Productivity and Product Selection
After studying this unit the student will be able to
- Understand the concept of productivity and its measurement
- Understand relative comparison of different productivity aspects
- Analyze various techniques of productivity.
Meaning of Productivity 3.2.1.Objectives of Productivity
3.2.2. Definition & Measurement of Productivity
3.3 Definition of work measurement
Productivity of Materials
Productivity of Land, Buildings and Manpower
Factors contributing to Productivity improvement
Techniques for Productivity improvement
Process of selecting products
Stages of Product Development
This unit is intended to examine the concept of ‘Productivity and product selection’ and also deals with the productivity of materials, labour and manpower along with the factors contributing to production improvement. Productivity of the corporate entity can be increased in a variety of ways. The most obvious methods involve automation and computerization which minimize the tasks that must be performed by employees.
Productivity studies analyze technical processes and engineering relationships such as how much of an output can be produced in a specified period of time. While productivity is the amount of output produced relative to the amount of resources that go into the production, while efficiency is the value of output relative to the cost of inputs used. Productivity improves when the quantity of output increases relative to the quantity of input. Efficiency improves, when the cost of inputs used is reduced relative the value of output. A change in the price of inputs might lead a firm to change the mix of inputs used, in order to reduce the cost of inputs used, and improve efficiency, without actually increasing the quantity of output relative the quantity of inputs. A change in technology, however, might allow a firm to increase output with a given quantity of inputs; such an increase in productivity would be more technically efficient, but might not reflect any change in allocate efficiency.
Meaning of Productivity:
- Productivity is the amount of output created per unit input used. For instance, labour productivity is typically measured as output per worker or output per labour-hour.
- Productivity of land is the “yield” equivalent to “land productivity”.
3.2.1. OBJECTIVES OF PRODUCTIVITY
- Identify the subsystems
- Identify key performance areas in each sub-system
- Set performance objectives
- Rank & determine weight age factor for subsystems
- Evaluate productivity index of the key performance.
- Calculate the productivity index of the subsystem
- Calculate the productivity index of the system
- Identify sub-system with low productivity
- Identify key performance areas with low productivity index
DEFINITIONS AND MEASUREMENT OF PRODUCTIVITY:
The definition of productivity is that it is a quantitative relationship between output and input (Iyaniwura and Osoba, 1983, Antle and Capalbo, 1988). ‘Total productivity is the ratio of the aggregate output to aggregate input. Partial productivity is the ratio of the aggregate output to any single input’.
Total Productivity is the Ratio of = Total aggregate output
Total Productivity is the Ratio of = Aggregate output of any
Measurement of Productivity:
Let Xi = No. of Units of Product “l” produced during the period Step-II
For each of the products, obtain the data on the base period price. Base period may be taken as an earlier period with an average production.
Let Yi = The base period price for production Step-III
For each product, multiply Xi by Yi and then find the summation of (Xi,Yi). Aggregate input was arrived at in monetary terms by converting each of the input resources separately from physical units to rupee value.
All the input resources in a productive system can be classified under the four main categories of material, men, money and land. The steps for aggregation are given here.
- Measurement of Work
Find the value of the material input “M” in Rupees. Let Mi = Quantity material of “I” used during that period for producing the products.
Ci = Cost per unit of raw material “I” Then M = EMiCi
Find the value of capital and labour’
Let Di = Depreciation (in Rs) from the fixed assets L = Cost of Capital in base period
A = Total Working Period
R= Rental value of the land in base Period
Cpl = ∑ Di + AL+R
I= I (M + L + h) I (M + L + h)
∑ = XiYi
( MiCi+CiHi+ Di+AL+R)
DEFINITION OF WORK MEASUREMENT:
Work measurement is the application of techniques to establish the time for a qualified worker to carry out a specified job at a defined level of performance.
PRODUCTIVITY OF MATERIALS
Productivity of Materials can be measured with the help of an index, which comprises of aggregate output divided by the observed quantity of a single input. This index-number approach based upon the use of single or partial factor productivity measures has one unique advantage: computational simplicity and feasibility as the required aggregate material input data are available.
PRODUCTIVITY OF LAND, BUILDING, MACHINE AND MAN POWER
In the industrial setting, better utilisation of land building can normally be effected through space saving techniques.
