EMG 2516: INDUSTRIAL

MANAGEMENT

Lect. 7 – Productivity

By
Dr. James Wakiru
Productivity
introduction
 What is productivity

Productivity is the quality or

state of being productive.
How well labor, capital,
indicate materials and energy are
Productivity is the measure used!.
of how specified resources
are managed to accomplish
timely objectives stated in
terms of quality and

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What is productivity
◦ Production is concerned with the activity of manufacturing goods and
services, whereas productivity means efficient utilization of resources
(inputs) in the manufacturing of goods and services (outputs).
◦ Production is the quantity of output and productivity is the ratio of
outputs to inputs. Productivity denotes the relationship between output
and one or all associated inputs in real terms.
◦ Productivity is the relationship between the outputs generated from a
system and the inputs that are used to create those outputs.
Mathematically
𝑂
𝑃=
𝐼

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What is productivity

Productivity
Land, workforce,
Material, Facilities, Output / Input
Capital, Technology
Equipment, Tools Goods
and
Production System Services

Transformation
End
Input process or Output
Customer
Value addition

𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑎𝑛𝑑 𝑆𝑒𝑟𝑣𝑖𝑐𝑒 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑

Productivity = 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑅𝑒𝑠𝑜𝑢𝑟𝑐𝑒 𝑢𝑠𝑒𝑑

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What is productivity ? Defn’s
◦ “Productivity is the quantitative relation between; what a firm produces
and what a firm uses as a resource to produce output, i.e. arithmetic ratio
of amount produced (output) to the amount of resources (input)”.
◦ “Productivity is an aggregate measure of the efficiency of production; it is the ratio
of output to inputs i.e. capital, labor, land, energy and materials”.
◦ “Productivity refers to the efficiency of the production system and an indicator to;
how well the factors of production (land, capital, labor and energy) are utilized
Increasing productivity
1. Increasing the output using the same input.
2. Reducing the input by maintaining the output as constant.
3. Increasing the output to a maximum extent with a smaller increase in
input.
https://www.economicsdiscussion.net/management/prod
uctivity-meaning-concept-formulas/32324 6
Factors influencing productivity
Material and Energy
i. Selection of quality material and right material.
ii. Control of wastage and scrap.
iii. Effective stock control.
iv. Development of sources of supply.
v. Optimum energy utilization and energy savings

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Factors influencing productivity
Plant layout and Equipment
The size of the plant and the capacity utilization has direct bearing on
productivity. Production below or above the optimum level will be
uneconomical and will tend towards lower level of productivity.
The arrangement of machines and position in the plant and the setup of the
work-bench of an individual worked will determine how economically and
efficiently production will be ferried out.

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Factors influencing productivity
Human related
◦ Expertise:
education, training, experience and aptitude of the employees
◦ Motivation and morale
affected by wage incentive schemes, labour participation in management,
communication systems, informal group relations, promotion policy, union
Management relations, quality of leadership, working hours, sanitation,
ventilation, subsidized canteen and company transport etc.

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Factors influencing productivity
Technological
i. Size and capacity of plant
ii. Product design and standardization
iii. Production planning and control
iv. Plant layout and location
v. Materials handling system
vi. Inspection and quality control
vii. Machinery and equipment used
viii. Research and development

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Factors influencing productivity
EcoSocioPolitical

i. Economic Factors like Size of the market, banking and credit facilities, transport
and communication systems, etc. is important factors influencing productivity.
ii. Political Factors like Law and order, stability of government, harmony between
states etc. are essential for high productivity in industries Taxation policies of the
government influence willingness to work, capital formation, modernization and
expansion of plants etc. Industrial policy affects the size, and capacity of plants.
Elimination of sick and inefficient units also helps to improve productivity.
iii. Social Factors like Social customs, traditions and institutions influence
attitudes towards work and job. For instance, bias on the basis of caste, religion,
etc., inhibited the growth of modern industry in some countries. The joint family
system affected incentive to work hard in India. Close ties with land and native
place hampered stability and discipline among industrial labour.

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Factors influencing productivity
Natural Resources:
Natural factors such as physical, geographical and climate conditions exert
considerable influence on productivity, particularly in extreme climates (too
cold or too hot) tends to be comparatively low. Natural resources like water,
fuel and minerals influence productivity.
Government Factor:
Government policies and programs are significant to productivity practices of
government agencies, transport and communication power, and fiscal
policies (interest rates, taxes) influence productivity to the greater extent

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Productivity Improvement
Productivity Improvement (PI) is the result of managing and intervening in
transformation or work processes.

