CHAPTER II – THE

PRODUCTIVITY
BMGT25 – OPERATIONS MANAGEMENT

RONALD ARBOLEDA
Instructor
Cavite State University, Indang Cavite
SERVICES
Economic activities that typically produce an intangible product (such
as education, entertainment, lodging, government, financial, and health
services).
PRODUCTIVITY CHALLENGE
Productivity is the ratio of outputs (goods and services) divided by the
inputs (resources such as labor and capital)

The objective is to improve this measure of efficiency

Important Note!
Production is a measure of output
only and not a measure of efficiency
EFFICIENCY VS. EFFECTIVITY
Efficiency means doing the job well - with a minimum of resources and
waste (productivity).

EFFICIENT means doing a job well done, such as applying the various
decisions of operations management, whereas EFFECTIVE means doing
the right thing, such as developing and using the correct strategy.
EXAMPLE: INCREASING
PRODUCTIVITY – THE LA MOTOR POOL
Before:
 Cost $120 million
annually
 21,000 vehicles
 30% of the 900 trash
trucks were in repair
 11% of police cars were
in repair
EXAMPLE: INCREASING
PRODUCTIVITY – THE LA MOTOR POOL
Before: Actions:
 Cost $120 million  Created team
annually assignments
 21,000 vehicles  Assigned parking places
for trucks
 30% of the 900 trash
trucks were in repair  Tires checked and trucks
emptied each night
 11% of police cars were
in repair  Standard customer
pickups established
 Computerized fleet
management
 Mechanics moved to night
shift
EXAMPLE: INCREASING
PRODUCTIVITY – THE LA MOTOR POOL
Before: Actions: Results:
 Cost $120 million  Created team  Total fleet reduced by 500
annually assignments vehicles
 21,000 vehicles  Assigned parking places  Parts inventory dropped
for trucks 20% reducing cost by $5.4
 30% of the 900 trash
trucks were in repair  Tires checked and trucks million annually
emptied each night  Standardized pickups
 11% of police cars were
in repair  Standard customer reduced costs by $12
pickups established million annually
 Computerized fleet  Out of service garbage
management trucks dropped to 18%
 Mechanics moved to night
shift
PRODUCTIVITY

Units produced
Productivity =
Input used

 Measure of process improvement

 Represents output relative to input
 Only through productivity increases can our standard of living
improve
PRODUCTIVITY CALCULATIONS
LABOR PRODUCTIVITY (LP)

Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250
MULTI-FACTOR PRODUCTIVITY (MFP)
Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous

 Also known as total factor productivity

 Output and inputs are often expressed in dollars, peso (any
monetary value)
COLLINS TITLE PRODUCTIVITY
EXAMPLE
Old System:
Staff of 4 works 8 hrs/day Payroll cost = $640/day
8 titles/day Overhead cost = $400/day

Old labor
= 8 titles/day = .25 titles/labor-hr
productivity 32 labor-hrs
COLLINS TITLE PRODUCTIVITY
EXAMPLE
Old System:
Staff of 4 works 8 hrs/day Payroll cost = $640/day
8 titles/day Overhead cost = $400/day
New System:
14 titles/day Overhead cost =
$800/day
Old labor
= 8 titles/day = .25 titles/labor-hr
productivity 32 labor-hrs

New labor 14 titles/day

=
productivity 32 labor-hrs = .4375 titles/labor-hr
COLLINS TITLE PRODUCTIVITY
EXAMPLE
Old System:
Staff of 4 works 8 hrs/day Payroll cost = $640/day
8 titles/day Overhead cost = $400/day
New System:
14 titles/day Overhead cost =
$800/day
Old multifactor
= 8 titles/day = .0077 titles/dollar
productivity $640 + $400
COLLINS TITLE PRODUCTIVITY
EXAMPLE
Old System:
Staff of 4 works 8 hrs/day Payroll cost = $640/day
8 titles/day Overhead cost = $400/day
New System:
14 titles/day Overhead cost =
$800/day
Old multifactor
= 8 titles/day = .0077 titles/dollar
productivity $640 + 400
New multifactor
= 14 titles/day = .0097 titles/dollar
productivity $640 + 800
PERCENTAGE INCREASE
Old System New System Percentage Computation =
Increase (New/Old)
Productivity
Labor Productivity 0.25 titles/labor-hr 0.4375 titles/labor- 1.75 or 175% = 0.4375
hr increase 0.25
= 1.75
Multifactor 0.0077 titles/dollar 0.0097 titles/dollar 1.26 or 126% = 0.0097
Productivity (MFP) increase 0.0077
= 1.26

Percentage increase states you the INCREASE of productivity from old system to new system.
Divide the NEW SYSTEM productivity by OLD SYSTEM productivity

It will also state about the improvement of productivity from old to new system
PRODUCTIVITY VARIABLES
 Labor - contributes about 10% of the annual increase
 Capital - contributes about 32% of the annual increase
 Management - contributes about 52% of the annual increase
KEY VARIABLES FOR IMPROVED
LABOR PRODUCTIVITY
 Basic education appropriate for the labor force
 Diet of the labor force
 Social overhead that makes labor available such as
transportation and sanitation
 Maintaining and enhancing skills in the midst of rapidly
changing technology and knowledge
LABOR SKILLS
About half of the 17-year-olds in the US cannot correctly answer
questions of this type
Investment and Productivity in Selected
Nations
10
Percent increase in mfg productivity
Japan
8
Belgium
Netherlands
6
Italy
France

4
Canada
US UK
2

0
10 15 20 25 30 35
Percentage investment
Service Productivity
 Typically labor intensive
 Frequently focused on unique individual attributes or desires
 Often an intellectual task performed by professionals
 Often difficult to mechanize
 Often difficult to evaluate for quality
Productivity and Re-engineering
at Taco Bell
Problems
 Lack of Business vision
 Reliance on obsolete
management and operational
practices – focus more on
process > customer
 Multiple level of management
 Traditional approaches –
assumed customers wanted
without asking them
 Invest more in kitchen area
Re-engineered Solution
 Complete reorganize HR
 Dramatic redesign of
operational system
 Replace area supervisors with
market managers and reduce
their number
 Change kitchen structure
 Kitchen area from 70% to 30%
 Customer area from 30% to 70%
 Doubling the seating capacity
Productivity and Re-engineering
at Taco Bell
Improvements:
 Revised the menu to include
meals that are easy to prepare
 Substantial portion of food
preparation shifted to suppliers
e.g. pre-cooking, predicting,
etc.
 Efficient design of layout and
automation of operations
 Training and empowerment of
employee to increase
competence – reduce labor
Results:
 Preparation time cut to 8
seconds
 Management span of control
increased from 5 to 30
 In-store labor cut by 15
hours/day
 Stores handle twice the
volume with half the labor
 Fast-food low-cost leader
ETHICS AND SOCIAL RESPONSIBILITY
Challenges facing operations managers:

 Developing safe quality products

 Maintaining a clean environment
 Providing a safe workplace
 Honoring community commitments
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