PRODUCTIVITY

What is productivity?
In the simplest form, productivity can be defined as the ratio between output and input.

Output
Productivity =
Input

But productivity definition does not end here. Above ratio is also measurement of
efficiency. The output has to be useful also, which means that output should lead to gains.
Therefore, we can now refine the definition of productivity as Productive Efficiency.

Let us understand this concept of productive efficiency from a real life example.

Not very long years ago, there happened a industrial dispute in a shoe factory in the fabled productive
country called Japan. Unlike Indian labour, the labour of that did not stop the work and instead increased the
rate of production. But what they did was that they were manufacturing only left leg shoes. Thus, the
production was unmarketable and inventory began to pile up forcing the factory owner to give in to their
demands.

In the above story, while workers were working more efficiency than ever before, their productivity was
ZERO because their output was unmarketable.

Thus, any performance has to first serve the purpose and then it has to be efficient to
qualify as Productivity.

Productivity is meant to capture the efficiency of production process.

How to improve the productivity?

INPUTS PROCESS OUTPUT

MUDA
(WASTE)

The easiest and simplest way to improve the productivity is to identify and cut out wastage
(called Muda in Japanese).

Productivity improvement is a three step process -

(a) Eliminate wasteful activities

Page 1 of 52
 (b) Simplify the activities.
(c) Improve the Process. Combine two or more activities (But mind you, combine
only human activities. Don’t try to combine machine activities. eg, Teller operation in bank
where multiskilled people are employed to deliver a single window deposit and withdrawal
facility to customer against earlier practice of check/withdrawal form passing through 4 or
5 tables and consequent costs and delays).

Historical Background
Man, since time immemorial, probably since the days of Adam and Eve, has
endeavoured to make his tasks easier, better and faster. That is what we call productivity.
But, a formal and methodical study about productivity is not too very old. It started with
Mr Fredrick Taylor who introduced scientific management (later termed as Time Study) to
improve productivity. Later, Gilbreth couple introduced Motion Study some 50 years back
and the combined form was named “Time and Motion Study” of industrial production.
Over the time it has grown far beyond production and time and motion study and
encompassed almost every facet of work including services. The new name for such
expanded form of Time and Motion Study is Work Study.

Time and Motion Study – Time and motion study involves breaking entire activity into
smallest elements of motion (as small as moving the eyes) and timing each motion.
Thereafter, movements are subjected to eliminate, reduce/simplify and combine philosophy
to achieve better and faster methods of working.

In any Time and Motion study, it is Method which is studied first and broken into small
elements which are then timed.

Productivity is not about working hard but working smart. Productivity is balance of all
factors that will give greatest return for least efforts.

Factors of Production – There are essentially five factors of production represented as

5 M‟s –

(a) Machine
(b) Material
(c) Method
(d) Man days
(e) Money

If you can reduce usage of any of these factors for per unit of your business, (with nil or
less than proportionate increase in other factors), productivity will increase.

Productivity and Performance

Performance is not same as Productivity. While performance takes into account only the
output, unmindful of resources consumed, Productivity focuses on consumption of

Page 2 of 52
resources in relation of output.

Output Performance Achieved

Productivity = 
Input R esources Consumed

Productivity and Production

Same is true about production also. Production is measurement of final output. Production
measurement does not take into account inputs. It is often possible to increase production
with simultaneous and incommensurate increase in inputs.

Partial Productivity
Any product normally takes more than one resource. Improvement in productivity
generally means reduction in sum total of all resources consumed for each unit of output.
But when consumption of only one resource is taken to calculate the productivity, it is
called partial productivity. Take the case of a farmer deciding to improve per hectare yield
of crop by adding more fertilisers. In case of farming, inputs are land, labour, capital (for
seeds, fertilisers, irrigation, etc). Output is crop yield. Now, when output is increased due to
fertiliser, productivity of land (yield per hectare of land) has increased. But what about
productivity of capital? It is quite possible that money spent in producing each quintal of
crop may have increased due to higher expenditure on fertilisers. Thus, productivity of
capital has decreased. What about total productivity? It could have increased if increase in
yield had more than offset the cost of additional fertilisers or vice versa.

Thus, partial productivity is viewing the productivity with respect to only one variable at a
time and therefore it could be some times fallacious. So, if there are 20 different inputs in
an activity, there can be 20 different partial productivities.

Measurement of Productivity in terms of Sales Value is generally avoided (Though it is not

always possible and more so in case of partial productivity). Sales Price/Revenue as well as cost of
inputs are influenced by too many factors beyond control of the factors of production and
therefore distort the actual picture. It is, therefore, always preferable to measure
productivity in terms of units of production and consumption.

Total Factor Productivity

Total factor productivity is calculated by considering total output and total input
simultaneously.

Total Output Performance Achieved

Total Factor Productivity = 
Total Inputs Total R esources Consumed

Now let us see various productivity terms defined above in terms of numbers.

Page 3 of 52
Example - Problem
For month of Feb 07, following were the factory statistics of Rajesh International –

(a) Total Production – 1,00,000 units

(b) Raw Materials Consumed – Rs 50,000
(c) Labour Cost– Rs 25,000
(d) Labour Hrs Consumed – 1000

For the month of Mar 07, following were the statistics –

(e) Total Production – 1,20,000 units

(f) Materials Consumed – Rs 55,000
(g) Labour Cost– Rs 35,000
(h) Labour Hrs Consumed – 1100

Solution
What we see above is that total production has increased from 1,00,000 units in Feb to
1,20,000 in Mar 07. Therefore, Production of the Rajesh International has improved.

Similarly, performance of labour has also improved since they produced 20% extra in Mar
compared to Jun (we have not even looked at what they consumed)

Partial Productivity –

Total Output 100000

Raw Material Productivity (Feb) -  2
Material Inputs 50000

Total Output 120000

Raw Material Productivity (Mar) -   2.18
Material Inputs 55000

Total Output 100000

Labour Cost Productivity (Feb) -  4
Labour Cost 25000

Total Output 120000

Labour Cost Productivity (Mar) -   3.43
Labour cost 35000

Total Output 100000

Labour Hrs Productivity (Feb) -   10
Labour Hrs Input 10000

Total Output 120000

Labour Hrs Productivity (Mar) -   10.91
Labour Hrs Inputs 11000

Page 4 of 52
 Total Factor Productivity

Total Output 100000

Total Factor Productivity (Feb) -   1.33
Total Input 50000  25000

Total Output 120000

Total Factor Productivity (Mar)-   1.41
Total Inputs 55000 30000

Now let us analyse the above data.

We see from above calculation that partial productivity of Raw Materials has increased
from 2 to 2.18, but partial productivity of labour cost has decreased in the same period
from 4 to 3.43. And even though labour cost productivity has gone down, labour hrs
productivity has gone up from 10 to 10.91 (It is indicative of the fact that labour were given financial
incentives to improve their productivity. Therefore, cost has gone up due to incentives but actual hrs of
labour at work have not increased proportionately)

Finally, total factor productivity has increased from 1.33 to 1.41. This increase is primarily
due to reduction in material consumed (material wastages have been reduced). (Please also
note that we have not considered labour hrs in the total factor productivity. It is because we had already
considered labour cost. So, in total factor productivity, we take one factor only once even though in partial
productivity different attributes of same factor may have been considered separately)

Total Productivity Model

Total Productivity Model developed by Sumanth is extension of earlier models. In this
model he considers five items as inputs, ie, Human, Material, Energy, Capital and other
expenses.

Total Tangible Output

Total Productivity -
Total Tangible Input

Total Tangible Output = Value of finished goods produced

+ Partial units produced (WIP)
+ Dividend from securities
+ Interest from bonds
+ Other income
Total Tangible Inputs = Value of Human Inputs (employees)
+ Capital inputs
+ Materials Consumed
+ Energy inputs
+ Other expenses (taxes, transport, office, etc)

Page 5 of 52
American Productivity Centre (APC) Model
Purpose of business is to earn profit. The models that we have so far considered have been
advocating disregarding monetary element as measure of productivity. But what use is
increasing productivity if business is losing money? Thus, American Productivity Centre
came up with new measurement of productivity which approaches productivity from
profitability angle.

Sales
Profitability = 
Costs

Output Quantities  Prices

=
Input Quantities  Unit Costs

= Productivity x Price Recovery Factor

What is Price Recovery Factor

Price Recovery Factor captures the effect of inflation on profitability. It is ratio of
Sales Price and Unit costs of inputs. Thus, the effect of changes in selling price or
procurement prices of inputs or both is captured by Price Recovery Factor.

Thus, American Productivity Centre Model gives total productivity and separates out
profits from productivity due to usage of inputs from changes in profit due to effect of
inflation.

Quality
Another factor which impacts productivity and is therefore intricately meshed with
productivity concepts is QUALITY. Quality has been used as a tool to improve
productivity.

It is a well entrenched notion in most people‟s mind that better quality means more time
and more money and therefore low productivity. However, empirical results show that
productivity improves with quality and it is only at very high levels of quality that the two
assume inverse relationship as is common belief. Better quality means less rejection rate
and less rework (saving of mandays and material). The savings achieved from lesser
rejection and rework more than compensate loss due to investments made in quality.
Remember that on an average if one piece is rejected, it eats away profit earned from 5
good pieces. (Rejection means total loss of cost of one unit which is often 4 to 5 times the profit earned +
opportunity to earn profit on rejected pieces ). Thus, if rejection can be brought down say from 4%
to 2%, you have effectively increased profits by approximately 12%.

Besides direct profits, there are plenty of intangible benefits of quality like better reputation
of product and company in the market and therefore realisation of better sale price, repeat
orders, growth in market share, etc.

Page 6 of 52
But, what is quality? How do you define it?
Again starting with simplest definition, given by Juran, the founder of TQM concept –
“Quality is fitness for use”. If a product is not fit for use, obviously the quality is bad. But
then a glass tumbler with air bubbles in the glass and 90% clarity costing Rs 10 in the
market is as good for drinking water as the finest Swarovski Crystal Glass costing in tens
of thousand.

