Module III

Introduc on to Produc vity

Concept of produc vity

Produc vity refers to the measure of efficiency in producing goods and services, typically calculated
as the output per unit of input (e.g., labor, materials, or capital). It indicates how well resources are
being u lized to generate desired outcomes. Higher produc vity means more output is produced
with the same or fewer inputs, leading to greater efficiency, cost savings, and profitability.
Produc vity is a key factor in the growth of businesses and economies as it directly affects
compe veness and sustainability.

Output: The goods or services produced.

Input: The resources used, such as labor hours, raw materials, energy, or capital.

Various ways/modes of calcula ng produc vity

1. Single-Factor Produc vity (SFP)

Measures the produc vity of a single input like labor, materials, or capital.

Example: If a call center resolves 1,000 customer issues using 20 staff hours:

2. Mul -Factor Produc vity (MFP)

Considers mul ple inputs, such as labor, materials, and capital.

Example: If a factory produces 10,000 units using ₹50,000 worth of inputs (labor, materials, and
energy):

3. Total Factor Produc vity (TFP)

Evaluates the efficiency of all inputs combined. It provides a holis c view of how efficiently a
business converts all resources into outputs.

Example: If a company generates ₹1,00,000 in revenue with ₹75,000 in input costs:

DJ Sumanth Model.

DJ Sumanth, a prominent produc vity expert, developed a model emphasizing five major
produc vity factors:

1. Labor Produc vity: Efficiency of human resources.

Measures the efficiency of human resources by evalua ng the output generated per unit of labor
input. It can be improved through skill development, performance incen ves, and streamlined
workflows.

2. Machine Produc vity: Efficiency of machinery and equipment.

Assesses the efficiency of machinery and equipment in produc on. It can be enhanced through
regular maintenance, predic ve tools, and inves ng in modern equipment.

3. Material Produc vity: Op mal use of raw materials.

Evaluates the op mal use of raw materials to minimize waste and maximize output. This can be
achieved through lean manufacturing, recycling, and op mizing design processes.

4. Capital Produc vity: U liza on of financial resources.

Measures how effec vely financial resources are u lized to generate output. Improvements can
be made by maximizing asset u liza on, inves ng in automa on, and monitoring capital returns.

5. Energy Produc vity: Efficiency in energy consump on.

Focuses on the efficient consump on of energy in produc on processes, which can be op mized
through energy audits, renewable energy adop on, and energy-efficient systems.

Each factor is evaluated using specific ra os. The model focuses on iden fying inefficiencies in these
areas and improving them to enhance overall produc vity.
Key Formula in DJ Sumanth’s Model

Example Using DJ Sumanth Model

A company produces 1,000 units in the base year and improves to 1,200 units in the current year.

This indicates a 20% improvement in produc vity.

By systema cally analyzing and improving produc vity across labor, machines, materials, capital, and
energy, businesses can achieve sustainable growth and compe veness.

Ways to improve produc vity

1. Process Design and Analysis

Efficient process design is crucial for reducing waste and op mizing resource u liza on.
Structured workflows help improve produc vity and maintain smooth opera ons across
various func ons.
 2. Capacity Planning
Determining the op mal capacity to meet demand is essen al to avoid underu liza on or
overextension of resources. This involves analyzing produc on capabili es and aligning them
with business needs.
3. Inventory Management
Effec ve inventory management ensures a balance between overstocking and stockouts.
Techniques like Economic Order Quan ty (EOQ) and Just-In-Time (JIT) help op mize
inventory levels and minimize holding costs.
4. Supply Chain Management
Seamless coordina on between suppliers, manufacturers, and distributors is vital for
opera onal efficiency. Strengthening supplier rela onships, improving logis cs, and accurate
demand forecas ng are key components.
5. Quality Management
Emphasizing con nuous improvement and customer sa sfac on is cri cal for maintaining
quality. Approaches like Total Quality Management (TQM), Six Sigma, and sta s cal process
control help in achieving high-quality standards.
6. Lean Systems
Lean manufacturing principles focus on elimina ng waste, improving efficiency, and
priori zing value-added ac vi es. Tools such as Value Stream Mapping and Kaizen are
instrumental in streamlining processes.
7. Opera ons Strategy
Aligning opera onal decisions with organiza onal goals is necessary for enhancing
compe veness. This includes strategic decisions on facility loca on, layout, and technology
adop on to support long-term objec ves.
8. Service Opera ons
Effec ve management of service opera ons requires designing processes that enhance
service delivery and improve customer experiences, which are increasingly important in
today’s service-driven economy.
9. Project Management
Tools like Gan charts, Cri cal Path Method (CPM), and Program Evalua on Review
Technique (PERT) are essen al for planning and execu ng projects effec vely, ensuring
mely comple on and resource op miza on.
10. Sustainability in Opera ons
Incorpora ng sustainable prac ces in opera ons is a growing priority. This involves adop ng
eco-friendly processes, reducing energy consump on, and minimizing waste to support
environmental and social responsibility.

