Reference no: EM132273323

Again, recall that our operations definition is the series of processes performed for conversion of inputs to outputs that creates value. The most common inputs are the direct labor used to make something or provide a service and the raw materials consumed in the process. Labor improvements can be realized through training, education, job simplification, job satisfaction, and worker commitment. Material improvements can be made by sourcing the same quality items at lower costs, alternative items that perform better, or through deciding what to make and what to purchase from a supplier.

Other productivity variables that can affect input costs, however, are the capital employed or investments made into tools, machines, and automation as well as the management team put in place to ensure effective use of labor and capital. Operations Managers are often tasked with improving the performance of existing capital investments and/or selecting new capital for improved efficiency or increased output. Effective managers make operational decisions that account for more than half of the realized productivity gains. Through the application of knowledge and technology, current-day operations are referred to as “knowledge-based” societies.

Now honing in on the key word of conversion, it is important to have a measure of how well or how efficient the conversion process is performed. Universally, this key performance indicator is called productivity and it is defined as the ratio of outputs divided by the inputs consumed. When a firm improves their productivity, they are improving the efficiency of the conversion process which can be done in two ways:

Improve the quantity of output while holding input constant

Reduce the quantity of input while holding output constant

If there is only one input used in the calculation, this is referred to as single-factor productivity. If more than one factor is used, then multifactor productivity is calculated.

Let’s demonstrate with a multifactor productivity example from the wire and cable industry. Plant X currently has a demonstrated capacity of 500,000 linear feet of speaker wire that can be produced per hour on a certain machine. For each hour of run time, there is an associated labor cost of $300 and raw materials consumed are $500 in plastics and $1700 in copper. Therefore, the currentproductivity of the line is calculated as: