UNIVERSITY OF CEBU

GRADUATE SCHOOL

Reporter : Kenny Mark C. Fresco

Topic : Introduction of Operations Management

Competitiveness, strategy, and productivity

Date : December 14, 2019

Professor : Dr. Eddie E. Llamedo

Chapter 1 and Chapter 2

Prayer:

Let us pray…

Lord make me an instrument of your peace

Where there is hatred let me sow love

Where there is injury, pardon

Where there is doubt, faith

Where there is despair, hope

Where there is darkness, light

And where there is sadness, joy.

Amen.

Energizer:

Banana Dance

Words of Wisdom:

“Just keep moving forward.”

- The Robinson’s Family –

Topic Objectives:

At the end of the discussion fellow masterands should be able to understand the

following:

- Meaning of operations management,

- Identify the three major areas of organizations and describe how they

interrelate,

- Compare and contrast service and manufacturing operations,

- Describe the operations function and the nature of the operations manager’s

job,

- Differentiate between design and operation of production system,

- Describe the key aspects of the operations management decision making,

- Briefly describe the historical evolution of operations management,

- And identify current trends in business that impacts the operations

management.

Chapter 1 Summary:

Introduction

Operations refer to the part of an organization which is responsible for the

production of goods or services. Goods are physical items and services are activities

you do for others in exchange of payment. Operations define the success or failure

of a company as well as this affects the competitiveness of a nation from another

nation and on the nation’s economy.

All business organizations have three (3) basic functions. Finance is

responsible in securing and managing financial resources including the budget

scheme and analyzing investments. Marketing and operations are the primary, or
“line”, function. Marketing is responsible for assessing customers’ needs and wants,

selling and promoting the organization’s goods and services. Operations are

responsible for the production of goods or providing services. We consider the

operation as the core of an organization and that operations management is the

management system or the process in creating goods and/or provides services.

The creation of goods or services involves transforming or converting inputs

into outputs known as transformation process. In ensuring the quality of the product

feedbacks are used to compare previous product to the current whether corrective

actions are needed.

Organization

Finance Operations Marketing

Figure 1.1 Three Basic Functions of Business Organizations

Inputs:
Land Transformation Outputs:
Labor /Coversion Goods
Process
Capital Servies
Information

Figure 1.2 The operations function involves the conversion of inputs into outputs
Feedback
The essence of the operations function is to add value during the
Feedback Feedback
transformation. The value-added is the Control
difference between the cost of inputs and the
value or price of outputs. The value of the outputs are measured based on the

consumers capacity to buy or buying powers. Thus, money generated from the value

added is used by the firms for product development, research, additional

investments like facilities and equipment, and employee salary.

Inputs Transformation Outputs

Land Processes: High Goods Percentage:

Human: - Cutting, Drilling - Houses

- Transporting - Automobiles
- Physical Labor
- Teaching - Clothing
- Intellectual Labor
- Farming - Computers
Capital
- Mixing - Machines
Raw Materials: - Packing - Televisions
- Copying - Food Products
- Energy - Textbooks
- Water - CD players
- Metals High Service Percentage:
- Wood - Health Care
Equipment: - Entertainment
- Car Repair
- Machine
- Delivery
- Computers
- Legal
- Trucks
- Banking
- Tools
- Communication
Facilities:
Others:
- Hospitals - Innovation
- Factories
- Retail Stores
Other:

- Information
- Time
- Legal Constraints
- Government Regulations
Table 1.1 Examples of Inputs, Transformation, and Outputs.

Goods Services

Surgery, teaching
Figure 1.3
Songwriting, software development

Computer repair, restaurant meal

Automobile repair, fast food

Home remodeling, retail sales

 The goods-service continuum

Base on the figure the greater the customer is involve, the more challenging

the operation design and management is.

Production of Goods versus Delivery of Services

Goods and services often work hand in hand but the two have basic

differences. Goods are tangible outputs-anything that we can see or touch, on the

other hand, services generally implies as an act.