Types of Produc vity: Par al Produc vity and Total Produc vity (Simple direct problems rela ng
to produc vity, par al produc vity and total produc vity)

1. Par al Produc vity

Par al produc vity measures the efficiency of a specific input in the produc on process, such as
labor, materials, or capital. It focuses on how effec vely one resource is being u lized.

Single Factor Produc vity

Mul Factor Produc vity

Formula:
Types of Par al Produc vity:

 Labor Produc vity:

Measures the output produced per unit of labor (e.g., per worker or per hour).

Example: A factory producing 500 units with 100 labor hours has a labor produc vity of 5
units/hour.

 Capital Produc vity:

Focuses on the efficiency of capital investments in genera ng output.

Example: If machinery worth ₹5,00,000 produces 10,000 units, capital produc vity is 20
units/₹1,000.

 Material Produc vity:

Measures how effec vely raw materials are converted into finished products.

Example: If 200 kg of material is used to produce 1,000 units, material produc vity is 5
units/kg.

 Energy Produc vity:

Examines the output generated per unit of energy consumed.

Example: A plant producing 1,000 units with 500 kWh of energy has energy produc vity of 2
units/kWh.

2. Total Produc vity

Total produc vity measures the efficiency of all inputs combined, including labor, capital, materials,
and energy. It provides a comprehensive view of how effec vely an organiza on uses its resources.

Total Factor Produc vity

Formula:

Total Inputs include the combined costs of labor, materials, capital, and energy.

Example:

Total output value = ₹10,00,000

Total input costs (labor + materials + capital + energy) = ₹5,00,000

This means the organiza on generates ₹2 of output for every ₹1 spent on inputs.

(Problems and solu on to be prac ced in class)

1. A factory produces goods worth ₹1,00,000 using the following variables:

 Labor cost: ₹20,000
 Material cost: ₹30,000
 Energy cost: ₹10,000
 Capital cost: ₹20,000
Calculate the total produc vity of the factory.
Calculate the produc vity of Labor and Material.
Calculate the produc vity of Material and Energy.

2. A company manufactures 5,000 units of a product, each sold at ₹50. The total input costs
include:
 Labor: ₹75,000
 Materials: ₹1,25,000
 Energy: ₹50,000
 Capital: ₹1,00,000
Find the total produc vity.
Find the produc vity of Labor and capital.
Find the produc vity of Energy and Capital.

3. A construc on project is completed with a total value of ₹25,00,000. The combined

variable’s costs are:
 Labor: ₹8,00,000
 Equipment: ₹7,00,000
 Materials: ₹5,00,000
Energy: ₹3,00,000
What is the total produc vity?
What is the produc vity of Equipment and Energy?
What is the produc vity of Labor and Materials?

4. A company generates total sales of 1000 units at 100₹ each, in a year. The total inputs used
are:
 Labor cost: ₹3,00,000
 Material cost: ₹4,00,000
 Overhead cost: ₹1,00,000
 Energy cost: ₹1,00,000
Determine the total produc vity of the company.
Determine the produc vity of Labor and Overheads.
Determine the produc vity of Labor and Energy.

