Production and Productivity

Production
Production is a sequence of technical processes requiring either directly or indirectly the mental and physical skill of workers. Production is an organized activity of transforming raw materials into finished goods. It produces goods which satisfy the human want.

 Production is the process to transform a set of inputs into a set of outputs. Inputs are raw material, capital, personnel, design, etc. The output is finished product. Essence of production is the creation of goods, by using raw material or assembling using many small parts. So, production is the process of converting raw material into finished goods.

For optimum production in any industry, proper way of utilisation of men, machine and raw materials should be present. Production planning anticipates the possible difficulties before the start of actual production. Planning process is done in advance so that production is carried out in most economical and best way. Production control ensures that the production is up to the quality at the right time. I.e. Plan your work and then work your plan.

Factors of production
Nature natural resources Labour human effort Capital factory building, machinery, tools, raw materials, etc. Enterprise activity that organises other factors of production into an operating unit.

Methods of Production
Job or Unit Production Mass or Continuous Production Batch or Quantity Production

Job Production Job production is found in both the service and production sectors. Because the amount produced is so small, production tends to be very labour intensive.

Usually carried out by specialists or skilled labourers: the possiblity of labour saving machinery may not be an option for a newly started business. Normally this form of production is supplied by small companies.

Oldest method; Each job order is separate and may not be repeated. General purpose machines are required. Such factories are small; Production is for a small quantity; But require sill and accuracy. Ex. foundry work, die work, etc.

Advantages Individual requirements of consumer can be met; Since it involves less no of workers, less managerial problems; Requires less investment Less risk of loss; More flexible so that less chance of closing factory due to less demand.

Disadvantages Since raw materials required are less, cost on them is more; Different skilled persons are required; Hence more labour cost. Factory may work only when orders are received;

Examples
Pottery Art Suits Large buildings, skyscraper, etc. Large boats Unique/custom instruments

Mass Production This is a large scale production and a continuous production. Factory runs continuously; Requires specially planned layout; Requires Single purpose machinery like jigs and fixtures; More of automation can be there; Standardization is made;

Advantages It gives better quality and increased production. Minimum wastage As raw materials are purchased on a large scale, cost is less.

Sales and advertising are not costly, their expenses are spread over many goods and hence cost per unit is less. Labour cost is low as more semi skilled workers are used.

Disadvantages During the period of less demand, loss on invested capital may take place. Not a flexible production system. May not cater to fulfill individual requirement.

Batch production medium size enterprise. It is between mass and job. Requires more machines than job production; Here two or more types of products are manufactured in lots at regular intervals.

Examples
FURNITURE ELECTRICAL GOODS CLOTHING NEWSPAPERS BOOKS SAMPLE PRODUCTS

General purpose machines are required. Such factories are small; Production is for a small quantity; But require sill and accuracy. Ex. foundry work, die work, etc.

A production line is set up. 2. Each worker completes one task and passing down the production line to the next worker. 3. The workers are semi skilled or unskilled.

4. The workers must be able to switch from one part of the production line to another. They are called a flexible workforce 5. The production line can be changed quickly, so that different products can be made.

6. Often individual parts of the product are bought from other companies and assembled on the production line. 7. The production lines runs for a certain amount of time and then the product is changed.

The example production line) is that of an engineering company, manufacturing small steel products such as hinges and locks.

They manufacture batches of five hundred at a time. The workers are unskilled and semi skilled. As each task is completed the item being manufactured is passed down the production line to the next worker, until it is complete.

Functions of Production Planning and Control

Forecasting estimation of type, quantity and quality of future work. Order writing giving authority to one or more persons to undertake a particular job. Product design collection of information regarding specifications, bill of materials, drawings, etc. Process planning and routing finding the most economical process of doing a work and then deciding how and where work will be done. Material control it involves determining the requirements and control of materials. Tool control It involves determining requirements and control of tools used. Loading assignment of work to manpower, machinery, etc. Scheduling It is the time phase of loading and determines when and in what sequence the work will be carried out. It fixes the starting as well as finishing time for the job.

 Dispatching it is the transition from planning to action phase. In this phase the worker is ordered to start the actual work. Progress reporting Data regarding job progress is collected. It is interpreted by comparison with the present level of performance. Corrective action Expediting means taking action if the progress reporting indicates a deviation of the plan from the originally set target. Replanning replanning of the whole event becomes essential, in case expediting fails to bring the deviated plan to its actual path.

Productivity
It is the ratio of output to input of the factors of production. Output is obtained by the combined input of number of factors such as men, material, money, management, methods of production.

 It is also the reduction in wastage of resources like men, machine, material, power, space, time, building, etc.

Tools of Productivity
External Factors Internal factors

Factors affecting productivity

External factors National resources Availability of capital Taxation Government laws Market competition Technical and training facilities

Internal factors
Plant layout Material handling Product design Work study techniques Quality control Management techniques

Human resources Human resources general level of education is an important factor in national productivity. The use of computers and sophisticated equipments requires better educated employees. Employees have to be motivated to be productive. Good pay scale, safe working condition, incentives, bonus etc. should be increased time to time.

Technology and Capital investment

Industry must invest in new machineries. Promote R & D sections. Allow depreciation rates that will provide cash flow for new investments. Directly encourage new investment through increased increased investment tax credits.

Govt. Rules An excessive amount of govt regulation may have a detrimental effect on productivity. It can propose cost benefit analysis to determine the necessary regulations on health and safety.

For increase in productivity following should be minimised

Wastage of materials Machine break downs Wastages on part of men and machine Excessive handling Poor management Poor working conditions Political interference

Purpose to increase productivity

For Management To produce profit To clear the debts or loans acquired from different sources To sell more To stand better in market For workers Higher wages Better working conditions Higher standard of living Job satisfaction and security

Measurement of Productivity It is the ratio of output to input. The units may be of money, man-hours, materials, etc. a) In terms of money O/P in revenue from production Productivity = Expenditure on labour, capital on raw material Profit = Investment

b) In terms of indirect labour to direct labour

Number of indirect labour hours to serve direct labour Productivity = Number of direct labour hours C) Labour Productivity : In terms of hours Production in standard hours Productivity = Actual man hours This is called as machine productivity In terms of money :

Machine Productivity

Selling, Distribution or Administrative Productivity

There are two industries manufacturing two types of switches. The standard time per piece is 1.5 minutes. The output of two industries is 300 and 200 per shift of 8 hours. 1. What is the productivity of each per shift of 8 hours? 2. What is the production of each per week (6 days) on the basis of double shift? Productivity = Standard production/Actual production 1. Hence productivity of I1 = (8 x 60/1.5) /300 productivity of I2 = (8 x 60/1.5) /200 2. P1 = 300 x 6 x 2 = 3600 P2 = 200 x 6 x 2 = 2400

Kinds of Productivity measures

Labour Productivity input is in the form of labour hours. So, this index is free of changes caused by wage rates. Direct labour cost productivity The resource inputs are aggregated in terms of direct labour costs. This index will reflect the effect of both wage rates. Capital productivity Resources inputs may be charges during the period to depreciation or book value of capital investment. Direct cost productivity all items of direct cost associated with resources used are aggregated on a monetary value basis. Energy productivity only resource is the amount of energy consumed. Raw material productivity ratio of weight of product to weight of raw material consumed.

Types of production
Continuous Mass and flow line production Continuous or process production Batch production Intermittent Job production

Characteristics of mass and flow production

There is scope for considerable division of labour. Machinery is installed as per sequence of production. Material handling is reduced to minimum Very little time is spent on resetting of machines. The flow of work is balanced. Work cycles are short and repetitive. Work-in-progress is small as compared to intermittent production. Low production cost per unit.

Characteristics of continuous or process production All products undergo same process. Material handling is automatic. Semi and skilled operators are employed. Good plant maintenance and effective quality control are essential.

Characteristics of Batch production

Common type Goods are manufactured in batches as per specific order. Drugs, clothes, paints, machinery parts, sheet metal presses, etc are examples. Division of labour is possible. Flow of material in intermittent. Expediting and corrective action are very necessary. A good production control is required.

Characteristics of job production

Flow of material and parts from one location to another is intermittent or discontinuous. Mechanisation and division of labour is not economical. Each job is different from the previous. Takes more time. Prior planning is difficult. Schedule is prepared for each component of the product giving starting and finishing time. High degree of control is required.

Forecasting
It is estimation of type, quantity and quality of future work e.g. sales. Assessing the market trend many years ahead. It helps in planning for future. Planning of sales budget helps to determine production quantities, labour, equipment and raw materials, etc. It should be accurate, simple, easy to understand and economical.

Need or purpose of sales forecasting

It determines volume of production and rate. It forms basis for production budget, labour budget, material budget, etc. Suggests need for plant plant expansion. Emphasises need for product research development. Suggests need for changes in production methods. Establishes pricing policies. Decides extent of advertising, product distribution, etc.

Basic elements

There are 4 basic elements of economic data that should be used : Trends Cycles Seasonal variations Irregular variations.