Food Processor Inputs Processing Output

- Raw veggies - Cleaning - Canned veggies

- Metal steels - Making cans
- Water - Cutting
- Energy - Cooking
- Labor - Packing
- Building - Labeling
- Equipment

Hospital Inputs Processing Output

- Doctors, nurses - Examination - Treated patient

- Hospital - Surgery
- Medical supplies - Monitoring
- Equipment - Medication
- Laboratories - Therapy
Table 1.2 Illustration of the Transformation Process

Manufacturing and service are often different in terms of what is done but are

similar in terms of how it is done and manufacturing is goods-oriented, while service

is act-oriented.

Characteristics Manufacturing Service

1. Degree of customer - Less contact - Higher contact

contact
2. Uniformity of inputs - Carefully controlled - Greater variability of
variability inputs
3. Labor content of jobs - Less labor - Higher labor
4. Uniformity of outputs - Smooth and efficient - Slow and awkward
5. Measurement of - Straightforward with high - Demand intensity and
productivity
 degree of uniformity difficult to measure
6. Production and delivery - Runs through the - Receive the service right
distribution channel away
7. Quality assurance - Manageable and can be - More challenging when
corrected prior to production and
customer consumption consumption takes place
at the same time
8. Amount of inventory - More inventory - Less inventory
9. Evaluation of work - Interval between - Less demanding
production and delivery
10. Ability to patent design - Easier to patent - Service design cannot be
patented

The Scope of Operations Management

The operation function includes forecasting, capacity planning, scheduling,

managing inventories, assuring quality, motivating employees, deciding where to

locate facilities, and more.

Realm of operations management:

1. Forecasting - ability to predict possible outcomes.

2. Capacity planning – ability to maintain the company cash flow and make

profit.

3. Scheduling – ability to set the schedule of manpower for efficiency.

4. Managing Inventories – ability to monitor the supplies needed for the

operation.

5. Assuring Quality – ability to check and maintain the operation for

standardization.

6. Motivating and Training Employees – ability to boost the morale of your

teammates.

7. Locating Facilities – ability of a manager to decide which cities is best for

major and minor hubs.

Types of Operations
 1. Goods Producing

2. Storage/transportation

3. Exchange

4. Entertainment

5. Communication

What is System Design?

Involves decisions that relate to system capacity, the geographic location of

facilities, arrangement of departments and placement of equipment within the

physical structures, product and service planning, and acquisition of equipment.

Strategic decisions which involves management of personnel, inventory planning

and controlling, scheduling, project management and quality assurance. Tactical and

operational decisions and this is not possible without the operations manager who is

a vital stake in this system. System design determines the parameters of the whole

operation.

Operations functions:

1. Purchasing- responsibility for procurement of materials, supplies, and

equipment.

2. Industrial Engineering- often concerned with scheduling, performance

standards, work methods, quality control, and material handling.

3. Distribution- involves shipping of goods to warehouses, retail outlets, or final

customer.

4. Maintenance- responsible for general upkeep and repair of equipment,

building and grounds, heating and air-conditioning, removing toxic waste,

parking, and security.

Operations- the core function of an organization.

Operation Management and Decision Making

Operations Manager

Operations manager is the key figure in the creation of goods or provision of

services and has the chief role of planning and decision making. An operation

management professional considers numbers of key decisions affecting the

organization and these are:

- What: what resources will be needed and in what amount?

- When: when will each resource be needed? When should the work be

scheduled? When should materials and other supplies be ordered? When is

corrective action needed?

- Where: where will the work be done?

- How: how will the product or service be designed? How will the product be

done? How will resources be allocated?

- Who: who will do the work?

Tools used in the decision making:

a. Models

Models are an abstraction of reality, a simplified representation of something.

