Chapter 1Chapter 1

Operations as aOperations as aCompetitive WeaponCompetitive Weapon

Learning ObjectivesLearning Objectives

• Meaning of Operations ManagementMeaning of Operations Management• Meaning of ProcessMeaning of Process• Differences and Similarities of Differences and Similarities of

Manufacturing and ServicesManufacturing and Services• Trends in Operations ManagementTrends in Operations Management• Operations Management across the Operations Management across the

OrganizationOrganization

Operations ManagementOperations Management

• Operation include activities directly Operation include activities directly related to producing goods and services.related to producing goods and services.

• Operation is a function or system that Operation is a function or system that transforms inputs into outputs of greater transforms inputs into outputs of greater value.value.

• Management involves planning, Management involves planning, organizing, staffing, directing and organizing, staffing, directing and improving people to achieve the goal.improving people to achieve the goal.

Operations ManagementOperations Management

• Operations Management can be Operations Management can be defined as planning, organizing, defined as planning, organizing, staffing, controlling and directing the staffing, controlling and directing the production system and also designing production system and also designing operating and improvement of the operating and improvement of the production systems.production systems.

• Operations Management deals with Operations Management deals with processes that produces goods and processes that produces goods and services that people use every day.services that people use every day.

Operations ManagementOperations Management• Operations management is an area of Operations management is an area of

business that is concerned with the business that is concerned with the production of goods and services, and production of goods and services, and involves the responsibility of ensuring involves the responsibility of ensuring that that business operations are are efficient and and effective. It is the management of . It is the management of resources, the distribution of goods and resources, the distribution of goods and services to customers, and the analysis services to customers, and the analysis of queue systems.of queue systems.

Operations ManagementOperations Management

• Operations Management is the Operations Management is the management of systems or processes management of systems or processes that create goods or/and provide that create goods or/and provide services.services.

• Operations Management is the Operations Management is the business function responsible for business function responsible for planning, coordinating, and controlling planning, coordinating, and controlling the the resourcesresources needed to needed to produceproduce a a company’s company’s productsproducts and services. and services.

Operations ManagementOperations Management

• Operations Management refers to the Operations Management refers to the direction and control of the process that direction and control of the process that transform inputs into products and transform inputs into products and services. services.

• Operations management (OM) is Operations management (OM) is defined as the design, operation, and defined as the design, operation, and improvement of the systems that create improvement of the systems that create and deliver the firm’s primary products and deliver the firm’s primary products and services.and services.

Why Study Operations Management?Why Study Operations Management?

Business Education

Systematic Approach to Org. Processes

Career Opportunities

Cross-Functional Applications

OperationsManagement

Reasons for Studying Reasons for Studying Operations ManagementOperations Management

• A business education is incomplete without an A business education is incomplete without an understanding of modern approaches to understanding of modern approaches to managing operations. Every organization managing operations. Every organization produces some product or service so students produces some product or service so students must be exposed to modern approaches for must be exposed to modern approaches for doing this effectively.doing this effectively.

• Operations management provides a Operations management provides a systematic way of looking at organizational systematic way of looking at organizational process. Operations management uses process. Operations management uses analytical thinking to deal with real-world analytical thinking to deal with real-world problems. It sharpness our understanding of problems. It sharpness our understanding of the world around us.the world around us.

Reasons for Studying Reasons for Studying Operations ManagementOperations Management

• Operations management presents Operations management presents interesting career opportunities. These interesting career opportunities. These can be in direct supervision of operations can be in direct supervision of operations or in staff position in operations or in staff position in operations management specialties such as supply management specialties such as supply chain management and quality assurance.chain management and quality assurance.

• The concepts and tools of operations The concepts and tools of operations management are widely used in managing management are widely used in managing other functions of a business. All other functions of a business. All managers have to plan work, control managers have to plan work, control quality, and ensure productivity of quality, and ensure productivity of individuals under their supervision.individuals under their supervision.

How is operations relevant How is operations relevant to my major?to my major?

• AccountingAccounting

• Information Information TechnologyTechnology

• ManagementManagement

• ““As an auditor you must As an auditor you must understand the fundamentals understand the fundamentals of operations management.”of operations management.”

• ““IT is a tool, and there’s no IT is a tool, and there’s no better place to apply it than in better place to apply it than in operations.” operations.”

• ““We use so many things you We use so many things you learn in an operations class—learn in an operations class—scheduling, lean production, scheduling, lean production, theory of constraints, and theory of constraints, and tons of quality tools.”tons of quality tools.”

