Industrial Engineering

Unit no. 2 Productivity

 Unit no. 2 Productivity

- Productivity is an attitude of mind. It is the mentality of progress of the constant

improvement of that which is exists.

- It is the certainty of being able to do better today than yesterday and continuously.

- It is the constant adaption of economic and social life to changing conditions.

 Production
• Production is a creation activity.
• Production is any process which transform a set of input elements like men,
materials, capital, information and energy into a specified set of output elements
like finished products and services in proper quantity and quality, thus achieving
the objectives of an enterprise ( a business or a company)
 Production
• Production is defined as step by step conversion of one form of material into
another form through chemical or mechanical process to create or enhance the
utility of the product to the user.
• Examples: Iron ore to Steel

Production Management
• Production management is a process of planning, organizing directing and
controlling the activities of the production function.
• Elwood Buff defines production management as follows: Production management
deals with decision making related to production processes so that the resulting
goods or services are produced according to specifications, in the amounts and by
the schedule demanded and out minimum cost.
 Objectives of the Production Management

• Right Quality

• Right Quantity

• Manufacturing Scheduled

• Manufacturing cost
 Productivity- Definition

- Productivity is the ratio of what is produced that is what are the products that we are
producing, to what is required to produce that is resources like raw materials, the
equipments, the tools, the money etc.

- Productivity refers to the measure of how efficiently resources (such as time, effort,
and capital) are utilized to produce goods, services, or desired outcomes.

- Productivity is the determination of the efficiency of an enterprise to convert its

variable resources into finished goods and services.
 Productivity- Concept
- It is the ratio between “output of work” to the “input of resources”.
- It is the concept that guide the management of production system.
- It is an indicator of how well the factors of production (land, capital, energy labour
etc.) are utilised.
 Productivity- Output and Input examples

Examples of Output Examples of input

• Accomplishment of a task • Labour force or men hours, days
• Distance travelled • Area of land
• Number of pieces produced • Volume of material of fluid
• Time taken to carry out a job • Units of power
• No of customers served • Time etc.
 Productivity- Misconception

- Misunderstanding about productivity to the workers, higher productivity

means higher work load, higher efforts, more profits to owner and un
employment and threat to job security etc.
 Productivity- Misconception
- Production = Productivity e.g. Tea preparation

- Higher Productivity means more higher efforts, higher work load.

- Productivity means only labour productivity.

- Productivity is relevant to only in manufacturing not elsewhere.

- Productivity is only for commercial enterprises not for the public.

- Productivity can be increased by cutting cost across the company.

- Productivity is directly related to profit.

 Productivity Vs. Production

Criteria Production Productivity

Meaning Production is a function of an Productivity is a measure of how
organisation which is associated with efficiently resources are combined and
the conversion of range of input into utilised in the firm, for achieving the
desired output desired outcome.
What is it? Process Measure
Represents Number of units actually produced Ratio of output to input
Expression Absolute term Relative term
Determines Value of outputs Efficiency of factors of production
 Productivity Vs. Performance

Criteria Productivity Performance

Meaning Output in relation to input Consider output alone

What is it? Output / input Actual work done / expected or standard

work
 Productivity Vs. Performance
• Example:

It takes 3 m cloth to make a coat. In a day a person is expected to make 50

coats. He makes 40 coats

Q. What is the performance?

Ans : 40 Coats

Q. What is his performance index?

Ans: (40/50)* 100 = 80%
 Productivity Vs. Efficiency

Criteria Production Efficiency

Meaning It is the ability to do something or produce It is the rate at which goods are produce or
something without wasting materials, time or the work is completed
energy
What is it? It is the measure of waste in a system It is the measure of output produced by one
unit of
Represents It depends on production It depends on quality
 Productivity- Formula

𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑎𝑛𝑑 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑

- 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠 𝑢𝑠𝑒𝑑

𝑈𝑛𝑖𝑡𝑠 𝑜𝑓 𝑜𝑢𝑡𝑝𝑢𝑡
- 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = .
𝑈𝑛𝑖𝑡𝑠 𝑜𝑓 𝑖𝑛𝑝𝑢𝑡
 Productivity ≠ Production

Examples,

- “A” spends Rs. 90 and makes 10 products, Productivity = 10/90 = 0.1111

- “B” spends Rs. 280 and makes 30 products, Productivity = 30/280 = 0.107
- “C” spends Rs. 350 and makes 40 products, Productivity = 40/350 = 0.114

- Hence, increase in production does not necessarily means increase in productivity.

 Productivity ≠ Production

Task, Check the relationship between production and productivity

company produces 160 kg of plastic moulded parts of acceptable quality by consuming

200 kg of raw materials for a particular period. For the next period, the output is doubled
(320 kg) by consuming 420 kg of raw material and for the third period, the output is
increased to 400 kg by consuming 400 kg of raw material.
Productivity- Purpose of Improving
Productivity- Purpose of Improving
Productivity- Purpose of Improving
Productivity- Purpose of Improving
 Productivity- Increased by

Productivity can be increased by:

- Increasing the outputs by using the same inputs.

