert labor and materials into finished goods and services.

Productivity = Output/Input [Common measure – Cost per unit]

Productivity can be improved by reducing inputs while keeping output constant or increasing output while keeping inputs constant

Inputs are the 5 Ms of Operations Productivity allows both firms & countries to maintain their

competitiveness. It is an excellent way to evaluate a firm’s or a country’s ability to provide an improving standard of living for its people. It provides a ‘WIN/WIN’ situation for all.

Only through increases in productivity can labor, capital and management receive additional payments. If payment to labor, capital or management are increased without increased productivity, then prices rise. On the other hand, prices tend to drop as productivity increases, because the same inputs are producing more outputs

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Productivity… Efficiency: The ratio actual output attained to

standard output expected (use of resources)

Effectiveness: The degree of accomplishment of objectives.

Productivity is a function of efficiency and effectiveness…how much and how well a firm produces from the available resources.

Productivity Index =

Output obtained Performance Achieved( , )

Input Expended Resources Consumedf effectivenss effeciency

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Exercise #1 Calculate the productivity for the following

operations: (a) Three employees process 600 insurance

policies in a week. They work 8 hours per day, 5 days per week.

(b) A team of workers make 400 units of a product, which is valued by its standard cost of $10 each (before markups for other expenses and profit). The accounting department reports that for this job the actual costs are $400 for labor, $1,000 for materials, and $300 for overhead

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Solution – Exercise #1 Labor productivity = Policies

processed/Employee hours 600 policies/(3 employees)(40 hrs/emp.) 5 policies per hour

Multifactor productivity = Quantity at std. cost/ (Labor + Material + O/H cost)

(400 units)($10/unit)/($400 +$1,000 +$300) $4,000/$1,700 = 2.35

These measures must be compared with both performance levels in prior periods and with future goals. If they are not living up to expectations, the process should be investigated for improvement opportunities

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Why Efficiency & Effectiveness

Intangible inputs/outputs: In the information-based or knowledge economy, both the input and output are intangible, and hence are difficult to measure. In this context, the better way to look at the productivity of a company could be to consider it in terms of effectiveness and efficiency

• Focus on customer need: The output/input approach takes into account the value addition to the end products. However, productivity at the organisation level is a measure of how well the company satisfies the customer’s needs. For example, a company may be productive in terms of converting inputs to outputs, but may not be effective in meeting the requirements of its customers

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Productivity Partial Productivity: The ratio of output to one

class of input

Labour, capital, material… Total-Factor Productivity: The ratio of net output

to the sum of the associated labour and capital inputs

Total Productivity: The ratio of the total output to the sum of all inputs

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Total Productivity

Partial Productivity

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Productivity Versus: Inflation:…economists agree that a lack of productivity

growth contributes to an increase in inflation The standard of living and employment: Countries that

have a high growth rate and level of labour productivity tend to exhibit a high standard of living

Political Power: It is agreed that when a country is economically strong (economic strength usually comes from the productivity strength), it has a better chance of achieving increased political power

Economic Power: A country’s economic power is dependent on the level and growth rate of its labour productivity

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Factors Affecting productivity

Investment:…data show that there is some strong correlation between investment (as a percentage of GNP) and productivity improvements rate

Capital/Labour Ratio: There appears to be a close relationship between labour productivity and the capital/labour ratio

Research and Development: There is a widely held view that R&D has an impact on productivity

Capacity Utilization: Productivity and CU are closely related

Government Regulations: Excessive regulations cause “delays and uncertainties…not good for investment…”

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Factors Affecting productivity

Age of Plant and Equipment (Technology):… Energy Costs: Economic Level of Job Security Union’s Influence: Management Culture Others?

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Productivity Planning

Productivity Improvement

Productivity Measurement

Productivity Evaluation

The Productivity Cycle

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Productivity ManagementProductivity management is a formal management

process involving all levels of management and

employees with the ultimate objective of reducing

the cost of the manufacturing, distributing, and

selling of product/service through an integration of

the four phases of the productivity cycle, namely,

productivity measurement, evaluation, planning and

improvement.

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The Ten Top Time Wasters People interruptions Telephone interruptions Doing the work of direct reports Meetings The stacked desk Fire fighting Spending too much time on unimportant tasks Procrastination Waiting on others Lack of objectives, priorities & deadlines

Source: Managing Productivity-Joel E. Ross

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Discussion Questions What can be done by Jamaica to compete better in

terms of technologies? How do ethics and the environment affect operations? Multinational corporations are formed to meet global

competition. Although they operate in several countries, workers do not have international unions. Some union leaders complain that multinationals are in a position to play off their own plants against each other to gain concessions from labor. What responsibilities do multinational corporations have to host countries? To employees? To customers? To shareholders? Would you support provisions of international trade treaties to address this problem? Form a small group, and compare your views with those of the others in the group. Discuss the issues and try to obtain a consensus.

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Exercise #2 & 3 Student tuition at Cornwall University is $100 per

semester credit hour. The state supplements school revenue by matching student tuition dollar for dollar. Average class size for a typical three-credit course is 50 students. Labor costs are $4,000 per class, materials costs are $20 per student per class and overhead costs are $25,000 per class.

What is the multifactor productivity ration for this course process?

If instructors work an average of 14 hours per week for 16 weeks for each three-credit class of 50 students, what is the labor productivity ratio?

Natalie Attired makes fashionable garments. During a particular week employees worked 360 hours to produce a batch of 132 garments, of which 52 were “seconds” (meaning that they were flawed). Seconds are sold for $90 each at Attired’s Factory Outlet Store. The remaining 80 garments are sold to retail distribution, at $200 each. What is the labor productivity ratio of this manufacturing process?

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Solution – Exercise #2 (a) multifactor productivity is the ratio of the

value of output to the value of input resources Value of output = (50 students/class)(3 credit

hrs/student)($100 tuition + $100 state support/credit hour)

$30,000/class Value of input = Labor + Materials + Overhead [$4,000 + ($20/student x 50 student) + $25,000)]/class $30,000/class Multifactor productivity = Output/Input ($30,000/class)/($30,000/class = 1.00

(b) Labor productivity is the ratio of the value of output to labor hours. The value of output is the same as in part (a), or $30,000/class, so

Labor hours of input = (14 hours/week)(16 weeks/class) 224 hours/class Labor productivity = Output/Input ($30,000/class)/(224 hours/class) = $133.93/hour

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Solution – Exercise #3 Value of Output = (52 defective x

$90/defective) + (80 garments x $200/garment) $20,680

Labor hours of Input = 360 hours Labor productivity = Output/Input

$20,680/360 hours $57.44 in sales per hour

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NEXT LECTURE:Forecasting

D. Anthony Chevers

[email protected], Room #28