How is operations relevant How is operations relevant to my major? to my major?

• EconomicsEconomics

• MarketingMarketing

• FinanceFinance

• ““It’s all about processes. I live It’s all about processes. I live by flowcharts and Pareto by flowcharts and Pareto analysis.”analysis.”

• ““How can you do a good job How can you do a good job marketing a product if you’re marketing a product if you’re unsure of its quality or delivery unsure of its quality or delivery status?”status?”

• ““Most of our capital budgeting Most of our capital budgeting requests are from operations, requests are from operations, and most of our cost savings, and most of our cost savings, too.”too.”

OM Across the OrganizationOM Across the Organization

• Most businesses are supported by the Most businesses are supported by the functions of operations, marketing, and functions of operations, marketing, and financefinance

• The major functional areas must interact to The major functional areas must interact to achieve the organization goalsachieve the organization goals

• Marketing is not fully capable of meeting Marketing is not fully capable of meeting customer needs if they do not understand customer needs if they do not understand what operations can producewhat operations can produce

• Human resources must understand job Human resources must understand job requirements and worker skillsrequirements and worker skills

OM Across the OrganizationOM Across the Organization

• Finance cannot judge the need for Finance cannot judge the need for capital investments if they do not capital investments if they do not understand operations concepts and understand operations concepts and needs.needs.

• Information systems enables the Information systems enables the information flow throughout the information flow throughout the organization.organization.

• Accounting needs to consider Accounting needs to consider inventory management, capacity inventory management, capacity information, and labor standards.information, and labor standards.

Operations Decision MakingOperations Decision MakingMarketplaceMarketplace

Corporate StrategyCorporate Strategy

Operations StrategyOperations Strategy

Operations ManagementOperations Management

Marketing StrategyMarketing StrategyFinance StrategyFinance Strategy

PeoplePeople PlantsPlants PartsParts ProcessesProcesses

Planning and ControlPlanning and Control

Production SystemProduction System

Materials &Materials &CustomersCustomers

InputInput

Products &Products &ServicesServices

OutputOutput

OM ResponsibilitiesOM Responsibilities

• Line management ResponsibilitiesLine management Responsibilities• Management Decisions can be divided Management Decisions can be divided

into three broad areas:into three broad areas:1.1. Strategic (long-term) decisionsStrategic (long-term) decisions2.2. Tactical (intermediate-term) Tactical (intermediate-term) decisionsdecisions3.3. Operational planning and control Operational planning and control (short-term) decisions.(short-term) decisions.

Responsibilities of Operations Responsibilities of Operations ManagementManagement

Products & services

Planning– Capacity– Location–– Make or buy– Layout– Projects– Scheduling

Controlling/Improving– Inventory– Quality

Organizing– Degree of centralization– Process selection

Staffing– Hiring/laying off– Use of Overtime

Directing– Incentive plans– Issuance of work orders– Job assignments

– Costs– Productivity

Key Decisions of Key Decisions of Operations ManagersOperations Managers

• WhatWhatWhat resources/what amountsWhat resources/what amounts

• WhenWhenNeeded/scheduled/orderedNeeded/scheduled/ordered

• WhereWhereWork to be doneWork to be done

• HowHowDesignedDesigned

• WhoWhoTo do the workTo do the work

Operations as a Operations as a Transformation ProcessTransformation Process

1-1-1919

INPUT •Material•Machines•Labor•Management•Capital

TRANSFORMATIONPROCESS

OUTPUT •Goods•Services

Feedback & Requirements

Types of TransformationTypes of Transformation

• Physical--manufacturingPhysical--manufacturing

• Locational--transportationLocational--transportation

• Exchange--retailingExchange--retailing

• Storage--warehousingStorage--warehousing

• Physiological--health carePhysiological--health care

• Informational--telecommunicationsInformational--telecommunications

Five P’s of Transformation Five P’s of Transformation ProcessProcess

• PeoplePeople• PlantsPlants• PartsParts• ProcessProcess• Planning and ControllingPlanning and Controlling

Input – Transformation – Output Input – Transformation – Output Relationships for Typical SystemsRelationships for Typical Systems

Systems Primary Inputs

Resources Primary Transformation function (s)

Typical Desired Output

Hospital Patients Doctors, Nurses, Medical Supplies, Equipment

Health Care (Physiological)