5. A farm produces crops worth ₹8,00,000. The total cost of the varibales used are:
 Labor: ₹2,00,000
 Fer lizers: ₹1,50,000
 Water and energy: ₹50,000
 Equipment deprecia on: ₹1,00,000
Compute the total produc vity.
Compute the produc vity of Labor and Fer lizers.
Compute the produc vity of Equipment and Water and Energy.
 6. A factory produces 2,000 units of goods using 400 labor hours. Calculate the labor
produc vity.
7.
A machine produces 10,000 units in a week using raw materials weighing 5,000 kg. Find the
material produc vity.

8. A workshop generates ₹5,00,000 worth of output in a month with a capital investment of

₹2,50,000. Calculate the capital produc vity in terms of output per rupee of capital.

9. A power plant produces 1,000 units of electricity while consuming 500 kWh of energy. Find
the energy produc vity in units per kWh.

10. A manufacturing unit produces 15,000 units using ₹1,50,000 worth of raw materials.
Determine the material produc vity.

Compe veness

Compe veness is described as an organiza on’s ability to produce goods or services that meet the
demands of customers effec vely and efficiently, compared to its compe tors. It emphasizes
achieving long-term success in the market by delivering superior value to customers. The key aspects
of compe veness include:

1. Customer Focus - Compe veness begins with understanding the needs, preferences, and
expecta ons of customers. This requires conduc ng market research, gathering customer
feedback, and closely monitoring changing consumer behavior. Organiza ons must ensure
that their products or services align with customer demands be er than those of their
compe tors. A customer-centric approach builds trust, enhances customer sa sfac on, and
fosters loyalty, which is cri cal in sustaining a compe ve advantage. For example, offering
personalized services or customized products can significantly enhance customer value and
sa sfac on.
2. Compe ve Priori es - Organiza ons can enhance their compe veness by focusing on key
priori es that differen ate them in the market:
 Cost: Offering products or services at a lower price by op mizing opera onal efficiency,
minimizing waste, and achieving economies of scale. Cost leadership enables
organiza ons to a ract price-sensi ve customers while maintaining profitability.
Example: Walmart’s efficient supply chain and inventory management systems allow it to
offer low prices.
 Quality: Ensuring superior product or service quality that meets or exceeds customer
expecta ons. Quality differen a on creates brand loyalty and posi ons the organiza on
as a trusted provider in the market.
Example: Toyota is known for its high-quality vehicles, built on its robust quality control
processes.
 Flexibility: Quickly adap ng to changes in customer requirements, market condi ons, or
technological advancements. Flexibility helps businesses respond to seasonal demand,
customize products, and launch new offerings swi ly.
Example: Amazon’s ability to scale its opera ons during peak shopping seasons
demonstrates opera onal flexibility.
 Delivery: Timely and reliable delivery of products or services to customers. This builds
trust and enhances the organiza on’s reputa on for dependability.
 Example: FedEx’s commitment to on- me delivery has been a cornerstone of its
compe veness.
3. Opera onal Excellence - Compe veness is directly linked to how well an organiza on
manages its opera ons. Efficient processes, op mized resource u liza on, and robust supply
chain management are cri cal for achieving opera onal excellence. This involves
streamlining workflows, adop ng lean prac ces, and minimizing waste to reduce costs and
improve produc vity. A focus on opera onal excellence ensures that the organiza on
consistently delivers high-quality products or services while remaining cost-efficient.
4. Sustainability - Modern compe veness extends beyond financial performance to include
environmental and social responsibility. Organiza ons that adopt sustainable prac ces not
only reduce their environmental footprint but also appeal to socially conscious consumers.
Sustainable prac ces include reducing energy consump on, using eco-friendly materials, and
implemen ng corporate social responsibility (CSR) ini a ves.
Example: Patagonia’s commitment to environmental sustainability has become a defining
feature of its compe ve strategy.
5. Con nuous Improvement - Compe veness requires a culture of con nuous improvement,
which involves regularly evalua ng and enhancing processes, products, and services. This
approach ensures that organiza ons remain agile and responsive to changing market trends
and customer preferences. Techniques like Total Quality Management (TQM), Six Sigma, and
Kaizen enable businesses to achieve incremental improvements and maintain a compe ve
edge.
6. Globaliza on and Technology - Globaliza on has expanded markets, enabling organiza ons
to serve customers worldwide. However, it also brings increased compe on. To remain
compe ve, organiza ons must leverage technological advancements to improve efficiency,
reduce costs, and enhance customer experiences. Technologies like ar ficial intelligence (AI),
automa on, and data analy cs help organiza ons make informed decisions, personalize
customer experiences, and op mize opera ons.
Example: Tesla leverages cu ng-edge technology to innovate and compete globally in the
electric vehicle market.
7. Benchmarking - Benchmarking involves comparing an organiza on’s performance against
industry standards, best prac ces, or compe tors. It helps iden fy performance gaps and
areas for improvement. Organiza ons can use benchmarking to learn from industry leaders,
adopt innova ve prac ces, and enhance their own compe veness.
Example: Benchmarking supply chain performance against industry leaders like Amazon can
help businesses improve their logis cs opera ons.
8. Value Crea on - The ul mate goal of compe veness is to create superior value for
customers, employees, and stakeholders. Value crea on involves delivering products or
services that sa sfy customer needs while ensuring profitability and long-term growth. For
employees, it means fostering a suppor ve work environment and opportuni es for
development. For stakeholders, it includes providing returns on investment and contribu ng
to societal well-being. By focusing on value crea on, organiza ons can build las ng
rela onships and achieve sustainable success.
Example: Apple creates value by combining innova ve technology, superior design, and a
seamless user experience to delight its customers and generate shareholder value.

