Productivity improvement is Cost Reduction

Productivity improvement is cost reduction

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Productivity Improvement is Cost Reduction 1

Production:
Production Production is the process of converting resources into products or services. The objective of production operations is to meet the forecasted needs of the market in which they perform at the lowest possible cost. Craft Production - Highly skilled workers use simple flexible tools to produce small quantities of customized goods. Mass Production - Lower-skilled workers use specialized machinery high volumes of standardized goods. Lean Production - Uses minimal amounts of resources high volume of high-quality goods. 2

Slide 3:
Productivity is an overall measure of the ability to produce a good or service Productivity and production are not the same thing Production is the process of converting resources into products and is measured as the quantity produced in a given time Productivity is the ratio between the output of a process and its inputs and is measured as output divided by input. Productivity is the measure of how specified resources are managed to accomplish timely objectives as stated in terms of quantity and quality. Productivity may also be defined as an index that measures output (goods and services) relative to the input ( Labour, materials, energy, etc.) used to produce the output. 3

Contd…:
Contd… Productivity is often confused with efficiency. Organizations have many options for use of this formula, labour productivity, machine productivity, capital productivity, energy productivity, and so on. A productivity ratio may be computed for a single operation, a department, a facility, an organization, or even an entire country. 4

Measure Productivity:
Measure Productivity 5

Various ways to measure Productivity:
Various ways to measure Productivity Partial Output Output Output Output Measures Labor Machine Capital Energy Multifactor Output Output Measures Labor + Machine Labor + Capital + Energy Total Goods or Services Produced Measure All inputs used to produce them 6

Factors affecting Productivity:
Factors affecting Productivity External Factors Internal Factors Hard Factors Soft Factors 7

External Factors:
External Factors External factors are those beyond the control of individual enterprise. External factors include: Availability of funds, power, water, transportation, raw materials, Government policies. Some other factors such as industrial climate, money resource, prices, timely supply of equipment & material by suppliers which are partly external and partly internal. 8

Internal Factors:
Internal Factors Task of management of an enterprise is to improve productivity within the framework of the limitations and opportunities. Productivity of an enterprise we are primarily concerned with internal factors. Hard factors are those which are internal but once there, these cannot be easily varied. Products, Technology, Plant & Equipment, Raw material etc. Soft factors include men, work methods, system and procedures, organization, management practices etc. Labour (Man) Material Machine 9

Labour (Man):
Labour (Man) Labor Costs Costs of direct wages combined with training and benefits (medical, sick leave, vacation) Depends on skill level, knowledge, experience, etc. Highly complex or technical operating system requires higher cost labor Reduce costs by Going offshore Investing in technology Redesigning systems This can be measured in 2 ways …. Output per worker Labour costs per unit of output 10

Labour productivity:
Labour productivity Worked example: A car firm produces 100 000 cars per year It has a labour force of 1000 workers What is the labour productivity (output per worker) Using the formula then: 100 000 = 100 cars per worker 1000 11

Labour Productivity cost per unit:
Labour Productivity cost per unit You will also need to be able to calculate the financial aspect of labour productivity: Labour Productivity cost per unit = = Total Labour Cost Number of units produced 12

Contd…:
Contd … Year 1 Year 2 Year 3 Year 4 Average number of employees 42 41 42 43 Number of leavers 3 6 2 2 Value of output £ 1,500,000 1,300,000 1,600,000 1,800,000 Total labour costs 948,000 951,200 948,600 962,400 Average number of staff absent on one day 5 6 2 1 13

Factor affecting Labour productivity:
Factor affecting Labour productivity Overtime Overtime is a curious phenomenon: Some employees refuse to work overtime Others view it as a gift from heaven Hidden costs of overtime include Reduced efficiency Higher reject rates Absenteeism Overtime should be used only when necessary It can be the result of poor supervision If overtime becomes habitual, employees tend to expect it as part of regular wages If discontinued, they become unhappy Employees may pace themselves in order to create overtime 14

Contd….:
15 Contd…. If overtime is necessary, a supervisor should: Determine the cause of the overtime Consider the alternatives Explain why overtime may be necessary Have sufficient raw materials/supplies on hand Include work breaks Be alert; use overtime wisely 15