Healthy individuals

Restaurant Hungry customers

Food, chef, wait-staff, environment

Well-prepared, well-served food; agreeable environment (Physical and exchange)

Satisfied customers

Input – Transformation – Output Input – Transformation – Output Relationships for Typical SystemsRelationships for Typical Systems

Systems Primary Inputs

Resources Primary Transformation function (s)

Typical Desired Output

Automobile factory

Sheet steel, engine parts

Tools, equipment, workers

Fabrication and assembly of cars (Physical)

High-quality cars

College or university

High-school graduate

Teachers, books, class rooms

Imparting knowledge and skills

( informational)

Educated individual

Operations Management Operations Management as a Functionas a Function

Figure 1.4Figure 1.4

Operations as technical coreOperations as technical core

• OperationsOperations• MarketingMarketing• Finance and Finance and

accountingaccounting• Human resourcesHuman resources• Outside suppliersOutside suppliers

1-1-2525

Business Information FlowBusiness Information Flow

Types of OM DecisionsTypes of OM Decisions• Part 1 : Strategic Choices:Part 1 : Strategic Choices: Operations Operations

managers help to determine the company’s managers help to determine the company’s global strategies and competitive priorities global strategies and competitive priorities and how best to design process that fit with and how best to design process that fit with its competitive priorities.its competitive priorities.

• Part 2 : Process:Part 2 : Process: Process are fundamental Process are fundamental to all activities that produce goods or to all activities that produce goods or services. Operations managers make services. Operations managers make process decisions about the types of work process decisions about the types of work to be done in house, the amount of to be done in house, the amount of automation to use, and methods of automation to use, and methods of improving existing systems.improving existing systems.

Types of OM DecisionsTypes of OM Decisions• Part 3 : Quality :Part 3 : Quality : Quality issues underlie all Quality issues underlie all

process and work activity. Operations managers process and work activity. Operations managers help establish quality objectives and seek ways to help establish quality objectives and seek ways to improve the quality of the firm’s products and improve the quality of the firm’s products and services.services.

• Part 4 : Capacity, Location, Layout:Part 4 : Capacity, Location, Layout: The types of The types of decisions in this category often require long-term decisions in this category often require long-term commitments. Operation managers help determine commitments. Operation managers help determine the system’sthe system’s capacity (Capacity); the location of capacity (Capacity); the location of news facilities including global operations news facilities including global operations (Location); and the organization of departments (Location); and the organization of departments and a facility’s physical layout (Layout)and a facility’s physical layout (Layout)

Types of OM DecisionsTypes of OM Decisions

• Part 5: Operating Decision: Part 5: Operating Decision: Operations manager help to coordinate Operations manager help to coordinate the various parts of the internal and the various parts of the internal and external supply chain (Supply-Chain external supply chain (Supply-Chain Management), forecast demand Management), forecast demand (Forecasting), manage inventory (Forecasting), manage inventory (Inventory Management), and control (Inventory Management), and control output and staffing levels over time output and staffing levels over time (Aggregate Planning).(Aggregate Planning).

Development of OM as a Development of OM as a FieldField

ScientificScientificManagementManagement

Moving AssemblyMoving AssemblyLineLine

HawthorneHawthorneStudiesStudies

OperationsOperationsResearchResearch

HistoricalHistoricalUnderpinningsUnderpinnings

ComputersComputers(MRP)(MRP)

JIT/TQC &JIT/TQC &AutomationAutomation

ManufacturingManufacturingStrategyStrategy

Service QualityService Qualityand Productivityand Productivity

TQM & QualityTQM & QualityCertificationCertification

Business ProcessBusiness ProcessReengineeringReengineering

ElectronicElectronicEnterpriseEnterprise

Global SupplyGlobal SupplyChain Mgmt.Chain Mgmt.

OM's EmergenceOM's Emergenceas a Fieldas a Field

Historical Events in Historical Events in Operations ManagementOperations Management

EraEra Events/ConceptsEvents/Concepts DatesDates OriginatorOriginator

IndustrialIndustrialRevolutionRevolution

Steam engineSteam engine 17691769 James WattJames Watt

Division of laborDivision of labor 17761776 Adam SmithAdam Smith

Interchangeable partsInterchangeable parts 17901790 Eli WhitneyEli Whitney

Scientific Scientific ManagementManagement

Principles of scientificPrinciples of scientificmanagementmanagement

19111911 Frederick W. TaylorFrederick W. Taylor

Time and motion Time and motion studiesstudies 19111911 Frank and Lillian Frank and Lillian

