Canadian University of Dubai Graduate School of Business Administration

Instructor: Dr. Kamel Fantazy E-mail: kfantazy@sharjah.ac.ae kafantazy@yahoo.com

Chapter 1
Introduction to Operations Management

Lecture Outline

     

What Operations and Supply Chain Operations Function Historical Evolution of Operations Management Transformation Process Value Added Productivity and Competitiveness

What is Operations Management?

Operations Management (OM) is defined as the design, operation, and improvement of the systems that create and deliver the firm s primary products and services. Operations Management is the management of processes or systems that create goods and/or provide services. It encompasses forecasting, capacity planning, scheduling, managing inventories, assuring quality, motivating employees, deciding where to locate facilities, buying material, and equipment and maintaining them, and more.

What is Operations Management?

Detail the following OM activities for manufacturing and services
Obviously, these two sectors are completely different types of operations. However, both involve scheduling of activities, motivating employees, and ensuring quality. OM Activities Forecasting Capacity planning Scheduling Airline company (services) Seat demand for flights, weather and landing conditions Number of planes and where to use them Flights and routine maintenance, scheduling of pilots and flight attendants Food, beverages and spare parts Essential in flying and maintenance Ensuring that quality standards operations are met In all phases of operations Which cities to provide services, where to locate maintenance In all phases of operations Scheduling production. Deciding which component to make and which to buy Bicycle factory (goods) Components such as frames, tires, wheels, gears

Managing inventories Assuring quality Motivating employees & training Facilities & location

What is Operations Management?

As an educated guess, I would say there is about 1,700 to 2,200 parts in the average vehicle

Transformation Process
 Physical:

as in manufacturing operations  Locational: as in transportation or warehouse operations  Exchange: as in retail operations  Physiological: as in health care  Psychological: as in entertainment  Informational: as in communication

Operations Function

 Operations  Marketing  Finance and Accounting  Human Resources  Outside Suppliers

How is Operations Relevant to my Major?

 Accounting  Information Technology  Management  As an auditor you must understand the fundamentals of operations management.  IT is a tool, and theres no better place to apply it than in operations.  We use so many things you learn in an operations classscheduling, lean production, theory of constraints, and tons of quality tools.

How is Operations Relevant to my Major? (cont.)

 Economics  Marketing
 Its all about processes. I live by flowcharts and Pareto analysis.  How can you do a good job marketing a product if youre unsure of its quality or delivery status?  Most of our capital budgeting requests are from operations, and most of our cost savings, too.

 Finance

Operations Interfaces
Maintenance MIS
Providing management information it needs through hardware and software and preparing reports

Design

Distribution

Operations
Personnel Accounting
Cost of labour, materials and overheads and may provide reports on items such as scrap, downtime, and investments

Public Relations

Purchasing

Three Basic Functions

Organizations are formed to pursue goals that are achieved more efficiently and effectively by the concerted efforts of a group of people than individuals, working alone. A typical organization has three basic functions. The three major functions of business organizations perform different but related activities: 1. 2. 3. Operations: responsible for the creation of goods/services Finance: responsible for the provision of funds and the economic analysis of investment proposals Marketing: responsible for promoting the goods/services of the organization and for assessing customer wants and needs Airline Company
Finance/ Accounting

Marketing

Operations

Flight Operations

Ground Support

Facility Maintenance

Catering

Operations as a Transformation Process

INPUT Material Machines Labor Management Capital

TRANSFORMATION PROCESS

OUTPUT Goods Services

Feedback & Requirements

Inputs are used to obtain finished good or services using one or more transformation processes (storing, transporting, cutting). To ensure that the desired outputs are obtained measurements are taken at various points in the transformation processes (feedback) and then compared with previously established standards to determine whether corrective action is needed (Control).

Operations as a Transformation Process

INPUTS

OUTPUTS Transformation

Transformation process
Manufacturing: At a Food Processor (canned vegetable)
Inputs Raw Vegetables Metal Sheets, Water, Energy, Labour, Building Equipment Process Cleaning, Making cans Cutting, Cooking Packing, Labelling Output Canned vegetables

Service: At a Hospital
Inputs Doctors, Nurses Building, Medical supplies, Equipment Labs Process Examination, Surgery Monitoring, Medication Therapy Output Healthy patients

Input-Transformation-Output Relationships for Typical Systems

Systems Primary Inputs Patients Resources Primary Transformation Function (s) Typical Desired Output Healthy individuals Educated individuals Satisfied customers High quality cars