PI will occur if:

O O O O O
I I I I I
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Benefits of high productivity
Management:
i. Increase in income/profitability.
ii. Lowering running costs/operational costs.
iii. Maximizing the use of all of the company’s resources such as land,
equipment’s/machineries, factory, workers, and etc.
iv. Gaining a greater share of the market.
v. More cash flows mean more opportunity for the company to expand and
grow.
vi. To clear the debt or loans acquired from different sources.
vii. To stand better in the market.
viii. Contributes to the competitive advantages of firm.

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Benefits of high productivity
Customers:
i. Productivity helpful in reduced price of the article.
ii. Higher productivity results in better customer satisfaction.
iii. Customers are provided with good quality products at low prices

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Benefits of high productivity
Employees:
i. Company can pay higher salary and wages.
ii. Better Working Conditions.
iii. Higher standard of living.
iv. Job Security and Satisfaction.

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How is the implementation of
Productivity Benefit Model ?
Case Study :
▪ A company manufacturing toys sold one of its models (model Z) for
$7 per unit last year, during which time, the company sold 10,000 of
the model Z toy. The sales price of $7 included $2 for profit after
all the costs were accounted for.
▪ This year, as a result of the improvement in the total productivity
level for the model Z toy, the company was able to reduce the total
cost per unit by $1. What benefits does this company realize this
year?

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How is the implementation of
Productivity Benefit Model ?
Results :
▪ Last year :
▪ Selling price/unit = $7
▪ Profit margin/unit =$2
▪ Total cost/unit = 7 – 2 = $5
▪ Total profit for model Z = 2 x 10,000 = $20,000
▪ Sales revenue = 7 x 10,000 = $70,000

▪ This year (after improvement) :

▪ Total cost/unit = last year cost/unit - $1 = 5 – 1 = $4
▪ (Suppose the same profit margin) Selling price = 4 + 2 = $6
▪ (Suppose the same sold product) Sales revenue = 6 x 10,000 = $60,000

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Productivity
indexes
 Productivity indexes
▪ Tracking indexes – success/failure of decisions and
projects
▪ Comparison purposes

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 Productivity indexes
▪ Productivity index

𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑜𝑓 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑒𝑟𝑖𝑜𝑑

Productivity index =
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑜𝑓 𝑏𝑎𝑠𝑒 𝑝𝑒𝑟𝑖𝑜𝑑

Productivity index current period is 1.93 and base period 1.75 ➔ Firms PI
increased by 10%
If current productivity is 1.66 ➔Firms Productivity fell to 95%; 5% drop in the
current year

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 Productivity indexes
▪ Productivity index

𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑜𝑓 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑒𝑟𝑖𝑜𝑑

Total Productivity index =
𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑜𝑓 𝑏𝑎𝑠𝑒 𝑝𝑒𝑟𝑖𝑜𝑑

Labour productivity index

Management productivity index
Machine productivity index
Land productivity index
Material productivity index
Energy productivity index

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Productivity measurement
In order to produce anything, we need:
▪ Show link with profitability
▪ Inputs include capital, labor, material and energy.
▪ capital,
▪ land, facilities, machine tools, mineral deposits, energy resources,
ingenuity, activity, climate, electrical power, organization, rational
price and a host of other factors.

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 Productivity measurement
Single-Factor productivity measurement (SPFM)
▪ Measure productivity of each resource separately: measure of output
against specific input
𝑂𝑢𝑡𝑝𝑢𝑡𝑠 𝑂𝑢𝑡𝑝𝑢𝑡𝑠 𝑂𝑢𝑡𝑝𝑢𝑡𝑠 𝑂𝑢𝑡𝑝𝑢𝑡𝑠
SFPM= = = =
𝐿𝑎𝑏𝑜𝑟 𝑖𝑛𝑝𝑢𝑡 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑖𝑛𝑝𝑢𝑡 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑖𝑛𝑝𝑢𝑡 𝐸𝑛𝑒𝑟𝑔𝑦 𝑖𝑛𝑝𝑢𝑡

Advantages: Disadvantages:
- Easy to comprehend and collect data - Misinterpreted (technical change, labor
- Diagnostic tool effectiveness?
- Ease in comparing businesses in the - Overall business performance not reflected
industry - Wrong areas of improvement may be
identified