So, a more appropriate definition is – Quality is what a customer demands and more
importantly, is ready to pay for. In other words, Quality is meeting the performance
standards demanded by the customer who is willing to pay market price for those demands.

Quality Control Vs Quality Assurance

Quality control is checking the quality before the product is sent to market and rejecting
any pieces which do not meet established quality standard.

Quality assurance is what a company claims on the product label. In this case, the company
has certain production control system in place which ensures that defects in production are
checked at the process stage itself and defective pieces are not produced. Thus, the need to
check and reject final product is obviated. Quality assurance is a better strategy than
Quality Control.

Quality Circles
Another aspect of productivity is concept of Quality Circles. The concept is a misnomer.
Quality circles have little to do with quality of product. Quality Circle is again a concept of
Japanese origin wherein workers form a team voluntarily and meet regularly to identify and
resolve problems being faced in their shops/workplaces.

Next concept in productivity is Value Analysis and Value Engineering. Let us first
understand what is Value?

Value is customer‟s appreciation of the worth of product. In layman‟s terms, Value is the
importance attached to the product by the customer and therefore, the maximum price that
he would be willing to pay you for the product. Value is not uniform. It varies from person
to person, time to time, market to market depending on availability, competition, etc. A
seller takes a mean of these values and sets a selling price.

Defining them together, Value Analysis / Value Engineering (VA/VE) is the systematic
analysis of functions, a systematic approach to enhancing value in a process, project, or
product by finding better, more efficient ways of delivering the function it performs. Using
a variety of recognized tools, we analyze every aspect of the function it performs. This is
accomplished in order to invent a means to provide what is functionally necessary and
important at the lowest cost.

Value Engineering is complementary to Value Analysis. While Value Analysis aims at

enhancing the value of a product already in market, Value Engineering is applied with the

Page 7 of 52
same aim to product at design stage. Value Analysis/Value Engineering help in either
improving the functionality (adding more features to satisfy customer demand/requirement)
at the same/lower cost or finding ways of delivering the existing functions at lesser cost.

Together, they are used to increase the value of products (or services) by considering the
benefit of each function and balancing this against the costs incurred in delivering it. The
task then becomes to increase the value or decrease the cost or even better, both.

Page 8 of 52
 ILO APPROACH TO W ORK STUDY

There are numerous methods and approaches to improve productivity but Work Study has
the honour of being the first methodical and organised human endeavour to improve the
productivity. In this way, it is the mother of modern productivity techniques.

Work Study operates on two premises –

1. Refusal to accept without question that things must be done in a certain manner
because that is the way they have always been done.

2. Intolerance of waste in any form, whether of material, time, effort or human ability.

Definition – Work Study

Work Study is a generic term for those techniques, particularly Method
Study and Work Measurement, which are used in the examination of
human work in all its contexts, and which lead systematically to the
investigation of all the factors which affect the efficiency and economy of
the situation being reviewed, in order to effect improvement.

In simplified form –

It is a technique that analyses each element of a specific work to eliminate

unnecessary operations and determines better method to achieve same
results.

Work Study is modification of an old technique. In its old Avataar, this technique was
called Time and Motion Study. But, as the scope of this method expanded from simple
production shops to other sectors of business, old title was found to be too narrow and
insufficient to bring out the essence of this technique.

A Time and Motion Study is defined as a business efficiency technique combining the
Time Study work of Frederick Taylor (father of scientific management) with the Motion
Study work of Frank and Lillian Gilbreth (Husband Wife couple best known through the
biographical 1950 film and book Cheaper by the Dozen).

A time and motion study would be used to reduce the number of motions in performing a
task in order to increase productivity. The best known experiment involved bricklaying
operation. Through carefully scrutinising a bricklayer's job, Frank Gilbreth reduced the
number of motions in laying a brick from 18 to about 5. Hence, the productivity of
bricklayer was increased while simultaneously decreasing his fatigue.

The Gilbreths developed what they called therbligs ("therblig" being "Gilbreth" spelled
backwards), a classification scheme comprising 17 basic hand motions.

Page 9 of 52
Components of Modern Work Study
Modern Work Study consists of a two part programme -

1. Method Study (Earlier Motion Study) – To analyse the elements of a given work
to devise a better working method/operating system. This is a macro view of the work
process and content.

2. Work Measurement (Earlier Time Study) – Once the wasteful work has been
deleted at the macro level through method study, fine tuning is required at micro level.
Each motion is timed and a standard time arrived at for the whole job after allowing due
concessions as required for fatigue, rest, etc.

Work Study Vs Other Methods

Work Study is a direct means of raising the productivity of existing resources. Most other
productivity improvement methods require capital investment. In many cases, there is little
real improvement in productivity. In effect, low productivity is shifted to different resource,
say, from human resource to capital. Installing a machine may reduce the labour
requirement from 10 to 2. But despite reduced labour requirement, and therefore improved
labour productivity, company may suffer reduced profitability since the cost of capital,
depreciation and maintenance may be higher than the savings in labour. Reduction in
capital productivity has overcompensated improvement in labour productivity. In contrast,
work study is a definite way of improving profitability through productivity with little or
no investment of additional capital.

Limitations of Work Study

However, Work Study suffers from certain limitation. The first limitation is that it is
applicable primarily to labour intensive/well defined (repetitive) kind of jobs. Second
limitation that it faces is that there is a limit beyond which it can not improve the
efficiency. Third limitation is on repeatability, speed and accuracy. Capital investment in
technology often brings kind of production efficiency, accuracy and speed which are
beyond the realm of work study.

But work study applies even in conjunction with capital investment in technology. Plant
layout is a field where there is no substitute for work study. Capital investment will give
you fast, accurate and cost efficient machines and production processes but even their
productivity can be improved by application of Work Study. How and where to place them
in the plant, where and how to store raw materials and finished products, when and how to
move the material, etc, are just some of the aspects which make huge impact on overall
costs and have to be decided individually for each plant. And to accomplish this job most
efficiently, there is no method other than work study.

Page 10 of 52
 How manufacturing time is made up

Basic Work
Content
of product/ operation

Total
Work Content
Work
Content
Added
by defects in design
or specifications
Total Time of
Work Content Operation
Added under Existing
Conditions
by inefficient method
of manufacture

Inefficient
Time
Due to Shortcomings
of Management
Total
Ineffective
Time
Inefficient
Time
Within control of the
worker

What we see above is that basic work content and therefore actual time required on job is
only a small portion of total effort and time invested on the job. Work Study aims at
identifying and eliminating all the added work content and inefficient time. Next we will
see as to how work content gets added.

Page 11 of 52
 Work content due to product and processes

Basic Work
Content
of product/ operation

A 1. Bad Design of Product

prevents use of most economic
process

Work Content Added A 2. Lack of Standardisation

by defects in design prevents use of High production
or specifications of processes
the product
Total Time of
A 3. Incorrect
Operation under
Quality Standards Existing
cause unnecessary work processes
Conditions

A 4. Design demands removal of

excess material

B 1. Wrong Machine
used

B 2. Process not operated

correctly
Work Content Added by or in bad condition
inefficient methods or
manufacture or B 3. Wrong Tools
operations used

B 4. Bad Layout
causing wasted movement

B 4. Operatives
Bad Working Methods

Ineffective
Time

Page 12 of 52
Once all the wastages and their sources are identified whether through extra work added or
ineffective time on the job, conscious efforts are made to eliminate/minimise them.

Following are some of the essentials of this programme-

1. Wholesome Application – In order to take full advantage of work study, it is

necessary that the programme be applied to the whole organisation rather than on
piece meal basis here and there. Else, while the percentage savings on an individual
job may be substantial, its impact on organisation will be miniscule.

2. Full Time Job – It is not a part time job which some one can do on the sides of his
regular job. Work study requires continuous and keen observation of each job and
then mental deliberation on the observations. Therefore, a person undertaking work
study needs to be a specialist and has to work full time.

3. Participation by All – Everyone in the organisation needs to be bitten by the work

study bug. Most of the suggestions for improvement in methods and procedure
often come from the workers themselves even when external consultants are hired.
So, their cooperation is must for work study programme to succeed.

4. Tactful Application – Work Study is designed to bring to light various

inefficiencies in the system and people and that can create lot of bad blood between
people involved in the Work Study and the workers and managers. Therefore,
situation needs to be handled carefully. Else, cooperation of people will stop
leading to complete failure of the programme. May be it‟s a good idea to initially
play down the programme and keep the results confidential.

Basic Procedure of Work Study

Work Study is an eight step procedure –

1. Select the Job/Process to be studied – While it is necessary to study almost every

job in the organisation, a selective approach, where gains are expected to be
maximum, is required to begin with.

2. Record from Direct Observation – Record every activity by breaking down to the
lowest level. Select the most suitable technique from various recording techniques
that are available. Each technique is suitable for a different kind of job.

3. Examine the Recorded Facts Critically and Challenge Every Thing with 5 Ws and
1 H – Why, Who, When, Where, Which and How. Start with seeking justification
for necessity of that activity - why is that activity required. Follow the process of
eliminate, reduce, modify. Eliminate the activity if possible. If not, reduce the level
of activity. If reduction is also not possible, check if it can be modified to do it
faster and better. Who is doing it now? Who else can do it? When it is being done?
When can it be done otherwise? Where is it being done now? Can it done at any
other location?

Page 13 of 52
4. Develop the Best Method taking into account all circumstances. Remember, the
most economical is not always the best.

5. Measure the Quantity of Work involved in the method selected and calculate the
standard time for doing it (Work Measurement).

6. Define the New Method and related time for future.

7. Install the new method as agreed standard practice with the time allowed.

8. Maintain the new standard practice by proper control procedure.

Page 14 of 52
 METHOD STUDY AND WORK MEASUREMENT

Definitions –

Method Study
Method Study is the systematic recording and critical examination of
existing and proposed ways to doing work, as a means of developing and
applying easier and more effective methods and reducing costs.

Work Measurement
Work Measurement is the application of techniques designed to establish
the time for a qualified worker to carry out a specified job at a defined
level of performance.

