PRODUCTIVE OPERATIONS
SYSTEMS,
EFFICIENCY & PRODUCTIVITY &
JIT
Prepared by Prof. Dr. Şevkinaz Gümüşoğlu using
different references about POM
PRODUCTIVE OPERATIONS SYSTEMS
PRODUCTION SYSTEM USES OPERATIONS RESOURCES TO TRANSFORM INPUTS INTO SOME
DESIRED OUTPUTS.
WE HAVE ALSO DEFINED OPERATIONS MANAGEMENT AS THE MANAGEMENT OF
TRANSFORMATION SYSTEMS WHICH CONVERT INPUTS INTO GOOD AND SERVICES AS A
PRODUCTIVE SYSTEM.
PRODUCTIVE SYSTEM CAN BE DEFINED AS A PROCESS FOR CONVERTING RESOURCES INPUTS
INTO GOODS AND SERVICES.
RESOURCES ARE COMBINED AND TRANSFORMED IN A CONTROLLED MANNER TO ADD VALUE IN
ACCORDANCE WITH ORGANIZATIONAL OBJECTIVES.
OPERATIONS RESOURCES CONSIST OF WHAT WE TERM THE FIVE P; PEOPLE, PLANTS, PARTS,
PROCESSES, PLANNING & CONTROL
THE SYSTEMS VIEW OF OPERATIONS ALSO PROVIDES INSIGHT FOR THE DESIGN AND
MANAGEMENT PRODUCTIVE SYSTEMS IN FUNCTIONAL AREAS OUTSIDE THE OPERATIONS
FUNCTION.
FROM THE VIEW POINT OF SYSTEM ALL (SYSTEMS) ACTIVITIES ARE DESIGNED TO CREATE THE
VALUE FOR BUYERS.
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PRODUCTIVITY MEASUREMENT
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Productivity is a common measure of how well a country, industry, or business unit is
using its resources ( or factor of production).

Productivity is defined as OUTPUTS / INPUTS.
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To increase productivity, we want to make this ratio of outputs to inputs as large as
practical.
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Productivity is what we call a relative measure. It needs to be compared with something
else.
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The company can compare itself with similiar operations within its industry.
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Another approach is to measure productivity over time within the same operation.
Here we would compare our productivity in one time period with that of the next.
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Goods and services have a higher value to consumers than the acquisition and
processing costs of the inputs have to the organization.
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For these reason transformation is too important. Managing the transformation process
in an efficient and effective manner is the task of operation manager in any type of
organization.
Productivity is a measure of the effectiveness of the use of resources to produce goods
and services.

The ratio of output value to input cost should be greater than 1.
Value is what buyers are willing to pay value of the output is
established by consumer in the marketplace.

Cost of inputs is dictated largely by what the firm must pay its
suppliers.
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On the other hand, suppliers not only deliver a product but also
can influence firm’s performance in many other ways.

Thus management often focuses upon the efficiency of the
transformation activities.
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Some of the principal factor influencing productivity changes one,
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Capital/ labor ratio
Resource scarcity
Workforce changes
Innovation and technology
Regulatory and bargaining
Quality of work life
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Henry Ford’s focus was largely on manufacturing
efficiency;
By adopting fixed work-stations,
 Increasing task specialisation,
 Moving work to the worker.
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So he applied scientific management to the production of
the Model T in 1913 and reduced the time required
assembling a car from high of 728 hours to 1.5 hours. A
model chassis moved slowly down a conveyor belt with
six workers walking along beside it, picking up parts
from carefully spaced piles on the floor and fitting them
to the chassis. The short assembly time per car allowed
Model be produced T to in high volumes, or “En masse”,
yielding the name “Mass Production”.
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Mass Production is high-volume production of a standardised
product for a mass market.
Ford increased productivity and lowered prices. In doing so, he also
made the automobile affordable for the average person.
Taylor and his associates concentrated on the problems of foreman,
superintendents, and lower middle managers in factories; because it
was here that most was mass production and efficiency in the
factories to respond to the great western markets.
The key premise of Scientific Management era was that any
operation could be improved by breaking it down into components,
measuring the work content, and seeking ways to improve work
methods. Taylor’s philosophy was to replace “subjective”
management by “objective” management based on science. It
centred on three ideas:
1. Scientific laws govern how much a worker can produce per
year;
2. It is management’s function to discover and apply these
laws to productive operations systems; and
3. It is the worker’s function to carry out decisions without
question.
In the factory a middle-level production department
gained much of the control over manufacturing issues
formerly handled by the president and foreman.
Therefore the basis of scientific management is a focus
on economic efficiency at the production core of the
organization. Of central importance is the belief that
rationality in the part of management will obtain
economic efficiency.
 Economic Efficiency refers to the ratio of outputs to
input. In other words, economic efficiency is getting
the most output from the least amount of inputs.
 Organizational Efficiency typically is a ratio of
product or service outputs to land, capital or labor
inputs. Managers deal with scarce inputs – including
resources such as people, money, and equipmentthey’re concerned with the efficient use of those
resources.