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Productivity measurement
Multi-Factor productivity measurement (MFP)
▪ Measure productivity considering more than one resources(input)
▪ Inputs: Labor, material and energy(Capital hard to estimate
consumed per unit time + depreciation)
𝑂𝑢𝑡𝑝𝑢𝑡 𝑂𝑢𝑡𝑝𝑢𝑡𝑠
MFP= 𝑜𝑟
𝐿𝑎𝑏𝑜𝑟+𝑀𝑎𝑐ℎ𝑖𝑛𝑒+𝐸𝑛𝑒𝑟𝑔𝑦 𝐿𝑎𝑏𝑜𝑟+𝐸𝑛𝑒𝑟𝑔𝑦+𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙

Advantages:
• Considers intermediate inputs of a business.
• Measures technical change in an industry. Disadvantages of Multi-Factor
Productivity
• Difficulty in obtaining all the inputs.
• Difficulty in communicating inter-industry linkages and aggregation

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Productivity measurement
Example:
Five workers each working 40 hours in a week, for a total of 200 hours,
and they produced 4,000 units at the end of the week. If you were
paying everyone $10 per hour, compute the productivity and labor
productivity.

Solution:
4000
MFP= = 200 units/hour
200
200
Labor productivity = = 20 units/dollar
20

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 Productivity measurement
Total (Composite) Factor productivity Measure
▪ Measure productivity considering only labor and capital as main
inputs
𝑁𝑒𝑡 𝑂𝑢𝑡𝑝𝑢𝑡 𝑇𝑜𝑡𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡−𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑎𝑛𝑑 𝑠𝑒𝑟𝑣𝑖𝑐𝑒 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑
TFP= =
(𝐿𝑎𝑏𝑜𝑟+𝐶𝑎𝑝𝑖𝑡𝑎𝑙) 𝐼𝑛𝑝𝑢𝑡 (𝐿𝑎𝑏𝑜𝑟+𝐶𝑎𝑝𝑖𝑡𝑎𝑙) 𝐼𝑛𝑝𝑢𝑡

Advantages: Disadvantages:
- Easy to comprehend and collect data - Misinterpreted (technical change, labor
- Diagnostic tool effectiveness?
- Ease in comparing businesses in the - Overall business performance not reflected
industry - Wrong areas of improvement may be
identified

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 Productivity measurement
Total productivity Model
▪ This model can be applied in any manufacturing or service organization
Total Tangible Output = Value of finished units produced + Partial units
produced + Dividends from securities + Interests from bonds + other incomes
Total Tangible Inputs = Value of human inputs + Capital inputs + Materials
purchased + Energy inputs + other expenses (taxes, transport & office expenses
etc.).

Advantages: Disadvantages:
- All quantifiable inputs considered - Data difficult to compute
- Sensitivity analysis - Does not consider intangible factors of
- Provides both firm level and input and output
operational unit level productivity.

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Productivity measurement
𝑇𝑜𝑡𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡
𝐿𝑎𝑏𝑜𝑢𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑡𝑦 = 𝐻𝑢𝑚𝑎𝑛 𝐼𝑛𝑝𝑢𝑡

measurement
Single-Factor
productivity
𝑇𝑜𝑡𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑡𝑦 = 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐼𝑛𝑝𝑢𝑡

(SPFM)
𝑇𝑜𝑡𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡
𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑡𝑦 = 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝐼𝑛𝑝𝑢𝑡
𝑇𝑜𝑡𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡
𝐸𝑛𝑒𝑟𝑔𝑦 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑡𝑦 = 𝐸𝑛𝑒𝑟𝑔𝑦 𝐼𝑛𝑝𝑢𝑡

𝑇𝑜𝑡𝑎𝑙 𝑇𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝑂𝑢𝑡𝑝𝑢𝑡

𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑡𝑦 = 𝑇𝑜𝑡𝑎𝑙 𝑇𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝐼𝑛𝑝𝑢𝑡
𝑁𝑒𝑡 𝑂𝑢𝑡𝑝𝑢𝑡
𝑇𝑜𝑡𝑎𝑙 𝐹𝑎𝑐𝑡𝑜𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑡𝑦 = 𝐿𝑎𝑏𝑜𝑢𝑟+𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐼𝑛𝑝𝑢𝑡

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Application of Productivity Measures

Individual level
Group level
Department level
Corporate level
National level
Global level
 Importance of Global-Level Productivity
Measures
▪ Measure and compare competitiveness among nations.
▪ Contribute to the development of a nation’s economic, social, and political
policies.
▪ Develop global cooperation among nations.
▪ Help business organizations make investment decisions.

