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Lecture 3Productivity

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Topics

What is productivity and how is it measured?

What is value and what factors determine value?

Why is productivity important?

How is productivity achieved?

What is waste from a productivity standpoint?

What is goal-oriented productivity?

What is personal productivity and how is it achieved?

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Most commonly measured as units/labor hr., units/labor cost, etc. Useful for

Comparing relative improvementInternal or external benchmarking

Most complete measure is value/cost sometimes referred to as “total-factor productivity”.

True measure of productivityDifficult to measure

OutputProductivity =

Input

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Productivity Growth Rate 2007 (GDP/Labor Hour)

Country Productivity Ranking for 2010Country GDP per person employed

# 1    Luxembourg $89,722.30 

# 2    United States $74,624.70 

# 3    Ireland $74,266.60 

# 4    Italy $65,755.30 

# 5    Belgium $63,815.00 

# 6    Norway $59,443.80 

# 7    France $59,438.90 

# 8    Denmark $58,027.50 

# 9    Austria $57,781.10 

# 10    Canada $57,038.60 

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http://www.nationmaster.com/graph/eco_ove_pro_ppp-economy-overall-productivity-ppp

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Employment down; Productivity up

*Crain’s New York Business.com, July 2010

In New York, from 2001 – 2008, 22.6% of manufacturing jobs were lost, but productivity increased by 14.5%. Most of the new jobs are higher-skilled positions, such as managers, and losses were for lower-skilled jobs like operators, said New York Fed President and CEO William Dudley.

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Three ways to increase productivity

1. Produce the same value for less cost (decrease denominator).

2. Increase value for the same cost (increase numerator).

3. Increase value for less cost (increase numerator AND decrease denominator).

Which is better between 1 and 2?Which is better between 1 and 2?

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Value is in the eyes of the beholder

Value is the customer’s perceived worth of a good.Value factors (most are interrelated)

Features (2-door vs. 4-door)Functionality/performance (what it does and how well)Quality (defect free, durable and reliable)Delivery (consistent timeliness and convenience)Support/service (quick, hassle-free help)Customization (selectable options, personalized)Appearance (color, styling, etc.)Brand name/reputation

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“Service” as a value differentiator

Warranty

RoadsideAssistance

TravelPlanning

LoanerVehicles

Leases

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“Negative” Value Factors

Waste

Pollution

Scrap

Who pays for these?Who pays for these?

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Total-factor productivity

LaborEquipmentEnergyMaterialsRent

FeaturesCapabilities/FunctionalityCustomizationQuality/reliabilityAppearance/StyleBrand name/ReputationDelivery/TimelinessSupport/ServiceWasteScrap Pollution

Output (Value)Input (Costs)

Note: China publishes a “Green” GDP which is discounted for pollution.

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Manufacturing can be thought of as…

the process of adding value to material.the process of adding value to material.

Companies that can add the most value in the most efficient way will be the most successful.

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Concept of Value-add

Value-adding or value-added activities are activities that increase the value of a good.Value-added activities usually change the shape or condition of the product.It is only a value-added activity if it is something the customer is willing to pay for.Non-value-adding activities (inspection, storage, etc.) add cost to the product, but not value.Some activities are non-value-adding but necessary (e.g. some material handling and inspection).Value added time is sometimes called “touch” time or raw processing time.

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Value-added time

Traditionally, over 95% of the time parts spend in the factory is non-value-added (NVA) time.

5% VA Time

95% NVA Time

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Four possible states of parts in manufacturing

Waiting

Inspection

Moving

Processing

Which of these are NVA activities and which one accounts for the majority of NVA time?Which of these are NVA activities and which one accounts for the majority of NVA time?

Memorize these!

(WIMP)

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Inspection

Inspection rarely adds value because it does not change the product.

When the customer perceives inspection as value adding, requires it and pays for it, it can be considered a value adding activity.

What if inspection is one of the ways of guaranteeing the quality of a product?

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Part Transportation

Transport and handling rarely add value inside a factory.The customer may perceive a "value of place" and be willing to pay for it. Would you rather have an appliance delivered or purchase it from a local retailer, or would you rather travel to the manufacturer to pick it up?

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Mercury Marine Video

Identify the following activities as you watch the video:

Waiting

Inspection

Moving

Processing

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Value Stream Mapping

• VSM is a tool which helps to identify waste in a system

• Start with customer demand and work backward (calculate Takt time)

• Compute value added time versus non value added time

• Develop future state map to reduce waste and streamline flow of material to customer

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Producer vs. Customer Objectives

Maximize productivity (Value/Cost)The producer wants to generate as much value as possible for each dollar spent.