GilbrethGilbreth

Activity scheduling Activity scheduling chartchart 19121912 Henry GanttHenry Gantt

Moving assembly lineMoving assembly line 19131913 Henry FordHenry Ford

Historical Events in Historical Events in Operations Management Operations Management

(cont.)(cont.)EraEra Events/ConceptsEvents/Concepts DatesDates OriginatorOriginator

Human Human RelationsRelations

Hawthorne studiesHawthorne studies 19301930 Elton MayoElton Mayo

Motivation theoriesMotivation theories1940s1940s Abraham MaslowAbraham Maslow1950s1950s Frederick HerzbergFrederick Herzberg1960s1960s Douglas McGregorDouglas McGregor

Operations Operations ResearchResearch

Linear programmingLinear programming 19471947 George DantzigGeorge DantzigDigital computerDigital computer 19511951 Remington RandRemington RandSimulation, waitingSimulation, waitingline theory, decisionline theory, decisiontheory, PERT/CPMtheory, PERT/CPM

1950s1950s Operations Operations research groupsresearch groups

MRP, EDI, EFT, CIMMRP, EDI, EFT, CIM 1960s, 1960s, 1970s1970s

Joseph Orlicky, IBMJoseph Orlicky, IBMand othersand others

Historical Events in Historical Events in Operations Management Operations Management

(cont.)(cont.)

EraEra Events/ConceptsEvents/Concepts DatesDates OriginatorOriginator

QualityQualityRevolutionRevolution

JIT (just-in-time)JIT (just-in-time) 1970s1970s Taiichi Ohno (Toyota)Taiichi Ohno (Toyota)

TQM (total qualityTQM (total qualitymanagement)management)

1980s1980sW. Edwards Deming, W. Edwards Deming, Joseph JuranJoseph Juran

Strategy andStrategy andoperationsoperations

1980s1980sWickham Skinner, Wickham Skinner, Robert HayesRobert Hayes

Business process Business process reengineeringreengineering 1990s1990s

Michael Hammer,Michael Hammer,James ChampyJames Champy

Six SigmaSix Sigma 1990s1990s GE, MotorolaGE, Motorola

Historical Events in Historical Events in Operations Management Operations Management

(cont.)(cont.)EraEra Events/ConceptsEvents/Concepts DatesDates OriginatorOriginatorInternet Internet RevolutionRevolution

Internet, WWW, ERP, Internet, WWW, ERP, supply chain supply chain managementmanagement

1990s1990s ARPANET, TimARPANET, TimBerners-Lee SAP,Berners-Lee SAP,i2 Technologies,i2 Technologies,ORACLEORACLE

E-commerceE-commerce 2000s2000s Amazon, Yahoo, Amazon, Yahoo, eBay, Google, and eBay, Google, and othersothers

GlobalizationGlobalization WTO, European Union, WTO, European Union, and other trade and other trade agreements, global agreements, global supply chains, supply chains, outsourcing, BPO, outsourcing, BPO, Services ScienceServices Science

1990s1990s2000s2000s

Numerous Numerous countriescountriesand companiesand companies

Differences between Differences between Manufacturing and Service Manufacturing and Service

OrganizationsOrganizations• ServicesServices• Intangible, perishable Intangible, perishable

productproduct• Service cannot be Service cannot be

inventoriedinventoried• High customer High customer

contactcontact• Short response timeShort response time• Labor intensiveLabor intensive

• ManufacturingManufacturing• Physical, durable Physical, durable

productproduct• Product can be Product can be

inventoriedinventoried• Low customer Low customer

contactcontact• Longer response Longer response

timetime• Capital intensiveCapital intensive

Differences between Differences between Manufacturing and Service Manufacturing and Service

OrganizationsOrganizations

• ServicesServices• Small FacilitiesSmall Facilities• Quality not easily Quality not easily

measuredmeasured• Local MarketsLocal Markets

• ManufacturingManufacturing• Large facilitiesLarge facilities• Quality easily Quality easily

measuredmeasured• Regional, national Regional, national

or international or international marketsmarkets

The Range From Services to The Range From Services to ProductsProducts

Similarities between Services Similarities between Services and Manufacturingand Manufacturing

