Chapter 1

Overview of Productivity and Manufacturing Management

Definition and Importance of Productivity:

In an era of continuing inflation, fluctuating energy costs, high taxes, government

regulations, capital shortage, worker dissatisfaction, intense foreign competition
and inadequate productivity, it’s indeed a challenge to manage a manufacturing
firm. Focus on productivity over the years has made countries like Japan, France,
Germany, Italy, Great Britain, Canada, Korea, China and India compete with the
might of USA which has only 5% of World’s population but produces 25% of
World’s industrial output.

Productivity is a measure of output resulting from a given input.

Productivity = (Output) / (Input).

Productivity may be designated in many ways such as output per workers, direct
labor or group of workers, or unit of material or unit of energy or Rupee of capital
investment etc. One must keep in mind that productivity is influenced by many
factors such as worker skill, motivation and effort, job methods used, quality of
workmanship, employee innovation, the machines used and effectiveness of
management.

Productivity is the backbone of economic progress of any nation. Higher

productivity leads to higher standard of living. Higher productivity results if more
output can be got from same input or same output can be got from less input or
more increase in output with correspondingly lesser increase in input.

Higher productivity results in reduction of costs as well as increased sales

potential, more responsive customer service, increased cash flow and profits.
Greater success in existing business can lead to expansion of operations and
increase in number of jobs. If wage increases without accompanying productivity
increase, then it will lead to increased product cost and contribute to inflation

Significant productivity increases in long run cannot be achieved solely by

increased worker effort. Real growth can happen only through capital investment
in newer and better machines equipment and facilities. In addition, attention to
improved worker motivation and incentives such as profit sharing increases
productivity.
Measurement of Productivity

Productivity is ratio of output to input. If an operator can produce 20 items in an

hour then productivity is 20/1 = 20. If the operator can produce 25 items in an
hour then it is 25/1 = 25. If the operator can produce 20 items in half an hour then
productivity is 20/0.5 = 40.

For example output could be plant sales in Rupees and input in Rupees could be
sum of labor costs, material cost, power cost, capital cost and miscellaneous cost.

Generally it is common to compare current productivity figures with those of a

past base period and the change is reported as a percentage (like increase of 10%).
Alternatively, productivity may be expressed on the basis of index numbers which
are commonly based on adding or subtracting the percent change from 100.

Index numbers are popular as they can be used along with other index numbers
like price index, inflation index etc and facilitates calculation of percentages as
well as useful in drawing trend charts. Also they can be used to compare with
productivity index published by Government agencies from time to time for
various sectors which include manufacturing.

Productivity measurement is not easy but difficult and hence many organizations
may not have meaningful or accurate measurements. If a company produces same
product year after year, then it becomes easy to measure productivity.

Over a time period, product modifications, use of new raw materials, different
quality standards, different manufacturing methods, different equipment, changed
operator skills etc may happen. For effective productivity measurement, one must
develop an index number then can take into account the contribution of each factor
of production and then track them. Productivity measurement gives management a
measure of operating efficiency and a means of evaluating progress.

Perspectives of Modern Manufacturing

The primary functions of management are Planning Organizing, Staffing,
Directing and Controlling. Planning is goal setting at all levels and outlining the
steps to achieve the goals. Organizing is dividing the job into various aspects and
levels so that they can be assigned to various people. Staffing involves, hiring,
training and placement of human resources for achieving the goals. Directing is
the process of issuing orders and instructions to carryout plans. Controlling
compares progress with plans for suitable action.
Nine practices generally adhered to by manufacturing managers are:

• Balanced emphasis on all phases of business activity.

• Willingness to take business risks.
• Willingness for information sharing.
• Take expert advice through specialists and consultants.
• Adopt decision making aids
• Great stress on market research, advertising, sales promotion and
distribution.
• Great emphasis on organizational structure
• Great emphasis on human resource development
• Great emphasis on work integrated learning programmes and industry
University Collaborations.

Nine Characteristics of Modern Manufacturing

• Only organizations which aim to be world class can hope to compete in

domestic and global markets.
• Increased emphasis on quality and strive for coveted awards like Malcolm
Baldridge, Deming etc.
• Treating human resources as vital assets for the organization and strive for
flat organizational structure with no functional barriers and empowering the
employees to achieve corporate goals.
• Emphasis on cost control
• Emphasis on focus and specialization
• Realization that old large mass production plants are liabilities and trend is
for small autonomous units with flexibility to produce large variety of
products
• Increasing importance to mechanization for achieving speed, accuracy and
quality goals by deploying intelligent machines and flexible manufacturing
systems.
• Increasing use of computers for solving complex business, design,
engineering, R & D, inventory, maintenance, quality problems.
• Trend for using simulation and mathematical models to aid in decision
making.