Models are sometimes classified as physical, schematic, or mathematical:

- Physical models look like their real-life counterparts. (miniature

representation)
 - Schematic models are more abstract than physical counterparts; that is, they

have less resemblance to the physical reality. (blueprints, sketches, and

drawings)

- Mathematical models are the most abstract: they do not look like their real-

life counterparts at all. (computations, formulas, and numbers)

Benefits of using Models

1. Are generally easy to use and less expensive than dealing directly with the

actual situation.

2. Require users to organize and sometime qualify information and, in the

process often indicate areas where additional information is needed.

3. Increase understanding of the problem.

4. Enables managers to analyze “What if?” questions.

5. Serve as a consistent tool for evaluation and provide a standardized format

for analyzing a problem.

6. Enable users to bring the power of mathematics to bear on a problem.

Limitations when using Models

1. Quantitative information may be emphasized at the expense of quantitative

information.

2. Models may be incorrectly applied and the results misinterpreted.

3. The use of models does not guarantee good decisions.

b. Quantitative Approaches

Quantitative approaches to problem solving often an attempt to obtain

mathematically optimal solutions to managerial problems. Examples:

- Linear programming

- Queuing techniques
 - Inventory models

- Project models- PERT (Program Evaluation and Review Technique) and CPM

(Critical Path Method)

- Forecasting techniques

- Statistical models

c. Performance Metrics

All managers use metrics to manage and control the operations it includes; profit,

cost, quality, productivity, assets, inventories, schedules, and forecasting

accuracy.

d. Analysis of Trade-offs

Operations personnel frequently encounter decision that can be described as

trade-off decision. This decision is taking considerations into the effect of each

factors affected.

e. System Approach

A system can be defined as a set of interrelated parts that must work together.

This emphasizes interrelationships among subsystems, but its main theme is that

the whole is greater than the sum of its individual parts.

Establishing Priorities

In reality managers discover certain factors are more important than others.

Recognizing this enables the managers to direct their efforts to what is to be done to

avoid wasting time and energy on insignificant factors.

Pareto Phenomenon which means that all things are not equal; some things

(few) will be very important in achieving goals, objectives or solve problems, and

other things (many) will not.

Ethics

In making decisions, managers should consider how their decision will affect

shareholders, management, employees, customers, the community at large, and the

environment. Managers sometime with best intentions makes mistakes and this is

the reason why managers should act responsibly and correct those mistakes quickly.

Operations managers, like all managers make ethical decisions and ethical issues

sometimes arise from:

 Financial statement- accurate financial condition.

 Worker safety- providing adequate trainings, maintenance of equipment.

 Product safety- products that minimizes the risk for injury to users and

environmental friendly.

 Quality- honoring warranties, and avoiding defects.

 The environment- not doing things that will harm the environment.

 The community- being a good neighbor.

 Hiring and firing workers- avoiding false pretenses.

 Closing facilities- taking account the impact to the community and honoring

commitments.

 Worker’s rights- respecting the rights of employees and dealing with their

problems quickly with fairness.

Note: Each organization has their code of ethics.

Environmental Concerns

With growing concern on global environmental changes, strict regulations are

now imposed by the government affecting business organizations. Thus, we are

pushing what we call sustainability which refers to the service and production

processes that use resources in ways that it will not harm the ecological system that

support human existence, both present and future. Operations managers are central

factors in achieving sustainability through “green initiatives”.

Important Reasons why we need to Study Operations Management

50% or more of all jobs are in operations management or related fields. This

requires the operations manager to build and promote working together. Working

together will establish collaboration and will involve exchange of information and will

bring cooperative decision making.

Figure 1.4 Three Major Functions Operations

of Business Organizations Overlap

Shown in the table finance and operations management personnel cooperate

Finance
Finance Marketing
by exchanging information and expertise in such activities.

1. Budgeting- budget allocation.

2. Economic analysis of investment proposal- Evaluation of alternative

investments.

3. Provision of funds- Necessary funding needed by the operations.

Marketing mainly focuses on selling and promoting the goods or services of

an organization. Marketing is also responsible for assessing customer wants and

needs, and for communicating those to the operation people and to design people.