Hospital

MDs, nurses, Health care medical supplies, (physiological) equipment,

College or University Restaurant

High Teachers, books, Imparting knowledge school classrooms and skills graduates (informational) Hungry customer Sheet steel, engine parts Food, chef waiters, staff, environment Tools, equipment, workers Well prepared, well served food Fabrication and assembly of cars (physical)

Automobile factory

The Historical Evolution of OM

 Craft production
Highly skilled workers using simple, flexible tools produced according to customers specifications. Goods were produced in small shops One person responsible for making a product

 Craft Production Shortcoming

Production was slow and costly When parts failed, the replacement has to be customized Production cost did not decrease as volume increases (no economies of scale)

The Historical Evolution of OM

 The Industrial Revolution
Began in the 1770s in England and spread to the rest of Europe. A number of innovations changed the face of production, the most significant of these was the steam engine by James Watt in 1764. The steam engine provided a source of power to operate machines. Two concepts assisted in mass production: division of labour and interchangeable parts.  Division of labour: Breaking up a production process into small tasks so that each worker perform a small portion of the overall job. that they do not have to be custom fitted.

 Interchangeable parts: Parts of a product made to such precision

Historical Development of OM
Scientific Management
Year 1910s Concept Scientific management based on observation, measurement, analysis and improvement of work methods and economic incentives Tool Formalized time study and work study concepts Motion study Activity scheduling chart EOQ applied to inventory control Originator Fredrick W. Taylor

Frank and Lillian Gilbert US Gantt Henry Ford

The Human Relationship Movement

1930s Emphasized the importance of human elements. Giving special attention to workers to improve productivity Quality control Sampling inspection Walter Shewhart, H. F. and statistical Dodge and H. G. Romig (US) tables for QC. Activity sampling for work analysis Eliton Mayo (US) L. H. C. Tippett (UK)

Historical Development of OM
Decision Models
Year 1940s Concept Motivational theory Multidisciplinary team approaches to complex system problem Extensive development of operations research tools Tool Reward, increase in salaries, and breaks etc.. Simplex method of linear programming Originator Abraham Maslow

Operations research group (UK) and George B. Dantzig (US)

1950s -60s

Simulation, waiting line Many researchers in the theory, decision theory, US and Western Europe mathematical programming, project scheduling techniques of PERT and CPM

Historical Development of OM
Decision Models and Computers
Year 1970s Concept Widespread use of computer in business Service quality and productivity Tool Shop scheduling, inventory control, forecasting, project management, MRP Mass production in the service sector 1980s Manufacturing strategy paradigm JIT, TQC, FMS, and factory automation Synchronous manufacturing Manufacturing as a competitive weapon Originator Led by computer IBM;

McDonald Restaurants Harvard Business School faculty (US) Tai-Ichi Ohio of Toyota Motors (Japan), W. E. Deming and J.M. Juran, and engineering disciplines

Bottleneck analysis and theory of constraints

Historical Development of OM
The Internet
Year 1990s Concept Total quality management Tool Baldrige quality award, IOS 9000, QFD, Originator National Institute of Standards and Technology American Society of Quality Control (ASQC) and ISO

Business process concurrent engineering, reengineering continuous improvement paradigm ERP, SCM, CRM Radical change paradigm Internet world wide web SAP/R3, client server software Internet world wide web

US government, Netscape Communication Corporation, and Microsoft Corporation SAP (Germany), Orcal (US) Amazon, E-bay, American on line, Yahoo

2000s

E-commerce

Value added
Added Value is the term used to describe the difference between the cost of inputs and the value or price of outputs. In non-profit organizations, the value of the outputs (e. g., highway construction, police, and fire protection) is their value to the society; the greater value added, the greater the efficiency of these operations. In for profit organizations, the value of the out puts is measured by the price that customers are willing to pay for those goods or services. Firms use the money generated by value added for research and development, investment on new facilities and equipment, paying workers and profits, Consequently, the greater value added, the greater the amount of funds available for these purposes.

What is added Value?

 Is OM function adding value during the transformations process? What is added value? (The difference between the cost of inputs and the price of outputs)
Stage of Production Value Added $0.15 $0.08 $0.15 $0.08 $0.54 $0.08 $0.21 $1.29 Value of Product $0.15 $0.23 $0.38 $0.46 $1.00 $1.08 $1.29 $ 4.59

1 2 3 4 5 6 7

Farmer produces and harvests wheat Wheat transported to mill Mill produces flour Flour transported to baker Baker produces bread Bread transported to grocery store Grocery store displays and sells bread Total Value-Added

The original cost of the product or service is $3.39. The price of outputs is $4.59. According to the definition added value is $4.59 - $3.30 = $1.29.