Strategy
 1. Compe veness strategy focuses on achieving a compe ve advantage in the marketplace
by aligning the organiza on’s offerings with customer needs and market demands.
Compe veness strategy focuses on iden fying and leveraging the factors that give an
organiza on a compe ve advantage in the marketplace. The goal is to differen ate the
organiza on based on cost, quality, flexibility, or innova on to outperform compe tors.
2. Opera ons strategy is a framework for managing resources, processes, and systems to
support the organiza on’s long-term objec ves. Opera ons strategy is a cri cal component
of overall business strategy and focuses on designing and managing processes to support the
compe ve priori es of the organiza on. The opera ons strategy aims to create a
sustainable compe ve advantage by balancing cost efficiency and customer sa sfac on
while ensuring adaptability to market changes.

Strategy Formula on of Compe ve Strategy

1. Customer-Centric Approach
A customer-centric strategy focuses on iden fying and understanding customer preferences,
expecta ons, and pain points. By delivering products or services that directly address these
needs, organiza ons can differen ate themselves and build customer loyalty. This approach
ensures that customers see the value in what is offered, enhancing sa sfac on and repeat
business.
2. Market Trend Analysis
Organiza ons analyze changing market trends, consumer behavior, and industry dynamics to
remain compe ve and relevant. This involves monitoring technological advancements,
economic shi s, and compe tor strategies. Such analysis helps in proac ve decision-making
and in iden fying opportuni es for innova on and growth.
3. Internal Strengths and Capabili es
Leveraging an organiza on’s internal strengths, such as a skilled workforce, advanced
technology, or robust opera onal processes, is crucial for strategy formula on. Recognizing
these core competencies allows the organiza on to maximize efficiency, reduce costs, and
deliver unique value. For example, a company with superior R&D capabili es can drive
innova on and market leadership.
4. Use of Analy cal Tools
Tools like SWOT analysis, PESTLE (Poli cal, Economic, Social, Technological, Legal,
Environmental), and Porter’s Five Forces provide structured methods for evalua ng the
internal and external environment. These tools help iden fy opportuni es and threats in the
market while clarifying the organiza on’s strengths and weaknesses. Such insights are cri cal
for informed and strategic decision-making.
5. Compe ve Priori es
Strategies are built around compe ve priori es like cost leadership, where organiza ons
focus on minimizing costs; quality, which ensures superior offerings; flexibility, to adapt to
market demands; and innova on, for unique products or services. Each priority caters to
different customer needs and market segments, allowing organiza ons to stand out in their
industry.
6. Goal Alignment
Aligning the organiza on’s long-term goals with opera onal and resource capabili es
ensures that all departments work towards the same strategic objec ves. This
synchroniza on minimizes inefficiencies and redundancies, enabling be er resource
 u liza on. For example, if the organiza onal goal is sustainability, opera ons will focus on
eco-friendly prac ces and green technologies.
7. Sustainability of Compe ve Advantage
A sustainable compe ve advantage involves crea ng long-term value that compe tors
cannot easily replicate. This could include proprietary technology, strong branding, or
excep onal customer rela onships. Sustaining this advantage requires constant innova on,
investment in resources, and adap ng to market changes to remain ahead of compe tors.