Maximize buying power (Value/Price)The customer wants to receive as much value as possible for each dollar spent (the customer says “maximize value”)

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Why is productivity important?Essential for company survival.

Money is the life blood of a business. Just as the body cannot live without food, a company cannot survive without cash. Likewise, just as people should not live just to eat, a company should not exist just to make money.

Increases standard of living.Enables increased quality of life.

John Adams said he studied politics and war so that his children can study manufacturing and business. He then said that his children will study manufacturing and business so their children can study the arts and humanities.

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Relationship Between Productivity and Standard of Living

Productivity Increase

Additional Purchaseof

Goods and Services

Wage Increaseand/or

Price Decrease

More Buying Power

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Productivity and Standard of Living

“In the final analysis, national prosperity depends on improved productivity and, conversely, it is only on a foundation of increased productivity that we can build a wealthy nation and happy citizens.”

-Shigeo Shingo

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Standard of Living vs. Quality of Life

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Observations on Quality of Life

Quality of life has to do with the happiness of people and ability to do things in life that are fulfilling and enriching.

It is not synonymous with consumption and materialism.

The poorest individual on earth can have a higher quality of life than a king.

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Quality of Life

“The aim [of production] is not more goods for people to buy, but more opportunities for them to live.” -- Lewis Mumford

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Maslow’s Hierarchy of NeedsHighest Ideals and Beliefs

Pursuit of Education / Arts

Biological & Physical Needs

Humanitarian and Environmental Service

The model says that once our basic needs are met, we will want to move to higher levels (e.g. once your hunger is satisfied your interest turns elsewhere).

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The Reality of Maslow’s Hierarchy

Highest Ideals and Beliefs

Pursuit of Education / Arts

Biological & Physical Needs

Humanitarian and Environmental Service

Ever-expanding (wants become needs)

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Manufacturing as a MeansHistorically, manufacturing was performed almost exclusively for the purpose of food and protection. Earliest societies were primarily hunting societies that produced weapons for killing animals and protecting against enemies and natural elements. In later agricultural societies, craftsmen developed expertise in manufacturing tools for agriculture and military weaponry. In the current industrial society, we have learned to produce more goods at an unprecedented pace to where we have moved to a society of indulgence.

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Harrell’s Inverted Hierarchy

Highest Ideals and Beliefs

Pursuit of Education / Arts

Biological & Physical Needs

Humanitarian and Environmental Service

Ever-expanding

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Other reasons to be productive

National security and independence.

Elimination of poverty with excess.

Accountability as stewards of the earth.

Personal accountability for time, talents and resources.

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Effectiveness vs. Efficiency

Effectiveness is doing the right thing.

Efficiency is doing the thing right.

First get the right process, then get the process right.

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Management vs. Leadership

Managers focus on doing things the right way.

Leaders focus on making sure the right things are being done.

“Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning against the right wall.” -- Stephen R. Covey

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Busyness vs. Productiveness

Being busy is being occupied doing something.

Being productive is being efficiently and effectively occupied doing something.

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To be competitive, a company must be able…

To determine customer needs quickly and continuously reposition the company against it's competitors.To design products quickly based on those individual needs To put them into full scale, quality, production quickly To respond to changing volumes and mix quickly To respond to a crisis quickly

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Time as a competitive advantage

It is no longer sufficient just to focus on providing the most value for the least cost (i.e. being productive). The new maxim is

“The most value for the least cost in the shortest amount of time”

Better, Cheaper, Faster!

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CompetitionEvery morning, in Africa, a gazelle wakes up. It knows it will have to run faster than the lion, otherwise it will be killed. Every morning, in Africa, a lion wakes up. It knows it will have to run faster than the gazelle, otherwise it will die of hunger. When the sun rises, it doesn't matter if you are a lion or a gazelle—when the sun comes up, you had better be running.

http://www.maniacworld.com/cheetah-vs-gazelle-vs-hyena.html

http://www.youtube.com/watch?v=-9vrD5dmPms

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What Industry Leaders Say

“To stay ahead we have to keep running.” Michael Dell (Dell Computers)“Only the paranoid survive.” Andy Grove (Intel Corp.)

