7-Over-Head Expenses-27-08-2021 (27-Aug-2021) Material - I - 27-08-2021 - MEE1014 - Productivity

MEE1014
INDUSTRIAL ENGINEERING AND MANAGEMENT
Dr T SAMPATH KUMAR
Associate Professor
School of Mechanical Engineering
VIT University
sampath.thepperumal@vit.ac.in
9443964297
Dr T Sampath Kumar, Associate Professor,
10-08-2019 1
SMEC-VIT
Module III
Productivity:
Definition – Factors affecting- Increasing productivity of resources - Kinds of
productivity measures - Case study
10-08-2019 2
Dr T Sampath Kumar, Associate Professor, SMEC-VIT
Production?
The processes and methods used to transform tangible inputs (raw

materials, semi-finished goods, subassemblies) and intangible inputs
(ideas, information, knowledge) into goods or services.
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Manufacturing?
Manufacturing is the production of merchandise for use or sale using labor

and machines, tools, chemical and biological processing, or formulation.
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Production Vs Manufacturing
In production, the raw material is not Manufacturing, the company procures the
procured from outside, the company raw material from outside, and then
owns it and after processing and make the makes the final product.
final product.
Manufacturing is a process of converting
Production is a process of converting raw material in to finished product by
inputs in to outputs. using various processes, machines and
energy.
It is a narrow term.
It is a broader term.
Every type of production is

manufacturing. But, every manufacturing
is not a production.
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Production System
The main objective of production system is to produce the goods and services
demanded by the customers in the most efficient and economical way.
Inputs Transformation Outputs

• Men (Conversion Process) Goods or Services
• Material
• Machine
• Money
Feedback Information
10-08-2019 6
Three ways of production
Production by Disintegration
Example: Crude oil (Extract various fuel oils)
Production by Integration
Example: Four wheeler (Assemble of Parts)
Production by Service
Example: Bike (Product service centre )

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SMEC-VIT
Types of Production system
 Intermittent Production System
 Job production
 Batch Production
 Continuous Production System
 Mass production
 Flow production / assembly line production

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SMEC-VIT

10-08-2019 9
SMEC-VIT
Job production
This type of production makes a single, unique, product from start to finish.
The product is mostly based on the requirements of the customer.
Job production tends to be labour intensive, and often highly skilled labour is
required.
Examples include building ships, bridges and buildings, handmade crafts like
furniture and made-to-measure clothes.

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Job production
The main advantages of job production include the following:
• Unique, high quality products are made.
• Workers are often more motivated and take pride in their work

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SMEC-VIT
Job production
The main disadvantages of job production include the following:
• Very labour intensive, so selling prices are usually higher.
• Production can take a long time and can be expensive, for instance if special
materials or tools are required.
• Economies of scale are not possible, often resulting in a more expensive product.

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SMEC-VIT
Batch production
In this type of production, products are made in batches.
This method is suited to products that are identical to each other, but are only
produced in limited quantities, or for a limited amount of time.
Employees focus on one aspect of production, so labour is not usually highly-

skilled.
Batch production can also allow for the use of automation.
For example, a shoe factory could make different batches of shoes based on the
size and colour of them

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SMEC-VIT
Batch production
The main advantages of batch production include the following:
• Since larger numbers are made, unit costs are lower.
• Offers the customer some variety and choice.
• Materials can be bought in bulk, so they are cheap.

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SMEC-VIT
Batch production
The main disadvantages of batch production include the following:
• Workers are often less motivated because the work becomes repetitive.
• Goods have to be stored until they are sold, which is expensive.
• Expensive to move products around the workplace. Storage space will be needed to
store raw materials

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SMEC-VIT
Mass production
In mass production, large numbers of identical products are made.
Production is often continuous, and is suited to high demand, mass market

products.
Examples include cars, chocolate bars, and electronic goods.

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Mass production
The main advantages of mass production include the following:
• Labour costs are usually lower.
• Materials can be purchased in large quantities, so they are often cheaper.
• Large number of goods are produced.

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SMEC-VIT
Mass production
The main disadvantages of mass production include the following:
• Machinery is very expensive to buy, so production lines are very expensive to set
up.
• Workers are not very motivated, since their work is very repetitive.
• Not very flexible, as a production line is difficult to adapt.
• If one part of the line breaks, the whole production process will have to stop until it
is repaired.