Work study, as a scientific method for investigations of different kinds of movements in work peace, provides us with tools for identifying the potential areas for space saving.
FACTORS CONTRIBUTING TO PRODUCTIVITY IMPROVEMENT
The following two issues assume importance in the context of raising of labour and capital
- A) The time required to produce one unit of an output and
- B) The difference between the actual input that has gone into the production process, and the required input as calculated from the data on actual output and the unit time
Both (a) and (b) above are expressed in either man hours (or) machine hours. Any labour causing reduction in either (a) or (b) basically contributes to productivity improvement.
- a) Factor contributing to Product Design:
- Standardization policy of Companies.
- Quality Standards
- Provisions for use of high-production machineries.
- b) Factors contributing to Process design:
- Specifications of the operating conditions
- Interactions among men and machines.
- Curing methods of the operatives
The factors that are important for raising productivity in such cases can be summarised under the following broad heads:
- Managerial Efficiency
- Worker’s Efficiency
Management, its takes, responsibilities etc., are beyond our scope of discussion. For any enterprise, the management is primarily responsible for making proper utilisation of the resources. A broad outline of the managerial role is given in the figure below.
TECHNIQUES OF PRODUCTIVITY IMPROVEMENT
- In practice interruptions occur, causing the worker or machine or both to remain idle. One should aim at reduction in idle time for improvement in production.
- One should try to prevent factors which are causing the interruption like sudden power cuts, etc.
- Other interruptions caused during the work which is need to be examined for raising productivity.
FORMULAE TO FIND TOTAL WORK CONTENT
∑Total Work content (Basic work content + Excess Time) + Ineffective time
Note: Ineffective time is the time for which the worker or machine (or) both are idle due to the shortcomings of the management or the workers. It is apparent that the total time of operation under existing conditions is basically the sum of the total work content and the ineffective time.
Product selection is a strategic decision for any organisation. Such decisions are that the organisation commits itself to the product or products selected for a long time to come. What products to produce-in what form and with what features-is very important because many other decisions-for example, the technology used, the capacity of the productive system, the location of the production facilities, the organisation of the production function, the planning and control systems, etc. are dependent on this.
The competitiveness and profitability of a firm depend in part on the design and quality of the products and services that it produces, and on the cost of production. The design of a product or service may make it expensive to produce and a change in design may make it possible to produce the same in a less expensive way. Similarly, one design of a product or service may require large and expensive additions to capacity of some process whereas a change in design may make it possible to produce the same with existing capacity. Product selection is a strategic decision, thereby involves other functional areas like marketing, research and development and as well also the top management therein. The operations management function provides vital inputs regarding the production of the product or service in these decisions making.
PROCESS OF SELECTING THE PRODUCTS
The process of selecting the products will be dependent on the generation of new ideas. In fact, it is better not to start the screening process till a reasonable opportunity has been provided to generate all new ideas. This is because different thought processes are required for generation of new ideas and for a rational analysis of the same. Consideration of one new idea may generate a better idea whereas an evaluative analysis introduced early in the process may hamper the creative process of idea generation. Some techniques for idea generation, for example, brainstorming, explicitly prohibit any analysis or criticism of suggested ideas at the idea generation stage.
Once a number of potential new product or service ideas have been generated, the process of screening them to evaluate and select the ‘best’ idea is set in motion. This can perhaps be discussed in, two phases-a qualitative phase where the new product idea is studied in terms of its match with the corporate objectives and the corporate strategies of the organisation. The second phase is more quantitative in the sense that potential costs and revenues generated by new product are quantified and an economic analysis is performed to establish the economic viability of the new product or service idea.
- Screening: The new product or service idea is assessed to establish its market viability as well as to find out if it is in the larger corporate interest of the organisation to add this new product or service to the current outputs of the organisation. A product or service has to have sufficient demand or else it may not make much sense to produce it at all. Of course, what is considered sufficient by one organisation may be considered to be grossly insufficient by another?
- Estimating Demand: The “demand for a product or service is dynamic and although the current demand for a product or service may be assessed to be low, an organisation may still decide to retain the new output idea for further analysis if it assesses that the demand will grow in future. For example, vacuum cleaners are still in the introduction phase of their product life-cycle in India and an organisation may select this as its product if it assesses that sales will grow in the near future.