Sales forecasting techniques

Historic estimate Sales force estimate Trend line technique Market survey Delhpi method Judgement techniques Prior knowledge Forecasting by past average Forecasting from last periods sales Forecasting by weighted moving average Forecasting by exponential smoothing Correlation analysis Linear regression analysis

Historic estimate
This uses the assumption that what happened in past will happen in future. It is successful only when pattern of events remains unchanged economy is static which is rarely true except for short periods of time. This is not a accurate method. Total sales forecast provided by this method must be modified by other techniques.

Sales force estimate This is based on the theme that persons in contact with the market know about the future market trends. Individual salesman estimates the sales in his territory or region and submits a report ti sales manager. Useful when factory is making a limited no of products e.g. generators.

Trend line technique

Trend line technique is employed when there is an appreciable amount of historical data. This technique is more reliable than the historic estimate. It is more accurate It involves plotting historical data between activity indicator and time. Eg. Tons of material vs tme in years. A single best fitting is drawn and projected to show sales estimate for future. But more time consuming, involves mathematical calculations.

Market survey This technique finds application when a concern introduces a new product in the market and is interested to estimate its sales forecast. For a new product, naturally, no historic or past data fro sales will be available.

Generally the new product is introduced in a relatively small critical trial area, market reaction is noted and the total sales is projected from these results.

Delphi method A panel of experts is interrogated by a sequence of questionnaires in which the response to one questionnaire is used to produce the next one. The opinion of the experts is passed on to others.

It is good for short and long term forecasts.

Judgmental techniques : They involve Opinion of consumers and customers : Questionnaires related to buying the product may be sent to a selected group of consumers and to customers who have already purchased the product. The information thus received can be very useful in estimating product performance and its probable demand in future. Retail and wholesale dealers can provide some insight into the pace of current and future sales. The opinion of area sales manager is considered.

Prior knowledge

This is used by ancillary units which are more or less a part of the large organisation, which informs each ancillary unit how much to produce. Forecast is needed only to establish material and tool requirements.

Forecasting by past average

Here, objective is to predict the sales of an item for the next sales period, then using this method, Forecasted sales for next period = Average sales for previous period. Ex. Period No. Sales Forecasted sales for 1 7 period no 7 is 2 5 = (7+5+9+8+5+8)/ 6 3 9 = 7 4 8 5 5 6 8

Forecasting from last periods sales This eliminates the influence of old data and forecast depends on sales of previous period. Period 1 2 3 4 5 Actual sales 5 4 8 7 4 Forecast sales 5 4 8 7 4 Errors in forecast +1 -4 +1 +3

Forecasting by moving average This represents a compromise between the previous two methods.
Year 1997 Period 1 2 3 4 1 2 3 4 Sale 50 60 50 40 50 55 4-period moving average forecast

1998

50 50

Weighted moving average method for forecasting Allows any weights to be placed on each element, providing sum of all weights equals one.
Eg let in a 4-month period the best forecast is derived by using 40% of the actual sales for the most recent month, 30% of 2 months ago, 20% of 3 months ago and 10% of 4 months ago. If actual sales experience was as follows : M1 M2 M3 M4 M5 100 90 105 95 ? Forecast for 5th month will be F5 = .4 (95) + .3 (105) + .2 ( 90) + .1 (100) = 97.5 If sales for month 5 actually turned out to be 110, then forecast for 6th month will be F6 = .4 (110) + .3 (95) + .2 ( 105) + .1 (90) = 102.5

Forecasting by exponential smoothing uses previous forecast figure and latest actual sales figure.
New forecast = (latest sales figure) + (1-) (old forecast) is smoothing constant = 2/(N+1) Where N is no of periods e.g let forecast sales for last period = 24 actual sales for last period = 22

= 2/(2+1) = .1
Forecast sales for next period = (22) + (1- ) 24 = .1(22) + .9(24) = 23.8

Correlation analysis Considers relationship between sales and other economic and non-economic phenomena like national income, defense expenditures, population growth, weather, etc.

Pearson Product Moment Correlation Coefficient r =

 A company's common stock equity as it appears on a balance sheet, equal to total assets minus liabilities, preferred stock, and intangible assets such as goodwill. This is how much the company would have left over in assets if it went out of business immediately. Since companies are usually expected to grow and generate more profits in the future, market capitalization is higher than book value for most companies. Since book value is a more accurate measure of valuation for companies which aren't growing quickly, book value is of more interest to value investors than

 What Does Book Value Mean?1. The value at which an asset is carried on a balance sheet. In other words, the cost of an asset minus accumulated depreciation. 2. The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities. 3. The initial outlay for an investment. This number may be net or gross of expenses such as trading costs, sales taxes, service charges and so on. Also known as "net book value (NBV)". In the U.K., book value is known as "net asset