The efforts and time that a job requires to be accomplished, often has a lot of wasteful
content. Method study is linked with reduction in total efforts (called work content in the
ILO parlance) required to accomplish the task. Work measurement attacks the ineffective
time on the job and then sets a pragmatic standard sans all wastages which every worker is
expected to achieve or excel.

Method Study
Method Study is improvement over old Motion Study. While the motion study covered
only body movement, method study covers a much broader scope including procedure and
processes. It is, therefore, a much holistic approach than motion study.

Objects of Method Study –

1. Improvement of processes and procedures
2. Improvement of factory, shop and workplace layout and design
3. Economy in human effort and reduction of unnecessary fatigue (original motion
study)
4. Improvement in the use of materials, machine and manpower.
5. Development of better physical working environment.

There are a host of method study techniques available for tackling problems ranging from
reorganisation of factory layout to movements of a worker on a repetitive job. But
irrespective of the techniques fundamentals of work study remain same.

Page 15 of 52
Work Measurement
Work measurement is synonymous with time study of the yore. As a matter of fact, the
difference between Work Measurement and Time Study is not as great as in case of
Method Study and Motion Study.

Purpose of Work Measurement

Work measurement provides the management with a means of measuring the time taken in
the performance of an operation in such a way that ineffective time shows up and can be
separated from effective time. Thus, the existence, nature and extent of ineffective time are
known where as they were previously hidden within the total time. Once known, remedial
measures can be taken.

Second purpose is to set the standards in terms of time for each job. If the standards are set,
it is human tendency to at least match those standards if not excel them. It also helps to
correct any creeping back to old ways.

Third purpose it serves is to help design incentive schemes.

Techniques of Work Measurement

Following are the principal techniques by which work measurement is carried out –

1. Work Sampling – A random observation method. Activity is observed and timed at

random intervals in an unannounced manner. This method is suitable when the
continuous observation data is going to be very large, like, starting stopping data
(utilisation data) of 100 machines in a workshop. This method achieves acceptable
level of accuracy at reasonable cost and effort.

2. Stop Watch Time Study – This is a very elaborate and detailed process where time
is measured in parts of a second. This is specifically useful for erstwhile Motion
Study

3. Predetermined time standards (PTS)

4. Standard Data

Work Measurement Approach

Work measurement has two pronged approach to tackle ineffective time on job. First prong
tackles the ineffective time due to management shortcomings and second prong attacks the
ineffective time in control of the workers. In both cases, it exposes the people in most
direct manner. Methods of measurement are also very intrusive. Thus, work measurement
has historically attracted maximum opposition from all quarters; direct non-cooperation
from workers and indirect non-cooperation from middle level managers.

In most cases, management uses its clout with Study Group to influence Management

Page 16 of 52
Shortcomings Report and tries to instead highlight the ineffective time in control of
workers. This antagonises workers and creates problems. The right approach is to first
tackle the ineffective time due to management and then only attempt to address the
ineffective time in control of workers.

Work Study and the Human Factor

The biggest challenge in application of work study is to get the cooperation of all
concerned. As stated earlier, work study is an extremely intrusive tool of investigation and
is designed to bring out lacunae in planning, organisation, control, training and execution.
Every one, starting from senior managers to the lowest level worker, is under the threat of
getting exposed for his inefficiency and ineptitude. Workers at lower level even feel
threatened that higher productivity might lead to reduction in workforce and they may be
laid off. Resistance of public sector bank employees towards efforts to computerise
functioning in 1990 had the same genesis.

Workers tend to view the work study as a ploy to extract more work out of them without
compensating them. Therefore, even if the threat factor is some how removed, workers
always want their pound of flesh from any gains that company might earn. Workers Unions
use it as a bargaining tool for little extra pay. This trend is pronounced in developing and
under developed countries with socialist form of governments. India has all the elements
that aggravate this situation.

It is here that change management comes into picture. Getting support of every one around,
by which ever way, is a prerequisite for successful application of work study. Guarantee
them security of their job and opportunities. It may not be a bad idea to share some of the
gains from rise in productivity with the workers to make them a willing participant in the
exercise.

It is generally a better idea to ignore labour productivity at the beginning which always
draws the maximum resistance. Start by improving management efficiency (cutting inefficient
time due to shortcomings of the management like poor material quality, delays in material procurement, etc)
and material productivity which are least threatening to the workers. Follow it up with
space utilisation and plant utilisation.

Involving workers in the work study, asking for their suggestions, recognising their
contributions through awards, rewards and publicity generally wins their cooperation.

Epilogue
The classical ILO approach was Task Based. It breaks manufacturing time into basic work
content, added work content and inefficient time. This approach focuses on reducing
unproductive work and time in the total work content.

Page 17 of 52
 CREATIVITY BASED TECHNIQUES

Most of the productivity techniques that we have discussed so far are attempt to improve
and perfect the existing process; make the processes faster, make the people work faster;
cut out the steps to increase process speed, eliminate waste (effort as well as material) and
so on. But, such methods bring only percentage improvements. They may at the best
improve productivity by 100%. Any thing more than that is often far fetched, if not
completely impossible.

But then, there could be another method to do the same job which could be many times
superior. For example, take the case of dictation taken by the secretary. One option is to
keep training secretary to improve her shorthand speed and accuracy. Other option is to
equip her with a Dictaphone which takes away all the effort, time and money involved in
training her. Even better method is to use Voice Recognition Software which converts
speech into typed text. Such path breaking methods emerge out of creativity of people.

There are various methods to coax out the creativity of people –

 Brain Storming
 Nominal Group technique
 Lateral Thinking
 Whole Brain Thinking
 Synectics

BRAIN STORMING
Means of getting large number of ideas from a group of people in a short time by following
certain rules.

Even though brain storming gives a large number of ideas, there is no guarantee that the
ideas will be practicable. It works on the premise that among the large quantity, there will
be at least some good quality ones too by theory of probability. But, there are no methods
or thumb rules or any hint as to which idea is best among them. Finding the best and
discarding the rest is the job of the management.

Ground Rules for Brain Storming

(a) Size – The group should be between 6-20 people. Ideal size is 12.

(b) Composition – The group should be as heterogeneous as possible; age

gender, specialisation, profession, experience, etc. Such heterogeneity is

Page 18 of 52
 important because it brings out different view points from a cross section.

(c) Encourage Free Wheeling – Let people suggest wild, patently grotesque
appearing ideas. Such out of the box thinking only will yield to new
methods. More often than not, new methods will emerge out of most silly,
appalling and contrarian ideas.

(d) Suspend Judgement – Don‟t pass any judgement either way till the end of
session. Just listen and keep listing them. Don‟t even allow long discussion.
Let the person explain his/her idea and logic followed by small discussion if
at all felt necessary to understand the concept.

(e) Cross Fertilisation of Ideas – Encourage group members to hitch hike on

each other‟s ideas. Often two or three ideas complement each other and
together become an implementable idea.

Steps in Brain Storming

Aspects Activity
State problem State the problem and provide information. Participants must
know relevant details.
Re-State problem Allow participants to re-state the problem from their perspective.
Select basic re- List all re-statements.
statements Select one/two most potent ones to lead the brain storming
session
Warming up Define objective of the session and expected outcome.
Give time for free wheeling discussions among group members
or for quiet meditation for few minutes before beginning the
brain storming session.
Idea Generation People to speak out the idea
Leader to note down all the ideas
Process continues till ideas dry up
Wildest ideas Group takes up wildest ideas in another brain storming session

Do’s Don’ts
Suspend judgment Spend too much time on an initial
discussion
Allow silly wild ideas Allow observers
Have warm-up sessions Tape record proceedings
Encourage noise and laughter Accept interruptions
Take more than one statement Drag session if dried up

Page 19 of 52
 N O M I N A L GR OU P TE C H NI Q UE
The Nominal Group Technique is a consensus planning tool that helps prioritize issues.

In the nominal group technique, participants are brought together for a discussion session
led by a moderator. After the topic has been presented to session participants and they have
had an opportunity to ask questions or briefly discuss the scope of the topic, they are asked
to take a few minutes to think about and write down their responses. The session moderator
will then ask each participant to read, and elaborate on, one of their responses. These are
noted on a flipchart without the name of the person (no ownership of idea). Once everyone
has given a response, participants will be asked for a second and then next response, until
all of their answers have been noted on flipcharts sheets posted around the room.

There after, the duplications are eliminated and each unique response is assigned a letter or
number. Session participants are then asked to choose up to 10 responses that they feel are
the most important and rank them according to their relative importance. These rankings
are collected from all participants, and aggregated. For example:

Overall Measure

Response Participant 1 Participant 2 Participant 3 Final Score and Rank

A Ranked 1st Ranked 2nd Ranked 2nd 5 = ranked 1st
B Ranked 3rd Ranked 1st Ranked 3rd 7 = ranked 3rd
C Ranked 2nd Ranked 3rd Ranked 1st 6 = ranked 2nd
D Ranked 4th Ranked 4th Ranked 4th 12 = ranked 4th

Sometimes these results are given back to the participants in order to stimulate
further discussion, and re-ranking of the responses. This is done only when group
consensus regarding the prioritization of issues is important to the overall research or
planning project.

Steps
Step 1. Small group gathers, receives instructions, identifies problems
Step 2. Group members write down their ideas.
Step 3. Each one presents his ideas; Leader notes these ideas on a chart
Step 4. Group discusses, clarifies and evaluates each of the ideas
Step 5. Participants privately rank ideas in their order of preference
Step 6. Group selects highest ranking idea as a group decision
Advantages Disadvantages
Allows formation of an informed opinion Effective only if personal bias and
prejudice is absent
Ranking of ideas by members is the effect Ideas recorded without name of person
of information exchanged by members (Robbed of individual credit)

Page 20 of 52
 Fairly rapid process Secret voting for final choice
Permits exchange of ideas

L A TE R A L TH I NK I N G
Lateral thinking is a term coined by Edward de Bono, a Maltese psychologist,
physician and writer. It first appeared in the title of his book The Use of Lateral Thinking,
published in 1967. De Bono defines lateral thinking as m e t h o d s o f t h i n k i n g
c o n c e r n e d w i t h c h a n g i n g c o n c e p t s a n d p e r c e p t i o n . Lateral thinking is
about reasoning that is not immediately obvious and about ideas that may not be obtainable
by using only traditional step-by-step logic.