Absenteeism:
16 Absenteeism The costs associated with absenteeism can be large Machines may be idle Schedules may slip Temporary help may have to be hired Unscheduled absenteeism can cost high per employee per year When someone failed to show up for work, the supervisor must decide what to do Employees tend to come to work when they are: Satisfied with their jobs Loyal to the organization Both of these factors can be affected by the supervisor Decrease boredom in jobs Give responsibility to those who want it Try to resolve interpersonal conflict Loyalty to the organization occurs naturally if the employee feels good about the company 16

Tardiness:
17 Tardiness Tardy employees can run up costs in the same ways as the absentee Tardiness indicates a lack of job satisfaction and loyalty In most situations, a small group of chronic offenders account for most tardiness This type of tardiness is controllable It should be dealt with directly and consistently To deal with habitual tardiness: The offender should be identified and verified Reasons for the tardiness should be determined Privately discuss the seriousness of the situation Agree upon a plan to eliminate the problem If the tardiness continues, talk again As a last resort, discipline the offender 17

Turnover:
18 Turnover Turnover is expensive for almost any organization It costs one-third of a new hire’s annual salary to replace an employee Direct costs include advertising, headhunter fees, and management’s time Indirect costs include overtime, decreased productivity of the new hire and those helping him/her get up to speed, and training Strategies to keep turnover low: Build strong relationship with every employee Offer praise freely Truly listen to employee feedback Keep the mood light Continually strengthen your team 18

Machinery:
Machinery Factor affecting machine productivity 1. Sequential processing Sequencing Processing: the m machines are distinguishable, and different operations are performed by different machines.. 2. Flow time The flow time of job i is the time that elapses from the initiation of that job on the first machine to the completion of job I The mean flow time, which is a common measure of system performance, is the arithmetic average of the flow times for all n jobs 19

Contd…:
Contd… 3. Make-span The make-span is the time required to complete a group of jobs (all n jobs). Minimizing the make-span is a common objective in multiple-machine sequencing problems. 4. Tardiness and lateness Tardiness is the positive difference between the completion time and the due date of a job. Lateness refers to the difference between the job completion time and its due date and differs from tardiness in that lateness can be either positive or negative. If lateness is positive, it is tardiness; when it is negative, it is earliness 20

Machinery:
Machinery Scheduling Problems Job sequencing Sequencing or priority sequencing: the process of determining which job is started first on some machines or work center by priority rule; Priority rule: the rule used for obtaining a job sequencing; Priority rule evaluation criteria To meet corresponding objectives of scheduling Common standard measures: Meeting due date of customers or downstream operations; Minimizing flow time (the time a job spends in the shop flow); Minimizing WIP; Minimizing idle time of machines and workers (Maximizing utilization). 21

Sequencing Rules:
Sequencing Rules FCFS (first come-first served) Jobs are processed in the sequence in which they entered the shop; The simplest and nature way of sequencing as in queuing of a bank SPT (shortest processing time) Jobs are sequenced in increasing order of their processing time; The job with shortest processing time is first, the one with the next shortest processing time is second, and so on; EDD (earliest due date) Jobs are sequenced in increasing order of their due dates; The job with earliest due date is first, the one with the next earliest due date is second, and so on; 22

Productivity:- Material:
Productivity:- Material At the design stage: Ensure least consumption of material, Purchase equipments and plants such that consumption of material is economical. At the operation stage: Use of correct process Right use of the process Operator training Proper handling and storage of products at all stages Proper packaging to reduce damage in transit 23

Material Cost:
Material Cost Raw Material and Component Costs Materials management – find high quality raw materials and components at low costs. Locating low cost suppliers (e.g., outsourcing) is important way to reduce OMM costs . Purchasing suppliers can assure control over costs and quality of needed flow of inputs. 24

Materials Handling:
25 Materials Handling Materials handling involves the movement of materials, whether raw or finished Set of activities involved in controlling the flow of resources into and out of the operating system Includes the activities necessary to find and purchase high-quality raw materials or low-cost components and deliver them to operations as efficiently as possible The average cost of materials handling is 35 to 40 percent in both manufacturing and service organizations Costs include not only physically moving things, but not moving them in a timely manner Idle employees and machines can be costly 25

