productivity engineering and management

PRODUCTIVITY ENGINEERING AND MANAGEMENT

Ch.1 & 2

Contents

Definition of Productivity

Misuse of the Term

Basic Types of Productivity

Importance of Productivity

factors affecting productivity

Productivity Benefit Model

Definition of Productivity

In the 1950, the Organization for Economic Cooperation (OEEC) offered this definition of productivity:

Productivity is the quotient obtained by dividing output by one of the factors of production.

Common Misuse of the Term

Production and Productivity: Many people think that the greater the

production, the greater the productivity. This is not necessarily true.

Production: is the quantity of output produced, while productivity is the ratio between output produced to the input(s) used.


Example: A company production of a certain product

is 10,000 units. Employing 50 people- 8 hours/ day- 25 day/month, in this case,

Production = 10,000 units Productivity (of labor) = 10,000/(50*8*25)

= 1 calculator/ man-hour


Suppose this company increased its production to 12,000 units by hiring 10 full-time additional workers. Then, the

Production = 12,000 units Productivity (of labor) = 12,000/60*8*25

= 1 unit/ man-hour Realize that the productivity doesn’t

change, although the production has increased.


Productivity, Efficiency, and Effectiveness: Efficiency:

Is the ratio of actual output to standard output expected

=Actual Output/ Standard Output Example: Output of an operator=120 pieces/ hour,

Standard rate=180 pieces/ hour, Operator Efficiency=120/ 180=0.6667 =

66.67%


Effectiveness: The degree of accomplishment of objectives. Effectiveness is related to performance, while

Efficiency related to resource utilization. Efficiency: Doing things right. Effectiveness: Doing the right things.

Productivity= Effectiveness + Efficiency


Partial Productivity: Is the ratio of output to one class of input. Example:

Labor Productivity: the ratio of output to labor input.

Capital, Material Productivity. Total Partial Productivity:

Is the ratio of net output to the sum of associated labor and capital inputs.

Net Output: means the total output minus intermediate goods and services purchased.


Total Productivity: Is the ratio of total output to the sum of all

input factors.

Computing Productivity: Outputs and inputs are expressed in physical

terms, referred to it with the monetary value. The monetary value is computed with

respect to a reference period (base period). Dividing the values of outputs and inputs by

deflators or inflators.

Importance of and factors affecting productivity

Fig. Average annual labor productivity growth in the United States private business sector, 1889

to 1980.

Productivity VS. Inflation (التضخم) Inflation: is the percent increase prices

over a period of time The lack of productivity growth

contributes to the inflation increase. This is because many companies usually

increase the selling price to obtain their target profits. By passing the increase in input costs to

the customer rather than trying hard to increase productivity.

Productivity VS. Inflation (التضخم)

Fig. Relation between price increases and labor productivity in selected industries for the period 1960 to 1974 USA.

Productivity VS. the standard of living Countries that have high growth rate of

labor productivity tend to have a high standard of living.

united states is one of the highest labor productivity countries in the world.

This can be shown in relatively low cost of living.City Toky

oZurich

Iran New-York

Chicago

Mexico city

Cost/ basket

292 225 203 172 163 94Table-Cost of living in some countriesCost per basket of groceries (dollars)

Productivity VS. the standard of living

Costs for a family of four

Item 1967 1977House $36,000 $165.000

1967 Ford LTD 3,130 6,058Groceries for a year 1,108 4,753

Total 40,238$ 175,811$

Table- the hard increase in costs for a typical family of four over a 12-year period

Productivity VS. Employment There is a misconception that improved

labor productivity must result in laying off of workers.

Well managed companies have always ensured the security of their employees.

In the long run, many companies actually increase their employment levels, due to increase demand levels.

Factors affecting productivity1) Investment

Increased capital investment increases productivity

Factors affecting productivity2) Capital/ Labor Ratio

There appear to be a close relationship between labor productivity and the capital/ Labor ratio.

Factors affecting productivity3) Research and Development (R&D)

United States spending on R&D, as a percentage of the GNP, fell from 2.83 % in 1968 to 2.34 % in 1973.

The R&D expenditures are not necessarily affecting productivity improvement.

Because most R&D is focused on product development and for solving environmental problems, rather than on productivity improvement.

Factors affecting productivity4) Capacity Utilization

Is the percent of time plants are in operation

Capacity utilization are closely related to labor productivity.

5) Government Regulations Excessive government regulations cause

delays and uncertainties ,and usually increase costs.

Factors affecting productivity6) Age of Plant and Equipment

Fig. Average age of United States equipment and structures, 1925 to 1980

Factors affecting productivity7) Energy Costs

The energy costs rise may affect the overall product costs, although there is a partial productivity improvement in labor.

Example: hard increases of oil price since 1973

8) Management The role of management in the productivity

decline may have a major factor

Factors affecting productivity A study done conducted about 50 operation

and management reviews involved a workforce analysis, covered the period 1974- 1980, shows that:

8 hours/ day

4.4 hours Used productively

1.2 hoursLost due to personnel

and unavoidable delays

2.4 hours

Wasted due to inability of

management to effectively plan and control the workers’

tasks


Price/unit = cost/unit + profit margin/unit The improvement of the total productivity

results in the reduction of the total cost per unit.

The management has two strategies to follow:1. Reducing the selling price and gain the same

profit margin2. Selling with the same price and increase the

profit


With the 1st Strategy: The consumers will benefit through money

savings The organization will most likely benefit

through a gain in market share. The employees will benefit through increases

in wages With 2nd Strategy:

The shareholders or owners of the organization will benefit through larger shares they gained.


Example: Page: 43

References

http://www.authorsden.com/visit/viewarticle.asp?id=31506

http://ar.wikipedia.org/wiki/

productivity engineering and management

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