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Competition vs. CooperationCompetition

"There are only two forces that unite men -- fear and interest." -- Napoleon, Maxims"Those who want to live, let them fight, and those who do not want to fight in this world of eternal struggle do not deserve to live."-- Adolf Hitler, Mein Kampf, p. 289

Cooperation"Union gives strength."-- Aesop, The Bundle of Sticks“It would be better if everyone would work together as a system, with the aim for everybody to win.” – W. Edwards Deming

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Competition and Pride

“Pride is essentially competitive in nature…. We are tempted daily to elevate ourselves above others and diminish them. The proud make every man their adversary by pitting their intellects, opinions, works, wealth, talents, or any other worldly measuring device against others…. Would we not do well to have the pleasing of God as our motive rather than to try to elevate ourselves above our brother and outdo another?” – Ezra Taft Benson, General Conference, April 1989

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Other Forms of Competition

Self-Competition – Trying to better oneself each day.

Coopetition – Cooperation in the way companies compete (i.e. cooperate on some issues or leave certain areas alone, while compete as usual on others).

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USCAR (United States Council for Automotive Research) is the umbrella organization of DaimlerChrysler, Ford and General Motors, which was formed in 1992 to further strengthen the technology base of the domestic auto industry through cooperative, pre-competitive research.

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Goal-oriented Productivity

“I have come to the conclusion that productivity is the act of bringing a company closer to its goal. Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive.” (The Goal p32) “...you cannot understand the meaning of productivity unless you know what the goal is. Until then, you're just playing a lot of games with numbers and words.” (The Goal p33)

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Goals of a Corporation

Make a profit

Provide value to shareholders

Provide gainful employment

Provide a valued service to customers

"A business that makes nothing but money is a poor kind of business." -Henry Ford.

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So, goal-oriented productivity is…

the efficiency and effectiveness with which resources are used to achieve desired goals.

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Aim in life

“Man's chief concern in life should not be the acquiring of gold, or of fame, or of material possessions. It should not be the development of physical prowess, nor of intellectual strength, but his aim, the highest in life, should be the development of a Christ-like character.”

-- David O. McKay

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Personal Productivity is…

the effectiveness and efficiency with which we use our resources (time/talents/means) to become like Christ and build the kingdom of God.

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Waste…the Opposite of Productivity

Waste -- “anything other than the minimum amount of equipment, materials, parts, space and worker’s time which are absolutely essential to add value to a product.” (Fujio Cho)

If waste is the opposite of productivity, one way to achieve productivity is by attacking waste.

If waste is the opposite of productivity, one way to achieve productivity is by attacking waste.

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7 Types of Waste (Taiichi Ohno)

1. Waiting of parts and resources

2. Overproduction

3. Rework and scrap

4. Motion inefficiency (operator)

5. Processing steps that are unnecessary

6. Inventory in excess of what is needed

7. Transportation

How can an mfg engr help

eliminate waste?

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A Sense for Waste

"The trick is to find waste, or muda... the most damaging kind of waste is the waste we don't recognize.” -- Shingo

I see wasteful people… they’re everywhere. They walk around like everyone else. They don’t even know that they’re wasteful.

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Non-obvious Wastes

Tracking orders through every processExpensive automated storage and handling systemsPoor use of resourcesTracking savings from waste eliminationDetermining cost of bad qualityDeveloping extensive justifications for self-evident decisions

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Waste of Disfunctional Complexity

Disfunctional complexity is the sum of all those activities that add little, if any, value to the business, and yet add significant cost and organizational distraction.

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The Competency Ascent

Unconsciously Incompetent

Consciously Incompetent

Consciously competent

Unconsciously competent

Xerox’s goal is “to become unconsciously competent -- the point where the tools are so ingrained that no one even thinks about them anymore.” Bus Wk, May 3, 2004

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Sin as Waste

“Sin is waste. It is doing one thing when you should be doing other and better things for which you have the capacity. Hence, there are no innocent idle thoughts. That is why even the righteous must repent, constantly and progressively, since all fall short of their capacity and calling.” -Hugh Nibley

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Sin as Waste

Brigham Young – “Of the time that is allotted to man here on the earth there is none to lose or to run to waste. After suitable rest and relaxation there is not a day, hour or minute that we should spend in idleness, but every minute of every day of our lives we should strive to improve our minds and to increase the faith of the holy Gospel, in charity, patience, and good works.” -- DBY 290

Zero Waste in Life and on Job

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