Efficiency (%) = (Output/Input) * 100%
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Example:
The standard in a cafeteria is the preparation of 200 cheeseburgers
per hour. If labour input produces 150 cheeseburgers per hour, how
efficient is the operation?
Solution:
Labour Efficiency (%) = (Labour Output/Labour Input) * 100% =
(150/200) *100%= 75%
Compared with the standard, this operation is 75% efficient in the
preparation of cheeseburgers.
Collect data on each element of work and develop standardized
procedures for workers,(i.e. establish proper work methods and tools),
Scientifically select, train, and develop workers instead of letting them
train themselves, (i.e. provide the proper training),
Strive for a spirit of cooperation between management and the
workers so that high production at good pay is fostered,(i.e. establish
legitimate incentives for work to be done, and to develop a hearty
cooperation between management and the workers),
Divide the work between management and labour so that each group
does the work for which it is best suited, (i.e. to match employees to
the right job).
(Taylor’s Philosophy of Scientific Management)
The creation of goods and services requires changing
resources into goods and services. Productivity is used to
indicate how good an operation is at converting inputs to
outputs efficiently. The more efficiently we make this
change the more productive we are.
 Productivity; is the ratio of outputs (goods and service)
divided by one or more inputs ( such as labour, capital or
management).
 The production/operations manager’s job is to enhance
(improve) this ratio of outputs to inputs.
 Productivity is a measure of operational performance.
Thus improving productivity means improving efficiency.
This improvement can be achieved in two ways:

a reduction in inputs while output remains constant ,
 an increase in output while inputs remain constant.
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Both represent an improvement in productivity. Production
is the total goods and services produced. High Production
may imply only that more people are working and that
employment levels are high (low unemployment), but it
does not imply high productivity.
To judge the success of an economic system in meeting its
goals, economists use one or more of the following
measures:
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Gross National Product, GNP,
Gross Domestic Product, GDP,
Balance of Trade,
National Debt,
Productivity.
Productivity in this sense, is the measure of economic
growth that compares how much a system produces with
regard to the resources needed to produce it.
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EXAMPLES OF PRODUCTIVE SYSTEMS
OPERATION
INPUT
OUTPUT
BANK
Tellers, staff,
computer
equipment,
facilities, and
energy
RESTAURANT
Cooks, waitresses,
food, equipment,
facilities, and
energy
HOSPITAL
Doctors, nurses,
staff, equipment,
facilities,
and energy
Financial Services Meals,
Health services,
(loan deposits,
entertainment,
health patients
safekeeping).
satisfied customers
UNIVERSITY
Faculty, staff,
equipment,
facilities, energy,
and
knowledge
MANUFACTURING
PLANT
Equipment,
facilities,
labor, energy, raw
materials
Educated students, Finished goods
research, public
service
AIRLINE
Planes, facilities,
pilots,flight,
attendants,
maintenance
people, labor,
energy
Transportation
from
or location to
another.

