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Int J Adv Manuf Technol (2005) 25: 1020–1028

DOI 10.1007/s00170-003-1936-z

ORIGINAL ARTICLE

A. Rathore · R.P. Mohanty · A.C. Lyons · N. Barlow

Performance management through strategic total productivity optimisation

Received: 19 April 2003 / Accepted: 3 September 2003 / Published online: 20 February 2004
 Springer-Verlag London Limited 2004

Abstract This paper presents that performance management of quality, responsiveness and flexibility [32]; encourage local opti-
contemporary companies has to be oriented towards optimisation misation [10, 12]; encourage managers to minimise the variances
of total productivity as it has a very strong impact on compet- from standard rather than seek to improve continually [30, 37];
itiveness. Four contingent performance management strategies and fail to provide information on what customers want and how
for total productivity optimisation have been modelled using the competitors are performing [5, 18, 38]. However, financial per-
non-linear mathematical programming approach. A case study formance measures are necessary for the purpose of accounting
is presented to demonstrate the applications. Some significant and audit; but are definitely not sufficient if viewed from the
learning points have been highlighted to provide direction for the ever-emancipating platform of competition. Primarily, they are
managerial practice community. the ends from the stockholders’ sustainability point of view but
are not entirely capable of providing either diagnostic mech-
Keywords Optimisation · Performance management systems · anisms to critically examine the means that achieve the ends
Strategic total productivity management or prescriptive solutions in the context of dynamic competition.
Furthermore, these are both too simplistic and historically fo-
cused [8] to formulate strategic pathways. If a company’s ex-
1 Total productivity as an important measure of
isting performance management system is largely financial, it
performance may not be possible to make optimal decisions in relation to
Only during the past few years, an extraordinarily predomi- resource allocation and control the organisational innumerable
nant socio-economic-political phenomenon; known as globali- complex work processes. They may undercut a company’s op-
sation has changed the structural configuration of the business erational strategy, if the company is positioned in a competi-
world and operational paradigms of the manufacturing indus- tive space. Kaplan and Norton [18] proposed an integrated ap-
tries. All organisations across the globe are now being com- proach known as ‘balanced scorecard’ to objectively view per-
pelled to develop their performance management systems in line formance in terms of customer and stakeholder satisfaction, in-
with the increasingly complex external environment and im- ternal processes and the organisation’s ability to learn and im-
peratives of competition, regardless of their size and location. prove. Stainer [34] suggested six fundamental inter-linking areas
Historically, financial performance indicators, such as Return on in performance management: profitability to money, productiv-
Investment, Return on Assets, Operating Profit Margin, Profit ity to output/input relationship, quality to customer satisfac-
after Tax, Earning Per Share etc. have been used. Traditional tion, innovation to adapting to change, co-operation to employee
financial measures are criticised because they encourage short- satisfaction and business ethics to impact on society and the
termism [3, 16]; lack strategic focus and fail to provide data on environment.
Ashton [2] and Sanger [29] have mentioned that productiv-
A. Rathore ity is the most important performance indicator in the pursuit of
Department Of Mechanical Eng., National Institute Of Technology, organisational excellence. The world competitiveness report [36]
Jaipur, India suggests that:
R.P. Mohanty
The Associated Cement Companies Ltd., Mumbai, India Competitiveness = (competitive assets)
A.C. Lyons × (competitive processes) (1)
Department Of Engineering, University Of Liverpool, UK
Competitive assets = f [technology, human resources, regulatory
N. Barlow
Liverpool Business School, John Moores University, UK assets, functional assets, positional assets, cultural assets] (2)
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Competitive process = f [quality, quantity, timeliness and measurement and evaluation; the other is related to productivity
resource utilization] (3) planning and improvement. Most organisations focus their efforts
on applying productivity measurement and evaluation models.
In order to attain the twin objectives of growth and survival, it has Singh et al. [31] also mentioned that the improvements in method-
become an imperative that performance management strategies ology of productivity measurement have been diverse and piece-
are in alignment with productivity of assets and processes. Com- meal at best. It has been observed that very seldom companies