- SWOT Analysis: Each organisation has some corporate strengths and weaknesses. New product or service ideas should capitalize on the strengths and should attempt to reduce the weaknesses to the extent possible. On the other hand, if one of the determinants of success for a new product or service idea is already perceived to be a corporate weakness, such a product or service does not have a good ‘fit’ with the strength and weakness profile of the organisation. For example, if strong design capability is identified as a corporate strength of an organisation then adding heat exchangers to its list of products-which have to be custom designed and built is trying to exploit a corporate strength. On the other hand, another organisation which has identified design capability as one of its weaknesses would perhaps select centrifuges which are standard products and offered off-the- shelf.
- Factor analysis: In product selection, many organisations try to get synergistic results by exploiting one or more of the following four factors: i) Familiarity with similar products or services ii) Familiarity with the same or similar production or transformation process to produce the product
iii) Familiarity with the same or similar markets or market segments iv) Familiarity with the same or similar distribution channels. Thus, it is perhaps natural for a firm manufacturing ceiling fans to include heat convectors in its product list, wherein it can benefit from its familiarity with similar production process, similar market segments and even the same distribution channel. On top of it, it can also reduce its weakness of having a highly seasonal capacity utilisation. The above discussion also highlights the fact that any new idea for a product or service has also to be seen in relation to the effect on the existing products or services. A new product may find a market for itself by cannibalising one of the existing products. A new brand of a biscuit may create its market by a corresponding reduction in demand of another brand from the same firm unless the two are carefully targeted at different segments we have referred to the strengths and weaknesses of an organisation as relative, but relative to what? If there is no competition, which is very unlikely, there is no need to match the product requirements with the relative strengths of an organisation.
- Competition Analysis: For totally new products or services, even if there is no competition presently, very soon competition will perhaps develop and it is the desire to remain ahead of the competition that provides the motivation for continuous inflow of new product ideas. Whatever be the relative strengths and weaknesses of any organisation, it is very unlikely that an organisation can be successful if its strengths are only in marketing, finance and other non-operational areas. In fact for long-term success, it is almost imperative that sound operations management is one of the strengths of the organisation.
- Economic Analysis: An economic viability of a new product or service idea ties up most of the concepts that we have talked so far in quantitative terms to the extent possible. What this means is that the economic value of the returns must exceed the economic value of the costs incurred to produce the output. For commercial organisations, the measurement of the returns and costs is relatively straightforward and economic analysis in a way becomes synonymous with profitability analysis. The cash flows generated as well as consumed, if the new product or service idea is implemented, have to be estimated for the life of the project. However, since there is a time value of money these cash flows cannot be directly added or subtracted. So, the cash flows are discounted to take care of the time value of money and the net present value of all cash flows is obtained-or else the cash flows are used to find an internal rate of return.
- Availability of Raw-Materials: An ideal product is one where the main raw materials required to manufacture the product are adequately available. This will ensure a regular supply of raw materials and will also reduce the transport cost.
- Proximity to the Potential Market: Marketing of its goods efficiently is also an important function of an enterprise. Therefore, it is an important point to be considered while selecting the product of the manufacturing unit. If the finished product is available near the market, the management can stay in close touch with the changes in the market environment and formulate its production policies accordingly. The transport cost and other overheads are likely to increase with distance between the plant and the market. Also, in the case of the factory being near the market, the risk of damages in transportation, loss of demand due to change in fashions, etc. is also reduced, for e.g., the glass industry and the chemical and drug factories.
- Proximity to the source of power: In some industries, continuous and adequate supply of power is of great significance, for example, nylon or fibre products. There are products cannot do without low-cost electricity. They are established close to power stations so that supply of adequate and cheap electricity is ensured.
- Supply of Labour: Labour is one of the most important inputs in an industrial enterprise. There should be regular and cheap supply of labour, especially unskilled labour.
- Transport and Communication Facilities: Transport is very important for bringing raw materials and fuel from different places and also for marketing of the finished goods, etc. A region well connected with rail, road, water and air transport systems is considered to be most appropriate for transport of finished product. In addition to this, good communication facilities like postal and telecommunication links are of great significance in the selection of a product.
- Integration with other companies: A new product manufacturing enterprise owned or operated by a single group of companies should be able to integrate with other associated establishments.
- Suitability of land and climate: The subsoil of a location should be able to support the product likely to be placed on it. Similarly, the climatic factors like humidity, temperature and other atmospheric conditions should be favourable for the product.
