In Japan, we are keeping very strong interest to improve

quality by use of methods which you started. When we

improve quality we also improve productivity.
Dr. Yoshikasu Tsuda
University of Tokyo
Chapter 10

Productivity, Quality and Reengineering
The Leverage of the Productivity
and Quality
1 2 3
Before Sales Productivity
Up to % Improved 10 %
Sales $100 $110 $100
Variables Costs 70 77 63
Fixed Costs 20 20 20
Profit $10 $13 (+30%) $17(+70%)
Management System Vs.
Technology
Generally believed that Japans quality and
productivity advantage comes from advanced
technology.
It would be a mistake to attribute Japans success
to technology alone and bigger mistake to consider
technology to be the only answer to improved U.S.
quality and productivity.
It is not labor replacement that is needed but
rather improved processes.
Technology (machines, methods, procedures, and
techniques) means of transforming inputs into
outputs.
Management System Vs.
Technology
No one can argue convincingly against use of
hardware side of technology to improve both
quality and productivity.
Automation and machines require time and
money, both of are in short supply.
Management system take little of either and
may be equally or more effective.
Solution is to improve the system-the
process-before introducing technology.
Good companies buy technologies to improve
processes, reduce lead times, boost quality,
and increase flexibility.
Measuring Productivity
Measuring productivity is somewhat easier
than measuring quality.
Quality is determined by customer and may
be fragmented and elusive.
Productivity can be also difficult to measure
because it is measured by output of many
functions or activities.
Standards are needed for comparison against
past performance, the experience of
competitors, and as a basis for action plans
to improve.
Measuring Productivity
Carl G. Thor principles of measurement for both productivity
and quality include:
1.Meet the customers need-that person who plan to use it.
The customer may be external or internal.
2.Emphasize feedback directly to the workers in process that is
being measured.
3.The main performance measure should measure what is
important. This may not be the case with traditional cost
control report.
4.Measures should be controllable and understandable by
those being measured.
5.Base measures on available data. If not available, apply cost
benefit analysis before generating new data. Information is
rarely worth more than the cost of obtaining it.
Basic Measures of Productivity:
Ratio of Output to Input
1.Total Factor
Total factor is the broadest measure of output to
input and can be expressed as:
Total output
Labor+Materials+Energy+Capital
2.Partial Factor
Partial factor measures are established by
developing ratios of total output to one or more
input categories and expressed as:
Total output
Labor input
Basic Measures of Productivity:
Ratio of Output to Input
3.Functional and Departmental Measures
These are more likely to benefit the company
than an effort to apply comprehensive,
company wide coverage.
It is important to establish function and
activity measures because these
organizational entities are where productivity
and quality are delivered and where processes
are improved. It is here where process design
and control happens.
Basic Measures of Productivity:
Ratio of Output to Input
4.Individual Measures
Provide the individual supervisor and worker
with basic targets for improvement of both
productivity and quality through individual
action planning.
Improvement can only occur if measured
against some benchmark.
5.Industry and Competitive Measures
These are important for benchmarking
against the competition, best in class and
others in the industry.
Improving Productivity (and
Quality)
Improvement means increasing the ratio of the
output of goods and services produced divided by
input used to produce them.
Hence, the ratio can be increased by either increasing
the output, reducing the input, or both.
Historically, productivity improvement has focused on
technology and capital equipment to reduce the input
of labor cost.
Improved output was generally subject to obtaining
more production by applying industrial engineering
techniques such as methods analysis, work flow, etc.
Current trend is toward better use of the potential
available through human resources.
Improving Productivity (and
Quality)
Five ways to improve productivity
1. Reduce Cost

2. Manage Growth

3. Work Smarter

4. Pare Down

5. Work Effectively


Productivity
Output
Input
Capital Equipment Vs.
Management System
Improvements in both productivity and quality
have been slowed by two traditional
management system.
The first has been the tendency to look to
capital equipment as a solution to the problem
of labor productivity.
In the age of high tech, additions to capital
have been viewed as the answer to boosting
output.
Remarkable gains have been made in
mechanization and automation since the
Industrial Revolution.
Capital Equipment Vs.
Management System
Number of arguments against depending on
technology alone.
It costs money and takes time, neither of
which is abundant resource.
Technology has yet to make significant
inroads in the productivity if indirect labor
and service industries.
Finally, high tech must by low tech-the way
workers, supervisors, and managers interact
in adopting to new systems.
Capital Equipment Vs.
Management System
What could be
what is














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Capital Equipment (Technology)
Productivity Curve
Activity Analysis
The major steps in conducting an activity analysis
program include:
Each unit, function, or activity develops a baseline
budget that includes a breakdown of one years cost.
Set a cost, productivity, or quality target.
Develop a mission statement for each unit that answers
the question: why does it exist?
Identify each activity that supports the mission and the
end products or services that result from that activity.
Allocate end-product cost that equals the base line
budget.
Identify receivers (customers) of the end product or
service.
Develop and implement ideas for improvement.
Reengineering
Principles of Reengineering
Organize around outcomes, not tasks.
Have those who use the output of the process
perform the process.
Subsume information processing work into real
work that produces the information.
Treat geographically dispersed resources as
though they were centralized.
Link parallel activities instead of integrating their
results.
Put the decision point where the work is
performed and build control into the process.
Capture information once and at the source.