panies have been measuring costs, quality, outputs, cycle time, prepare for optimising productivity by way of strategic planning
resource utilisation efficiency etc. of assets, processes, products exercises. Hoque and Falk [17] have expressed that greater envi-
and services. ronmental uncertainty in future organisations will call for strate-
Total productivity measures are increasingly being recog- gic considerations in total productivity management.
nised and utilised for organisational restructuring of assets and
continuous improvement of business processes [13]. Productiv-
ity is concerned with establishing congruency between organi- 2 The objective and scope of the paper
sational goals and societal aspirations through input-output rela-
tionships. Productivity is the culminating result of interactions of In this paper, we intend to develop a set of mathematical models
the organisational management systems with the external envi- for optimisation of total productivity and use these models as
ronmental factors [23]. strategy support rather than mere operational decision support.
Productivity, as the discipline propounded by academics, and We submit that strategy support models are intended to influence
used in industry, commerce, and government throughout the managerial actions across the organisation for total productivity
world, is the broadest of all the modern management functions. planning, execution, monitoring and improvement.
Although, the very functional nature of the discipline has un- The mathematical programming procedure generally esti-
dergone changes historically, fundamentally the concepts have mates a multi-surface production frontier based on different
surrounded “speeding up actions to improve performance in mul- combinations of input/output ratios. Sumanth [35] provided an
tiple dimensions”. The discipline has been made rich by synthe- approach for optimising productivity within a feasible output
sising knowledge from other disciplines and, at the same time, range, but it deals with aggregate terms and does not consider the
many sub-disciplines such as TQM, JIT, BPR, CIMS etc. have specific levels of input variables. Though Hawaleshka and Mo-
emerged. Today, all these in conjunction represent a very wide hammed [14] proposed to have constraints for the values of input
umbrella embedding the generic discipline. variables, their model does not consider any relationship between
Managers directing the efforts of an organisation have a re- output and inputs. The model considers both to be independent of
sponsibility to know how, when, and where to institute a wide each other. In another model, Hawaleshka and Mohammed [15]
range of changes to optimise productivity of assets and pro- did consider a relationship between input (although only labour
cesses. These changes cannot be sensibly implemented with- and capital) and output using the Cobb-Douglas production func-
out knowledge of the appropriate information upon which they tion, but they ignored all internal and external constraints. Land
are based. Performance productivity measures quantitatively tell et al. [19] and Cooper et al. [6] introduced stochastic consid-
something about products, services, and the processes that pro- erations in inputs and outputs. However, all these mathematical
duce them. They enable organisations to know: models do suffer from lack of strategy support. Further, if man-
agers are interested in making some intervention to deduce con-
• How well the organisation is doing. sequences of a strategy, these models are not prescriptive.
• Is the organisation meeting its envisioned goals? Rastogi and Mohanty [28] constructed a set of strategic total
• Are the resources optimally being utilised? productivity optimisation models. Their propositions relate to
• Is there the scope for improvement? the investigation of four possible strategies positioned in four
• If and where improvements are necessary. clusters in relation to degree of competition in the business envi-
Enhanced competitiveness depends on factors such as: identify- ronment and growth in market demand as shown in Fig. 1 below:
ing the important measures of performance for a given strategy,
understanding the inter-relationships of these measures, focusing
on measures which truly predict the long-term financial success
of the business.
We view here like Miller [20]; Belcher and John [4]; Al-
Darrab [1]; Mohanty and Rastogi [22]; that profitability of a firm
is directly proportional to productivity of operational processes.
There have been a number of recent studies [9, 11, 26, 39–41] un-
dertaken to address the concept of total productivity [7] at an or-
ganisational level. Mohanty [24] discussed the issues of consen-
sus and conflicts in understanding productivity from a strategic
perspective. Literature on productivity models can be classified
into two distinct classes [28]. One class deals with productivity Fig. 1. Clustering productivity optimisation strategy
1022