Measurement of productivity is an excellent way to
evaluate a country’s ability to provide an
improving standard of living for its people. Only
through increases in productivity can the standard of
living improve. Moreover, only through increases in
productivity can labour, capital and management
receive additional payments. If returns to labour,
capital, or management are increased without
increased productivity, prices rise. On the other
hand, downward pressure is placed on prices when
productivity increases; more is being produced with
the same resources.
e.g. If units produced =1000 units
 Labour hours used =250 hrs.
 Productivity = 1000/250 = 4units/labour-hour.
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Productivity measures can be based on a single input (SingleFactor Productivity or Partial Productivity) or on more than one
input (Multi-Factor Productivity) or on all inputs. The choice
depends on the purpose of the measurement.
Single-factor Productivity: Indicates the ratio of one resource
(input) to the goods and services produced (outputs). For example,
for labour productivity, the single input to the operation would be
employee hours.
Productivity = {Output of a specific Product}/ {Input of a specific
Resource}
Example 1.
Three employees process 600 insurance policies in a week. They
work 8 hrs. per day, 5-days per week. Find labour productivity.
Solution:
Labour Productivity = [Policies Issued]/[Employee Hours]
Plabor = 600 policies/[(3 employees)(40 hrs/employee)]
Plabor = 5 Policies/hr.
Multi-factor Productivity: Indicates the ratio of many or
all resources (inputs) to the goods and services produced
(outputs). When calculating multi-factor productivity, all
inputs must be converted into a common unit of measure,
typically cost.
 Example 2.
 A team of workers make 400 units of a product, which is
valued by its standard cost of 10 MU each (before markups
for other expenses and profit). The accounting department
reports that for this job the actual costs are:
400 MU for labour,
1000 MU for materials and
300 MU for overhead.
Calculate multi-factor productivity.
Solution:
 Multi-Factor Productivity = [Quantity at standard
cost]/[Labour cost + Materials cost + Overhead cost]
Pmf = [400 Units x 10 MU]/[400MU+1000MU+300MU]
= 4 000MU / 1 700 MU
Pmf = 2.35

Example 3.
 Azim Title Company has a staff of 4 each working 8
hours/day (for a payroll cost of
640MU/day) and
overhead expenses of 400MU/day, Azim process and
closes on 8 titles each day. The company recently
purchased a computerised title-search system that will
allow the processing of 14 titles/day, although the
staff, their work hours, and pay will be the same , the
overhead expenses are now 800MU/day.
 Labour-productivity with the old system:
=0.25titles/lab.hrs.
 Labour-productivity with the new system:
=0.4375titles/lab.hrs.

Example 3- continued…
 Multi-factor productivity with the old system:
= 0.0077 titles/MU
 Multi-factor productivity with the new system:
=0.0097 titles/MU

Labour productivity has increased from 0.25 to 0.4375.
The change is = 1.75 or 75% increase in labour
productivity.
 Multi-factor productivity has increased from 0.0077 to
0.0097.
This change is 0.0097/0.0077 = 1.259 or a 25.9%
increase in multi-factor productivity.

Example 4.
 a. Productivity can be measured in a variety of ways,
such as labour, capital, energy, material usage, and so
on. At Modern Lumper, Inc. Ali Caliskan, president
and producer of apple crates sold to growers, has been
able, with his current equipment, to produce 240
crates per 100 logs, the current purchases 100 logs per
day and each log requires 3 labour-hrs to process.
 He believes that he can hire a professional buyer who
can buy a better-quality log at the same cost. If this is
the case, he can increase his production to 260
crates/100logs, this labour-hours will increase by 8 hrs
per day.
 What will be the impact on productivity(measured in
crates per labour-hour) if the buyer is hired?