Material handling: Important aspects:
26 Material handling: Important aspects Always try to keep material at the height at which they are to be worked upon. Never keep material on floor. Always keep distances over which material is handled as short as possible. Let gravity work for you. Always handle in bulk over distances. Always have sufficient boxes, platforms or container available at the workplace. Keep gangways clear. Don’t reduce the supplementary human labor if it means increase in the load for direct operators. 26

Waste is Often Built Into Jobs:
Waste is Often Built Into Jobs 27

Slide 28:
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Inventory Control:
29 Inventory Control Inventory control is primarily concerned with monitoring and maintaining an inventory adequate to meet customer demand, but nothing more Excessive inventory ties up money and incurs storage costs Having too little inventory can slow production Slow production can cause a loss of customers and employee layoffs Inventories can generally be classified as: Raw material inventories: a buffer between purchasing and operations In-process inventories: buffers differences in the rate of flow through production processes Finished goods inventories: acts as a buffer between the final stage of production and shipping/delivery Inventories provide flexibility and efficiency to the production system by allowing the organization to: 29

Contd….:
30 Contd…. Purchase, produce, and ship in batch sizes Produce a smooth, continuous basis, even if demand for the finished product or raw material fluctuates Prevent major problems when demand forecasts are in error, or when there are unforeseen supply or production slowdowns When making inventory decisions, three questions must be answered: What items to carry in inventory How much inventory to order and carry When to order the items Inventory costs include: Insurance and taxes Storage costs Spoilage The opportunity cost of the money invested in the inventory 30

Just-in-time (JIT):
Just-in-time ( JIT ) Just-in-time ( JIT ) is an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs. Inventory is waste and waste has to be reduced. Inventory is seen as incurring costs, or waste, instead of adding and storing value, contrary to traditional accounting. This does not mean to say JIT is implemented without an awareness that removing inventory exposes pre-existing manufacturing issues 31

Benefits:
Benefits Main benefits of JIT include: Reduced setup time. Cutting setup time allows the company to reduce or eliminate inventory for "changeover" time. The tool used here is SMED (single-minute exchange of dies). The flow of goods from warehouse to shelves improves. Small or individual piece lot sizes reduce lot delay inventories, which simplifies inventory flow and its management. Employees with multiple skills are used more efficiently. Having employees trained to work on different parts of the process allows companies to move workers where they are needed. Production scheduling and work hour consistency synchronized with demand. If there is no demand for a product at the time, it is not made. This saves the company money, either by not having to pay workers overtime or by having them focus on other work or participate in training. Increased emphasis on supplier relationships. A company without inventory does not want a supply system problem that creates a part shortage. This makes supplier relationships extremely important. Supplies come in at regular intervals throughout the production day. Supply is synchronized with production demand and the optimal amount of inventory is on hand at any time. When parts move directly from the truck to the point of assembly, the need for storage facilities is reduced. 32

Operations and Materials Management Methods:
Increase Productivity Better ways to use resources Lower inventory holding costs Reduce time to process customer orders Increase Innovation Find ways to improve product quality Find ways to reduce production costs Increase Quality Number of orders correctly processed Consistent reliable products Ensure supply of high quality inputs Evaluate & Control Quality Operations and Materials Management Methods 33

TPM (Total productive maintenance ):
TPM ( Total productive maintenance ) TPM is a maintenance process developed for productivity. Continuously improve all operational conditions, within a production system; by stimulating the daily awareness of all employees TPM focuses primarily on manufacturing (although its benefits are applicable to virtually any "process") and is the first methodology Toyota used to improve its global position An accurate and practical implementation of TPM, will increase productivity within the total organization, where: (1) A clear business culture is designed to continuously improve the efficiency of the total production system (2) A standardized and systematic approach is used, where all losses are prevented and/or known. (3) All departments, influencing productivity, will be involved to move from a reactive- to a predictive mindset. (4) A transparent multidisciplinary organization is reaching zero losses. (5) Steps are taken as a journey, not as a quick menu. 34

Contd:
Contd TPM has basically 3 goals - Zero Product Defects, Zero Equipment unplanned failures and Zero Accidents. TPM identifies the 7 losses (types of waste) (muda) and then works systematically to eliminate them by making improvements (kaizen). TPM has 8 pillars of activity, each being set to achieve a “zero” target. These 8 pillars are the following: focused improvement; autonomous maintenance; planned maintenance; training and education; early-phase management; quality maintenance; office TPM; and safety, health, and environment 35