So, it is an unconventional approach to problem. It is like proposing to make a tired person

work more instead of rest to relieve him of his fatigue; Or, proposing to overfeed a fat
person to make him lose weight. Most of the time, the ideas appear bizarre in the
beginning. It goes in a radically different way.

Conventional Thinking Lateral Thinking

Think to prove / Choose something Think to generate / explore ideas
In search of answers In search of questions
Uses information in its meaning Uses information for effect
Seeks continuity in process Seeks discontinuity in process
Concentrates on relevant facts & things Does not consider anything as irrelevant
only
Close ended procedure Open ended process

W H O LE B R A I N T H I NK I NG
What is Whole Brain Thinking?
We all have known that human brain has two parts; Left part of the Brain and the right part.
Each part has its characteristics. Broadly, left part of the brain is analytical and logical
while right side of the brain is intuitive/creative/compassionate.

We all have preferred ways of thinking, some have very definite preferences, others a little
more „rounded‟ in the way they see the World. There are no „right‟ or „wrong‟ thinking
preferences – but there are most certainly implications; implications for our personal
success, confidence, and comfort at home, at work and for our future satisfaction.

The researchers have further divided the brain into four parts. Most of the people have one
or two parts of the brain more developed than others. Depending upon which part of the
brain is dominant, a person‟s thinking style varies. However, using only part of the brain
puts huge limitations while problem solving. If the whole brain can be used for problem

Page 21 of 52
solving, we will get much better solutions. Whole Brain Thinking is about stimulating other
parts of the brain for problem solving.

Following are the typical traits associated with each part of the brain –

Upper Left Upper Right

 Likes working with facts  Seeing the whole picture, not detail
 Deals with facts/issues in a precise and  Likes change & trying new things
exact way  Enjoys being busy with several things
 Looks at problems in a logical & at the same time
rational way  Has imagination
 Likes working with numbers  Does not readily accept “the only right
 Interested in technical aspects answer”, but looks for alternatives
 Performance is important  Enjoys a challenge and a risk
 Prefers to analyse facts  Can have a gut-feeling for new ideas
 Can rearrange ideas and put them
together into a new whole
(synthesising)
 Does not always do things in the same
way
 Likes to find a connection between the
present & the future
Lower Left Lower Right
 Prefers traditional thinking (the way I  Facts experienced in an emotional way
know how)  Sympathetic & intuitive towards people
 Likes facts to be organized and orderly  Likes interaction
 Likes to work with detail  Makes use of figurative language as
 Prefers a stable & reliable work well as non-verbal communication
environment (body language, facial expressions)
 Feels comfortable with procedure  Feels empathy towards others
 Prefers security & safety to risk risk-  Problem solving is often an emotional,
taking not a logical process
 Facts must be sequential &  Shows enthusiasm when he/she likes a
chronological new idea
 The task at hand is important – will
complete it on time
 Likes practical aspects

If you are a person with strongly developed upper left brain, your approach to solutions of
the problems will be logical. You are precise, will consider financial aspects, and not show
much emotion. Factual accuracy and the evaluation of facts are important to you.

The person with strong lower left brain would prefer to organize and keep track of essential
information. Projects are implemented on time and this person keeps a firm hand on
financial matters. Security is a priority.

Page 22 of 52
The person with strong lower right brain would have a „feel‟ for people and situations, be
able to read the body language of others and enjoy social interaction. His approach to
problems will have a bias towards human angle.

The person with strong upper right brain would tend to see the big picture rather then the
detail, recognize hidden possibilities, not always play according to the established rules and
act upon a gut-feeling rather than logic for problem solving. This person wants to do his or
her „own thing‟.

The interesting part of this is that we are all dominant in one or more of the four thinking
styles.

 60% of the population are dominant in any two styles

 30% in any three styles
 7% are single dominant
 3% are whole brained i.e. equally at home with all four styles.

There is no best profile. There are strengths of any profile just as there are challenges for
any profile.

An understanding of one‟s own thinking style is the first step to becoming a whole brained
person. It‟s an interesting, challenging and exciting journey.

S Y NE C TI C S
Synectics is a problem solving tool that stimulates thought processes which would
normally not occur to the person. This method, developed by William Gordon, has as its
central principle:

"Trust things that are alien, and alienate things that are trusted."

What it means simply is that don‟t take any thing for granted while seeking solution to your
problems. Don‟t limit yourself to your trusted old methods nor should you disregard an old
failed method. It is thus possible for new and surprising solutions to emerge. Its main tool
is analogy or metaphor.

Synectics is more demanding a process than brainstorming, since it involves many steps.

Procedure

1. Analyse and Define the Problem – Like, Team functioning getting affected due to
regular querelling by two members.
2. Start by Looking for Spontaneous Solutions – Like, terminate the services of the
troublesome members, or counsel them, or warn them.

Page 23 of 52
3. Reformulation of the Problem - Like, querrel between two groups of members
(please note that in this reformulation, blame has shifted equally between two groups rather than
two workers taking entire blame for querrel)
4. Create Direct Analogies – Like, Create situations that lead to clashes between two
groups.
5. Personal Analogies (Identification) – Like, put yourself in the shoes of those two
members and then analyse the situation.
6. Symbolic Analogies (Contradictions) – Look for contradictory approach. Could it
be that those two workers are right and others wrong? Could it be that others are
instigating these two workers to fight due to some hidden motive.
7. Analyse the Analogies – Once you have all possible analogies, analyse them. Leave
none as “Beyond Doubt”.
8. Development of Possible Solutions.

D E L PH I T E C H NI QU E
The Delphi technique is a method for obtaining forecasts from a panel of independent
experts over two or more rounds. Experts are asked to predict quantities. After each round,
an administrator provides an anonymous summary of the experts‟ forecasts and their
reasons for them. When experts‟ forecasts have changed little between rounds, the process
is stopped and the final round forecasts are combined by averaging. Delphi is based on
well-researched principles and provides forecasts that are more accurate than those from
unstructured groups.

The technique can be adapted for use in face-to-face meetings, and is then called mini-
Delphi or Estimate-Talk-Estimate (ETE). Delphi has been widely used in business.

Page 24 of 52
 VALUE ANALY SIS & VALUE ENGINEERING

Before we get down to Value Analysis and Value Engineering, let us once again see what
is Value.

Value‟s most simple definition is – “the perceived worth of the product by the buyer”.
Worth in turn can be defined as – “Benefits expected to be derived from the product”.
Worth depends upon the customer‟s requirement of that product at that moment. Therefore,
different people attach different value to the same product at the same time OR same
person attaches different value to the same product at different times based on its utility and
availability. A King, lost in desert for days, had offered half his kingdom for half a glass of
water. However, in business, the firm takes the Value that most people will attach most of
the time and sets a price that is below that perceived value to make it attractive for the
buyers.

Function or Performance
Mathematically, it is represented as: Value =
Cost

Different Types of Values

1. Economic value
2. Functional Value
3. Aesthetic value
4. Emotional value
5. Esteem Value
6. Social value
7. Religious value

Different values play different roles in different products. For basic utilitarian items, like
food items, washing detergent, etc, it is economic value which is most important. For
decorative items, like clothes, furniture, glass ware, decorative pieces, etc, it is aesthetic
value which commands more prices. For life style products, like designer watches, eye
wear, premium pens, jewellery, etc, it is Esteem value. Emotional Value is personal to
every individual. A letter or card or small memorabilia of negligible economic value from a
loved one holds far greater emotional value which could be hundreds and thousands time
greater than its economic value. Remember! How Lord Krishna valued puffed rice brought
by Sudama? Awards and medals carry social value which is rated much higher than their
other values. Some items carry religious value, like, Ganges water.

Page 25 of 52
Definitions

Value Analysis
“Value Analysis is an organized effort directed at analyzing the function of
systems, products, specifications, standards, practices, and procedures for the
purpose of satisfying the required needs at the lowest effective total cost of
ownership consistent with the requirements for performance, reliability, quality
and maintainability”.

Value Engineering
“An organized methodology that identifies and selects the lowest lifecycle cost
options in design, materials and processes that achieve the desired level of
performance, reliability and customer satisfaction”. It seeks to eliminate
unnecessary costs in the above areas and is often a joint effort with cross-
functional internal teams and relevant suppliers.

Birth of VA/VE Concept

During the 2nd World War, facing acute shortage of metals for war effort, US reserved
copper/brass & gun metal for armament industry. General Electric, one of the largest users
of these metals was in a fix. To overcome this problem, Lawrence D'Miles, a GE purchase
executive, identified substitutions for all the metals. Surprisingly, these substitutions
brought down the costs while maintaining the quality.

Difference between Value Analysis and Value Engineering

Value Analysis Value Engineering

Applies to an existing product Applies to the product at design stage
All factors involve in Value Analysis, Done by the product design team
like, workers, engineers, sales person, etc,
with their experience and knowledge
It may change the present stage of product Changes are made before product
or operation reaches the production stage.
It is achieved mostly with the help of It requires specific technical
general knowledge and experience knowledge.

Cost: Cost means total landed cost. Again cost is different for different people. For a
producer, cost means: labour + material + overheads. For a consumer, cost means: price
(producer‟s cost + profit) + Retailer‟s margin + taxes + handling charges + transport + …

Strategies for Increasing the Value of a Product

Performance Cost
Same  Decrease 
Enhance  Same 

Page 26 of 52
 Enhance  Decrease 
Very high enhancement  Marginal enhancement 

Method Strategy Examples

Decrease cost V =P / C - High tech/speed - Cassettes/colour
1 for same vol/recording m/c printers/digital wrist
performance - Lower versions watches/ calculators
Enhance V =P / C - Enhancing advt/ - TOI/ECO Times added
2 performance at product promo supplements
same cost revenues - CD with Chip
Magazine/ Cassette
with Filmfare/
Cosmetics with Femina
Decrease cost V =P / C - Better R&D - Pentium Computers
3 with increase in - Conversion cost performance increase
performance reduction with price reduction
- High tech CTV
- Auto cameras
Increase V =P / C - Increase revenue/ - Cold drinks -increased
4 performance MS vol at slight increase in
larger than price - reduce conversion/ price
increase other costs - Parle biscuits - double
pack at 1 1/2 price
- Toothpaste - 20% extra
+ brush at marginal
extra price
- Mineral water - 1 1/2 ltr
bottle at slight extra
cost

Functions & Their types

Meaning
Function is the characteristic of product which satisfies the need of the customer. Example:
to protect/cut/coat/sew/write/etc.

