Operations & Production Management

BBA – Spring 2023

Dr. Shahid Mir,

Post Doc. (Fulbright Scholar), PhD, MBA, BE,
Assistant Professor
Chairman, Procurement Committee,
Ex-Director QEC, Ex. Chairman, Department of Management, Ex-Testing In-
charge, Ex-Students Counselor,
Institute of Business Administration, Karachi
Certifications: SECP Board Director, SPPRA, ISO 9000
Master Trainer LUMS/McGill/CIDA
Master Trainer USAID,
Master Trainer Sindh PPRA
smir@iba.edu.pk; 0336-8337869
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 productivity!

Important Note!
Production is a measure of output
only and not a measure of efficiency
The Economic System

Inputs Processes Outputs

Labor, The U.S. economic system Goods

capital, transforms inputs to outputs and
management at about an annual 2.5% services
increase in productivity per
year. The productivity
increase is the result of a
mix of capital (38% of 2.5%),
labor (10% of 2.5%), and
management (52% of 2.5%).

Feedback loop

Figure 1.7
Improving Productivity at Starbucks

A team of 10 analysts
continually look for ways to
shave time. Some
improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the Saved 14 seconds
ice scoop per drink
New espresso machines Saved 12 seconds
per shot
Improving Productivity at Starbucks

A team of 10 analysts
continually look for ways to
shave time. Some
improvements:
Operations improvements have helped
Starbucks increase yearly
Stop requiring signatures Saved revenue per outlet
8 seconds
by $200,000 to $940,000
on credit card purchases in six years.
per transaction
under $25 Productivity has improved by 27%, or about
4.5% per year.
Change the size of the Saved 14 seconds
ice scoop per drink
New espresso machines Saved 12 seconds
per shot
Savings in a Sialkot based Football Company

Improvements
Imported sheets from Switzerland at $50 a sheet
Daily production of 1000 sheets ($50,000)
Waste level about 35% ($17.5) - Daily wastage = $17,500
Revised design of cutting sheet
Waste level reduced to 15% ($7.5) – Daily wastage = $7,500
Savings in a Sialkot based Football Company

Improvements
Imported sheets from Switzerland at $50 a sheet
Daily production of 1000 sheets ($50,000)
Waste level about 35% ($17.5) - Daily wastage = $17,500
Results:
Revised design of cutting sheet
Daily saving of $10,000.
Waste level reduced to 15% ($7.5) – Daily wastage = $7,500
Estimated annual savings of
$ 3,000,000 or 3 million dollars
Consultant: Dr. Shahid Mir
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
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

Multi-Factor Productivity

Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous
 Also known as total factor productivity
 Output and inputs are often expressed in
dollars

Multiple resource inputs  multi-factor productivity

Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

productivity =
32 labor-hrs
Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

productivity = = .25 titles/labor-hr
32 labor-hrs
Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old labor 8 titles/day

productivity = = .25 titles/labor-hr
32 labor-hrs

New labor 14 titles/day

productivity =
32 labor-hrs
Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old labor 8 titles/day

productivity = = .25 titles/labor-hr
32 labor-hrs

New labor 14 titles/day

productivity = = .4375 titles/labor-hr
32 labor-hrs
Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity =
$640 + 400
Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity = = .0077 titles/dollar
$640 + 400
Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity = = .0077 titles/dollar
$640 + 400

New multifactor 14 titles/day

productivity =
$640 + 800
Collins Title Productivity

Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity = = .0077 titles/dollar
$640 + 400

New multifactor 14 titles/day

productivity = = .0097 titles/dollar
$640 + 800
Measurement Problems

 Quality may change while the quantity

of inputs and outputs remains constant

 External elements may cause an

increase or decrease in productivity
 Precise units of measure may be
lacking
Productivity Variables

 Labor - contributes
about 10% of the annual
increase
 Capital - contributes
about 38% 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
 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

Figure 1.8
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
Ethics and Social Responsibility

Challenges facing operations managers:

 Developing and producing safe, quality products

 Maintaining a clean environment
 Providing a safe workplace
 Honoring community commitments
Challenges for Operations Managers

• Concerned over productivity.

• Need to improve process quality.
• Worried about customer satisfaction.
• About to deploy a new enterprise-wide application.
• Buried under a mountain of reporting.
• Unresolved conflicts between departments.
• Difficulty in recruiting the right talent.