Overall Growth Oriented Strategy • In an environment where improved socio-economic condi-


tions are resulting in improved market demand, but compe-
This strategy looks for the overall significant growth by enhanc- tition in the market prohibits increase in the prices.
ing outputs as much as possible, even if it calls for additional • When competition is demanding innovations in products and
inputs. This strategy may be suitable: services so as to significantly enhance value/utility to cus-
• Where the market position is very comfortable, e.g., there is tomers without increasing the cost of production.
a growing demand for the product. • When a company is undertaking reengineering projects for
• When socio-economic conditions are favourable. bringing in innovations in terms of systems and procedures
• When there is not much competition in the market. to meet the market challenges [25].
• The company has an excellent reputation in the market so far Each strategy has its own basic governing principles and requires
as quality of products and services are concerned, i.e., excel- the understanding of various complexities and non-linearity in-
lent brand image. volved with several variables. We submit here that good business
• Whatever quantities of outputs are generated is easily sold sense dictates that performance is more likely to be improved
and the company can earn a premium in price also; i.e., the upon when strategic directions are oriented towards total produc-
demand is more than the supply. tivity optimisation. The strategies that we have postulated here
will facilitate:

Total Cost Management Strategy • To define the company’s scope of business.


• To enable top management formulate business plans and key
This strategy directs the management to significantly decrease performance/result areas.
the gross inputs (reduce the gross input costs), even at the ex- • To provide a basis for the allocation of resources.
pense of marginally reducing the gross output. This strategy may • To create standards of managerial behaviour towards re-
be suitable where and when: source use.
• There is tough competition and any increase in the price has In this paper, we have formulated a non-linear production fron-
an unfavourable response in the market. tier function for a manufacturing plant by using a statistically
• There are many manufacturers in the market and product de- significant relationship between output and key input variables.
mand is limited. The statistical significance of the function is suitably checked
• The company has to win over a demand on the basis of lower for normality, independence, linearity and equality of variance
price, but still wants to achieve reasonable profitability even by various distributions and residual plots. A set of non-linear
at the expense of marginally reducing total production. mathematical optimisation models involving the four strategies
is formulated for managing total productivity that gives optimum
levels of the key input variables such as raw material, labour etc.
Technical Efficiency Oriented Strategy The optimisation models for each strategy are presented in the
Appendix.
This strategy focuses upon the efforts of management to re-
duce the gross total inputs through improved efficiency, in-
creased resource utilisation, alternate reallocation or redeploy-
ment, marginally reducing the total outputs from the existing 3 The case study
level. This strategy may be suitable when:
• The company is facing decline in product demand because of This study concerns a UK-based limited company, but hav-
product obsolescence. ing worldwide operations. The data for the purpose of this
• The company is phasing out some of its product lines over case study have been taken from a plant situated in Liverpool,
a period. UK. The Company manufactures elevators. It is a well-known
• There is recession in the economy. name in the elevator business and makes elevators of various
• There is severe crunch or rationalisation in resource use. sizes, shapes and models. Although the company manufactures
• The company is undertaking reengineering exercises to criti- some standard models, its main business is concerned with the
cally examine the various business processes. manufacture of custom-made products. The company purchases
raw materials as well as semi-finished goods and components
from its vendors. Various plants of the company also supply
Organisational Effectiveness Strategy the parts and components to each other. These are billed at
a standard profit margin. The manufacturing process is mainly
This strategy aims at enhancing the gross total outputs without divided into three parts, namely; fabrication, assembly, and fin-
spending extra inputs in any form. Although the gross total in- ishing. At each stage, the operators check quality against stated
puts are to be maintained at the existing level, redeployment/real- standards. The quality assurance department is brought into
location/substitution within a given class of input or inputs is the picture only when line staffs are unable to handle quality
possible. This strategy may be suitable: problems.
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3.1 Some significant observations the planned value of 72% for the study period, the firm could
achieve 68.5% labour productivity.
• The company often faces varying market conditions in dif- • A comparison of the first half of the year 1998 with the cor-
ferent countries in which it does business. The products responding figures in 1997 indicates that despite having a
are highly custom-made and customers demand a high de- huge backlog of the orders (equal to 5 months sale), the com-