One product may have several functions. Mobile phone is the archetypical multifunctional
product. A joke listed nine functions of a mobile phone and then, as an after thought, added
– “It can be used to talk also”.

Categories
Functions can be broadly classified into following categories –

Page 27 of 52
1. Utility Function & Aesthetic Function – The primary purpose or reason for
existence of that product. Most clothes have utility function of keeping the body
comfortable and safe from elements of weather. Thus, this is the primary function.
However, they also perform the aesthetic function of improving the appearance of
the person. Similarly, curtains have high utility value of restricting the view and/or
ambient light into the room. Its other function is to improve aesthetics of the room.
Basic function must always exist though the method and means to achieve the same
may change.

2. Primary/Basic Function & Secondary Function – Secondary Function is a

function that supports the basic function and results from the specific design
approach to achieve the basic function. As methods or design approaches to achieve
the basic function are changed, secondary functions may also change. There are
four kinds of secondary functions:

(a) Required - A secondary function that is essential to support the performance

of the basic function under the current design approach. Eg. Lighting up a
match to light up a cigarette. But the flame can also be used as a light source
for view. Thus, heat generation is primary function of a match which is
supported by flame. But light generation is secondary function which is
integral part of heat generation through flame.

(b) Aesthetic - A secondary function improving the appearance. Goggles worn

to protect eyes from harsh light also improve appearance.

(c) Unwanted - A negative function caused by the method used to achieve the
basic function such as, the smoke produced from fire lighted up to cook, or,
sound of a car engine.

(d) Sell - A function that provides primarily esteem value. Like, Mercedes car,
besides performing the basic function of comfortable and safe travel mode,
is also a status symbol in the society. For marketing studies, it may be the
basic function.

While for shoes, Primary/basic function is to protect the feet and secondary function
is to improve appearance, for belt it is just the opposite. Though, the stated primary
purpose of belt is to keep the pant in place, it is worn more for appearance sake and
less for keeping the pant in place. In any VA/VE exercise, Basic function has to be
satisfied. It is secondary function which can be sacrificed, if required.

3. Higher Order Function & Lower Order Function – The basic function of a
product is achieved through a process. A process in turn is a series of actions each
performing a small function. Thus, the basic function is a collection of small
functions linked in particular order. Take the case of a torch. Why is a torch carried?
To give light. So, basic function of torch is to give light. How does the torch give
the light? By lighting up the bulb. How is the bulb lighted? By pressing the on-off
switch. How does the switch light up the bulb? By passing the current from battery

Page 28 of 52
 to the bulb. And so on….. The question which is answered by the Why is the
Highest Order function. Each of the function thereafter, which is answered by
question How, like pressing the switch, passing the current to the through Basic
function of a torch is a progressively Lower Order function.

Identify the basic function & secondary function of the following products & also
explain how they are satisfied or sacrificed.

1. 300 ml Pepsi bottles –

Basic Function - To act as container to hold the soft drink.

Secondary Function – (i) To facilitate easy grip while drinking soft drink.
(ii) To act as dispenser for specific amount of soft drink.

Sacrifice – When large containers are used, like 2 litre bottles, the first secondary
function is sacrificed. They are no more easy to grip while drinking.

2. 500 ml Milk Bottles –

Basic Function – To act as container for dispensation of fixed quantity of milk.

Secondary Function – Safeguard adulteration

Sacrifice – When plastic pouches are used, basic function is served but secondary
function of safeguarding against adulteration is compromised. Pouches are known
to be easy target for adulteration.

Application of VE
Value Engineering is technique that is also applied to existing products in following
situations –

(a) Saturated / decline stage of Product Life Cycle

(b) Stiff competition faced by product on price / utility / aesthetic front

(c) Facilitate brand extension / launch / improved product

Principle
(a) Eliminate everything that is not value adding
(b) Applied to product / processes / systems / services
(c) Enrich product performance at lower cost

Job Plan for VA/VE

Various steps of Job Plan for VA

Page 29 of 52
1. Orientation Phase

(a) Train the managers / supervisors - Exposure to VA/VE/ABC/Pareto analysis

(b) Select product for analysis/study
(c) Form teams – Heads of design, marketing, finance, production, etc.

2. Info Phase – Collect/tabulate data about

(a) Functions/process/time requirement, and

(b) Cost of process/material /component/etc

3. Function Phase – Construct a FAST diagram (comes for short note)

“Function Analysis Systems Technique”

(a) List all parts / components of product
(b) List all basic function of each part
(c) Probe every basic function by why & how
(d) Put cost of each part (make FAST cost diag)

4. Creative Phase – Brain storming sessions (success of project depends on this phase)

(a) Suggest alternative means to do same function at lesser cost

(b) List all alternatives
(c) Check possibility to eliminate / modify / combine / consolidate component
(d) Repeat brain storming for diverse alternatives

5. Evaluation Phase

(a) Evaluate each alternative in terms of -

(i) Performs all the basic function
(ii) Meets all requirements
(iii) Reduces cost to effect saving
(b) Short list all the alternatives which stand the test.

6. Recommendation Phase

(a) Design change suggested

(b) Reason for the change
(c) Additional expenditure (for dies/advt exp)
(d) Savings (cost of parts/processes etc.)

Page 30 of 52
 Recommendations accepted by CEO

7. Implementation Phase

(a) List – design modifications, fabrication of die, new Advt campaign, Trial
production run.
(b) Work time span / activity schedules
(c) Prepare PERT chart
(d) Allocate responsibilities
(e) Monitor progress / take action

8. Audit & Follow up Phase

(a) Note actual progress

(b) Compare with plan
(c) Take corrective action if required

THE “FAST” MODEL

Charles Bytheway extended Mile's Function Analysis concepts and introduced the
methodology called Function Analysis Systems Technique (FAST) in 1965. FAST uses
intuitive logic to decompose a high level, or objective function into secondary and lower
level functions that are displayed in a logic diagram called a FAST model.

The FAST Methodology

In the Value Engineering methodology, Function Analysis is performed by an
interdisciplinary team in a workshop setting. A Value Engineering workshop follows a
structured six step job plan. Function Analysis is central to this methodology. In fact, if
Function Analysis is not performed, the workshop can not be called a Value Engineering
workshop. In the classical method of Function Analysis developed by Larry Miles, only
two words were allowed to describe each function, an active verb and measurable noun.
For example, the function of a light bulb would be to "illuminate area", and not, "light
room." The importance of using an active verb and a measurable noun can not be
emphasized enough. Later in the function analysis phase, values are assigned to these
functions. These values can be dollars, weight, or any other pertinent value. These values
are then used to evaluate the functions in terms of their importance, or value to the overall
system. The FAST modelling process starts with the facilitator asking several probing
questions designed to identify the scope of the model, its objective function, and basic
function, or basic functions. Three main questions that are asked are:

1. What is the problem, or opportunity we are here to discuss?

Page 31 of 52
2. Why is this a problem; or opportunity?
3. Why is a solution necessary?

These questions are designed to identify the mission of the system while bounding the
scope of the problem, or opportunity. By stating the mission of the system as a problem, or
opportunity helps the team specify what the system is to accomplish. The basic structure of
a FAST model looks somewhat similar to a process flow chart. However, there are some
very significant differences. First, the blocks represent functions, and not process steps.
The FAST model is a logic diagram, and not time oriented. There are several methods used
to identify and decompose functions to start the model. One common method is to
randomly "brainstorm" functions by starting with the objective or mission of the system
and brainstorming how it might be accomplished. Once a function is identified, the process
is repeated until all possible ways are exhausted. Then, some of the identified functions
become topics for the brainstorming and the process is repeated.

Page 32 of 52
 LEARNING CURVE AND ITS APPLICATIONS

When you do a job for the first time, it takes much longer than it takes the second time.
After you have done it a few times, the time taken reduces significantly. When you do it for
the first time, you are not sure about the procedures, so you are tentative. You make
mistakes and therefore have to redo a few things. You may even need to refer the manual
or ask some one for the help. Your body movements are not so well synchronised and
therefore slow. But as you keep doing the same job repetitively, you know the processes by
heart, you have learned the key elements, and your limbs have fallen into a practiced
movement. And you do the job in a carefree and nonchalant manner. As more and more
experience is gained, you become faster and faster. This is called learning process. When
this process is plotted on a graph of Practice Vs Time, we get a curve which is called
learning curve.

The other names given to learning

curve are experience curve,
improvement curve or progress curve.
Time Taken

This learning effect is not infinite. It

is highest during the initial phase and
tapers off over the time and stabilises
as the limits of learning are reached.
Studies have indicated that the
Practice or Experience reduction in time taken to complete
the job is at a fixed percentage rate.
Learning Curve
Each time the experience is doubled, the time required to do the job is reduced by a fixed
percentage of average time taken at the previous experience level (please note that it is
percentage of time taken at the previous experience level and not the last job. And time for
each successive job is reducing. So, while percentage reduction is constant, net reduction in
time is tapering off).

The reduced average time taken in percentage terms when experience is doubled is called
learning rate. So, if first piece takes 20 hrs and second piece takes 12 hrs, total time taken
for manufacturing two pieces is 32 Hrs. Average time per piece taken for first two pieces is
32/2 = 16 Hrs which is 80% of the time taken for the first piece. So, learning rate is 80%. In
other words, at 80% learning rate, if the first car assembly requires 100 direct labour hours,
average time per car required for assembly of two cars would be 0.8x100 = 80 labour
hours. Average time per car for assembly of four cars would be
0.8 x 80 = 64 labour hours, and for 8 it would be 0.8 x 64 = 51.2 labour hours and so on.