• Organisation for Economic Co-operation and Development (OECD) –

http://www.oecd.org/home/
• GDP per capita (labor productivity * fraction of people who work) is widely regarded
as the best measure.
• A common currency is used to measure the GDP.
Productivity drivers
▪ Investment in physical capital
Machinery, equipment and buildings. The more capital workers have
at their disposal, generally the better they are able to do their jobs,
producing more and better-quality output.
▪ Skills:
Complement physical capital and are needed to take advantage of
investment in new technologies and organizational structures.

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Productivity drivers
▪ Enterprise:
New enterprises compete with existing firms by new ideas and
technologies increasing competition. Entrepreneurs are able to
combine factors of production and new technologies forcing existing
firms to adapt or exit the market.
▪ Competition:
- Creates incentives to innovate and ensures that resources are allocated
to the most efficient firms.
- Forces existing firms to organize work more effectively through imitations
of organizational structures and technology.

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Other Measures Affecting Productivity

▪ Efficiency
▪ Effectiveness
▪ Quality
▪ Quality of Work Life
▪ Innovation
Efficiency
Measures the resources expected to be consumed to the resources actually
consumed.
Hence, it focuses on the input side of the system. (To what degree did the
system utilize the “right” things.)

▪ Forecasts
- Top-down/ market driven/capacity driven
▪ Plant integrity and performance
- Accurate working
▪ Raw / materials quality
-
Effectiveness
Measures what the system sets out to accomplish (objective) with what was
actually accomplished; plan vs. actual
Hence, effectiveness is an output measure. (Is the output “right” - right
quality, right quantity, on time, etc.)

▪ Accurate plan/forecasts/budgets
- Top-down/ market driven/capacity driven
▪ Equipment performance
- Accurate working
▪ Output quality
- standards
Quality
Degree to which the outputs (products and services) from the system conform
to requirements or meet customer expectations.
The focus is on quality attributes (e.g., conformance, performance,
convenience, responsiveness, perceived quality.)
Quality of Work Life (QWL)

Measures the way that employees in a system respond to the sociotechnical

aspects of that system.
Workplace stress

6%
20%
46%
▪ Job satisfaction 28%
▪ Workplace stress
▪ Financial reimbursement
▪ Work-life balance
▪ Working condition or job Workload People issues
environment Worklife balance Lack of job security
Innovation Measures the applied creativity of the system.
Relates to the design and development of
improved products, services, and processes.
New technologies, new products or new
corporate/management practices and ways of
working, business models. Speeding up the
diffusion of innovations can boost productivity.
Productivity
improvement
models and
techniques
Productivity improvement
CONTRIBUTION TO PRODUCTIVITY IMPROVEMENT
Labor
10%

Management
52% Capital
38%

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Productivity improvement models
Material planning and control
Purchasing, logistics, material storage and retrieval, source selection and
procurement of quality material, waste elimination.
i. Material planning and control.
ii. Material storage and retrieval.
iii. Source selection and procurement of quality material.
iv. Waste elimination.
v. Recycling and reuse of waste materials.
vi. Purchasing logistics.

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Productivity improvement models
Process or Task based
▪ Process based productivity: management style, communication in the
organization, work culture, motivation, promotion group activities.
▪ Improvements in doing work like; process design and human factor
engineering, to increase productivity;
▪ Method Study and work measurement techniques of simplifying any task-
(a) Method Engineering is the systematic recording and critical examination
of the present and the proposed way of doing work as a means of developing
better economical, easier and efficient way of doing work and implementing
it.
(b) Work Measurement is an application of technique designed to establish
and time required by qualified worker to carry out specified tasks at defined
level of performance. In short, measurement of time to do work.

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Productivity improvement
models
Supply chain management
▪ work with sub-соntractors as wеll as logistics
providers to assure hіgh quality, low costs, and
quіck delivery.
▪ Integration process between stakeholders
▪ collaborative
▪ share expertise and assist each other improve
▪ VMI/RMI

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Productivity improvement models
Automation and information technology
▪ IT offers more of support.
▪ Reciprocity: Invest and change internal processes to effectively utilize
Worker training, reorganizing work place, new business systems
▪ Improved software: Integration
ERP, SCM, CRM
(a) Computer Aided Design (CAD) design product, process or system
(b) Computer Added Machining (CAM): design and control the manufacturing
(c) Computer Integrated Manufacturing (CIMS): automatic line balancing,
machine loading (scheduling and sequencing), automatic inventory control
and inspection