gree of quality and reliability. But, sometimes, for doing pany could increase its sales by 1.65%. Labour productivity
business, some trade-offs are desirable between price and has gone up to 68.6% from 67.8% in terms of standard hours
quality. but the manufacturing payroll has also gone up by 7.12%.
• The quality of incoming materials is controlled through what This is primarily due to increase in head count from 188
is known as the traffic light system. A defective lot gives an to 198 in 1998. Against the planned sales of £ 9 881 923 for
amber light to the vendor. With the next defective lot, the the first half of 1998,the company could achieve sales of
light for that vendor is turned red indicating termination of £ 9 545 510 a shortfall of around 3.5%.
relationship with the vendor. Despite having this stringent re- • As can be seen from above, the company establishes ef-
quirement for quality, the cost of rework has gone up by 88% fectiveness of the operation by measuring a host of partial
against the planned value for the study period. A comparison measures. A close analysis of these measures indicates that
of January–June 97 and January–June 98 figures also shows at present the company focuses only on budgetary control
an increase in the value of rework by 7.1%. Often the suppli- apart from measuring partial productivity, i.e., labour. At best
ers trace the fault to changed specifications. these measures can be used to control the cost but provide no
• The company occasionally finds itself not meeting delivery strategic direction to the management. The data are primarily
schedule. On average, it takes five months to process an collected to satisfy the needs of the corporate office that does
order, which is considered to be high by industry standards. the analysis and tells the company which efficiency to im-
Late delivery forces customers to delay picking up the mate- prove upon. No attempt has so far been made by the company
rial as they shift their resources to other areas of operations. to quantify overall performance in terms of total productivity.
This results in a large inventory of finished goods that ties up
precious working capital.
• The off-balance delivery schedule can be attributed to the 3.2 Data collection
way elevators are fabricated. On the assembly lines, it was
Data were collected on a monthly basis for a period of 18 months,
found that few machines were idle most of the time (under-
from January 97 to June 98, under the headings of purchased ma-
utilised capacities) whereas one or two resources were hav-
terial, direct labour hours (regular and overtime) total payroll, cap-
ing piles of inventories in front of them (bottleneck).
ital, energy, burden, shipping expenses, transportation expenses,
• Producing less and consuming from the existing stockpile on
other expenses and output. All inputs were recorded in terms of
inventory can increase inventory turnover. Moreover, it does-
their monetary value except labour, which was recorded in terms
n’t tell anything about the way resources are utilised.
of costs and labour hours. Monetary value of labour included both
• Inventory control of incoming material is done through the
direct and indirect costs. Burden is the material handling costs
Kanban system. However, no such system is used for the in-
involved in the transportation of materials to the shop floor. The
process inventory.
collected data are shown in Tables 1 and 2.
• At present, the company measures inventory turnover, manu-
facturing variance, material burden variance, shipping vari-
ance, transport variance, purchase price variance, net profit 3.3 Developing the production frontier equation
margin, factory overtime and direct labour productivity on
a monthly basis. Variance (Manufacturing, Material burden, Multiple regression analysis using the SPSS software package
Shipping, Transport) analysis is done to check how much de- was used to develop a production frontier equation. The regres-
viation there is between the predicted value and actual value. sion process was undertaken using five input variables, namely:
It is basically a budgeting control tool rather than a perform- material, capital, labour hours, energy and burden, as these were
ance management system. the five major variables affecting the output of the process. Man-
• Factory overtime analysis is another budgeting tool to control agement regarded shipping, transportation and the remaining
funds allocated for overtime. For the analysis period, it has inputs to be sufficiently insignificant to be excluded from the re-
exceeded the target by 66%. gression process.
• Net profit margin is an ‘after the fact’ analysis that can’t be In the first iteration, three variables, burden, capital and en-
used as a diagnostic tool. ergy, were eliminated and an equation was obtained in two in-
• Direct labour productivity analysis measures output per man- dependent variables Mat and labour. A high-adjusted R squared
hour against standard output per man-hour. It’s a partial value coupled with very small values of Signif F and Sig T
measure and not very effective in the absence of other mea- were obtained. This indicated a good fit of this model to the
sures. A high labour productivity does not necessarily mean sample but the histogram of the frequencies of regression-stand-
high profit. Use of automation/outsourcing improves labour ardised residuals was not normal, indicating that this particular
productivity but may increase total cost of product. Against regression equation was not applicable to the population. Cook’s
1024

Table 1. Data for the case company

No. Month Output Purchased Total Direct Energy Capital Burden Shipping Transport Others
Material Payroll Labour-Hrs Expenses Expenses

