PRODUCTIVITY ENGINEERING AND MANAGEMENT

Ch.1 & 2

Contents

Definition of Productivity Misuse of the Term Basic Types of Productivity Importance of Productivity factors affecting productivity Productivity Benefit Model

Definition of Productivity

In the 1950, the Organization for Economic Cooperation (OEEC) offered this definition of productivity:

Productivity is the quotient obtained by dividing output by one of the factors of production.

Common Misuse of the Term

Production and Productivity:

Many

people think that the greater the production, the greater the productivity. This is not necessarily true.

Production: is the quantity of output produced, while productivity is the ratio between output produced to the input(s) used.

Common Misuse of the Term

Example: A company production of a certain product is 10,000 units. Employing 50 people- 8 hours/ day- 25 day/month, in this case, Production = 10,000 units Productivity (of labor) = 10,000/(50*8*25) = 1 calculator/ man-hour

Common Misuse of the Term

Suppose this company increased its production to 12,000 units by hiring 10 full-time additional workers. Then, the Production = 12,000 units Productivity (of labor) = 12,000/60*8*25 = 1 unit/ man-hour Realize that the productivity doesnt change, although the production has increased.

Common Misuse of the Term

Productivity, Efficiency, and Effectiveness: Efficiency:

Is

the ratio of actual output to standard output expected =Actual Output/ Standard Output Example: Output of an operator=120 pieces/ hour, Standard rate=180 pieces/ hour, Operator Efficiency=120/ 180=0.6667 = 66.67%

Common Misuse of the Term

Effectiveness:
The

degree of accomplishment of objectives. Effectiveness is related to performance, while Efficiency related to resource utilization.

Efficiency: Doing things right. Effectiveness: Doing the right things. Productivity= Effectiveness + Efficiency

Basic Types of Productivity

Partial Productivity:
Is

the ratio of output to one class of input. Example:

Labor

Productivity: the ratio of output to labor input. Capital, Material Productivity.

Total Partial Productivity:

Is

the ratio of net output to the sum of associated labor and capital inputs. Net Output: means the total output minus intermediate goods and services purchased.

Basic Types of Productivity

Total Productivity:
Is

the ratio of total output to the sum of all input factors.

Computing Productivity:
Outputs

and inputs are expressed in physical terms, referred to it with the monetary value. The monetary value is computed with respect to a reference period (base period). Dividing the values of outputs and inputs by deflators or inflators.

Importance of and factors affecting productivity

3.5 3

2.5

1.5

0.5

0 1889-1919 1920-1947 1948-1968 1969-1973 1974-1980

Fig. Average annual labor productivity growth in the United States private business sector, 1889 to 1980.

Productivity VS. Inflation ()

Inflation: is the percent increase prices over a period of time The lack of productivity growth contributes to the inflation increase. This is because many companies usually increase the selling price to obtain their target profits.
By

passing the increase in input costs to the customer rather than trying hard to increase productivity.

Productivity VS. Inflation ()

7 Average annual percent change in Price 6 5 4 3

2
1 0

-2

2 labor productivity

Fig. Relation between price increases and labor productivity in selected industries for the period 1960 to 1974 USA.

Productivity VS. the standard of living

Countries that have high growth rate of labor productivity tend to have a high standard of living. united states is one of the highest labor productivity countries in the world. This can be shown in relatively low cost of City Tokyo Zuric Iran New- Chicag Mexic living.

York o

o city

Cost/ basket 292

225

203

172

163

94

Table-Cost of living in some countries Cost per basket of groceries (dollars)

Productivity VS. the standard of living

Costs for a family of four Item House 1967 Ford LTD Groceries for a year Total 1967 $ 36,000 3,130 1,108 $40,238 1977 $ 165.000 6,058 4,753 $175,811

Table- the hard increase in costs for a typical family of four over a 12-year period

Productivity VS. Employment

There is a misconception that improved labor productivity must result in laying off of workers. Well managed companies have always ensured the security of their employees. In the long run, many companies actually increase their employment levels, due to increase demand levels.

Factors affecting productivity

1) Investment

Increased capital investment increases productivity

Factors affecting productivity

2) Capital/ Labor Ratio

There appear to be a close relationship between labor productivity and the capital/ Labor ratio.
Capital/ Labor Ratio
3.5 3

Productivity Growth
3.5 3 2.5 2 1.5 1 0.5

2.5
2 1.5 1 0.5 18891919 1920-1947 1948-1968 1969-1973 1974-1980 0 1948-1958 1959-1969 1970-1979

Factors affecting productivity

3) Research and Development (R&D)
United

States spending on R&D, as a percentage of the GNP, fell from 2.83 % in 1968 to 2.34 % in 1973. The R&D expenditures are not necessarily affecting productivity improvement. Because most R&D is focused on product development and for solving environmental problems, rather than on productivity improvement.

Factors affecting productivity

4) Capacity Utilization
Is

the percent of time plants are in operation Capacity utilization are closely related to labor productivity.

5) Government Regulations
Excessive

government regulations cause delays and uncertainties ,and usually increase costs.

Factors affecting productivity

6) Age of Plant and Equipment
25 21.64 20 18 19.38 17.79 14.45 10.18 10 5 0 1920 8.54 8.26 6.61 7.02 13.53 14.02
Equipment Structures

15
Age

6.35 6.35

1930

1940

1950 Year

1960

1970

1980

1990

Fig. Average age of United States equipment and structures, 1925 to 1980

Factors affecting productivity

7) Energy Costs
The

energy costs rise may affect the overall product costs, although there is a partial productivity improvement in labor. Example: hard increases of oil price since 1973

8) Management
The

role of management in the productivity decline may have a major factor

Factors affecting productivity

A study done conducted about 50 operation and management reviews involved a workforce analysis, covered the period 1974- 1980, shows that:
8 hours/ day 4.4 hours 1.2 hours Used productively Lost due to personnel and unavoidable delays Wasted due to inability of management to effectively plan and control the workers tasks

2.4 hours

Productivity Benefit Model

Price/unit = cost/unit + profit margin/unit

The improvement of the total productivity results in the reduction of the total cost per unit. The management has two strategies to follow:
1.

2.

Reducing the selling price and gain the same profit margin Selling with the same price and increase the profit

Productivity Benefit Model

With the 1st Strategy:

The

consumers will benefit through money savings The organization will most likely benefit through a gain in market share. The employees will benefit through increases in wages

With 2nd Strategy:

The

shareholders or owners of the organization will benefit through larger shares they gained.

Productivity Benefit Model

Employee earnings

Total Productivity

Profit

Costs

Prices

Productivity Benefit Model

Example: Page: 43

References

http://www.authorsden.com/visit/viewarticle.as p?id=31506 http://ar.wikipedia.org/wiki/