Solution:
a.
aa) Current Labour Poductivity =
240crates/(100logs*3hrs)=0,8 crates/lab-hr.
ab) Labour Productivity with buyer=
260crates/[(100logs*3hrs)+8hrs]=0.844 crates/lab-hr.
Using current productivity (0.8 from (a)) as a base, the
increase will be 5.5% (0.844/0.8=1.055 or a 5.5%
increase)
b. Ali Caliskan has decided to look at his productivity
from a multifactor (total factor productivity)
perspective. To do so, he has determined his labour,
capital, energy and material usage and decided to use
money units (MU for dollars or TL) as the common
denominator
 His total labour-hours are now 300 hrs/day and will
increase to 308 hrs/day. His capital and energy costs
will remain constant at 350MU and 150MU per day,
respectively. Material costs for the 100 logs per day are
1000MU and will remain the same.
 Because he pays an average of 10 MU/hr (with
fringes), Caliskan wants to determine his productivity
increase?
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b. Current System
System with Professional Buyer
Labour 300hrs@10MU= 3000
308hrs@10 MU = 3.080 MU
 Material 100logs/day
1.000
1.000
 Capital
350
350
 Energy
150
150
Total Cost
4.500 MU
4.580MU
Productivity of current system=240crates/4500=0.0533
Productivity of proposed system=260crates/4580=0.0567
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Using current productivity (0.0533) as a base, the
increase will be 0.047. That is, 0.0567/0.0533=1.064 or
6.4% increase.
Example 5.
 Sergio Farmerson makes billiard balls in his famous Boston plant. With recent
increases in his costs, he has a new-found interest in efficiency. Sergio is interested in
determining the productivity of his organisation. He would like to know if his
organisation is maintaining the manufacturing average of 3% increase in productivity.
He has the following data representing a month from last year and an equivalent month
this year.

Last Year
This Year

Units produced
1 000
1 000
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Labour (hours)
300
275

Resin (kgs)
50
45
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Capital invested (MU)
10 000
11 000

Energy (kw)
3 000
2 850

Show the productivity change for each category and then determine the improvement
for labour hours, the typical standard for comparison.
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Sergio determines his cost to be as follows:
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Labour
Resin
Capital
Energy
10 MU/hour
5 MU/kg
1% per month of investment
0.50 MU/kw
Show the productivity change, for one month last year versus one month this year, on a
multifactor basis with money units (MU) as the common denominator.

Solution:
a.
Resource
Labour
Resin
Capital
Energy
Last Year
1000/300 = 3.33
1000/50 = 20
1000/10000 = 0.1
1000/3000 = 0.33
This Year
Change
1000/275 = 3.64
0.31
1000/45 = 22.22
2.22
1000/11000 = 0.09 -0.01
1000/2850 = 0.35
0.02
b.
Production
Labour hrs@10 MU
Resin@5 MU
Capital cost/month
Energy@ 0.50 MU
TOTAL………………..
Percent change in productivity
Last Year
1.000 units
3 000 MU
250 MU
100 MU
1 500 MU
4 850 MU
Percent Change
0.31/3.33 = 9.3%
2.22/20 = 11.1%
-0.01/0.1= -10.0%
0.02/0.33 = 6.1%
This Year
1.000 units
2 750 MU
225 MU
110 MU
1 425 MU
4 510 MU
= {1000/4850 – 1000/4510}/1000/4850
= -0.0752 fewer resources = 7.5% improvement

Example 6:
The weekly output of a production process is shown
below, together with data for labour and material
inputs. The standard inventory value of the output is
125 MU/unit. Overhead is charged weekly at the rate
of 1500 MU plus 0.5 times direct labour cost.
 Assume a 40-hr/ week and an hourly wage of 16 MU.
Material cost is 10 MU per running meter. Compute
the average multi-factor productivity for this process.

Week
1
2
3
4
Output
412
364
392
408
# workers
6
5
5
6
Material (meters)
2840
2550
2720
2790