1 Jan-97 1712 948 394 21 29 56 33 139 38 128


2 Feb-97 1784 1199 341 19 30 41 29 121 44 109
3 Mar-97 2310 1494 396 21 28 56 36 152 50 121
4 Apr-97 1855 1373 313 17 22 41 27 112 27 106
5 May-97 1623 1156 312 17 18 41 26 115 36 95
6 Jun-97 2600 2044 320 17 14 45 27 119 51 124
7 Jul-97 1731 1063 299 19 17 35 22 139 78 115
8 Aug-97 1418 880 327 17 12 40 25 116 42 98
9 Sep-97 2659 1457 374 18 13 23 29 126 72 104
10 Oct-97 2354 1403 372 20 23 40 25 133 69 91
11 Nov-97 2035 1249 446 27 15 17 22 173 87 194
12 Dec-97 1432 751 311 17 12 40 15 102 53 125
13 Jan-98 911 432 306 15 21 40 23 97 63 82
14 Feb-98 1324 647 367 20 25 40 35 120 62 131
15 Mar-98 1964 1236 437 24 11 40 40 129 65 118
16 Apr-98 1252 887 365 16 16 40 31 93 33 88
17 May-98 1538 919 361 17 14 40 30 121 22 117
18 Jun-98 1989 1362 386 19 20 43 25 117 36 134

All figures are expressed in £ 000’s except labour, which is expressed in thousands of hours

Table 2. Limits of the input variables independent variable direct labour hours (referred to as dir_hrs)
was not linear. It tapered downward at higher values of dir_hrs.
Variable Lower limit Upper limit Present value This indicated that a power term of dir_hrs should be included in
(000’s) (000’s) (000’s)
the model.
In the fourth iteration a new variable Rthrs (the reciprocal
Mat 832 2044 1362
Dir_hrs 15 27 19 of the root of dir_hrs) was created and introduced in the regres-
Cap 17 56 43 sion process in the place of dir_hrs. The variable burden was also
Burden 15 40 25 re-introduced. The results were satisfactory for this iteration: an
equation containing four parameters, indicating the goodness of
fit of this model to the sample and the population were also sat-
distance and Mahalanobis distance were recorded in this itera- isfactory and almost comparable to that of the previous iteration;
tion. A relatively high value of Cook’s distance for the June 97, but the partial residual plot of capital was not linear but similar
September 97 and November 97 indicated that these were influ- to that of dir_hrs in the previous iteration. This indicated that one
ential cases, the presence of which may have distorted the model. should use a power term for the capital variable.
The three influential cases detected in the first iteration were In the fifth iteration a new variable Rtcap (the reciprocal of
removed and an equation containing four independent variables, the root of capital) was created and introduced in the regression
material, labour capital and burden was then obtained. The ad- process in the place of the capital variable. The model produced
justed R squared value improved considerably and Signif F and an equation between the dependent variable output and four in-
Sig T values were very small. The histogram of the frequencies dependent variables material, Rthrs, Rtcap and burden. The ad-
was also slightly better than the previous one but it was not sat- justed R squaredvalue was 0.96244, which was high enough to
isfactory. A close look at the Sig T values revealed that the Sig T indicate a very good fit of this model to the sample data. Sig F
value was highest for the burden variable. value was 0 and all Sig T values were very small which sup-
Burden was deliberately removed from the regression pro- ported the conformance of the fit to the sample data.
cess to see the effect in the third iteration. Although this time The following points provide the evidences of the goodness
the equation had two variables, material and labour, the over- of the fit of this model to the population:
all results were satisfactory. The adjusted R squared value was
slightly less than that of the previous iteration yet it was high • The histogram of the frequencies of the regression-standard-
enough to be considered as satisfactory. Sig F and Sig T values ised residuals is normal. Also the plot between output and
were very low. These indices indicated that this model fitted the regression-standardised predicted value gives a linear trend.
sample. However, the most important result of this iteration was • The scatter plots of regression-standardised residuals with
an approximately normal histogram of the frequencies of the regression-standardised predicted values and dependent vari-
regression-standardised residuals, which confirmed the fit. able output is random.
In the next step, the partial residual plots were examined. The • The partial residual plots of the dependent variable output
partial residual plot between the dependent variable output and with various independent variables shows a linear trend.
1025

Thus, the following equation was regarded as a suitable expres- As per this strategy, increasing both output and input but
sion of output in terms of key input factors: increasing the output relatively more, that is, can improve pro-
ductivity:
Output = 0.978(mat) + 510.760(dir_hrs)0.5 + 142.063(cap)0.5
−13.506(burden) − 2090.078 (4) Maximise: P = O/I (7)