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SMEC-VIT
Flow production
Potential goods are produced in sets.
These products are similar but are different in some respects (colour or design)
after one set is done workers re-set the machines to make a different batch..

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SMEC-VIT
Flow production
The main advantages of flow production include the following:
• Provides variety for customers, which attract them towards the business.

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SMEC-VIT
Flow production
The main disadvantages of flow production include the following:
• Changing designs slows down production
• A gap in production causes the company to lose money

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SMEC-VIT
Difference between Intermittent and Continuous
System
Description Intermittent System Continuous System

(Job/Batch Production) (Mass/ Flow Production)
Labours Skilled/ Semi skilled Semi skilled
Production Planning Complex and expensive Easy and cheaper
Inventory Management Difficult to control Relatively easier
Routing It is done for each It is done at the initial

Job/Batch order stages of plant installation
Scheduling Complex Easy
Layout Process Product

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SMEC-VIT
Factors affecting the choice of manufacturing process
 Effect of volume/variety – Volume is low, variety is high (Intermittent

process) or Volume is high, variety is low (Continuous process)
 Capacity of plant – Based on Projected sales volume
 Lead time – Based on production process (Fast delivery)
 Flexibility – To adopt the sudden changes
 Efficiency – Volume production should be large enough at lower cost.

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SMEC-VIT
Evolution of manufacturing

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SMEC-VIT
Definition of Productivity
In simple productivity can be defined as,
𝑶𝒖𝒕𝒑𝒖𝒕
𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 =
𝑰𝒏𝒑𝒖𝒕
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Examples of Input
• Labour force or man hours, man days. etc..

• Labour cost
• Area of land
• Quantity of material
• Material cost
• Volume of material or fluid
• Length of material
• Square area of space
• Units of power
• Time etc.
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Examples of Output
• Accomplishment of a task
• Length of an output
• Distance travelled
• Number of pieces produced
• Weight of production
• Volume of output
• Value of output
• No. of documents processed
• Time taken to carry out a job
• No of jobs attended
• No. of customers served
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Why productivity is important
Higher Productivity Higher Investment

Higher standard of living
Higher GDP
per capita
Higher standard of living
Higher GDP
Higher
Productivity
10-08-2019 28
Improving productivity
Production can be increased by increasing the inputs, but this may not increase
the productivity.
PRODUCTIVITY = EFFICIENCY (Doing things right) +
EFFECTIVENESS (Doing the right things)
“Do the right thing and do it right now”
10-08-2019 29
How to measure productivity ?
There are three ways to measure productivity

i. Partial Productivity Measure
ii. Total-factor Productivity Measure
iii. Total Productivity Measure
10-08-2019 30
Partial productivity measure
Partial productivity measure is the ratio of output to one class of input.
𝑂𝑢𝑡𝑝𝑢𝑡
𝐿𝑎𝑏𝑜𝑢𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = 𝐼𝑛𝑝𝑢𝑡
10-08-2019 31
Advantages and limitations of partial productivity measure
Advantages Limitations
1. Easy to understand 1. If used alone, can be very misleading
2. Easy to obtain the data and may lead to costly mistakes
3. Easy to compute the productivity 2. Do not have the ability to explain
indices overall cost increases
4. Easy to sell to management 3. Tend to shift the blame to the wrong
5. Some partial productivity areas of management control
indicator data is available industry 4. Profit control through partial
wide productivity measures can be a hit-
6. Good diagnostic tool and miss approach
10-08-2019 32
Total factor productivity measure
Total-factor productivity is the ratio of net output to the sum of associated factor
inputs.
For example - labour and capital (factor) inputs.
𝑁𝑒𝑡 𝑂𝑢𝑡𝑝𝑢𝑡
𝑇𝑜𝑡𝑎𝑙 𝑓𝑎𝑐𝑡𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = 𝐿𝑎𝑏𝑜𝑢𝑟 𝑎𝑛𝑑 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐼𝑛𝑝𝑢𝑡
10-08-2019 33
Advantages and limitations of total-factor productivity measure
Advantages Limitations
1. The data from company 1. Does not capture the impact of materials
records are relatively easy to and energy inputs
obtain 2. The value-added approach to defining
2. Usually appealing from a the output is not very appropriate in a
corporate economist’s company setting
viewpoint 3. Not appropriate when material costs
form a sizable portion of total product
costs
4. Data for comparison purposes are