PPM:
PPM Preventive maintenance means taking measures in advance, before corrective action is needed with regard to the functioning of the equipment. Productive maintenance is when the result of maintenance of equipment is measured (normally in economic terms) e.g., cost-benefit analysis, and the result is positive (i.e., tuning your car regularly will not only prevent damage, it will also save fuel costs. If the fuel saving is superior to the tuning costs, that is productive maintenance). Together, they are referred to as PPM. Total productive maintenance is a systematic approach to productive maintenance. PPM is useful as a means for enhancing productivity, minimizing down time, and maximizing efficiency. It involves keeping equipment operating at peak performance levels to help reduce waste. 36

PERT/CPM:
PERT/CPM Program Evaluation and Review Technique (PERT) and Critical Path Method (CPM) help managers to plan the timing of projects involving sequential activities. PERT/CPM charts identify the time required to complete the activities in a project, and the order of the steps. Each activity is assigned an earliest and latest start time and end time. Activities with no slack time are said to lie along the critical path--the path that must stay on time for the project to remain on schedule. A strength of PERT/CPM charts is their ability to calculate exactly how long a project will take. This gives companies a number of advantages, such as the ability to tell customers exactly when their orders will be filled, or to know exactly when to order new supplies. 37

Contd…:
Contd… The critical path identified in a PERT/CPM chart shows managers which activities are the most time-critical. This allows managers to focus process improvements on the tasks that are most vital to the timely completion of the project. More slack time can be created by reducing the processing time at critical points in the project, or the project schedule can be tightened up for a quicker turnaround. Managers may place too much emphasis on activities along the critical path, however a weakness of CPM is that it focuses primarily on the time aspect of activities, neglecting other concerns, such as quality and cost control. Focusing too much attention on the critical path can cause managers not to notice possible production improvements in other activities. 38

Weakness of PERT/CPM:
Weakness of PERT/CPM The expected completion time of all subsequent activities and the project as a whole can become skewed when things go wrong, which can cause problems if the company has made plans that rely on the timely completion of the project. Another weakness of PERT/CPM is that the technique relies on past data and experience to formulate completion time predictions. New companies may not have any past experience to lean on, putting them at a disadvantage. 39

Lean Manufacturing:
Lean Manufacturing Lean is an approach to achieving manufacturing excellence based upon the continued elimination of waste. Waste is defined as activities that do not add value to the product. Lean Manufacturing utilizes techniques and principles that improve efficiencies of value added activities. Eliminating Waste •Waste in Operations: −Walking −Searching −Standby −Rework −Changeover •Waste in Layout : − Distances traveled −Backtracking −Crowded Conditions −Redundant handling 40

Slide 41:
Eliminating Waste •Waste in Flow of Goods: −Overproduction −W.I.P. −Failure to Meet Standard Output/ Hour/ Person •Waste in Equipment −Line stops −Broken Down / Antiquated, Poor Production Yields •Other Waste −Poor Housekeeping Practices −Damaged Materials −Improper Tools −Not Having the Right Information Lead time reduction is achieved by identifying and eliminating waste. 41

Slide 42:
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Ways to improve productivity:
Ways to improve productivity Productivity = Output / Input Increase input but get a greater increase in output Maintain input but increase output Decrease input with a smaller decrease in output Decrease input but maintain output Decrease input but increase output 43

Decrease input with a smaller decrease in output:
Decrease input with a smaller decrease in output Factory making domestic appliances the assembly operation for household fans. First worker – Attach rotating mechanism to base Second worker – Attach motor and threaded the flex through base. Third worker – Fitted fan blades and guard assembly. The work was monotonous, labor turnover high and number of rejects was high. Selected two workers and made each responsible for all the assembly operations and inspect their own work. System Human Resource Output Rejects % Net Output Man hours Productivity Old 3 60 10 16 50 24 2.1/hour New 2 48 2 6 45 16 2.8/hour So by decreasing the manpower by 33% and decreasing output by only 10% productivity increased by 33%. A similar decrease resulted in the cost of labor and materials per item thus making the product more profitable. 44

Control & Measure Productivity:

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