The following constraints, in addition to the limiting values of


The input equation is given as:
the variables were considered:
Input = mat + 8.00 ∗ (dir_hrs) + cap + burden (5) Input constraint: Input ≥ 1582 (8)
Here, the coefficients represent the costs associated with each in- Output constraint: Output ≥ 1989 (9)
put factor. Mat, cap and burden are expressed in monetary terms; Capacity constraint: Output ≤ 3500 (10)
hence their coefficients are 1. The coefficient of dir_hrs is the
average wage rate for direct labour. The standard non-linear programming (NLP) model can be writ-
Now, Productivity, P = Output/Input ten as:
Min:
 
0.978(Mat) + 510.760(Dir_hrs)0.5
+142.063(Cap)0.5 − 13.506(Burden) − 2090.078 Z = 1/P
⇒P= Mat + 8.00(Dir_hrs) + Cap + Burden
Mat + 8.00(Dir_hrs) + Cap + Burden =  (11)
(6) 0.978(Mat) + 510.760(Dir_hrs)0.5
+142.063(Cap)0.5 − 13.506(Burden) − 2090.078)
The input calculated by this equation for the 18 months sample
period constitutes a major part of total input (more than 70% on Subject to:
average), so any improvement achieved in the ratio P will lead to
an improvement in productivity. The limiting values of the vari- − Mat − 8.00 ∗ (Dir_hrs) − Cap − Burden + 1582 < 0 (12)
ables were identified after having detailed discussions with com- − 0.978(Mat) − 510.760(Dir_hrs) 0.5
− 142.063(Cap) 0.5

pany management. These are the values of the variables within + 13.506(Burden) + 4079.078 < 0 (13)
which they are expected to operate in the next planning period
(one-year). Table 1 lists the input data for the case study. 0.978(Mat) + 510.760(Dir_hrs) 0.5
+ 142.063(Cap) 0.5

− 13.506(Burden) − 5590.078 < 0 (14)