- Reducing the inputs by maintaining the constant outputs.

- Increasing the output to a maximum extent with a smaller increase in input.

 Productivity Measures
(A) Partial Productivity Measures (PPM)
Depending upon the individual input partial productivity measures are expressed as:
𝑇𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡
1. 𝑃𝑎𝑟𝑡𝑖𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = 𝐼𝑛𝑑𝑖𝑣𝑖𝑑𝑢𝑎𝑙 𝑖𝑛𝑝𝑢𝑡
𝑇𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡
2. 𝐿𝑎𝑏𝑜𝑢𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = 𝐿𝑎𝑏𝑜𝑢𝑟 𝑖𝑛𝑝𝑢𝑡
Labour input is measured in terms of man-hours
𝑇𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡
3. 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑖𝑛𝑝𝑢𝑡
𝑇𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡
4. Material 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑖𝑛𝑝𝑢𝑡
𝑇𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡
5. 𝑒𝑛𝑒𝑟𝑔𝑦 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝑒𝑛𝑒𝑟𝑔𝑦 𝑖𝑛𝑝𝑢𝑡
One of the major disadvantage of partial productivity measures is that there is an over
emphasis on one input factor to the extent that other inputs are underestimated or even
ignored. This cannot represent the overall productivity of the firm.
 Productivity Measures
(B) Total Productivity Measures (TPM)
- It is based on all the inputs.

- This model can be applied to any manufacturing organisation or service company.

𝑻𝒐𝒕𝒂𝒍 𝒕𝒂𝒏𝒈𝒆𝒊𝒃𝒍𝒆 𝒐𝒖𝒕𝒑𝒖𝒕

- 𝑻𝒐𝒕𝒂𝒍 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 =
𝑻𝒐𝒕𝒂𝒍 𝑻𝒂𝒏𝒈𝒊𝒃𝒍𝒆 𝒊𝒏𝒑𝒖𝒕

- Total tangible output = Value of finished goods produced + value of partial units
produced + dividends from securities + interest + other income

- Total tangible input = Value of (human + material + capital + energy + other inputs)
used.
 Productivity Measures
(C) Total Factor Productivity Measures (TFPM)

- It is the ratio of net output to the labour and capital (factor) input.

𝑵𝒆𝒕 𝒐𝒖𝒕𝒑𝒖𝒕
- 𝑻𝒐𝒕𝒂𝒍 𝑭𝒂𝒄𝒐𝒓 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 =
𝑳𝒂𝒃𝒐𝒖𝒓+𝒄𝒂𝒑𝒊𝒕𝒂𝒍 𝒊𝒏𝒑𝒖𝒕
 Productivity Measures – Numerical
The following information regarding the output produced and inputs consumed for a
particular time period for a particular company given below:
Output = Rs. 10,000.
Human input = Rs. 3,000.
Material input = Rs. 2000.
Capital input = Rs. 3000.
Energy input = Rs. 1000.
Other misc. input Rs. 500.
The values are in terms of base year rupee value. Compute various productivity indices
2. Long Beach Bank employs three loan officers, each working eight
hours per day. Each officer processes an average of five loans per day.
The bank’s payroll cost for the officers is $820 per day, and there is a
daily overhead expense of $500.
a. Compute the labor productivity.
b. Compute the multifactor productivity, using loans per dollar cost as
the measure.
The bank is considering the purchase of new computer software for the
loan operation. The software will enable each loan officer to process
eight loans per day, although the overhead expense will increase to
$550.
c. Compute the new labor productivity.
d. Compute the new multifactor productivity.
e. Should the bank proceed with the purchase of the new software?
Explain.
 Productivity Measurement Models

(A) Craig and Harris Model:

• This model points out the inadequacy of partial productivity measure.

• It is also called "Service flow model" because physical inputs are converted into
rupees that are payments for services provided by inputs.

• Productivity is viewed as efficiency of conversion process.

 Productivity Measurement Models

(A) Craig and Harris Model:

Total productivity is expressed as,
P= O/(L+C+R+Q)
where
P = Total productivity
L = Labour input factor
C = Capital input factor
R = Raw materials and purchased parts
Q = Other mise, goods and services.
O = is output.
 Productivity Measurement Models

(A) Craig and Harris Model:

• Craig and Harris Model is particularly useful for medium size organization.

• There are some deficiencies in this model, like it does not consider any
technological change or change in the human resource skill
 Productivity Measurement Models

(B)Taylor-Davis Model:
• In this model, raw material was not considered as input on the basis that raw material
is the result of some other labour and effort.

• Contrary to Craig and Hariss total productivity model, they defined a Total Factor
Productivity (TFP) Model.
 Productivity Measurement Models

(B)Taylor-Davis Model:
• Total Factor Productivity (TFP), = (S+C+MP—E) /{(W + B)+ [KW + KF)Fb x df]}
where
S = Net sales adjusted (i.e. deflated to base year)
C = Inventory change (Raw materials, finished goods and WIP)
MP = Manufacturing plant (Unsaleable products like jigs and fixture, SPM)
E = Exclusions (Materials and services purchased from outside + depreciation of buildings + plant +
equipment + rentals)
W = Wages and salary
B = Benefits
KW = Working capital
KF = Fixed capital
Fb = investors contribution (expressed as %)
df = price deflator.
 Productivity Measurement Models

(C) American Productivity Centre (APC) Model:

• distinguishes among profitability, price recovery and productivity

• It can be utilised to measure productivity changes in labour, materials, energy and

capital. It also measures the corresponding effect each one has on profitability.

