Why does productivity matter? Productivity is a measure of performance that indicates how many inputs it takes to produce or create an output. For companies, higher productivity, that is, doing more with less, results in lower costs for the company, lower prices, faster service, higher market share, and higher profits.
Productivity matters because it results in a higher standard of living in terms of higher wages, charitable giving, and making products more affordable. When companies can do more with less, they can raise employee wages without increasing prices or sacrificing normal profits. Thanks to long-term increases in business productivity, the typical American family today earns 22.7% more than the average family in 1980. and 43.6% more than the average family in 1967 after accounting for inflation.
Thanks to steady increases in productivity, most goods become better and more affordable over time. Two common measures of productivity are partial productivity and multi-factor productivity. Partial productivity indicates how much of a particular kind of input it takes to produce an output.
Labor is one kind of input that is frequently used when determining partial productivity. Labor productivity typically indicates the cost or number of hours of labor it takes to produce an output. Multifactor productivity is an overall measure of productivity that assesses how efficiently companies use all the inputs it takes to make outputs. More specifically, multifactor productivity indicates how much labor capital, materials, and energy it takes to produce an output. Should managers use multiple or partial productivity measures?
In general, they should use both. Multi-factor productivity indicates a company's overall level of productivity relative to its competitors. In the end, that's what counts most. However, multi-factor productivity measures don't indicate the specific contributions that labor, capital, materials, or energies make to overall productivity.
To analyze the contributions of these individual components, managers need to use partial productivity measures. Doing so can help them determine what factors need to be adjusted or what areas of adjustment can make the most difference in overall productivity. Quality means a product or service free from deficiencies or the characteristics of a product or service that satisfy customer needs.
Quality products usually possess three characteristics, reliability, serviceability, and durability. A breakdown occurs when a product quits working or doesn't do what it's designed to do. The longer it takes for a product to break down or the longer the time between breakdowns, the more reliable the product. Consequently, many companies define product reliability in terms of the average time between breakdowns. Serviceability refers to how easy or difficult it is to fix a product.
The easier it is to maintain a working product or to fix a broken product, the more serviceable the product is. A product breakdown assumes that a product can be repaired. However, some products don't break down at all, they fail. Product failure means products can't be repaired.
They can only be replaced. Durability is defined as the mean time to failure. While high-quality products are characterized by reliability, serviceability, and durability, services are different. There's no point in assuming the durability of a service because services are consumed the minute they're performed.
Serviceability is the ability to consistently perform a service well. Studies clearly show that reliability matters more to customers than anything else when buying services. When you take your clothes off to a dry cleaner, you don't want them to be returned with cracked or torn off buttons or wrinkles down the front.
If your dry cleaner gives you a perfectly clean and pressed close every time, it's providing reliable service. Responsiveness is the promptness and willingness in which a service provider gives good service. Assurance is the confidence that the service provider are knowledgeable, courteous, and trustworthy. Empathy is the extent to which service providers give individual attention and care to customers'concerns and problems.
ISO, pronounced I-SO, comes from the Greek word isos, meaning equal, similar, alike, or identical, and is an acronym for the International Organization for Standardization, which helps set standards for 163 countries. ISO 9000 is a series of five international standards from ISO 9000 to ISO 904 for achieving consistency in quality management and quality assurance in companies throughout the world. ISO 14000 is a series of international standards for managing, monitoring, and minimizing an organization's harmful effects on the environment.
ISO 27000 is a series of 12 international standards for managing and monitoring security techniques for information technology. Total Quality Management, known as TQM, is an integrated, organization-wide strategy for improving product and service quality. TQM is not a specific tool or technique.
Rather, TQM is a philosophy or overall approach to management that's characterized by three principles customer focus and satisfaction, continuous improvement, and teamwork. TQM suggests that customer focus and customer satisfaction should be a company's primary goals. Customer focus means the entire organization, from top to bottom, should be focused on meeting customer needs.
The result of a customer focus should be customer satisfaction, which occurs when a company's products or services meet or exceed customer expectations. Continuous improvement is an ongoing commitment to increase product and service quality by consistently assuring and improving the processes and procedures used to create those products and services. Services differ from goods in several ways.
First, goods are produced or made, but services are performed. In other words, services are almost always labor-intensive in that someone typically has to perform the service for you. Second, goods are tangible, but services are intangible. Third, services are perishable and unstorable.
If you don't use them when they're available, they're wasted. Because services are different from goods, managing a service operation is different from managing a manufacturing or production operation. The key concept behind the service profit chain is the internal service quality, meaning the quality of treatment that employees receive from a company's internal service providers such as management and so forth.
How employers treat employees is important because it affects service capabilities. When mistakes are made, when problems occur, and when customers become dissatisfied with the service they receive, service businesses must switch from the process of service delivery to the process of service recovery. Unfortunately when mistakes occur service employees often don't have the discretion to resolve customer complaints. Now however many companies are empowering their service employees.
When things go wrong for customers how well does service recovery work? 69 percent of customers seek quick resolution of their problems as central to good customer service. Either way, roughly nine out of ten customers will tell others about their poor customer service or how you fixed their problem.
Manufacturing operations can be classified according to the amount of processing or assembly that occurs after a customer order is received. The highest degree of processing occurs in make-to-order operations. A make-to-order operation does not start processing or assembling products until it receives a customer order.
A moderate degree of processing occurs in assemble-to-order operations. A company using an assemble-to-order operation divides its manufacturing or assembly processes into separate parts or modules. The company orders parts and assembles modules ahead of customer orders.
