Page 129 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Production and Operations Management

Notes The concept of productivity encompasses not only a more efficient use of resources, but
also of quality, environmental protection and integrated economic and social development.
Mr. Umesh Panjiar, the Director General of NPC, in a meeting with his senior officers was
concerned with the changes taking place. Though the directions of the changes were clear,
how could one tackle the challenges they posed? He asked Dr. A.K. Saxena, a senior
Director in the organization, to suggest ways and recommend changes within the
organization that would enable it to meet the new challenges.

6.3 Productivity and Production

The term ‘productivity’ must not be confused with production. Productivity is a ratio, while
production relates to a volume. Increased production does not necessarily mean increase in
productivity. If the input of resources goes up in direct proportion to the increase in output, the
productivity will remain the same. And if input increases by a greater percentage than output,
higher production will be achieved at the expense of a reduction in productivity.

!

Caution It must be remembered that Productivity calculations are based on the assumption
that quality levels are maintained.
If an organization produces more output with the same level of resources, but the quality of the
output is lower, then the productivity may not increase. If an organization produces more
components, but they are defective and must be rejected, you may have actually reduced
productivity.
Cost and quality are characteristics that must be designed into a product in the first place, but
achieving them in the final product is the result of carefully managing the productive resources
of a company.

6.3.1 Enhancing Productivity

Although labour and multifactor productivity measures can be informative, they also can be
deceptive when applied to a firm at process levels.

Example: If a firm decides to transfer some of its work to outside suppliers and lay off
some of its own workforce, the labour productivity will increase. This is because the value of the
firm’s total sales (the numerator) remains unchanged while the number of employees (the
denominator) drops.
What is measured and the way in which the processes are managed play a key role in determining
productivity improvements. We have to increase the value of output relative to the cost of input.
If processes can generate more output of better quality using the same amount of input,
productivity increases. If they can maintain the same level of output while reducing the use of
resources, productivity also increases.

Notes The objectives of improvements in productivity are:
 Efficiency

 Maximum output
Contd...

124 LOVELY PROFESSIONAL UNIVERSITY