What is added Value?

1 2
Mill produces flour (0.15)

3
Farmer produces and harvests wheat (0.15) Wheat transported to mil (0.08)

Baker produces bread (0.54)

Flour transported to baker (0.08)

5
Bread transported to grocery store (0.08)

4
Grocery store displays and sells bread (0.21)

7 6

Chapter 2
Competitiveness, Strategy, and Productivity

Chapter 2 Outline
 What is competitiveness?  Order winners and Order qualifiers  What is Mission, Vision, Strategy?  Operations strategy (nine major decision making categories in Operations Management)  Quality and time strategies  Calculating productivity  Productivity in the service sector  Factors affecting productivity

Globalization and Competitiveness

 Why go global ? favorable cost access to international markets response to changes in demand reliable sources of supply latest trends and technologies  Increased globalization results from the Internet and falling trade barriers

Globalization and Competitiveness (cont.)

Hourly Compensation Costs for Production Workers Source: U.S. Bureau of Labor Statistics, 2005.

Competitiveness
Companies must be competitive to sell their goods and services in the marketplace. Competitiveness is an important factor in determining whether a company prospers, barely gets by, or fails.

Competitiveness: How effectively an organization meets the needs of

customers relative to others that offer similar goods or services. The U.S. Department of commerce defines Competitiveness as the degree to which a nation can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens. The most common measure of competitiveness is productivity.

Competitiveness Cont..
Business organizations compete with one anther in variety of ways. Marketing influences competitiveness in several ways, including identifying customer wants and needs, pricing and advertising Identifying customer wants and needs is a basic input in an organizations decision making process, and influences competitiveness . The ideal is to achieve a perfect match between those needs and organizations goods and services. Competing on Price: is usually a key factor in consumer buying decision. It is important to understand the trade-off decision consumers make between price and aspects of product/service such as quality . Advertising and promotion are ways organizations can inform potential customers about features of their products\services and attract buyers. Product and service design: should reflect joint effort of many areas of the firm to achieve a match between financial resources, operations capabilities, supply chain capabilities, and consumers buying decision.

Competitiveness Cont..
Operations has a major influence on competitiveness through product and service design, cost, location, quality, response, flexibility, inventory and supply chain management, and service. Many of these are interrelated. Product and service design: should reflect joint effort of many areas of the firm to achieve a match between financial resources, operations capabilities, supply chain capabilities, and consumers buying decision. Cost of output is a key variable that effects pricing decisions and profits. Cost reduction efforts are generally ongoing in business organization. Productivity discussed later in the chapter is an important determinant of cost. Location: can be important in terms of cost and convenience for customers. Location near inputs can result in lower input cost. Competing on Quality: it relates to how well the product or service will serve its intended purpose. (ways to please customer not only to avoid problems) Flexibility: is the ability to respond to changes. Changes might relate to alterations in design features or service, or to the volume demanded.

Competitiveness Cont..
Competing on Time: refers to how quickly a product or service is delivered to the customers. Service organizations such as FedEx, McDonalds's have always competed on speed. Competing on variety: is the ability to produce a wide variety of products, to introduce new products and modify the existing one quickly and respond to customer needs. Inventory Management: can be competitive advantage by effectively matching supplies of goods with and demand Service: might involve after sale activities customer perceive as added value, such as setup, warranty, courtesy, keeping the customer informed, and attention to details. Managers and Workers: are the people are the heat and soul of the organization, and if they are competent and motivated, they can provide a distinct competitive advantage by their skills and the ideas they create.

Competitiveness Cont..
is the amount a customer must pay for a product or service.

Variety Price Differentiation

Quality

Timeliness

Customer Service

Location
it relates to how well the product or service will serve its intended purpose.

Might involve after sales activities that perceived by customers as value added

Competitiveness Cont..
A firm is in trouble if the things it does best are not important to the customer. The key to successfully competing is to determine what customers want and then direct efforts toward meeting (or even exceeding) customer expectations. In formulating a successful strategy, organizations must take into account both order qualifiers and order winners. Order qualifiers: are the characteristics that customer perceive as minimum standard of acceptability to be considered as a potential for purchase. (what
qualifies an item to be considered for purchase).

Order winners: are the characteristics of an organizations good or services that cause it to be perceived as better than competition. (What wins the order).
For example, when purchasing a DVD player, customer may determine a price range (order qualifier) and then choose the product with most features (order winner) within that price range.