Hundred minus the percentage reduction is known as the learning rate. The learning rate in
the present example is 100 - 20 = 80% or 0.8.

Page 33 of 52
The learning curve concept has found many useful applications in managerial decisions in
the areas of marketing, new product start-up, bidding for tenders and make-or-busy
decisions.

The rate at which learning occurs is influenced by many factors including the relative
unfamiliarity of workers with the task, the relative novelty and uniqueness of the job, the
complexity of the process, the impact of incentive plans, supervision etc.

The factors that result in reduction of time are not all about labour efficiency. A variety of
factors are responsible for bringing about a reduction in time of manufacturing –

1. Labour Efficiency - Human beings have the capacity to learn to do a job faster and
more accurately by repeatedly doing the same job. Further, with repetitive
experience, maintenance and supervisory activities also become more effective.

2. New Processes and Improved Methods - In the light of the experience gained
progressively, improvements are made in the production processes, methods, or
operations by technical and industrial engineering studies. Better tooling methods
are developed and used. This will reduce time, labour and material cost.

3. Product Redesign - The design of product is improved to make the production

processes faster. Needless and costly design feature are eliminated by value
analysis.

4. Product Standardization - Take an example of design of a machine where design

engineer has specified 10 different sizes of screws with minor variation in sizes and
different kind of heads, Hexagonal, Slotted, Star, Allen Key, etc, as per the best
engineering practices. A little value analysis revealed that cost of all screws is
almost same and there is no weight consideration in the machine. It was decided to
use a single type of screw (with highest strength) at all the places. This decision
saved lot of efforts for the worker who earlier needed to reach out to 10 different
boxes to pick the right screws and wasted time in fiddling with tools to pick right
kind of screw driver. Even if it is not possible to use a single type of screw, the
heads of all screws can be modified so that a single screw driver can fix all of them.
Over repetitive experience, reduction can be brought about in changeover and set-
ups times.

5. Scale Effects – As volumes of activity increase, benefits of scale effects are taken.
Production processes are modified, like use of assembly lines or dedicating
machines for each job thereby eliminating requirement for changing tools or setups,
which reduces the time drastically.

Learning curve is not just about reducing the production time. It also affects the cost of
production. Learning curves reduces the direct labour hrs and therefore increases
production out of same fixed set up. Thus, there is reduction in the fixed cost element of
products. In addition, learning effect also affects material usages in terms of quantity and
even type. Due to better skills, processes, methods, materials, etc, rejections, rework and
wastages are also considerably reduced though there is no co-relation between such

Page 34 of 52
reduction and the experience, as is the case with time and experience.

Various costs are subject to inflationary pressures. During calculations, use of actual costs
may give distorted picture as reduction in direct labour may not get reflected due to hike in
wage rate (salaries of workers). Hence, in any study of learning curve effect, direct
measurements of some physical unit (such as labour hours, machine-hours) should be used
instead of the rupee value costs.

Applications
Learning curve finds application in labour intensive situations. Higher the labour element,
and more complex the job, higher the prospect of saving through learning effect.
Automated processes have limited scope for cost reduction through learning effect since
machines don‟t learn.

The conditions conducive to learning are present in the electronics, home appliances,
construction, ship building, machine shop areas and even service industry. On the other
hand, the industries which are capital intensive such as petroleum refining would find the
learning curve of little value. In case of service industry, say a General Store, the salesman
keeps memorising location of the items and their prices. He also keeps making adjustments
in storage to keep the frequently sold items closer to him and therefore serves the customer
faster and better as he gains experience.

Learning curve knowledge can be used for following purposes –

1. Pricing – Since learning curve permits better cost predictions, it can be used for
initial pricing of a product. Without knowledge of this phenomenon, initial cost of
product could be too prohibitive to be able to penetrate the market. Knowing that
labour and few other cost would stabilise at much lower level than at the beginning,
company can decide to take in little losses in the launch period.

An extension of the use of learning curves for pricing decisions is in buying from a
supplier. Sometimes supplier will experience high initial outlays resulting from the
fact that the he is at the early stages of the learning curve relative to the job. A
purchasing firm may agree to pay a higher price initially if the supplier agrees to
lower the price subsequently.

2. Work Scheduling – Learning curves increase a firm‟s ability to predict their

required labour input and make it possible to forecast labour needs. These in turn
permit the firm to do a better job of scheduling maintenance and overhead activities
like, quality control, material purchasing and product promotion. Better forecasting
and scheduling result in lower costs through better cost control and improved
customer relations.

3. Capital Budgeting – One of the most important aspects in capital budgeting

decisions is cash flows. The learning effect suggests that unit costs are likely to be
high but taper off gradually. This is in contrast to the steady state, constant unit
costs usually assumed in capital budgeting analysis. Further more, the learning

Page 35 of 52
 curve permits improved estimates of production levels and thus has implications for
cash flows. These modifications can be particularly important where the project
startup period is large relative to the life of the project.

4. Motivation – Costs are often controlled using standards and variances from
standards. If these standards are set in comparison with other industry, without
regard to the learning phenomenon, highly unfavourable initial variances may occur
with resultant motivational impact. An efficient production manager during the
initial period may be fired for his inability to meet the standard labour cost and his
less competent replacement may earn undeserved recognition and promotion when
labour efficiency shoots up due to learning curve phenomenon. Similarly, if
incentive schemes are designed based on initial data, labour would be unduly
benefited at the cost of the company.

5. External Reporting – Learning influences profits through its effects on cost and
output.

Assume a situation where profit margins on a labour intensive product are thin and
losses are expected in the beginning due to high labour costs. However, it is known
that labour costs will come down in due course due to learning curve effect and
thereafter product will have decent profit margin to cover initial losses also. If
financial reports are to be an effective aid in decision making, some attempt should
be made to separate non recoverable losses from costs that are incurred as part of
the learning process and capitalise them. Where there is good reason to believe that
learning will take place, it is appropriate to capitalize some or all of a firm‟s early
losses as assets rather than mislead investors into believing that the financial
situation is unfavorable.

Limitations of Learning Curve Theory

1. All activities of a firm are not subject to learning effect. Following types of
activities are subject to learning effect –

(a) Those, that have not been performed in this present operational mode.

(b) Those which are being performed by new workmen, new employees or
others not familiar with the particular activity. In contrast, activities being
performed by experienced workmen, who are thoroughly familiar with those
activities will not be subject to learning effect.

(c) Those involving utilization of material not used by firm so far.

2. It is correct that learning effect does take place and average time taken is likely to
reduce. But in practice it is highly unlikely that there will be a regular consistent
rate of decease, as explained earlier. Therefore, any cost predictions based on
conventional learning curves should be viewed with caution.

3. Considerable difficulty arises in obtaining valid data that will form basis for

Page 36 of 52
 computation of learning effect.

4. Even slight change in circumstances quickly renders the learning curve obsolete.
While the regularity of conventional learning curves can be questioned, it would be
wrong to ignore learning effect altogether in predicting future cost for decision
purposes.

Learning Curve Model

The cost behaviour under a learning curve effect may be expressed as a mathematical
model given under

Y = a X –b …(1)

where

Y = Average direct labour hours per unit

a = Direct labour hours for the first unit (or batch)
X = Cumulative number of units produced to date
b = A constant called index of learning rate (0 < b < 1)

Page 37 of 52
 STATISTICAL QUALITY CONTROL
(Use o f Co ntrol Charts)

Let us start with defining what is product quality. As stated earlier, according to
Juran, the father of TQM concept, it is fitness for use. Going into a little more detail,
quality is meeting the customer‟s needs and expectation. And here is a classical example
how the customers view quality.
A company produces screw drivers. Company has designed the product to turn screws. But there are
any numbers of customers who use screw drivers for variety of purposes that company never intended the
screw drivers to be used for. Eg, chisel, lever, scraper, etc. Now, the extra punishment that the screw driver
goes through in the above extra functions might lead to bend in the shaft or damage to handle or head. The
customer will perceive it to be of bad quality even though it would have never got damaged had it not been
for such extra applications.
Thus, quality is customer driven. If I know that customer is also going to use my product
for purposes other than it is intended for, I might as well design the product to meet those
needs of the customer.

Dimensions of Quality
1. Performance – Does it do what it is supposed to do? Does the screw driver turn the
screw with ease?
2. Range and Type of Features – What extra features does it carry? What other needs
of the customer can it satisfy? Can it be used as lever and chisel?
3. Durability and Reliability – How long and with what surety will it continue to
perform satisfactorily?
4. Maintainability and Serviceability – The frequency, expense and difficulty of
actions to keep the product in satisfactory working condition.
5. Sensory Characteristics – Pertains to appearance and feel. For some products,
appearance, feel, smell, taste or sound may determine the quality. For clothes, their
feel and look are more important aspects of quality than other characteristics.

Control Charts
Control Charts work through random sampling method. Measurements obtained from some
randomly picked samples are plotted on a simple chart where X axis represents the sample
number and Y axis the measurement.
These control charts act as advance warning about a process getting out of control before it
actually starts producing defective pieces. In lot of cases, it also indicates the source of
defect.
Processes can be out of control in two different ways. One – The average value of product
is more or less than target; Two – Even though the average value of targets is within limits,

Page 38 of 52
individual values are alternating between high and low both of which are beyond
acceptable limits. There are three popular control charts to reveal these problems –
 The X Charts (pronounced X Bar Charts)
 The R Charts, and
 The  Charts.
1. The X Charts – Plotted by Sample Mean. It indicates deviation of average/mean
value from standard/target value. If you have a group of values as 10, 12, 9 , 8 and
11, mean value or X is (10+12+9+8+11)/5 = 10.
How is it useful in process/quality control - Eg. you are packing food packets for
distribution as charity. You have been given 250 Kg of Biryani and asked to make
1000 packets of 250 grams each. Here, even a 25-30 gm variation (from mean value
of 250 gms) in quantities in each packet is immaterial. But you should not be
running short or left with excess in the end. So, you pick up some packets as
samples and weigh them. If their average weight is 250 gms your process is under
control.
2. The R Charts – These are Range charts. These Charts highlight magnitude of
process variation. How much is the variation between minimum and maximum
value in a group of samples. If you have a group of values as 10, 12, 9 , 8 and 11,
minimum value is 8 and maximum value is 12. So, Range is 12 – 8 = 4.
How is it useful in process/quality control – In the Biryani example given above, if
it was not for charity, a variation of  25 gms would be unacceptable. Suppose, you
were packing them for sale in the shop. You would like your packets to be within 5
gms of mean value. Here X chart would be ineffective. So, you plot an R Chart.
This will show the process accuracy.
3.  Charts – These charts are constructed both for X as well as R charts. They
indicate the confidence level that a process is within control. What is the probability
of defect occurring in the process?