Solution:
Week 1 =
412 (125) MU
[6*40*16]MU+[2840*10]MU+ [0.5*6*40*16]MU + 1500 MU
Week 2 =
364 (125)
5*40*16 MU+ 2550*10 MU+ 0.5*5*40*16 MU + 1500 MU
= 1.444
= 1.431
Week 3 =
392(125)
5*40*16 MU + 2720*10 MU+ 0.5*5*40*16 MU+1500 MU
= 1.463
Week 4 =
408 (125)
6*40*16 MU + 2790*10 MU+ 0.5*6*40*16 MU+ 1500 MU
= 1.457
Average = [1.444 + 1.431 + 1.463 + 1.451] / 4 = 1.447
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Example 7:
Student tuition at EMU is $100 per semester credit hour. TRNC supplements school
revenue by matching student tuition $ per $. Average class size for a typical 3-credit
course is 50 students. Labor costs are $ 4 000 per class. Material costs are $ 20 per
student per class and overhead costs are $ 25 000 per class.
What is multifactor productivity?
If instructors work an average of 14hrs/week for 16 weeks for each 3-credit class of 50
students what is the labor productivity ratio?
Solution:
Multifactor productivity is the ratio of the value of output to the value of input resources.
Value of output = (50stds/class) * (3credit hrs/student) * ($100tuition + $100 state
support/credit hr)
= $30 000/class
Value if input = Labour + Materials + Overhead
= [$4000 + ($20/std * 50stds) + $25000] / class= $30000/class
Multifactor productivity = Output / Input = $30000/class / $30000/class = 1.00

Labor productivity is the ratio of the value of output to labor hrs. The value of output is
same as in part a), that is $30000/class, so
Labor input
= (14hrs/week) * (16weeks/class) = 224hrs/class
Labor productivity = Output/Input = ($30000/class) / (224hrs/class) = $133.93/hr
JIT IN SERVICES
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Competition on speed & quality
Multifunctional department store workers
Work cells at fast-food restaurants
Just-in-time publishing for textbooks
Construction firms receiving material just as
needed
© 2000 by Prentice-Hall Inc
Russell/Taylor Oper Mgt 3/e
Ch 15 - 36
WHAT IS JIT ?
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Producing only what is needed, when it is
needed
A philosophy
An integrated management system.
JIT’s mandate: Eliminate all waste.
© 2000 by Prentice-Hall Inc
Russell/Taylor Oper Mgt 3/e
Ch 15 - 2
BASIC ELEMENTS OF JIT
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Flexible resources
Cellular layouts
Pull production system
Kanban production control
Small-lot production
Quick setups
Uniform production
Quality at the source
Total productive maintenance
Supplier networks
© 2000 by Prentice-Hall Inc
Russell/Taylor Oper Mgt 3/e
Ch 15 - 3
EXAMPLES OF WASTE
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Watching a machine run
Waiting for parts
Counting parts
Overproduction
Moving parts over long distances
Storing inventory
Looking for tools
Machine breakdown
Rework
© 2000 by Prentice-Hall Inc
Russell/Taylor Oper Mgt 3/e
Ch 15 - 4
FLEXIBLE RESOURCES

Multifunctional workers

General purpose machines

Study operators & improve operations
© 2000 by Prentice-Hall Inc
Russell/Taylor Oper Mgt 3/e
Ch 15 - 5
KANBAN PRODUCTION CONTROL SYSTEM
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Kanban card indicates standard quantity of
production
Derived from two-bin inventory system
Kanban maintains discipline of pull production
Production kanban authorizes production
Withdrawal kanban authorizes movement of
goods
© 2000 by Prentice-Hall Inc
Russell/Taylor Oper Mgt 3/e
Ch 15 - 10
A SAMPLE KANBAN
Part no.:
7412
Description: Slip rings
From :
Machining
M-2
© 2000 by Prentice-Hall Inc
Russell/Taylor Oper Mgt 3/e
Box capacity
25
Box Type
A
Issue No.
3/5
To:
Assembly
A-4
Ch 15 - 11
THE ORIGIN OF KANBAN
a. Two-bin inventory system
Bin 1
Reorder
Card
Bin 2
b. Kanban Inventory System
Kanban
Q-R
R
Q = order quantity
R = reorder point
= demand during lead time
© 2000 by Prentice-Hall Inc
Russell/Taylor Oper Mgt 3/e
Ch 15 - 12
JIT IMPLEMENTATION
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Use JIT to finely tune an operating system
Somewhat different in USA than Japan
JIT is still evolving
JIT isn’t for everyone
© 2000 by Prentice-Hall Inc
Russell/Taylor Oper Mgt 3/e
Ch 15 - 35