Marketing sill supply valuable information of what competitors are doing and through
this the operations will try to develop the products according to the preference of the

consumers. Operations can supply information about capacities and judge the

manufacturability of the designs. Marketing will also need the lead time which is the

time between ordering the product and receiving it. This will give the customer the

realistic time frames to estimate how long will their orders take.

Thus, marketing, operations, and finance must interface on product and

process design, forecasting, setting realistic schedules, quality and quantity

decisions, and keeping each other informed with their strength and weaknesses.

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Figure 1.5 Operations Interfaces with a number of Supporting Functions

Legal- department must be consulted on the contracts with employees, customers,

suppliers, and transporters, as well as with environmental liabilities.

Accounting- supplies information to management on the cost of labor, materials,

and overhead, and many reports on items such as scraps, downtime, and

inventories.

Management Information System (MIS)- concerned with providing management in

terms of information, data storing, and processing reports electronically.

Human Resource- department concerned with recruitment, trainings, labor

relations, contract negotiation, salary and wages.

Public Relation- responsible for keeping a good public image.

Career Opportunities in the Operations

Positions Skills and Knowledge Required

1. Operations Manager
 2. Production Analyst - People skill including political awareness
3. Production Manager - Mentoring ability
4. Industrial Engineer - Collaboration
5. Time Study Analyst
- Negotiation
6. Inventory Manager
7. Purchasing Manager
- Communication skills
8. Schedule Coordinator - Product/service knowledge
9. Distribution Manager - Industry and global knowledge
10. Supply Chain Manager - Financial and accounting skills
11. Quality Analyst
12. Quality Manager

The Historical Evolution of Operations Management

Systems for production have existed since ancient times. The Great Wall of

China, Ankor Wat, Borobudur, the palaces of Persepolis, and the roads of the Incan

empire provide existence of the human ability to organize for production. These

examples are classified as “public works” projects and the production as of the

modern sense are from modern factory system and had their roots in the industrial

revolution.

Industrial Revolution

Began in the 1770s in England and spread across Europe and to the United

States during the 19th century. Prior to this, goods were produced in small shops by

craftsmen and their apprentices. The system, it was common for one person to be

responsible for making a product. They were only using simple tools but during the

18th century, innovation changed the production system by using machines instead

of human power and Invention of the steam engine to power factories.

Craft production which requires highly skilled workers use simple, flexible

tools to produce small quantities of customized goods. This was slow and production

cannot be done by volume. This was where factories began to spring when the

standard gauging system was introduced.

Scientific Management
 In this era Frederick Winslow Taylor or known as the father of scientific

management and author of The Principles of Scientific Management. He believed in

the “science of management” based on observation, measurement, analysis and

improvement of work methods, and economic incentives. He studied work methods

that will best identify the best thing to do. He believed that management is

responsible for planning, carefully selecting and training workers, finding the best

way to perform each job, achieving cooperation between management and workers,

and separating management activities from work activities. Thus, Taylor’s method

emphasized in maximizing outputs.

Other Pioneers during this century are:

1. Frank Gilbreth an industrial engineer known as the father of motion study. He

developed the principle of motion economy.

2. Henry Gantt recognized the value of nonmonetary rewards to motivate

workers, and developed a widely used system for scheduling, called Gantt

Charts.

3. Harrington Emerson applied Taylor’s ideas to organization structure and

encouraged the use of experts to improve organizational efficiency.

4. Henry Ford the great industrialist, employed scientific management

techniques in his factories.

During the 20th century, automobiles were building using product or assembly

lines and this made a tremendous impact on production. Ford introduced mass

production a system in which low-skilled workers use specialized machinery to

produce high volumes of standardized goods. With mass production,

interchangeable parts, parts of a product made to such precision that they do not
have to be custom fitted and was attributed by Eli Whitney. Eli was an American

inventor who applied the concept of assembling musket in the late 1700s.