Order Winners and Order Qualifiers

Order qualifier will only take a firm so far. For example a low price might be a qualifier but reducing the price further may not win orders if the features or design are not adequate.

Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts, Operations and Process Management, Prentice Hall, 2006, p. 47 Management,

Mission/Strategy/Tactics

Mission

Strategy

Tactics

(Mission vary from organization to organization, depending on the nature of their business. It is important that an organization have a clear and simple mission/vision statement, one that answers the questions what business are we in? The mission statement should serve to guide strategy formulation.)

Mission/Vision: The reason for organization existence

Mission/Vision Statement: A clear statement of purpose

(statement provides general direction for an organization and should lead to organizational goals or objectives. For example, one goal to capture market share, another to achieve profitability.)
WestJet: To enrich the lives of everyone in Westjets world by providing safe, friendly, affordable air travel.

Mission/Strategy/Tactics
Strategy: A plan for achieving organizational mission/goals. A strategy is a set of coordinated broad long term policies, objectives, and action programs to achieve goals. Organizations have overall strategies called organization or business strategies, which related to the entire organization, and they have functional strategies, which related to the functional areas of the organization. Tactics: The medium term objectives, method, and actions taken to accomplish strategies. (They are more specific in nature than strategies,
and they provide guidance and direction for carrying out actual operations, which need the most specific and details plans and decision making in an organization.

Strategic planning is hierarchical in organization

A University student would like to have a career in business, have a good job, and earn enough income to live comfortably

Live a good life Successful career, good income

Mission

One goal may to capture more market share or achieve profitability

Goals A set of coordinated broad long-term policies, objectives and action program

Obtain a diploma or degree

Organizational strategy Functional strategies Finance Marketing Operations

Select a school and a major

Register, buy books, take courses, study, graduate, get job

Tactics

Tactics

Tactics

Capacity utilization Quality of delivery Work in progress Cost per operation hour Information carrying cost Total inventory cost

Operating procedure

Operating procedure

Operating procedure

Operations Strategy
 Operations strategy is narrow in scope, dealing guiding the operations aspect of
the organization, but aligned with organization strategy and goals.  Operations strategy comprises a set of well-coordinated policies, objectives, and action programs, which provides advantage over the competitors.  In order to formulate an operations strategy, the operations function has to cooperate with all other functions of the business, marketing, R&D, and finance.  The creation of operations strategy occurs both at the company level and at the functional level. At the company level, the role of operations should be identified. Usually, operations objectives/performance measure are given in terms of competitive attribute (cost, quality, flexibility).  Usually the operations policies, objectives, and action programs are classified into nine major decision making categories:

Decision Making Categories

Facilities: a decision can be made based on market, product group or process type. Capacity: This decision is related to the facility. Long term capacity decisions related to the size of the plant and major equipment. Vertical Integration: This is the ownership of a major part or the whole of the supply chain. Vendor Relation: The two extremes are using competitive arms length or cooperative close relationships. Product Mix: The challenge of operations management increases as the variety of products and the rate of new product introduction increases. Process Types and Technology: There are four generic types: job shop, batch, assembly line, and continuous flow. Human Resources: With cooperation of the personnel department, workers/staff are appraised, selected, developed, and motivated. Product Quality: Products quality is determined during the design and production. Operations Infrastructure: These decision include choosing a computerized planning and control system (including, forecasting, MRP, and scheduling).

Steps for Strategy Formulation

The steps for formulation of an operations strategy
1- Link the business strategy to the operation strategy: 2- Conduct an operations audit to determine the strength/weakness of the current operations strategy in each of the nine decision making category. 3- Categorize the customers into types: (major customer and transactional customer) 4- Group product lines into types: for example the product lines into low volume and high volume. 5- Asses the degree of focus at each plant: (the focused plant is more efficient) 6- Develop an operations strategy and allocate product lines to plants: for each of the nine decision making categories, state the objectives, policies, and broad action programs to achieve them

Steps for Strategy Formulation

In the 1970s and early 80s, operations strategy was often neglected in favor of marketing and financial strategies. In the late 1980s and early 90s, many companies began to realize this approach was not working. They recognized that they were less competitive than other companies. This caused them to focus on Operations Strategy The top two strategic issues were quality and management and manufacturing strategy. Top two tactical issues were quality control and manufacturing planning and control systems. Successful companies use a coherent set of strategies over time in order to develop a distinctive competency. Distinctive Competencies: The special attributes or abilities that give an organization a competitive edge. (These attributes can be developed over time, product, technology) Low labour strategy: right after the war. Scale based strategy: during the 1960s capital intensive methods to achieve higher productivity Flexibility manufacturing strategy 1980 and continues improvement in the 1990