relatively difficult to obtain
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Total Productivity Measure
Total Productivity is the ratio of total output to the sum of all input factors.
𝑇𝑜𝑡𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡
𝑇𝑜𝑡𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 = 𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑝𝑢𝑡
10-08-2019 35
Methods of improving productivity
a) Increase output while input remains same
b) Decrease input while output remains same
c) Proportionate increase in O/P is more than proportionate increase in I/P
d) Proportionate decrease in I/P is more than proportionate decrease in O/P
e) Increase in O/P with decrease in I/P
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Increased output while input remains same
Alterations in existing process or systems
Example: Slight alteration in location of billet making section of steel plant by

moving it closer to furnace saves time, prevents scale formation at the top of ladles.
Thus it improves productivity by saving time where there is more output but same
input.
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Decrease input while output remains same
Introduction of a substitute raw material to manufacture a product which has same

properties and available at lower prices reduces input costs.
Hence productivity ratio will increase due to decreased input by way of cheaper
material.
Example: Use of nylon gears instead of steel gears in automobiles, wherever

possible.
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Proportionate increase in O/P is more than
proportionate increase in I/P
Assume that a organizations existing facilities are not fully utilized.
Now its R&D department wishes to release a new product with high market value
and which can be produced using existing facilities, then its
 Revenue will increase due to the release of the new product
 But, the organization will also incur a nominal increase in expenses due to
material, operation and maintenance spend over the new product.
This will proportionately increase the input cost with net increase in productivity
ratio
10-08-2019 39
Proportionate decrease in I/P is more than
proportionate decrease in O/P
Dropping an non-profitable product from an existing product mix
 Will decrease the revenue of organization
 Will decrease maintenance, operation and material cost too.
This will result in proportionate decrease in revenue and thus increase in

productivity ratio.
10-08-2019 40
Increase in O/P with decrease in I/P
If advanced technical equipments like robots are used, then there will be drastic
reduction in operation cost (though initial investment will be high)
Advanced tech. will enable production of more goods and hence improve revenue.
There will be increase in revenue but decrease in input in the long run, hence there
will be a increase in productivity ratio
10-08-2019 41
Types of productivity measures
• Single Factor productivity
• Multi Factor Productivity
• Total Factor Productivity
10-08-2019 42
Single factor productivity
One resource input  single-factor productivity
If we consider labour productivity;
𝑈𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
𝐿𝑎𝑏𝑜𝑢𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝐿𝑎𝑏𝑜𝑢𝑟 ℎ𝑜𝑢𝑟𝑠 𝑢𝑠𝑒𝑑
10-08-2019 43
Multi-Factor Productivity
Multiple resource inputs  multi-factor productivity
𝑂𝑢𝑡𝑝𝑢𝑡
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝐿𝑎𝑏𝑜𝑢𝑟 + 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 + 𝐸𝑛𝑒𝑟𝑔𝑦 + 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + 𝑀𝑖𝑠𝑐𝑒𝑙𝑙𝑎𝑛𝑒𝑜𝑢𝑠
Also known as Total factor productivity
Output and inputs are often expressed in terms of currency
10-08-2019 44
The basic approaches to productivity improvement
• Investment in high output and modern plant & equipment and new technology
- Capital intensive approach
• Improving the efficiency and effectiveness of existing resources
- Better management approach
10-08-2019 45
Misconceptions about productivity
There are several misconceptions about productivity ………
 Productivity is merely a more “sophisticated” word for production
 Productivity means only Labour Productivity
 Productivity can be increased by getting people to work harder
 Higher productivity causes retrenchment and large scale loss of jobs
 Productivity is relevant only in manufacturing and not relevant elsewhere
 Productivity can be increased by cutting costs across the board
 Productivity and Quality are trade offs.
 Productivity is relevant only in an open economy
 Productivity is only for commercial enterprises and not for the public sector
 Productivity is for organizations and not for you and me