Ford also introduced the division of labor concept, which Adam Smith wrote

about in The Wealth of Nations (1776). This means that during the operation the

assembly line is divided into series of small tasks, and individual workers are

assigned to one of those tasks.

The Human Relations Movement

This movement gives emphasis on the importance of human elements in the

job design. Lillian Gilbreth who is a psychologist focused on the human factor in

work, has to do something with work fatigue, and soon focused on motivation. Elton

Mayo made a study on the relationship between physical and technical aspects of

work and found out that worker motivation affects the productivity. Abraham Maslow

developed motivational theories and was refined by Frederick Hertzberg in 1950s.

Douglas McGregor added the Theory of X and Theory of Y, this theory looked into

two spectrums; life at work, and have to be controlled-rewarded and punished- to get

them good. These theories gave an impact to working commitments and empowered

employee cooperation.

Decision Models and Management Science

Came the development of several quantitative techniques like F. W. Harris

who developed one of the first models in 1915: mathematical model for inventory

management. In 1930 H. F. Dodge, H. G. Romig, and W. Shewhart, developed

statistical procedures for sampling and quality control. In 1935, L.H.C. Tippett

conducted a studied that provided the groundwork for statistical-sampling.

The Influence of Japanese Manufacturers

 The Japanese influenced the operations to increase productivity and with

quality procedures. These made them very competitive and in which their

approaches were emphasized to quality and continual improvement, worker teams

and empowerment, and achieving customer satisfaction. This is where “quality

revolution” began to industrialize countries.

Approximate Contribution/Concept Originator

Date
1776 Division Labor Adam Smith
1790 Interchangeable parts Eli Whitney
1911 Principles of scientific management Frederick Taylor
1911 Motion study, use of industrial psychology Frank and Lillian Gilbreth
1912 Charts for scheduling activities Henry Gantt
1913 Moving assembly line Henry Ford
1915 Mathematical model for inventory management F. W. Harris
1930 Hawthome studies worker motivation Elton Mayo
1935 Statistical procedures for sampling and quality control Dodge, Romig, Shewhart, Tippett
1940 Operations research application in welfare Operations Research Group
1947 Linear programming George Dantzig
1951 Commercial digital computers Sperry Univac, IBM
1950s Automation Numerous
1960s Extensive development of quantitative tools Numerous
1960s Industrial dynamics Jay Forrester
1975 Manufacturing strategy, quality, flexibility, time-based Japanese Manufacturers;
competition, lean production especially Toyota & Taiichi Ohno
1990s Internet, supply chain management Numerous
2000s Applications service providers and outsourcing Numerous
Table 1.3 Historical Summary of Operations Management

Major Trends

Various trends affecting business organization:

1. The Internet, e-commerce, and e-business- using Internet to transact

businesses and using the Internet to buy.

2. Management of technology- using technology to improve the product and

with high technology comes with a high and advance product.

Three major things that gives impact to technology:

- Product and service technology- refers to the development of new products

and services.

- Process technology- refers to the methods.

 - Information technology- refers to the science and use of the computers and

other electronic equipment to store, process, and send information.

3. Globalization- a need for global supply chains.

4. Management of supply chains- the sequence of the organizations facilities,

functions, and activities that are involved in producing and delivering a

product or service.

5. Outsourcing- obtaining a product or service from outside the organization.

6. Agility- refers to the ability of an organization to respond quickly to demands

or opportunities.

7. Ethical behavior- and conduct of getting increased attention from the

management at all levels.

Topic Objectives:
At the end of the discussion fellow masterands should be able to understand the

following:

- The primary ways that business organizations compete,

- List the five reasons for the poor competitiveness of some companies,

- Define the term strategy and explain why it is important for competitiveness,

- Contrast strategy and tactics,

- Discuss and compare organization strategy and operations strategy and

explain why it is important to link the two,

- Give examples of time-based strategies,

- Define the term productivity and explain why it is important to organizations

and to countries,

- And list some of the reasons for poor productivity and some ways of

improving.