Examples of Strategy Formulation

Distinctive Competencies
Price Quality Time Flexibility Service Location Low Cost High-performance design Or high quality Consistent quality Rapid delivery On-time delivery Variety Volume Superior customer service Convenience First-class Canadian postage Holiday Inn Express Sony TV, Lexus, Cadillac Pepsi, Kodak, Motorola Priority Courier One-hour photo Burger King Supermarkets Canada s Wonderland Banks, ATMs

Environmental Scanning
Internal Factors Human Resources Farcicalities and Equipment Financial Resources Customer Product and Services Technology Suppliers External Factors Economic Conditions Political Conditions Legal Environment Technology Competition Markets

New Strategies
Quality-based strategies Focuses on maintaining or improving the quality of an organization s products or services Quality at the source  Time-based strategies Focuses on reduction of time needed to accomplish tasks

Time-based Strategies

JAN

FEB

MAR

APR

MAY

JUN

Planning

Designing Processing Changeover Delivery On time!

Productivity
Productivity: A measure of efficient use of resources usually expressed as the ratio of output to input.

 Partial measures: output/(single input)  Multi-factor measures: output/(multiple inputs)  Total measure: output/(total inputs)
Outputs Productivity = Inputs

Productivity Growth =
Current Period Productivity Previous Period Productivity Previous Period Productivity

Globalization and Competitiveness

 Why go global?
 favorable cost  access to international markets  response to changes in demand  reliable sources of supply  latest trends and technologies

 Increased globalization
 results from the Internet and falling trade barriers

Productivity Competitiveness Cont..

Figure below shows the percent changes in productivity for selected countries from 95-05. All of the countries show productivity increase. Korea exhibits an impressive 9.1% increase.

Average Annual Growth Rates in Productivity, 1995-2005.

Source: Bureau of Labor Statistics. A Chartbook of International Labor Comparisons. January 2007, p. 28.

Productivity Competitiveness Cont..

In this figure we find that with the exception of Canada, all of the countries decreased their labor input, led by Japan, U.K, and U.S. Out of these three countries, the U.S. was the best performer.

Average Annual Growth Rates in Output and Input, 1995-2005 Source: Bureau of Labor Statistics. A Chartbook of International Labor Comparisons, January 2007, p. 26.

Dramatic Increase in Output w/ Decrease in Labor Hours

Measures of Productivity
Partial or single measures Output Labor Output Machine Output Capital Output Energy

Multifactor Measures

Output Labor + Machine

Output Labor + Capital + Energy

Total measure

Goods or Services Produced All inputs used to produce them

Labor Productivity Capital Productivity Energy Productivity

Units of output per labor hour Units of output per shift Units of output per dollar input Units of output per kilowatt-hour

Machine Productivity Units of output per machine hour

Example-1-Labour Productivity
A company that processes fruits and vegetable is able to produce 400 cases of canned peaches in one-half hour with four workers. What is labor hour productivity?

Solution Labor productivity = Quantity produced

labor hours 400 = 200 cases per worker hour 4 workers(1/2 hour)

A wrapping paper company produced 2,000 rolls of paper in one day. Labor cost was $160, material cost $50 and overhead was $320. Determine the multifactor productivity.

Solution Multifactor productivity =

Quantity produced labor cost + materials cost + Overhead

2,000 rolls $160 + $50 + $320

= 3.77 rolls per dollar input

Example-2-Labour Productivity
At a local Lumber small business. Steve the owner and producer of apple boxes sold to growers, has been able, with his current equipment, to produce 240 boxes per 100 logs. He currently purchase 100 logs per day and each log requires 3 labor hours to process. He believes that he can hire a professional buyer who can buy a better quality log at the same cost. If this is the case, he can increase his production to 260 boxes per 100 log. His labor hour will increase by 8 hours per day. What will be the impact on productivity (measured in boxes per labor-hour) if the buyer is hired.