• APC model is based on the premise that profitability is a function of productivity and
price recovery.

• Productivity relates to quantities of output and quantities of inputs, while price

recovery relates to price of output and costs of inputs.
 Productivity Measurement Models

(C) American Productivity Centre (APC) Model:

• Relationship between productivity, profitability and price recovery are represented as,
• Profitability = Revenue / Cost
= (Output Quantities x Sales Price) / (Input Quantities x Unit Cost)
= (Output Quantities x Sales Price) / (Input Quantities x Unit Cost)

Profitability = Productivity x Price recovery

 Productivity Measurement Models

(C) American Productivity Centre (APC) Model:

• This is the most suitable model for the managers who are interested to know the profit
of the organisation rather than productivity

• This model is most suitable for the investors of the organization.

 Factors affecting on Productivity

- Controllable OR Internal Factors

- Uncontrollable OR External factors

 Factors affecting on Productivity - Controllable

- Product factor

- Plant and equipments

- Technology

- Material and energy

- Human factors

- Work methods
 Productivity Measures – Advantages and Disadvantages

Type of Measure Advantage Disadvantage

Partial Productivity Measure 1. Easy to understand and 1. Misleading if used alone.
calculate. 2. No consideration of overall
2. A tool to pinpoint impact.
improvement.
Total Productivity Measure 1. Easy and more accurate 1. Difficulty in obtaining the data.
representation of the total picture 2. Requirement of special data
of the company. collection system.
2. Easily related to total costs. 3. Gives an overall view.
3. Considers all quantifiable
outputs and inputs.
Total Factor Productivity Measure 1. Data from company records is 1. No consideration for material
relatively easy to obtain and energy input..
2. Value added approach 2. Difficult to relate value added
approach to production efficiency.
 Factors affecting on Productivity – Product factor

- The extend to which product meets output requirement

- Product is judge by its usefulness

- Cost benefit factors can be enhanced by increasing the benefits at the same cost or by
reducing cost for the same benefit
 Factors affecting on Productivity – Plant and equipments

- Play a prominent role in enhancing the productivity

- Increased availability of plant through proper maintenance and reduction of idle time
increases the productivity

- Productivity can be increased by paying proper attention to utilization, age,

moderation, cost, investment etc,
 Factors affecting on Productivity – Technology

- Size and capacity of the plant

- Timely supply and quality of input

- Production planning and control

- Repairs and maintenance

- Efficient material handling

 Factors affecting on Productivity – Material and energy

- Selection of quality material and right material

- Control of wastages and scrap

- Effective stock control

- Development of sources of supply

- Optimum energy utilization and energy saving

 Factors affecting on Productivity – Human factors

- Education

- Training

- Experience

- Motivation
 Factors affecting on Productivity – Work Method

- Work study

- Industrial engineering techniques

- Training

- Improving the ways in which work is done

 Factors affecting on Productivity – Uncontrollable

- Natural resources – Manpower, Land, Raw Material

- Government and infrastructure : Government Polices and programme, Practices of

government agencies, transport and communication power, interest rate, taxes

- Structural adjustment : Economic changes, Social changes

 Causes of Low Productivity
- Wastage of resources

- Increase in wages and incentives without considering increase in productivity

- Delays and backlog caused by strikes, maintenance, breakdowns, slowdowns, etc.

- Outdated systems

- Low motivation levels in the organisation

- Exhaustive work in which employees do not find satisfaction

- Uncertain market condition.

 Productivity Improvement Techniques

• Technology based

• Employee based

• Material based

• Process based

• Product based

• Management based
 Productivity Improvement Techniques

• Technology based
1) CAD, CAM and CIM
2) Robotics
3) Laser Technology
4) Modern maintenance techniques
5) Energy technology
6) Flexible technology
 Productivity Improvement Techniques

• Employee based
1) Financial and non financial incentives
2) Employee promotion
3) Job design, job enrichment, job enlargement, and job rotation
4) worker participation in decision making
 Productivity Improvement Techniques

• Material based
1) Material planning and control
2) Purchasing, logistics
3) Material storage
4) Source selection and procurement of quality material
5) Waste elimination
 Productivity Improvement Techniques

• Process based
1) Methods engineering and work simplification
2) Job design, job evaluation, job safety
3) Human factors in engineering
 Productivity Improvement Techniques

• Product based
1) Value analysis and value engineering
2)Product diversification
3) Standardization and simplification
4) Reliability engineering
 Productivity Improvement Techniques

• Management based
1) Management style
2) Communication in the organization
3) Work culture
4) Motivation
5) Promoting group activities