Chapter 2 Summary:

This chapter will discuss competitiveness, strategy, and productivity.

Competitiveness relates to the effectiveness of an organization in the marketplace

relative to other organizations that offer similar products or services. Operations and

marketing have major impact on competitiveness. Strategy relates to the plans that

determine how an organization pursues its goals. Operations strategy is particularly

important in this regard. Productivity relates to the effective use of resources, and it

has a direct impact on competitiveness. Operations management is chiefly

responsible for productivity.

Competitiveness
 How effectively an organization meets the needs and wants of the customers

relative to others that offer similar goods or services. It is an important factor in

determining whether a company prospers, barely gets by or fails.

Business organizations compete with their marketing and operation function.

Marketing influences competitiveness in terms of customer’s needs and wants,

pricing, and advertising and promoting.

1. Identifying consumer needs and wants- basic input to the organization to

what and how to match the needs and wants of customers.

2. Pricing is usually a key factor referring to the buying capacity of the

consumers.

3. Advertising and promotion are ways the organizations can inform potential

customers.

Meanwhile operations has major influences on competitiveness through

product and service design, cost, location, quality, response time, flexibility, inventory

and supply chain management, and service.

1. Product and service design- should reflect joint efforts of many areas of the

firm to achieve a match between financial resources, operations capabilities,

supply chain capabilities, and consumer’s needs and wants.

2. Cost- output variables that affect pricing.

3. Location- referring to the convenience.

4. Quality- refers to materials, workmanship, design, and service.

5. Quick response- competitive advantage in bringing new or improved

products.

6. Flexibility- the ability to respond to changes.

7. Inventory management- effective matching supplies.

 8. Supply chain management- involves both internal and external operations to

achieve timely and cost-effective delivery of goods or services.

9. Service- after sale activities such as maintenance, warranty, delivery, and

technical support.

10. Managers and workers- people at the heart and soul of the organization.

Reasons Why Some Organizations Fail

1. Putting too much emphasis on short-term financial performance at the expense

of research and development.

2. Failing to take advantage of the strengths and opportunities, and /or failing to

recognize competitive threats.

3. Neglecting operation strategy.

4. Placing too much emphasis on product and service design and not enough on

process design and improvement.

5. Neglecting investments in capital and human resources.

6. Failing to establish good internal communications and cooperation among

different functional areas.

7. Failing to consider customer wants and needs.

Strategy

Plans in achieving organizational goals and to be effective, strategies must be

designed to support the organization’s mission and its organizational goals.

Mission and Goals- Mission is the reason for the organizations existence and

mission statement states the purpose of the organization. Goals provide the detail

and scope of the mission.

Tactics- The methods and actions taken to accomplish strategies.

Simple Example:

Mission: Live a good life.

Goal: Successful career, good income.

Strategy: Obtain a college education.

Tactics: Select a college and major; decide how to finance college.

Operations: Register, buy books, take courses, study.

Mission

Figure 2.1 Planning Decision Making are Hierarchical in Organization

Organizational
Distinctive Competencies- are the special
Goals attributes or abilities that give an

organization a competitive edge. Organizational strategies

Strategy Formulation
Functional goals
To formulate an effective strategy, senior managers must take into account

the distinctive competencies

Finance of theMarketing
organization, Operations
and they must scan the
Strategies Strategies Strategies
environment. They must determine what competitors are doing, or planning to do,
Tactics Tactics
and take that into account. They must carefully examine Tactics
the factors that could have
Operating Operating Operating
either positive or negative effects. Using
Procedure a SWOT analysis
Procedure will help you determine
Procedure

the different factors and the possible effects to the organization.