• All use technology All use technology • Both have quality, productivity, & Both have quality, productivity, &

response issuesresponse issues• All must forecast demandAll must forecast demand• Each will have capacity, layout, and Each will have capacity, layout, and

location issueslocation issues• All have customers, suppliers, All have customers, suppliers,

scheduling and staffing issuesscheduling and staffing issues

Service - ManufacturingService - Manufacturing

• Manufacturing often provides servicesManufacturing often provides services• Services often provides tangible goodsServices often provides tangible goods• Some organizations are a blend of Some organizations are a blend of

service/ manufacturing/ quasi-service/ manufacturing/ quasi-manufacturing (QM) organizationsmanufacturing (QM) organizations

• QM characteristics includeQM characteristics include– Low customer contact & Capital IntensiveLow customer contact & Capital Intensive

Trends in OMTrends in OM

Several business trends are currently Several business trends are currently having a great impact on operations having a great impact on operations management. These aremanagement. These are

Growth of the service sectorGrowth of the service sector Productivity ChangesProductivity Changes Global CompetitivenessGlobal Competitiveness Quality, time and technological changeQuality, time and technological change Environmental, ethical and diversity Environmental, ethical and diversity

issuesissues

Trends in OMTrends in OM• Service sector growth:Service sector growth: The service The service

sector of the economy is significant. sector of the economy is significant. Services may be divided into three main Services may be divided into three main groups. These aregroups. These are

GovernmentGovernment Wholesale and retail salesWholesale and retail sales Other services (transportation, public Other services (transportation, public

utilities, communication, health etc)utilities, communication, health etc)

The share of the workforce in service The share of the workforce in service jobs is well above 60 percent in Britain, jobs is well above 60 percent in Britain, Canada, France and Japan.Canada, France and Japan.

Trends in OMTrends in OM

• Service sector growing to Service sector growing to 50-80% of non-farm jobs- 50-80% of non-farm jobs- See Global See Global competitivenesscompetitiveness

• Demands for higher Demands for higher qualityquality

• Huge technology Huge technology changeschanges

• Time based competitionTime based competition• Work force diversityWork force diversity

Trends in OMTrends in OM

• Productivity Changes:Productivity Changes: Productivity is Productivity is the value of outputs (goods and the value of outputs (goods and services) produced divided by the value services) produced divided by the value of input resources (wages, costs of of input resources (wages, costs of equipment and the like) used. The value equipment and the like) used. The value of output can be measured by what the of output can be measured by what the customer pays or simply by the number customer pays or simply by the number of units produced or customers served. of units produced or customers served. The value of inputs can be measured by The value of inputs can be measured by their costs or simply by the number of their costs or simply by the number of hours worked.hours worked.

Trends in OMTrends in OM

• Global Competitiveness:Global Competitiveness: Strong Strong global competition affects industries global competition affects industries everywhere. Most products today everywhere. Most products today are global composites of material are global composites of material and services from throughout the and services from throughout the world. Polo Shirt is sewn in world. Polo Shirt is sewn in Hondurus from cloth cut in the Hondurus from cloth cut in the United states.United states.

Trends in OMTrends in OM• Competition based on quality, time Competition based on quality, time

and technology:and technology: Another important Another important trend is that more firms are competing trend is that more firms are competing on the basis of time; filling orders on the basis of time; filling orders earlier than the competitors, earlier than the competitors, introducing new products and services introducing new products and services quickly, and reaching the market first. quickly, and reaching the market first. Another increasing important factor in Another increasing important factor in operations management is operations management is accelerating technological change.accelerating technological change.

Trends in OMTrends in OM

• Ethical, workforce diversity and Ethical, workforce diversity and environmental issues:environmental issues: Business face Business face more ethical quandaries than ever more ethical quandaries than ever before, intensified by an increasing before, intensified by an increasing global presence and global global presence and global technological change. Environment technological change. Environment issues, such as toxic wastes, poisoned issues, such as toxic wastes, poisoned drinking water, poverty, air quality and drinking water, poverty, air quality and global warming are getting more global warming are getting more emphasis.emphasis.

Today’s OM EnvironmentToday’s OM Environment

• Customers demand better quality, greater Customers demand better quality, greater speed, and lower costsspeed, and lower costs

• Companies implementing lean systems Companies implementing lean systems concepts – a total systems approach to concepts – a total systems approach to efficient operationsefficient operations

• Recognized need to better manage Recognized need to better manage information using ERP and CRM systemsinformation using ERP and CRM systems

• Increased cross-functional decision Increased cross-functional decision makingmaking

Achieving Cross-Functional Achieving Cross-Functional CoordinationCoordination

• A unified strategy should be A unified strategy should be developed by management as a developed by management as a starting point, giving each department starting point, giving each department a vision of what it must do to help a vision of what it must do to help fulfill the overall organizational fulfill the overall organizational strategy. strategy.