Solution a. Current labor productivity =

240 = 0.8 boxes per labor-hour 100 logs (3 labor-hours/log)

b. New labor productivity = 260 100 logs (3 hours/log) + 8 hours = 0.844 boxes per labor-hour

Using current productivity (0.8 from [a].) as a base, the increase will be 5.5% (0.844/0.8 = 1.055, or a 5.5% increase)

Calculating Productivity Example 3

10,000 units were produced. They were sold for $10/unit. 500 labour hours were used and the labour rate is $9/hr. Cost of raw materials was $5,000. Cost of purchased material was $25,000. What is the labour productivity (expressed in units per labour hour)? What is the total productivity (expressed in units per $)? 10,000 Units Produced 500 labor hours Cost of raw material: $5,000 What is the labor productivity?
Labour productivity Total productivity ! !

Sold for $10/unit Labor rate: $9/hr Cost of purchased material: $25,000

Output 10,000 units ! ! 20 Labour hours 500 L - hour Output 10,000 10,000 units ! ! ! 0.29 $ All inputs 500 v 9  5,000  25,000 34,500

Example 4-Productivity
Calculate the multifactor productivity measure for each of the weeks shown below. What do the productivity figures suggest? Assume 40-hour weeks and an hourly wage of $12. Overhead is 1.5 times weekly labour cost. Material cost is $6 per kilogram. Selling price is $140 per unit.

Week 1 2 3 4 Looking at week 1-

Output (units) 300 338 322 354

Workers Material (kg) 6 7 7 8 45 46 46 48

Output = 300 units Material = 45kg Number of workers = 6 Sales = 300 X 140 = $42,000 Cost of material = 45 X 6 = $270 Cost of labour = 6 X 40 X 12 = $2880 Cost of overhead = 2880 X 1.5 = $4320 Total cost = $270 + 2880 + 4320 = $7470 Multifactor productivity for week 1 = $42,000/$7470 = $5.62

Example 4 -Productivity cont..

(6) (2) (3) (4) (5) (7) Units $ kg Cost Cost Week Output Sales Material Material Workers Labor 6 1 300 $42,000 45 $270 $2,880 7 2 338 47,320 46 276 $3,360 7 3 322 45,080 46 276 $3,360 8 4 354 49,560 48 288 $3,840 (1) (9) (10) (8) Total MFP Cost Overhead Cost (3)/(9) $4,320 $5,040 $5,040 $5,760 $7,470 5.62 8,676 5.45 8,676 5.20 9,888 5.01

Multifactor productivity is dropping steadily from a high of 5.62 to 5.01 $ output per $ input.

Example 5- Productivity cont..

Western Digital (WD) Makes Ipods and Iphones. Recently, they converted their production process from batch into assembly line. They also used computers to assist the workers at work stations. As a result productivity has shot up. The site manager, Alex says operators made 300 Iphones in seven days using three shifts by a batch process (i.e., 7 days, 24 hours a day). Later, they assembled 500 Iphones in five days using just two shifts with the new assembly-line approach (i.e., 5 days, 16 hours a day). Assuming the same number of workers worked during each shift, and before and after the conversion, what is the growth in labor productivity? Let N = no. of workers per shift Before: Labor productivity = 300 iphones / 3(7)N = 14.2857/N iphones per worker per shift After: Labor productivity = 500 iphones / 2(5)N = 50/N iphones per worker per shift Growth in labor productivity =(50/N 14.2857/N) /(14.2857N) = 2.5 or 250%

About Productivity
 

Productivity growth is a key factor in a country s standard of living. Labour productivity is still the main measure used to gauge the performance of individuals and plants. Wage and price increases not accompanied by productivity increases tend to create inflationary pressure on economy. Because of the large amount of trade with US, it is very important not to lose ground on productivity.

Productivity in the Service Sector

Service Productivity is more difficult to measure than manufacturing productivity for two main reasons: Difficult to find a measure of output (activities with a high degree of variability in both output and input for example: medical diagnosis, legal services, arts, painting).

Sometimes the measures of output result in misleading conclusions (measure the productivity of a hospital by the number of patient-days of care provided).

Factors Affecting Productivity

Capital

Quality

Technology

Management

Improving Productivity
 Develop productivity measures  Determine critical (bottleneck) operations  Develop methods for productivity improvements  Establish reasonable goals  Get management support  Measure and publicize improvements  Don t confuse productivity with efficiency

Bottleneck Operation
Look at the system as a whole in deciding which operations are most critical; it is overall productivity that is important. Figure above which shows several operations feeding their output into a bottleneck operation. The capacity of the bottleneck operation is less than the combined capacities of the operations that provide input, so units queue up waiting to be processed: hence the term bottleneck.
Operation 10/hr

Operation

10/hr Bottleneck Operation 30/hr

Operation

10/hr

Operation

10/hr

End of Lecture # 1

Thank You