 Some successful organizations used Terry Hill’s work from his book

“Manufacturing Strategy”, the order qualifiers which are characteristics that the

customers perceive as minimum standards of acceptability to be considered as a

potential for purchase. Taking consideration to order winners are those

characteristics of an organization’s goods or services that cause it to be perceived as

better than the competition. These characteristics include; price, delivery, reliability,

delivery speed, and quality.

Environmental scanning might affect their preferences, this gives

consideration to events and trends that present threats or opportunities for a

company. This includes political, legal, economic, and environmental issues.

Technological change another key factor to consider when developing strategies.

Important Factors maybe internal or external:

1. Economic Conditions-

2. Political Conditions

3. Legal Environment

4. Technology

5. Competition

6. Markets

Internal Factors affecting the organization:

1. Human Resources

2. Facilities and Equipment

3. Financial Resources

4. Customers

5. Products and Services

6. Technology
 7. Suppliers

8. Others

After assessing the internal and external factors a strategy must be

formulated for the organizations advantage. The following questions bellow should

be addressed:

1. What role, if any, will the Internet play?

2. Will the organization have a global presence?

3. To what extent will outsourcing be used?

4. What will the supply chain management strategy be?

5. To what extent will new products or services be introduced?

6. What rate of growth is desirable and sustainable?

7. What emphasis, if any, should be placed on lean production?

8. How will the organization differentiate its products and/or services from

competitors?

PIMS

Profit Impact of Market Strategy is useful resource on the successful

business strategy. The data base consist of over 3, 000 profile of businesses.

Sustainability Strategy

Sustainability Strategy was born because of CSR (Corporate Social

Responsibility) business organization heightening their attention towards

sustainability goals. Sustainability Strategy raises sustainability to the level of

corporate governance and sets goals for design and delivery of products and

services.

Global Strategy
 As globalization has increased, many companies realized that strategic

decisions with respect to globalization must be made. Because in some cases

companies face problems in what works in one country or region may not work in

another and this is why strategies should be carefully crafted taking considerations

the variables accounted for.

Operations Strategy

Operations strategy is an approach, consistent with the organization strategy

that is used to guide the operations function. A narrow scope, dealing primarily with

the operations aspect of the organization.

Quality and Time Strategies

Quality-based strategy is a strategy that focuses on quality in all phases of

the organization. While Time-based strategy focuses on reduction of time needed

to accomplish the tasks. Some reduction were achieved during; planning time,

product/service design time, processing time, changeover time, delivery time, and

response time for complaints.

Productivity

A measure of the effective use of resources, usually expressed as the ratio of

output to input. Formula:

Output
Productivity = Input

Productivity has important implications for business organization like for non-

profit organizations, higher productivity means lower cost; for profit-based

organizations productivity is an important factor in determining how competitive a

company is. For a nation, the rate of productivity growth is of great importance. It is

the increase in productivity from one period to the next relative to the productivity in

the preceding period. Formula:

Productivity growth = current productivity – Previous productivity X 100

Previous productivity

Computing Productivity

Productivity can be based on a single input (partial productivity), on more than

one input (multifactor productivity), or on all inputs (total productivity). The measure

of productivity will depend primarily to the purpose of the measurement. If the

purpose is for labor productivity, then labor becomes the input.

Formula:

Meters of carpet installed per labor hour = Meters of carpet installed

Labor hours

Number of motel rooms cleaned per worker = Number of motel rooms cleaned
Number of Workers

Examples of different types of productivity measures:

Partial measures output output output output

Labor Machine Capital Energy

Multifactor measures output output

Labor + Machine Labor + Capital + Energy

Total measure Goods or services produced

All inputs used to produce them

Example of Partial Productivity

Labor productivity Units of output per labor hour

Units of output per shift

Value-added per labor hour

Dollar value of output per labor hour

Machine productivity Units of output per machine hour

Dollar value of output per machine hour

Capital productivity Units of output per dollar input

Dollar value of output per dollar input

Energy productivity Units of output per kilowatt-hour

Dollar value of output per kilowatt-hour