• The organizational structure and The organizational structure and management hierarchy can be management hierarchy can be redesigned to promote cross-redesigned to promote cross-functional coordination.functional coordination.

Achieving Cross-Functional Achieving Cross-Functional CoordinationCoordination

• The goal-setting process and reward The goal-setting process and reward systems can encourage cross-systems can encourage cross-functional coordination.functional coordination.

• Improvements to information systems Improvements to information systems also can boost coordination. also can boost coordination. Information must in part be tailored to Information must in part be tailored to the needs of each functional manger.the needs of each functional manger.

Achieving Cross-Functional Achieving Cross-Functional CoordinationCoordination

• Informal social systems are another Informal social systems are another device that can be used to encourage device that can be used to encourage better understanding across functional better understanding across functional lines.lines.

• Employee selection and promotion Employee selection and promotion also can help foster more cross-also can help foster more cross-functional coordination by encouraging functional coordination by encouraging broad perspective and common goals.broad perspective and common goals.

ProductivityProductivity

ProductivityProductivity is a common measure on is a common measure on how well resources are being used. In how well resources are being used. In the broadest sense, it can be defined as the broadest sense, it can be defined as the following ratio:the following ratio:

OutputsOutputs InputsInputs

Factors Affecting Factors Affecting ProductivityProductivity

Capital Quality

Technology Management

Measures of ProductivityMeasures of Productivity

• Partial measuresPartial measures– output/(single input)output/(single input)

• Multi-factor measuresMulti-factor measures– output/(multiple inputs)output/(multiple inputs)

• Total measureTotal measure– output/(total inputs)output/(total inputs)

Total Measure ProductivityTotal Measure Productivity

Total Measure Productivity = Total Measure Productivity = OutputsOutputs InputsInputs

or

= Goods and services produced

All resources used

Partial Measure ProductivityPartial Measure Productivity

• Partial measures of productivity = Partial measures of productivity =

• OutputOutput or or OutputOutput or or OutputOutput or or OutputOutput Labor Capital Materials EnergyLabor Capital Materials Energy

Multifactor Measure Multifactor Measure ProductivityProductivity

• Multifactor measures of productivity = Multifactor measures of productivity =

• Output .Output . Labor + Capital + EnergyLabor + Capital + Energy

oror

• Output .Output . Labor + Capital + MaterialsLabor + Capital + Materials

ProductivityProductivity

Calculate the productivity for the Calculate the productivity for the following operation.following operation.

• Three employees process 600 insurance Three employees process 600 insurance policies in a week. They work 8 hours per policies in a week. They work 8 hours per day, 5 days per week.day, 5 days per week.

• A team of workers make 400 units, which A team of workers make 400 units, which is valued by its standard cost of Tk.10 is valued by its standard cost of Tk.10 each (before markups for other expenses each (before markups for other expenses and profit). The accounting department and profit). The accounting department reports that for this job the actual costs reports that for this job the actual costs are Tk.400 for labor, Tk.1000 for materials, are Tk.400 for labor, Tk.1000 for materials, and Tk.300 for overhead.and Tk.300 for overhead.

ProductivityProductivity

Labor productivity = Policies processed

Employee hours

Labor productivity = 600 policies

(3 employees)(40 hours/employee)

Labor productivity = 5 policies/hour

ProductivityProductivity

Labor productivity = 5 policies/hour

Multifactor productivity =

Quantity at standard cost

Labor cost + Materials cost + Overhead cost

ProductivityProductivity

Labor productivity = 5 policies/hour

Multifactor productivity =

(400 units)(Tk.10/unit) Tk.4000

Tk.400 + Tk.1000 + Tk.300 Tk.1700= = 2.35

Productivity GrowthProductivity Growth

Current Period Productivity – Previous Period ProductivityPrevious Period Productivity

Productivity Growth =

Productivity Growth RateProductivity Growth RateExample:Example:– Last week a company produced 150 units using 200 hours Last week a company produced 150 units using 200 hours

of laborof labor– This week, the same company produced 180 units using This week, the same company produced 180 units using

250 hours of labor250 hours of labor

rategrowthnegativeaor

P

PPRateGrowth

hourunitshours

unitsP

hourunitshours

unitsP

%4

04.075.0

75.072.0

/72.0250

1802

/75.0200

150

1

12

1