Page 39 of 52
 QUALITY CIRCLES (QC)

Evolution
May 1962 – First QC launched by Dr. Ishikawa in Japan

1982 – Launched in India by Mr D R Udpa (BHEL)

Concept
QC is a small voluntary group of employees (ideally 8 to 10) from the same work area OR
doing similar type of work which meets regularly (normally one hour every week) to
identify, analyze and solve work related problems, leading to improvement in total
performance and enrichment of work life. They don‟t get any monetary incentives but are
applauded in various public forums.

“One who wears the shoe knows best where it pinches”. A worker knows his job, problems
and even solutions to those problems, better than most consultants. Only, no one asks him
or worse still, listens to him. Many successful productivity consultants have been known to
rely on workers for solution of the nagging problems of the company that has hired them at
considerable cost. A quality circle tries to bring out workers‟ knowledge and participation
in solving problems that they know best.

In Japanese culture, there is very strong bond between Employer and Employees (Neither do
the employers fire the employees nor do the employees quit the jobs. In most cases, it is one life one job
concept there). People are workaholics. Productivity is a national passion. Quality Circles
give them an avenue to improve productivity of company and profits. It is a way to show
their loyalty to their company. This is a concept where investment is minimal and gains to
company are huge. But gains to individual, other than sense of achievement, are minimum
and intangible. This is one reason that this concept did not succeed in many countries.
Getting employees‟ (workers as well as managers) loyalty for this programme without any
tangible benefits has been the main problem. Other reason has been lack of faith of top
management in this concept. Yet other reason is management‟s impatience. Some
managements wanted quick fix solutions which this concept does not give.

Quality Circles Vs Quality Improvement

Quality Circle is a misnomer. Fact is that Quality Circles have almost nothing to do with
Quality. Hardly ever does a Quality Circle team attempt to improve quality. Quality circles
identify various problems being faced in their domain of work and attempt to solve them.
They find better methods and processes of doing work. Thus, productivity improves. It is
essentially a productivity improvement tool and not quality improvement tool. Some times
the problem is of poor quality, and that is the only time when quality issue is purposely
addressed.

Page 40 of 52
Purpose
(a) To promote grass root involvement/participation of workers in company‟s
affairs.
(b) Promote creative thinking for improving work process/product quality/
reliability/safety/cost reduction /relationship/work culture in the company.
(c) To draw upon workers‟ knowledge and creativity in solving the work related
problems rather than depend upon external consultants.
(d) Enormous value addition/prosperity for the organisation/employees

Basic Framework
(a) Membership - Strictly Voluntary
(b) Composition - Member from same work area but varied disciplines
(c) Size - Min 5 - Max 10
(d) Frequency of meeting - once a week
(e) Venue of Meeting - conducted within working area – Study problem from
all angles

Benefits for Organization

As stated earlier, organisation is the main beneficiary of this programme.

Primary Benefits –

(a) Enhancement of productivity & reliability of the products / services

(b) Reduces wastage / material content

Secondary (Intangible Benefits)

(a) High employee motivation at negligible cost

(b) Teamwork culture development
(c) Self developed organization structure – better superior-subordinate
relationships
(d) Healthy Industrial relations

Benefits for Individuals

There are no tangible benefits for employees. Intangible benefits are –

(a) Enhancement of 3Cs - Confidence, Creativity and Capability

(b) Opportunity to learn new techniques to identify and solve problems

Page 41 of 52
 (c) Job Satisfaction: Problem solving capability
(d) Learn prevention of problems
(e) Safety awareness
(f) Better / improved interpersonal relationships
(g) Develop leadership skills

Working Process and Expected results

Problems Identification by (Optional) Mission suggestions from the

members Management

Problem Selection

Problem Analysis Specialists‟ help (Design,

(Optional) Maintenance OR R&D

Solution recommendation Presentation to Management

Implementation of approved Solution review and benefit

solution analysis

Various Layers and Functions

Elements Functions Need to train for

Non-Members  Involve / Support implementation  Co-operation
 Team Work
Members  Participate in problem solving, data  Problem analysis techniques
(Basic Structure gathering / record keeping.  Team work
Element)
 Ensure highest levels of performance
Leader  Conduct the meetings.  Leadership
(Chosen by the  Register problems and solutions.  Goal Setting
members or
appointed by  Set goals and performance standards  Group techniques
rotation)  Make the action plan application
 Maintain team cohesiveness  Communication Skills

Page 42 of 52
  Encourages non-members to join  Conduct meetings
Facilitator  Attend/guide meetings/proceedings  Improving leadership skills
Senior official  Co-ordinates with training officer /  Catalyzing circles‟ activities
in the steering committee  Promote participation
department  Obtain support from other areas  Simple techniques of
 Ensures circles‟ record keeping problem solving
 Encourages generation of new ideas  Identifying pitfalls & risks
Co-coordinator  Registers circles in the unit  Excellent inter-personal
Unit / Works  Nominates coordinators relations
Chief  Attends presentations and steering
committee meetings
 Publishes newsletter
 Provides policy resources
Steering  Provide Annual budgets
Committee  Encourage healthy competition
CEO/Div Heads  Provide guidance
Top  Include QC as mission / Objective
Management  Attend presentations
CEO / Profit  Verify implementation
Center Manager  Review progress periodically

S E VE N TO O LS F OR Q UA LI TY C I R C LE S

1. Stratification 3. Check Sheet 5. Histogram 7. Control Charts

Tally Table

2. Fish Bone / Cause

& Effect / 4. Pareto 6. Scatter
Ishikawa diagram Analysis Diagram

1. Stratification

 What we see as problems are actually the symptoms (effects) of the

problems. Root cause lies somewhere else. Often, there could be more than
one cause having same symptoms and what we experience is the combined
effect of all the causes.

 Thus, there is a need to identify the root causes and their individual effects

Page 43 of 52
 on performance. This process is called stratification.

 Need skills and expertise to do stratification.

Eg. Problem: Low output on a day

Causes: 1st shift - Machine breakdown, 2nd shift - Powercut, 3rd shift - Raw
materials shortage. Conclusion: Problem is same but reasons are different

2. Cause & Effect diagram (Fishbone or Ishikawa Diagram)

It is an investigative tool. Rearrange possible causes of the problem. All the

possible causes are identified by brain storming method. Segregate into 4 Ms; Men,
Machine, Method & Material.

Men Machine
Subcauses Subcauses

Method Material
Subcauses Subcauses

Advantages
(a) Good starting point for diagnosis
(b) Ensures no cause has been missed out
(c) Must be prepared by experts

3. Tally Table/Check list.

All possible causes of problem (symptom) are listed and each time the problem
occurs, tally line is increased against the particular cause by one. Thus, we get the
frequency of each cause.

Eg. A machine drawing a very delicate copper wire is experiencing repeated

breaking of wire. We draw the tally table as follows -

Cause Tally Marks Frequency Remarks

Broken Pin IIII II 7 (2)
Blink III 3 (0)
Loose Contacts IIII IIII II 10 (2)
No Power II 2
24

4. Pareto Analysis

Page 44 of 52
 It is an 80/20 analysis and the principle says, 80% of total effect is generated by
20% of the causes. Example: 80% revenue is generated by 20% products. 80% of
total stock or inventory value is built up by 20% of items. Pareto diagram is built up
to identify vital 20 which are the causes/effects of 80% of total problems.

5. Histogram

A graphical representation of the frequency distribution. The range of the variable is

divided into class intervals for which the frequency of occurrence is represented by
a rectangular column. The height of the column is proportional to the frequency of
observations within the interval. It is quite similar to Bar Graph. But in this case the
vertical bars touch the bars on their sides and not spaced out like in case of Bar
Graph.

It is the method of representation for Pareto Analysis. This is useful to locate the
concentration of gravity.

6. Scatter Diagram

It tries to establish relationship between any two parameters or variables. One

variable or parameter is plotted on X axis and second on Y axis. It shows whether
the relationship exists between 2 variables which is (a) directly proportional (b)
Inversely proportional (c) There is no co-relation between them. If the relationship
between variables is directly or inversely proportional, the block at either end can
be selected for corrective action.

7. Control Charts

+2 Upper Control Line

0 Control Line

-2 Lower Control Line

Control Charts are used to investigate whether the manufacturing process is in

stable condition or not and is used to maintain the process within the tolerance
(acceptable variance). If the tolerance is crossed (-ve or +ve) control charts try to

Page 45 of 52
 assign the reason of variance either to (a) Machine and tool (b) Process Capability.
This technique helps in taking the right decision for selection of the machine with
higher processing capabilities (lower variances)

Steps in Organizing and Planning of a Circle

Setting of Objectives –
Company‟s vision and mission statement.

 Setting up of objectives/formulation of strategies data analysis.

 Set goals of each department division in line with firms overall direction
 Short time objectives developed logically

Financial Implications

 Determine financial implications of the plan.

 Evaluation of investment
 Choose plan if end results are tuned to cost

Review and Approval

 Review and approval should be ongoing throughout process,

 Plans presented to CEO & Senior Mgmt,
 Management/Quality council informed,
 Provide guidance throughout plan development
 Draft reviewed by other part of the organization

Launching of Quality Circle

Management determination. - Management shall commit itself to company wide quality
control or total quality control involving development of management attitudes/practices
towards defect free operation.