Then, based on actual customer orders or on research forecasting what customers will want, the modules are combined to create semi-customized products. The lowest degree of processing occurs in make-to-stock operations, also called because the products are standardized, meaning that each is exactly the same as the next, a company, using a make-to-stock operation, starts ordering parts and assembling finished products before receiving customer orders. A second way to categorize manufacturing operations is by manufacturing flexibility. meaning the degree to which manufacturing operations can easily and quickly change the number, kind, and characteristics of products it produces.
Flexibility allows companies to respond quickly to changes in the marketplace, that is, in response to competitors and customers, and to reduce the lead time between ordering and final delivery of products. By contrast, in a continuous flow production, products are produced continuously rather than at a discrete rate. Like a water hose that's never turned off and just keeps flowing, production of the final product never stops.
Line flow production processes are pre-established, occur in serial or linear manner, and are dedicated to making one type of product. The next and most flexible manufacturing operation is batch production. which involves the manufacturer of large batches of different products in standardized lot sizes.
Next, in terms of flexibility, is the job shop. Job shops are typically small manufacturing operations that handle special manufacturing processes or jobs. In contrast to batch production, which handles large batches of different products, job shops typically handle very small batches, some as small as one product or process per batch. Inventory is the amount and number of raw materials, parts, and finished products that a company has in its possession. There are four kinds of inventory a manufacturer stores.
Raw materials, component parts, work in process, and finished goods. The flow of inventory through a manufacturing plant begins when the purchasing department buys raw materials from vendors. Raw material inventories are the basic inputs in the manufacturing process.
Next, raw materials are fabricated or processed into component parts inventories, meaning basic parts used in manufacturing a product. The component parts are then assembled to make unfinished work-in-process inventories, which are also known as partially finished goods. Next, all the work-in-process inventories are assembled to create finished goods inventories.
which are the final outputs of the manufacturing process. As you'll learn next, uncontrolled inventory can lead to huge costs for manufacturing operations. Consequently, managers need good measures of inventory to prevent inventory costs from becoming too large.
Three basic measures of inventory are average aggregate inventory, weeks of supply, and inventory turnover. Companies often measure average aggregate inventory, which is the average overall inventory during a particular period of time. Too few weeks of inventory on hand, and a company risks a stock-out, running out of inventory. Another common inventory measure, inventory turnover, is the number of times per year that a company sells or turns over its average inventory. In general, the higher number of inventory turns, the better.
In practice, a high inventory turnover means that a company can continue its daily operations with just a small amount of inventory on hand. Maintaining an inventory incurs four kinds of costs ordering, setup, holding, and stockout. Setup cost is the cost of changing or adjusting machines so that it can produce a different kind of inventory.
Holding cost, also known as carrying or storage cost, is the cost of keeping inventory until it's used or sold. Inventory management has two basic goals. The first is to avoid running out of stock and thus angering and dissatisfying customers. This goal seeks to increase inventory to a safe level that won't risk stock outs.
The second is to efficiently reduce inventory levels and cost as much as possible without impairing daily operations. This goal seeks a minimum level of inventory. Economic Order Quantity, or EOQ, is a system of formulas that helps determine how much and how often inventory should be ordered. EOQ takes into account the overall demand, D, for a product, while trying to minimize ordering costs, O, and holding costs, H. With just-in-time inventory systems, component parts arrive from suppliers just as they're needed at each stage of production.
By having parts arrive just in time, the manufacturer has little inventory on hand and thus avoids the costs associated with holding inventory. Materials Requirement Planning, or MRP, is a production and inventory system that, from the beginning to the end, precisely determines the production schedule, production batch sizes, and inventories needed to complete final products. What inventory management system should you use? Economic Order Quantity, or EOQ, formulas are intended for use with independent demand systems, in which the level of one kind of inventory does not depend on another. By contrast, just-in-time and MRP are dependent demand systems, in which the level of inventory depends on the number of finished work units to be produced.
As you'll learn next, uncontrolled inventory can lead to huge costs for manufacturing operations. Consequently, managers need good measures of inventory to prevent inventory costs from becoming too large. Three basic measures of inventory are average aggregate inventory, weeks of supply and inventory turnover companies often measure average aggregate inventory which is the average overall inventory during a particular period of time too few weeks of inventory on hand and a company risks a stock out running out of inventory another common inventory measure inventory turnover is the number of times per year that a company sells or turns over its average inventory. In general, the higher number of inventory turns, the better.
In practice, a high inventory turnover means that a company can continue its daily operations with just a small amount of inventory on hand. Maintaining an inventory incurs four kinds of costs. Ordering, setup, holding, and stockout. Setup cost is the cost of changing or adjusting machines so that it can produce a different kind of inventory.
Holding cost, also known as carrying or storage cost, is the cost of keeping inventory until it's used or sold. Inventory management has two basic goals. The first is to avoid running out of stock and thus angering and dissatisfying customers. This goal seeks to increase inventory to a safe level that won't risk stockouts.
The second is to efficiently reduce inventory levels and costs as much as possible without impairing daily operations. This goal seeks a minimum level of inventory. Economic Order Quantity, or EOQ, is a system of formulas that helps determine how much and how often inventory should be ordered.
EOQ takes into account the overall demand, D, for a product, while trying to minimize ordering costs, O, and holding costs, H. With just-in-time inventory systems, component parts arrive from suppliers just as they're needed at each stage of production. By having parts arrive just in time, the manufacturer has little inventory on hand and thus avoids the costs associated with holding inventory. Materials Requirement Planning, or MRP, is a production and inventory system that, from the beginning to the end, precisely determines the production schedule, production batch sizes, and inventories needed to complete final products. What inventory management system should you use?
Economic Order Quantity, or EOQ, formulas are intended for use with independent demand systems, in which the level of one kind of inventory does not depend on another. By contrast, Just-In-Time and MRP are dependent demand systems, in which the level of inventory depends on the number of finished work units to be produced. Thanks for watching!