Strategy Formula on of Opera ons Strategy

1. Alignment with Business Strategy

Opera ons strategy ensures that day-to-day opera onal decisions support the broader
business strategy and goals. For instance, if the business strategy focuses on cost leadership,
opera ons must emphasize efficiency and waste reduc on. This alignment ensures
consistency in achieving strategic objec ves and maintaining compe veness.
2. Capacity Planning
Capacity planning determines the produc on capability required to meet both current and
future demand. By accurately forecas ng demand and aligning resources, organiza ons can
avoid underu liza on or overproduc on. This ensures opera onal efficiency and helps in
maintaining customer sa sfac on through mely delivery.
3. Process Design
Process design focuses on choosing efficient methods and workflows for producing goods or
delivering services. A well-designed process reduces wastage, enhances produc vity, and
ensures consistency in quality. For example, using automa on in manufacturing can speed
up produc on while maintaining high standards.
4. Supply Chain Management
Effec ve supply chain management ensures a smooth flow of raw materials, informa on,
and finances across the en re supply chain. This minimizes bo lenecks, reduces costs, and
improves delivery mes. For example, just-in- me (JIT) inventory systems can op mize stock
levels and reduce storage costs.
5. Quality Management
Quality management emphasizes crea ng products and services that meet or exceed
customer expecta ons consistently. Techniques like Total Quality Management (TQM) and Six
Sigma help organiza ons focus on con nuous improvement and reducing defects. This
enhances customer trust and loyalty, ensuring long-term compe veness.
6. Cost Efficiency vs. Customer Sa sfac on
Opera ons strategy seeks to strike a balance between reducing costs and maintaining
customer sa sfac on. While cost-cu ng is important for profitability, it should not
compromise quality or service delivery. For example, op mizing produc on costs while
ensuring on- me delivery keeps customers sa sfied and loyal.
7. Adaptability and Innova on
In a dynamic market, opera ons must be flexible and innova ve to respond to changing
condi ons. This involves adop ng new technologies, processes, and prac ces that improve
efficiency and meet evolving customer demands. For instance, incorpora ng AI and
automa on can streamline opera ons and reduce lead mes while improving service levels.

Transforming Strategy into Ac on: The Balanced Scorecard

The Balanced Scorecard (BSC), introduced by Kaplan and Norton, is a strategic management tool that
bridges the gap between strategy formula on and implementa on. It helps organiza ons translate
their vision and strategy into ac onable objec ves by providing a structured framework that focuses
on mul ple perspec ves.

Key Components of the Balanced Scorecard

1. Financial Perspec ve
o Focuses on achieving financial objec ves that align with the organiza on’s strategy.
o Measures include profitability, revenue growth, cost management, and return on
investment (ROI).
o Example: Increasing revenue by 10% over the next fiscal year.
2. Customer Perspec ve
o Addresses customer sa sfac on and reten on by delivering value and mee ng
expecta ons.
o Measures include customer sa sfac on scores, market share, and customer
reten on rates.
o Example: Improving Net Promoter Score (NPS) to enhance customer loyalty.
3. Internal Process Perspec ve
o Emphasizes opera onal efficiency and process improvements to support strategy
execu on.
o Measures include produc on cycle me, defect rates, and process innova on.
o Example: Reducing produc on defects by 5% to enhance quality.
4. Learning and Growth Perspec ve
o Focuses on employee development, organiza onal culture, and innova on to ensure
long-term success.
 o Measures include employee training hours, skill development, and technological
advancements.
o Example: Increasing training sessions for employees to improve produc vity.