Steps in Launching QC
(b) Exposure to middle level executives, conducive climate to start QC
(c) Exposure to employees, invite member volunteers
(d) Nominate facilitators for area senior officers
(e) Form steering committee, CEO as a chairman and departmental head as
members
(f) Formal inauguration of QC, Launch in one department

Page 46 of 52
(g) Facilitators fix meetings, Hour a week for QC members
(h) Support with facilities for circle meeting
(i) Extend concept to other departments

Page 47 of 52
 TQM

Definition
Total Quality Management is defined as an integrated approach in delighting the customer
(both internal and external) by meeting their expectations on a continuous basis, through
every one involved with the organisation working on continuous improvement along with
proper problem solving methodology.

Total Quality Management (TQM) is a management strategy aimed at embedding

awareness of quality in not only all organizational processes but even up and down the
value chain. TQM encompasses even suppliers, stockists and retailers (all except the end
user). It has been widely used in manufacturing, education, government, and service
industries, as well as NASA space and science programs.

Total Quality provides an umbrella under which everyone in the organization can strive and
create customer satisfaction.

TQM was born when American companies came under pressure from Japanese
manufacturers who were offering better products at lower prices. They then studied the
Japanese production practices and compiled them under the name TQM.
TQ is a people focused management system that aims at continual increase in customer
satisfaction at continually lower real costs.

Two Americans are considered to be the fathers of TQM; Deming and Juran. Deming came
out with a 14 point programme for TQM. These are –

1. Create constancy of purpose to improve products and service. (C)

2. Adopt the new philosophy of quality. We can no longer accept delays, mistakes,
defective materials and poor workmanship. (N)
3. Cease dependence on mass inspection. Instead require quality that is built in.
Prevent defects rather than detect them. (I)
4. Buy components based on quality as well as price. Eliminate suppliers whose
quality is not acceptable. (C)
5. Search for problems and continually improve the production system. (P)
6. Institute and improve training; teach workers to do the job right. (T)
7. Institute leadership so that supervisors help workers improve rather than simply
ordering and punishing workers. (S)
8. Drive out fear so that every one may work effectively for the company. (F)
9. Breakdown barriers between departments so that people in different departments
will work as a team. (B)
10. Eliminate numerical goals, posters and slogans which ask for new levels of

Page 48 of 52
 productivity without providing improved methods. (E)
11. Eliminate work standards based on numerical quotas. (Q)
12. Remove barriers that stand between workers and their pride of workmanship. (P)
13. Institute a vigorous program of education and retraining. (R)
14. Top management must take action to institute the new program. (M)

Quality Triology
Juran characterised his quality program as a quality triology made up of Quality Planning,
Quality Monitoring and Control, and Quality Improvement.

The Principles of TQM

TQM is based on following principles –

1. Quality should be customer focussed and evaluated using customer based standards
– A product is not good and service is not prompt and courteous unless customer
says they are.
2. Primary responsibility for product quality rests with top management.
3. Every employee is responsible for achieving good product quality.
4. The production process and work methods must be designed consciously to achieve
quality conformance.
5. Quality can not be inspected into a product. So, make it right the first time and
every time
6. Quality must be monitored to identify problems quickly and correct quality
problems immediately.
7. The organisation must strive for continuous improvement.
8. Companies must work with and extend TQM programs to their suppliers to ensure
quality inputs.

Page 49 of 52
 J UST IN TIME

Time is money. Save the time and save the money.

It is as simple as that. This is the principal on which “Just in Time” concept functions.

The first fundamental of improvement in productivity is to cut out the wastes where ever
they may be. This waste could be any thing; material waste, labour waste, process waste,
and so on. Just in Time focuses on eliminating or reducing the time waste imbedded in the
process; from procurement of material to the delivery to customer.

As Per APICS (Association for Operations Management) dictionary, Just-in-time (JIT) is

defined as “a philosophy of manufacturing based on planned elimination of all waste and
on continuous improvement of productivity”. It also has been described as an approach
with the objective of producing the right part in the right place at the right time (in other
words, “just in time”). Waste results from any activity that adds cost without adding value,
such as the unnecessary moving of materials, the accumulation of excess inventory, or the
use of faulty production methods that create products requiring subsequent rework. JIT
(also known as lean production or stockless production) should improve profits and return
on investment by reducing inventory levels (increasing the inventory turnover rate),
reducing variability, improving product quality, reducing production and delivery lead
times, and reducing other costs (such as those associated with machine setup and
equipment breakdown). In a JIT system, underutilized (excess) capacity is used instead of
buffer inventories to hedge against problems that may arise.

Any process is a set of activities. Some activities add value to the product and some are non
value adding activities. (When we talk of value, we talk from customer’s perspective). Take for
instance, the stationery issue procedure in your office. The stationery is purchased
centrally, received, accounted, stored, issued and re-accounted by personnel of stores
department. The overheads that are involved in the entire process are huge; cost of ordering
and processing costs, manpower costs, finance cost, inventory management costs, wastages
and so on. Have all these processes added any value to stationery that you get? It is
precisely the same stationery that was supplied. (There could possibly be deterioration in quality
due to long storage). So, entire stationery supply procedure is a non value adding process.
Then why is this process in vogue in almost every company? Stationery inventory and for
that matter every inventory is maintained to ensure that item is available whenever it is
required. There is no stock out at critical moments.

Just in time hits at the root of these non value adding activities because each non value
adding activity adds to the process time and cost. It is a concept that hits at wastages
accrued due to time factor.

What exactly does JIT mean?

Many people mistake JIT for Zero Inventory Concept. It is a fallacy. JIT is much more than

Page 50 of 52
Zero Inventory. JIT is about minimising the cycle time from procurement of raw material
to delivery to customer. It is an effort to bring down the cycle time to the level of process
time. Many companies have been able to reduce the cycle time by up to 90% by use of JIT

Though it is true that this is a concept whose most visible face is production scheduling and
inventory management where by products are produced only to meet actual demand and
raw materials are received or produced for each stage of production “just in time” to fulfil
the requirement, yet it goes much farther than just the inventory management. What has
been described above is only one part of philosophy of JIT called Little JIT.

In addition, there is Big JIT which is a much more holistic approach to production system
and encompasses many more organisational and operational improvements. It is also called
lean production system. It covers much larger canvas of production activities such as time
wasted in huge set up time, die exchange, unnecessary moving of materials, use of faulty
production methods that create products requiring subsequent rework, time wasted due to
machine breakdowns, etc.

But it is easier said than done. Unfortunately, there are too many variables seemingly
beyond control of managers to implement JIT so easily. What does a manager do about
variations in demand? What can the poor guy do about erratic suppliers whose delivery
time keeps varying like the direction of a housefly? What does he do about machine
breakdowns? What does he do about absenteeism of employees and unscheduled power
cuts? What does he do about the huge set up time that requires certain minimum EOQ
production? And there is absolutely nothing that he can do about interruption in supplies
due to political parties calling Bandhs because they did not like Aamir Khan‟s statement.
And this is just the tip of iceberg. There are many more challenges to overcome for
implementing JIT.

All these conditions look so daunting that the manager would prefer to forget about JIT.
But the fact is that, notwithstanding all the above, JIT can still be applied and has been
successfully applied by large number of companies around the world. Companies have
been able to find solutions to these daunting challenges. And when these problems are
cleared, it is realised that there is lot of inefficiency hidden behind these covers.

Most of these seemingly impossible situations do have a solution if you really look for
them. JIT is about looking for those solutions rather than keeping lot of inventories as an
insurance against all the above uncontrollable variables. For example, erratic/interruption
in supply time is solved by treating your suppliers like your partners in business and having
them locate their plants close to your plant. Problem of large batch size is solved by
employing Single Minute Die Exchange (SMDE) methods. Absenteeism of employees is
solved by sound HR policies. (If you act opportunist with them, they will be no less opportunist).

In order to implement the big JIT, it is necessary that a lot of systems in the company are
straightened out. Various methods were used to straighten out the problems.

Page 51 of 52
Poka Yoke
Poka in Japanese means inadvertent and Yoke means to Avoid. Thus, Poka Yoke means to
avoid inadvertent errors. How it works? Poka Yoke is about designing the part or procedure
in such a way that error becomes impossible. Take for instance cars with catalytic
converters. Catalytic converters get damaged if leaded petrol is used in those cars. How do
we ensure that Leaded Petrol is not filled in such cars even by mistake? The car companies
reduced the size of filling hole of car fuel tank and petrol companies reduced the size of
fuel dispensing nozzle to match the size. Now, the leaded petrol dispensing thick nozzle
will not enter into catalytic converter fitted cars‟ tank inlet. In computers, you just can not
fit a plug into the wrong socket even deliberately.

Kanban
Kanban in Japanese means a Card. It is an order card. Whenever some one requires an
item, he posts a Kanban (one Kanban for each piece) stating the time and place the item is
required, on the bulletin board of the concerned supplying department. It is posted with just
the adequate notice for manufacturing the item. Thus, Kanban serves the purpose of
“supply order”. Concerned department starts manufacturing/procurement of the item only
on receipt of the Kanban. Once the item is ready, the Kanban card is attached to the item
and sent to the demanding department.

Kaizen
Kaizen, Japanese for "change for the better" or "improvement", (the English translation is
"continuous improvement", or "continual improvement") is an approach to productivity
improvement.

Kaizen is about effecting small changes continuously. Employees are encouraged to

participate and innovate with process and materials. The improvements effected by the
employees do not get materially rewarded (In Japanese system, there are no rewards for
improvement. It is your thanks giving to the company which provides you your livelihood. The only reward
they get is name on the notice board). In Kaizen also, each improvement is reported and placed
on the notice board.

A closer definition of the Japanese usage of Kaizen is "to take it apart and put back
together in a better way." What is taken apart is usually a process, system, product, or
service.

Kaizen is not about radical big bang improvements. It is a daily activity. And the changes
are so small that they literally cost nothing. It is quite possible that an improvement
effected today may get altered tomorrow itself with a better method.

Everyone participates in kaizen; people of all levels in an organization, from the CEO
down, as well as external stakeholders when applicable. The format for kaizen can be
individual, suggestion system, small group, or large group.

Page 52 of 52