Last month’s output = £ 1 989 000 − Mat + 432 < 0 (15)
Last month’s input = 1 582 000 (as calculated from input − Dir_hrs + 15 < 0 (16)
equation) − Cap + 17 < 0 (17)
Last month’s Productivity = 1.257 − Burden + 15 < 0 (18)
Plant’s capacity = £ 3 500 000(at average price) Mat − 2044 < 0 (19)
Dir_hrs − 27 < 0 (20)
3.4 The model application Cap − 56 < 0 (21)
Burden − 40 < 0 (22)
Only as a sample case, the actual non-linear programming model
for the overall growth strategy is given below. Similarly, appropriate models were also constructed for the re-
maining three strategies. The Appendix outlines the formula-
tion for all the 4 strategies. Each model had a non-linear ob-
jective function with non-linear constraints. A computer pro-
Table 3. Optimal values gram was written in C++ to solve the non-linear optimisa-
Last Technical Management Growth Cost
tion problem. The program used the internal penalty function
Month Efficiency Effectiveness Strategy Reduction method [27] to convert the constraint optimisation problem into
Strategy Strategy Strategy an unconstraint optimisation problem. The Davidson–Fletcher–
Powell method [27] was then used to solve the converted uncon-
Mat. 1362 972.77 1287.66 1314.51 1099.69 straint optimisation problem. This method is the best general-
Dir_hrs 19 23.99 26.06 25.97 21.29
Cap. 43 50.65 54.00 53.63 42.09
purpose unconstrained optimisation technique [27]. It is very
Burden 25 27.78 15.74 15.78 21.00 stable and reliable even in the case of a highly distorted and
Output 1989 1998.87 2608.10 2625.70 1980.04 eccentric function because the information of the previous iter-
Input 1582 1243.14 1566.00 1591.71 1333.11 ation is carried forward through a positive definite symmetric
Productivity 1.26 1.61 1.67 1.65 1.49
matrix.
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3.5 Results and discussion 3. While it’s important to have a plan, what counts is the real-
life actions and decisions made by management towards op-
The optimum levels of productivity and input variables under the timisation of total productivity. These actions will determine
four strategies as obtained by solving the NLP models are shown whether a business strategy is successful or not. The pattern
in Table 3. By using any of the strategy, the company can im- of actions derived out of such optimisation studies reveals
prove the total productivity to a significant extent. The following the real performance management strategy of the company
observations are worth mentioning: as well as the portfolio of manufacturing capabilities. These
• The variable burden has a negative coefficient in the output/ are the special abilities that a company has in manufacturing.
input(s) relationship. Burden expenditure is the cost incurred Some examples of manufacturing capabilities include cost,
in materials handling. It does not add any value to the prod- quality, quantity and timeliness, which have a very strong
uct. Efforts should be made to minimize it. bearing on marketing and financial performances. Managers
• Material consumption has been reduced in almost all the should emphasise those capabilities at which the company
strategies from the existing level. excels. For example, if a company has the ability to make
• Capacity utilisation has improved in the cases of techni- products more cheaply than competitors, that ability should
cal efficiency, management effectiveness and overall growth be exploited. A company needs to develop programmes to
strategy. However, there is a marginal reduction in capacity improve manufacturing capabilities needed to succeed in the
utilization in the case of the cost reduction strategy. Solu- marketplace. For example, a company may need to find ways
tions to all but the cost reduction strategy suggest that the to cut costs in manufacturing if competitors can offer less ex-
organisation should increase its capital investment in adding pensive products in the marketplace. Managers need to find
capacity. In physical terms that would mean higher utiliza- ways to evaluate how their company is doing at meeting its
tion of capacity with increased working capital to sustain strategic goals. For example, a business that stresses rapid de-
increased output levels. livery of products needs to find ways to measure and reward
• Solutions to each of the strategies suggest that the organi- delivery performance within the company.
sation should reduce its raw material cost and increase its 4. Total productivity optimisation helps an organisation to
expenditure on labour. achieve superior performance (in terms of financial as well
• If one carries out an intensive analysis of Table 3, one can ob- as non-financial measures). Strategic business objectives
serve that there is a trade-off between the extent of increase in can only be achieved as a cumulative result of continuous
output and the maximum value of total productivity attained. improvement and renewal of organisational capabilities fos-
Depending upon the market position, the management can tered through optimisation of assets and processes.
make a compromise choice between the two.
• The company is in a strong competitive position but in a sec-
tor with a relatively low growth rate. Management believes
that a reduction in plant output is likely in future years. Cost 4 Conclusions
reduction strategy is being recommended for the next plan-
ning year after which time depending upon external factors Total productivity has a very strong impact on the drivers of fu-
the strategy can be reviewed and a more appropriate strategy ture competition, but has largely been ignored in contemporary
for the next planning period be selected. performance management systems. An attempt was made in this