10-08-2019 46
Factors affecting productivity
There is quite a variety of factors which can affect productivity, both positively and
negatively. These include:
1. Capital investments in production
2. Capital investments in technology
3. Capital investments in equipment
4. Capital investments in facilities
5. Economies of scale
6. Workforce knowledge and skill resulting from training and experience
7. Technological changes
8. Work methods
10-08-2019 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 47

Factors affecting productivity
9. Procedures
10. Systems
11. Quality of products
12. Quality of processes
13. Quality of management
14. Legislative and regulatory environment
15. General levels of education
16. Social environment
17. Geographic factors

10-08-2019 48
Reasons for lower productivity
1. Wrong person in the job.
2. Right person in the wrong job.
3. Right person in the right job being wrongly managed.
4. Lack of focus, vision, priorities, or direction.
5. Lack of ownership or participation by staff or team.
6. Inadequate communication between staff or departments.
7. Poor working environment .
8. Inadequate training or coaching to do the job.
9. Inadequate resources or tools to the job.
10. Personal problems interfering with people's ability to work at their best.
10-08-2019 49
Improving labour productivity
o Improving working conditions- lighting, ventilation, noise(music), temperature,
work times
o Using appropriate and better tools
o Ergonomics and better work station layout.
o Improving factory, stores & office layout.
o Improving the method/process
o Improving the nutritional status of the worker
o Improving industrial housekeeping and safety
o Improving welfare facilities and worker motivation
10-08-2019 50
Improving capital productivity
o Reduce Working capital
o Reduce floor space
o Utilize machinery & equipment better etc..
10-08-2019 51
Improving material productivity
o Cheaper material
o Alternative material
o Cheaper sources
o Better utilization
10-08-2019 52
Improving energy productivity
o Improve power factor
o Reduce wastage
o Change processes for less heating
o Study working procedures etc.
10-08-2019 53
Improving quality of workforce
Use a system of comparison based on.,
o Work force performance
o Work force characteristics
o Work force organization & practices
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Implement..
o Staff suggestion scheme
o Small group activities
o An environment which appreciates productivity
o Convince the work force of benefits
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Make productivity a way of life
o Think Productivity
o Talk Productivity
o Demonstrate Productivity
o Be Productive at Home, on the Road, and in Office
Productivity starts with You !
Making MORE out of LESS
10-08-2019 56
Productivity - Definition
• The standard of living of industrialized nations depends upon
the economic efficiency of all its industrialized enterprises great
or small.
Economic efficiency = Productivity.
• Productivity can be defined as the ratio of financial output in a

period of time to the financial input in the same period of time.
Outputs
Productivity =
Inputs
10-08-2019 57
SMEC-VIT
Production Vs Productivity
• Production is defined as a process or procedure to transform a
set of input into output having a desired utility and quality. It
is a value addition process.
• Production refers to absolute output whereas Productivity is a

relative term where the output is always expressed in terms
of inputs.
• Production is a measure of output only and not a measure of

efficiency.

10-08-2019 58
SMEC-VIT
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

10-08-2019 59
SMEC-VIT
Productivity Calculations
Labour Productivity
Units produced
Productivity =
Labour-hours used
1,000
= = 4 units/labor-hour
250
One resource input  single-factor productivity

10-08-2019 60
SMEC-VIT
Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous
 Also known as total factor productivity
 Output and inputs are often expressed in
dollars or money value
Multiple resource inputs  multi-factor productivity

10-08-2019 61
SMEC-VIT
10-08-2019 62
SMEC-VIT
Example problem:

