Ten-minute tutorial – Productivity

Simon
Kent investigates the UK’s most elusive business concept – productivity

What
is it?

Productivity
compares input factors in production to output. In other words, how much value
is derived from the labour, capital and other material resources used in
production. This can be measured in a number of ways including:

Labour
Productivity: Output produced per unit of labour used. Expressed as output per
worker or output per hour worked;

Total
Factor Productivity: This measure includes capital expenditure as an input to
production.

Applying
these measurements to a particular company it can be seen that by focusing on
productivity the organisation seeks to maximise its output given a set level of
inputs. Therefore, increasing productivity means getting higher output from
existing resources.

Why
is it important?

Increasing
productivity is the only way an economy can achieve higher standards of living.
If output only increases when production inputs are increased there is unlikely
to be any overall rise in profitability.

The
UK is currently lagging behind Germany, France and the US in terms of
productivity. We work longer hours, yet do not create as much value as our
international competitors. The Government is seeking to address this through
economic policy (promoting high employment and high levels of economic growth)
and by encouraging new and existing businesses through sector and
geographically led initiatives.

An
organisation can increase its productivity through a process of eliminating
waste and introducing efficiencies. Unless and until this is done, the
organisation will not perform to maximum capacity. Addressing productivity
directly benefits the bottom line and recent reports suggest that one of the
reasons for poor productivity in the UK is the lack of skills and talent in UK
management. Rather than being innovative and forward-thinking, managers are
unadventurous and staid, thereby compromising the overall performance of any
organisation.

Where
did it come from?

Many
of the current theories on increasing productivity have come from Japanese
industry. Japan, in turn, was inspired by the writings of an American called W
Edwards Deming (1900-1993). Deming’s approach was to focus management on the
creation of quality. To do this, he encouraged organisations to identify and
remove barriers to achieving quality, often empowering the workers to improve
the production process themselves.

The
Personnel factor

HR
and training can be critical to implementing initiatives and realising
successful improvements in productivity. To begin with, a happy workforce is
more productive. Second, personnel policy can encourage productivity through
incentive schemes such as performance-related pay or continuous improvement
tools such as knowledge management schemes. Effective and continuous training
is vital if the UK’s managers are to improve their performance.

However,
incentivitising employees to work within an inefficient system simply promotes
more waste. Therefore, achieving real improvements in productivity entails
critically appraising every aspect of the workplace, examining each function
and challenging why work is done this way. To be totally effective the entire
workforce should be open and ready for change. It is up to HR to create the
right atmosphere for this to take place.

General
initiatives to enhance productivity can include:


Waste reduction: The identification and elimination of waste in all forms and
from all parts of the production process.


Just-in-time (JIT) manufacturing: Ensuring exact and sufficient resources are
available at every stage in the production process.


Continuous improvement: Introducing new initiatives of any size or nature –
whenever and wherever they can contribute.


Lean management: An approach to managing people and resources to maximise
productivity. Toyota’s production technique boiled this down to 10 points –
eliminate waste, minimise inventory, maximise flow, pull production from
customer demand, meet customer requirements, do it right the first time,
empower workers, design for rapid changeover, partner with suppliers, and
create a culture of continuous improvement.

Toyota’s
specific productivity initiatives include:


Kanban – a term associated with JIT manufacturing. This is a signal which
triggers the supply of a resource. Rather than stockpiling, resources are
supplied only when demand is registered.


Seven Wastes – areas where an organisation compromises its productivity:
Over-production, transportation, motion, waiting, processing, inventory and
defects. Toyota’s Just in Time system tackled overproduction and effectively
resolved problems in all other areas since overproduction can include all the
other wastes.


S5 or Cando – acronym for Clear up, Arranging, Neatness, Discipline and Ongoing
improvement in the workplace. Inspired by a Rudyard Kipling poem, some of these
concepts have been used in the workplace since the early 20th Century (for
example, the Ford Motor Company was cleaning up continuously back in the
1930s). S5 relates to the Japanese words for the same concepts (they all begin
with the letter S).


Smed – Single Minute Exchange of Dies. By analysing the process required to
changeover the tools used on a machine, Japanese engineer Shigeo Shingo was
able to reduce the time spent on this operation from hours to minutes, thereby
increasing the time the machine was in productive use.

Who’s
on board? / Key players

The
Government has been researching the issue of productivity for the past few
years and is adapting policy as they see fit. Their research has had the
backing of the DTI. The TUC also sees productivity as an issue and has
initiatives dedicated to enhancing industrial relationships to improve
productivity.

Contemporary
productivity theory and practice grew from the automobile industry in Japan,
with Toyota and Nissan among the leading players. Nissan’s Sunderland plant set
a new European productivity record in 2000 with 122 cars per employee. Dell
Computers and Boeing Aircraft have also implemented lean management techniques,
and initiatives have even entered the service sector where Enterprise Resource
Planning has helped to ensure consultants spend the majority of their time
engaged in high value activities.

Essential
reading:

Out
of the Crisis (1986) by W. Edwards Deming. Includes Deming’s ‘14 Points for
Management’

The
Deming Management Method: The Complete Guide to Quality Management (1992) by W.
Edwards Deming.

Lean
Thinking: Banish Waste and Create Wealth in Your Corporation (1996) by James
Womack and David Jones.

Kanban:
Just in Time at Toyota (1989) by J.L. David.

Websites:

www.hm-treasury.gov.uk/documents/enterprise_and_productivity/ent_index.cfm-
Government research and reports on UK productivity

www.tuc.org.uk/pi
TUC’s Partnership Institute site

www.kaizen-training.com
Consultants and trainers in continuous improvement

www.smed.info
Evolving site featuring Smed and other lean management techniques from The
Productivity Factory.

www.oakdenehollins.co.uk/lean2.html
Oakdene Hollins consultants website – includes info and introduction to
productivity enhancing techniques

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