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Enterprise Systems (ES)
Enterprise systems (ES) are large-scale organizational systems
which composed of people, processes and information
technology built around packaged enterprise system software:
✓ is a set of packaged application software modules, with an
integrated architecture, that can be used by organizations as
their primary engine for integrating data, processes, and
information technology, in real time, across internal and
external value chains;

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 Productivity
improvement
SCM models

Automation and
information technology
Enterprise resource
planning (ERP)

CRM

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Why ERP?
Major Reasons:
▪ To integrate financial data.
▪ To integrate customer order information
▪ To standardize manufacturing processes.
▪ Reduce inventory
▪ To standardize HR information.

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Major Challenges to ERP Implementation
▪ Limitations of ERP technical capabilities
▪ Inconsistency with existing business processes
▪ Costs - implementation (hardware, software, training,
consulting) and maintenance
▪ Impact on organizational structure (front office vs.
back office, product lines, etc.)
▪ Changes in employee responsibilities
Major Challenges to ERP
Implementation

▪ Flexibility of software system upgrades

▪ Implementation timelines
▪ Availability of internal technical knowledge and
resources
▪ Education and training
▪ Implementation strategy and execution
▪ Resistance to change
Productivity improvement models
Product based
Productivity can be improved by taking following action regarding product:
i. Value analysis and value engineering.
ii. Product diversification.
iii. Standardization and simplification.
iv. Reliability engineering.
v. Product mix and promotion.

51
Productivity improvement models
Product based
Productivity can be improved by taking following action regarding product:
i. Value analysis and value engineering.
▪ Value analysis−Existing products

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Productivity
improvement
models
Product based

i. Value analysis and value

engineering.
▪ Value Engineering –
New products

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 Productivity
improvement
models
Product based

ii. Product diversification.

▪ Defensive
▪ Offensive
▪ Proactive

Starbuck 2010 Retail Mix: Product type

54
Productivity improvement models
Product based
Productivity can be improved by taking following action regarding product:
i. Value analysis and value engineering.
ii. Product diversification.
iii. Standardization and simplification.
iv. Reliability engineering.
v. Product mix and promotion.

55
Productivity
improvement models
Product based
iv. Reliability engineering.

▪ The VDM Process Map describes all maintenance

competences

▪ Critical equipment - Failure Mode & Effects Analysis

(FMEA) performed to define the maintenance concepts,
plans, tasks and the essential critical spare parts and
their stock levels.

▪ Correct asset-based data is needed such as an asset

breakdown structure, breakdown data and asset
specific failure modes.

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Productivity improvement models
Product based
iv. Reliability engineering.

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 Productivity
improvement Professional
development
Professional
development
Professional
development keeps

models of the
workforce
expands your
knowledge base.
professionals current
on industry trends.

Upgrade skills of workforce. Professional

Professional
development boosts
development
▪ Internal mechanisms: provides right skills.
confidence and
credibility.
extеnsive training, jоb
rotation, multitаsking, and
empowеrment of
emplоуees.
▪ Improve morale and
productivity

58
Productivity improvement models
Management based
▪ Management can increase productivity by taking the actions like;
management technique, communication and promoting group activity,
work culture and motivation.
(a) Work Culture:
Work culture is a combination of qualities in an organization and its employees
that arise from what is generally regarded as appropriate ways to think and act. A
mix of practices and ideologies arising from the interactions of people with their
work environments shaped in all by diversity.
(b) Motivation:
To have motivated employees means increased productivity at work. To do this,
offer rewards for milestones they achieve. If employees are rewarded, they will
see their hard work paying off in tangible way i.e., productivity.

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Productivity improvement techniques
Work study

Research and development Quality Circles

Quality of Work
Incentives scheme
Life
PRODUCTIVITY
IMPROVEMENT
TECHNIQUES
Flexitime
Production Planning
and Control
Job enrichment

Work participation in Management By

Management Objectives
Automation
Productivity and Quality
▪ Design and layout selection:
Arrangement of machinery and equipment
Operating expenses and interest expenses (borrowing)
Simplified Systematic Layout Planning:
1. Chart the Relationships
2. Establish Space Requirements
Relationship Chart
3. Diagram Activity Relationships A – Absolutely necessary
4. Draw Space Relationships E – Especially important
5. Evaluate Alternative Arrangements I – Important
6. Detail the Selected Layout Plan O – Okay
U – Unimportant
X – Undesirable

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