How the Balanced Scorecard Transforms Strategy into Ac on

1. Strategic Objec ves
The Balanced Scorecard (BSC) starts with defining strategic objec ves that are clear, specific,
and measurable. These objec ves are designed to align with the organiza on’s overall vision,
mission, and long-term strategy. By se ng such goals, the organiza on ensures that every
department and individual understands their role in achieving the broader objec ves,
fostering clarity and focus.
2. Key Performance Indicators (KPIs)
To measure progress toward achieving the strategic objec ves, the BSC establishes specific,
quan fiable metrics known as Key Performance Indicators (KPIs). These metrics are assigned
to each perspec ve of the BSC (Financial, Customer, Internal Processes, Learning, and
Growth) and act as benchmarks for evalua ng performance. For instance, customer
sa sfac on scores, profit margins, or employee training hours serve as indicators of success
and help iden fy areas requiring improvement.
3. Alignment of Ini a ves
The BSC ensures that all projects, processes, and resources are aligned with the strategic
goals it outlines. This alignment avoids duplica on of efforts and ensures that resources are
used efficiently. For example, an ini a ve to improve customer experience through be er
training aligns with the strategic objec ve of enhancing customer sa sfac on, crea ng a
cohesive effort across departments.
4. Cause-and-Effect Rela onships
The BSC integrates perspec ves to establish cause-and-effect rela onships, illustra ng how
success in one area impacts another. For instance, inves ng in employee training (Learning
and Growth) enhances employee skills, leading to be er opera onal efficiency (Internal
Processes) and improved customer sa sfac on (Customer Perspec ve), which ul mately
results in higher profitability (Financial Perspec ve). This interconnectedness helps
organiza ons priori ze ini a ves that drive overall success.
5. Con nuous Monitoring and Feedback
The BSC emphasizes regular tracking and analysis of performance metrics to ensure progress
remains on track. Con nuous monitoring enables organiza ons to iden fy devia ons from
strategic goals and make mely adjustments. Feedback loops allow for adap ve decision-
making, ensuring that the organiza on can respond to changes in the market or internal
environment effec vely. For example, if a KPI indicates declining customer sa sfac on,
immediate correc ve ac ons can be taken to address the issue.

Principles of Ergonomics in Manufacturing and Service Industry

1. Workplace Layout Design: The design of workspaces should minimize unnecessary

movements and ensure that tools, equipment, and materials are easily accessible. In
manufacturing, for example, machines and tools should be arranged to reduce worker
fa gue. In service industries, customer-facing areas should be intui ve and efficient to
navigate.
2. Posture and Movements: Tasks should be designed to encourage natural body movements
and neutral postures, reducing strain on muscles and joints. In manufacturing, this includes
adjus ng the height of worksta ons and using ergonomic tools. In services, such as at
customer service counters, sea ng and desk heights should support comfortable postures.

3. Environmental Factors: Ligh ng, ven la on, temperature, and noise levels significantly
affect employee performance and comfort. Proper illumina on in manufacturing plants
ensures precision, while controlled noise levels in service environments promote be er
communica on and focus.

4. Reduc on of Fa gue: Jobs should be designed to avoid prolonged repe ve ac ons or sta c
postures. Breaks and task rota on are encouraged to prevent fa gue, especially in repe ve
manufacturing processes or high-stress service roles.

5. Safety and Health: Ergonomic designs aim to reduce the risk of workplace injuries. In
manufacturing, this includes safeguarding machines and ensuring proper material handling.
In service industries, safe and user-friendly equipment should be provided to employees and
customers.

6. Ease of Use: Equipment and tools should be intui ve, requiring minimal training. In
manufacturing, this could mean standardized controls across machines. In service industries,
customer interfaces should be designed for ease of understanding and use.

7. Adaptability: Worksta ons and tools should be adjustable to cater to different worker
requirements. For instance, adjustable chairs or modular worksta ons in both manufacturing
and service environments enhance comfort and produc vity.

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