study to establish some strategic directions towards total pro-
ductivity management, as maximisation of total productivity is
3.6 Some learning points the only means for enhancing profitability of a globally com-
peting enterprise. To attain this end, four appropriate strategies
1. Many companies develop plans to help guide what they hope were selected and mathematically modelled. In order to opera-
to achieve in their manufacturing process. The problem is tionalise these strategies into implementable action imperatives,
that many companies believe having a plan is the same as the models were validated in the case of an elevator manufac-
having a strategy. Just having a business plan is not enough to turing company in the UK. These models and results allow the
ensure success; it is necessary that the business plan be linked management to make a normative choice of appropriate total
to performance productivity management. productivity optimisation strategy as well as fixing targets for
2. One of the reasons why many companies have fallen be- the various resource inputs. It is hoped that such models will
hind Japanese competitors is that manufacturing has taken enable strategy support in a general sense and will make the
a subordinate role to marketing and finance functions. This most important tasks of productivity planning and improvements
means manufacturing is always reacting to decisions by other more objective oriented. For an economy, a nation or a com-
units of the company and is always concerned with short- pany to achieve pre-eminent position and superior status, there is
term issues. To be proactive, companies must anticipate the an emergent need to pioneer the culture of measuring perform-
potential of performance productivity management practices ance through total productivity and to promote the discipline.
and systems and make sure that manufacturing is involved in Our thesis is that society’s collective vision of enterprise man-
major engineering and marketing decisions. agement is undergoing a fundamental shift. Such a profound shift
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requires a transformational approach to critically scrutinise our 24. Mohanty RP (1992) Consensus and conflicts in understanding produc-
assumptions about how successful companies must work. It af- tivity. Int J Prod Econ 28:95–106
25. Mohanty RP (1999) Value innovation perspectives in Indian Organisa-
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27. Rao SS (1992) Optimization: Theory and Applications, Wiley
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Xit is the ith key input variable in time period t. Xi max and can be written as:
Xi min refers to the maximum and minimum value of the vari-
ables in the planned period. Tot ≤ C
Or ao + Σi ai Xit ≤ C
Technical Efficiency Oriented Strategy. In this strategy, the ob- Or Σi ai · Xit ≤ Co, which is a constant.
jective function is to minimise the value of the total input at the
current level of the output. If Tit is the value of total input in the Productivity Constraint: The total productivity measure of a
planned period t then mathematically the model is expressed as: planned period ‘t’ should be more than or equal to the total pro-
ductivity measure of the current period ‘t − 1’, i.e.:
Minimise Tit = bo +  i bi Xit
Subject to : TPMt ≥ TPMt−1
ao +  i ai .Xit = Tot or [ao + Σi ai Xit ]/[bo + Σi bi Xit ] ≥ TPMt−1
Xit ≤ Xi max Since bo + Σi bi Xit ≥ 0
Xit ≥ Xi min ao + Σi ai Xit ≥ (TPMt−1 )(bo + Σi bi Xit )
Xit ≥ 0 Σi ai Xit − (TPMt−1 )(Σi bi Xit ) ≥ (TPMt−1 )(bo) − ao
Σi (ai − TPMt−1 · bi ) · Xit ≥ (TPMt−1 )(bo) − ao
Growth oriented strategy and cost reduction strategy aim to max-
imise the total productivity measure (TPM), which is defined as Σi di Xit ≥ D
the ratio of output to input. As it attempts to maximise a ratio,
Where di = ai − TPMt−1 · bi and D = (TPMt−1 · bo) − ao
the model cannot be treated as a simple Non-linear Programming
Other Constraints: Other constraints pertaining to upper and
problem. Two Fractional Programming models are developed for
lower limits of the input variables are the same as in the case of
these strategies.
strategies 1 and 2.
After considering all the above constraints, the Growth Strat-
Growth Oriented Strategy. The strategy guides the management
egy can be written as:
to maximise TPM in such a way that the major focus is on in-
creasing output. This can be written as: Maximise TPMt = [ao + Σi ai Xit ]/[bo + Σi bi Xit ]
Maximise TPMt = [ao + Σi ai Xit ]/[bo + Σi bi Xit ] Subject to : Σi ai · Xit ≥ Too Output Constraint
Σbi · Xit ≥ Tio Input Constraint
Subject to: Σai · Xit ≤ Co Capacity Constraint
Output Constraint: The total output in the planned period ‘t’ Σdi · Xit ≥ D Productivity Constraint
is greater than the total output in the current period ‘t − 1’; Xit ≤ Xi max
Tot ≥ βTot−1 , Where β ≥ 1 is the level of efficiency. Xit ≥ Xi min Other Constraints
Xit ≥ 0
ao + Σi ai Xit ≥ βTot−1
or Σi ai Xit ≥ βTot−1 − ao
Total Cost Management Strategy. The aim here is to reduce the
or Σi ai Xit ≥ Too; where, Too = [βTot−1 − ao] = A constant output but the reduction in input is more than the reduction in
output. Mathematically, it can be stated as:
Input Constraint: Input in the planned period ‘t’ has to be more
than or equal to the input in period ‘t − 1’. Therefore, it can be Maximise TPMt = [ao + Σi ai Xit ]/[bo + Σi bi Xit ]
written as: bo + Σi bi Xit ≥ Tit−1
Subject to : Σi ai · Xit ≤ Too
or Σi bi Xit ≥ Tit−1 − bo Σbi · Xit ≤ Tio
Σdi · Xit ≥ D
or Σbi Xit ≥ Tio where, [Tit−1 − bo] = Tio = A Constant
Xit ≤ Xi max
Capacity Constraint: The planned output in period ‘t’ cannot ex- Xit ≥ Xi min
ceed the capacity ‘C’ of the plant. Therefore mathematically it Xit ≥ 0