- Safety requirements: Products like nuclear power, involving processes that are explosive in nature as well as chemical process likely to pollute the atmosphere, should be located in remote areas away from residential localities, preferably on the outskirts of a city or town.
Product development is a specialised activity, which may result in the creation of new products or in the modification of the existing production process to produce the same product. Developing new products and processes is risky. So, developing a new product is a major task which considers various factors. Development is necessary to fulfill the old and new wants as well as to adjust with the changes in the customers’ demands or with an object of greater production efficiency and more profits. In other words, the aim of product development is:
- Production of goods to meet market demand.
- Adjusting with the variation in quantity required.
- Right Pricing of the products
Product development can be divided into mainly two categories
- a) Introduction of new products
- b) Improvement of existing products
- a) To introduce new products:
There should be sufficient market research and development work before introducing any product in the market. It is essential because the chances of a new product failing in the market are very high. The company should properly evaluate the potential market for the product. The behavioural pattern of the market, viz. shift, change in technology, etc. should be carefully assessed for effective production planning. The new product should have the capability to replace the existing product/
- Proper designing and development of the product can accomplish this.
- b) Improvement of Existing Product:
Change is the law of nature. Similarly, every manufacturer continuously endeavours to bring about changes and improvements in his product. For example, around 1920, there were two-wheeler brakes like in sedans rood esters, etc. which were replaced within a short period, by four wheeler brakes with self starter. Gradually, by the 1950s, power brakes, power steering and stream lining were introduced. Over a period of time, a number of developments in the automobile industry took place. Air-conditioned cars with improved tires came into use. Similarly, refrigerators with larger freezing units; typewriters and quickly detachable bars and other electronic equipments developed with the passage of time. Probably, the most important factor contributing towards product development is the work going into the improvement of the existing product by way of improved ideas, systems, techniques, etc.
STAGES OF PRODUCT DEVELOPMENT:
- Find Consumer Desire: Product development depends on the consumers’ attitudes and desires with regard to the products. The product designer should keep this fact in mind while developing a new product.
- Analysing Feasibility: The technical, operational and economical feasibility of developing the product should be considered while preparing plans for product development.
- Design: The design of the product depends on the consumers’ needs and it is also based on the report submitted by the research department.
- Selection of Process and Production Systems: The type of process and production systems basically depends on the nature of the product.
- Process Development: In this stage, the company has to select a suitable process by using different systems like production and control systems.
This unit deals with productivity and product selection. It also studied the productivity of materials, labour and manpower along with the methods of improving the techniques of production and performance objectives of productivity. A productivity improvement technique is primarily applied with the objective of increasing the utilisation of some particular resources though it may often be accompanied by better utilisation of some other resources as well. The relative importance of each of the resources varies according to the nativity of the enterprises, the country in which it is operating, the availability and cost of each type of resource and the type of product and process.
- Define productivity. How to measure productivity of various factors of production?
- What are the various techniques for productivity improvement?
- Explain various factors contributing to productivity improvement.
- B.S.Goel, Production and Operations Management, Pragati Prakashan, Meerut, 2002.
- Russell Staylor, “Operations Management”, Seventh Edition, Wiley India Pvt. Ltd., New Delhi.
- Mahadevan, “Operations Management Theory and Practice” Second Edition, Pearson, New Delhi.
- James R. Evans, david A. Collier, “Operations management Concepts, Techniques and Applications”, Latest Edition, Cengage Learning India Pvt. Ltd., New Delhi.
- Iyaniwura, O. and Osoba, A.M. (1983) “Measuring Productivity; Conceptual and Statistical Problems: Improvement of Statistics” in Osoba A.M. (ed.) ‘Productivity in Nigeria’ Proceedings of a National Conference’ NISER, Ibadan.
- Antle, M. J.and Capalbo, S.M. (l988) “An Introduction to Recent Development in Production Theory and Productivity Measurement” in Capalbo, S.M. and Antle, M.J. ‘Agricultural Productivity: Measurement andExplanation’ Resources For the Future, Inc., Washington, DC.
- Eatwell, J.M. and Newman,P. (1991) “The New Palgrave: A Dictionary of Economics” vols. 3, 4
- .& 12, Macmillan, Tokyo.