10-08-2019 63
SMEC-VIT
Problem 2 - Productivity
A mobile phone manufacturing company is producing 44000 mobile phones per month by
employing 200 workers in 8 hour shift. The company gets an additional order to supply 6000
mobile phones. The management has decided to employ additional workers. What will be
productivity level when the number of additional workers employed is (i) 20 (ii) 25 and (iii) 30.
Solution:
Present productivity = 44000/48000 = 0.916 mobile phone/man hour
Input = 200x8x30 = 48000, output = 44000
Productivity @ 50000 + 20 workers = 0.946 mobile phone/man hour
Input = 220x8x30 = 52800, output = 50000
Input = 225x8x30 = 54000, output = 50000
Input = 230x8x30 = 55200, output = 50000
10-08-2019 64
The data for output produced and inputs consumed for a particular type of a
manufacturing organization are given below in constant money value. Find out the
partial, total factor and total productivity values.
Output = Rs. 3000.00
Labour input = Rs. 600.00
Material input = Rs. 300.00
Capital input = Rs. 800.00
Energy input = Rs. 150.00
Other expenses input = Rs. 75.00
10-08-2019 65
Solution:
Partial productivities
Labour = 5
Material = 10
Capital = 3.75
Energy = 20
Other expenses = 40
Total factor productivity (labour+capital) = 2.14
Total productivity = 1.55
10-08-2019 66
Problem 4 (Home work problem) - Productivity
Calculate the labour-partial productivity, material productivity, machine
productivity, energy-partial productivity and total productivity measures for the
following information pertaining to a company performance for particular time
period.
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Particulars Cost details
A. Output
1. Finished goods produced 2200
2. Work-in-process 1600
Price per unit (Rs.) 1200
B. Input
1. Skilled labour (hrs) 1200
Average wage rate (Rs.) 70
Unskilled labour (hrs) 8000
Wage rate (Rs.) 40
2. Materials
Raw materials (tones) 18
Price per tonne (Rs.) 1600
3. Total plant worked (hrs) 2400
Plant hour rate (Rs.) 650
4. Energy
Oil used (lts) 3000
Price/lt (Rs.) 6
Coal (tones) 150
Price/tone (Rs.) 1800
Electricity (kWH) Dr T Sampath Kumar, Associate Professor, 18000
10-08-2019 68
SMEC-VIT
Rate (Rs.) 3

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MEE1014

INDUSTRIAL ENGINEERING AND MANAGEMENT

The processes and methods used to transform tangible inputs (raw

Manufacturing is the production of merchandise for use or sale using labor

Every type of production is

Inputs Transformation Outputs

Example: Crude oil (Extract various fuel oils)

Example: Four wheeler (Assemble of Parts)

Example: Bike (Product service centre )

Dr T Sampath Kumar, Associate Professor,

 Intermittent Production System

 Continuous Production System

 Flow production / assembly line production

Dr T Sampath Kumar, Associate Professor,

Dr T Sampath Kumar, Associate Professor,

Dr T Sampath Kumar, Associate Professor,

The main advantages of job production include the following:

• Unique, high quality products are made.

Dr T Sampath Kumar, Associate Professor,

The main disadvantages of job production include the following:

• Very labour intensive, so selling prices are usually higher.

materials or tools are required.

Dr T Sampath Kumar, Associate Professor,

In this type of production, products are made in batches.

Employees focus on one aspect of production, so labour is not usually highly-

Batch production can also allow for the use of automation.

Dr T Sampath Kumar, Associate Professor,

The main advantages of batch production include the following:

• Since larger numbers are made, unit costs are lower.

• Offers the customer some variety and choice.

• Materials can be bought in bulk, so they are cheap.

Dr T Sampath Kumar, Associate Professor,

The main disadvantages of batch production include the following:

• Goods have to be stored until they are sold, which is expensive.

store raw materials

Dr T Sampath Kumar, Associate Professor,

In mass production, large numbers of identical products are made.

Production is often continuous, and is suited to high demand, mass market

Examples include cars, chocolate bars, and electronic goods.

Dr T Sampath Kumar, Associate Professor,

The main advantages of mass production include the following:

• Labour costs are usually lower.

• Materials can be purchased in large quantities, so they are often cheaper.

• Large number of goods are produced.

Dr T Sampath Kumar, Associate Professor,

The main disadvantages of mass production include the following:

• Not very flexible, as a production line is difficult to adapt.

Dr T Sampath Kumar, Associate Professor,

Potential goods are produced in sets.

Dr T Sampath Kumar, Associate Professor,

The main advantages of flow production include the following:

Dr T Sampath Kumar, Associate Professor,

The main disadvantages of flow production include the following:

• Changing designs slows down production

• A gap in production causes the company to lose money

Dr T Sampath Kumar, Associate Professor,

Description Intermittent System Continuous System

Labours Skilled/ Semi skilled Semi skilled

Production Planning Complex and expensive Easy and cheaper

Inventory Management Difficult to control Relatively easier

Routing It is done for each It is done at the initial

Layout Process Product