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Productivity Concept,
Measurement and Improvement
What is Productivity?
•ILO defines Productivity as the ratio between
“Output of Work” and “Input of Resources.
Productivity= Output Input
Process
Input Output
Waste
1
• This definition applies to an enterprise, an industry or
an economy as a whole.
• Productivity is simply the ratio between the amount
produced and amount of resources used in the
course of production.
• These resources can be: (Unit of resources is in
brackets.)
1. Land (Hectares)
2. Material (Metric Tonne)
3. Plant and Machinery (Machine Hours)
4. People (Man Hour)
5. Capital (Rupees)
2
Is Productivity different from
Performance?
• Productivity takes into account output in relation to
input.
• Performance takes into account output alone.
• Productivity =Output÷ Input
• In performance, we consider only the output and not
the input.
• A performance index becomes comparison of actual
output with some standard or expected output.
• Performance Index = Actual work done÷ Ideal or
standard expected work.
3
→Case: It takes 3 Mtrs. of cloth to make a coat. In
a day Prashant is expected to make 50 coats. He
makes 40 coats from 111 Mtrs. Of cloth.
• What is Prashant’s Performance ?
- 40 coats
• Performance Index ?
- {40 ÷ 50} x100= 80%
• What is Prashant’s cloth productivity index?
4
- Normally Prashant should have consumed 120
Mtrs. of cloth. However he managed to make
40 coats in 111 Mtrs. Of cloth.
- Cloth Productivity Index = {120÷ 111} x 100=
108%
• What is productivity of cloth?
- Cloth productivity= {40÷ 111} = 0.36 Coats/Mtr.
5
• Case: Shalini was busy going through the
production and machine hour consumption
report of the past three months.
MONTH INPUT OUTPUT
(Machine Hours) (No. of Units)
September 90,000 99,000
October 1,00,000 1,00,000
November 1,50,000 1,35,000
The reports clearly showed that there had been an increase in production
with a simultaneous increase in machine hour consumption.
Shalini was not sure whether it really indicated a rise in productivity or merely
increase in production. How should she get an answer to this?
6
• Solution:
- Productivity per Machine Hour= Production
Units÷ Machine Hours
- Productivity for September= 99,000÷ 90,000=
1.1
- Productivity for October= 1,00,000÷ 1,00,000=
1.0
- Productivity for November = 1,35,000÷
1,50,000= 0.9
7
MONTH INPUT OUTPUT PRODUCTIVITY
(Machine Hours) (No. of Units)
September 90,000 99,000 1.1
October 1,00,000 1,00,000 1.0
November 1,50,000 1,35,000 0.9
We can see from the table that while production is rising from September
to November; productivity is falling.
8
• Typically when markets are booming it is worth
increasing production so as to capture market-
share even if productivity does not increase.
• Conversely, during the lean periods when
selling becomes difficult, increasing production
will only result in increasing unsold stocks.
• It is, therefore, important to focus on increase
in productivity a it helps in maintaining
profitability.
• Today’s organizations are looking at Productivity
improvements by cost reduction thereby
protecting their profit margins. 9
Partial Productivity
→Definition
• Ratio of output to one class of input.
• At a given time it considers only one input and
ignores all other inputs.
• Its significance lies in its focus on utilization of
one resource.
• For instance, labour productivity is measured
using utilization of labour hours; whereas
capital productivity is measured in Rupees.
10
→Case:
- As a part of new assignment, Parag of Pop-Corn Products was
asked to identify areas for productivity improvements. He
collected data on all inputs and outputs of previous year’s
operations being transferred into equivalent of money units. The
table below gives details with all figures in lakh rupees.
OUTPUT 1000
INPUT
Human 300
Material 200
Capital 300
Energy 100
Other Expenses 50
Parag plans to calculate values of partial productivity to aid in his study. Please
help him in his endevour.
11
→Solution:
- Partial productivity of various inputs is as
follows:
• Human productivity= 1000÷300= 3.3
• Material Productivity= 1000÷200=5.0
• Capital Productivity= 1000÷ 300 =3.3
• Energy Productivity= 1000÷ 100= 10.0
• Productivity of other expenses= 1000÷50=20.0
12
Advantages Disadvantages
Easy to understand Misleading if used alone.
Easy to obtain data Cannot explain overall cost
increase
Diagnostic tool to pinpoint Profit control is not precise
areas of improvement
13
Total Factor Productivity
• In an effort to improve productivity of labour,
company may install more machinery.
• Then productivity of labour will go up bringing
down the capital productivity.
• Partial productivity that typically uses only one
resource at a time fails to grasp this paradox.
• Historically labour and capital were considered
to be the most significant in contribution in the
process of production.
14
• Therefore, in The Total Factor Productivity
model developed by John W. Kendrick in 1951,
he has taken only labour and capital as only
two input factors.
→ For instance, Products worth Rs 100 lakhs
were manufactured and sold in a month. It
consumed Rs 20 lakhs worth labour hours and
Rs 55 lakhs worth capital.
- The Factor Productivity = 100÷ (20+55)= 1.33
15
Advantage Disadvantage
Data is easy to obtain Does not consider impact of
material and energy inputs,
though material typically forms
60% of the product cost.
Appealing from the viewpoint
of the corporate and the
National economist.
16
Multi-factor Model of Productivity
• Developed by Scott D. Sink Multi-factor
Productivity Measurement Model considered
Labour, Material and Energy as major inputs.
• Capital was deliberately left out as it is most
difficult to estimate how much capital is being
consumed per unit/ time.
• The concept of depreciation used by
accountants make it further difficult to estimate
actual capital being consumed.
17
Total Productivity Model
• Total Productivity Model developed by David J.
Sumanth in 1979 considered 5 items as inputs.
• These are Human, Material, Capital, Energy
and other expenses.
• This model can be applied in any
manufacturing or service organization.
• Total Productivity= Total Tangible Output÷ Total
Tangible Input.
18
• Total tangible output= Value of finished units
produced + partial units produced + Dividends from
securities + Interests from bonds +Other incomes.
• Total tangible inputs= Value of human inputs+ capital
inputs+ materials purchased+ energy inputs + other
expenses (taxes, transport, office expenses etc.)
Advantages Disadvantages
All quantifiable inputs are considered. Data is difficult to compute.
Sensitivity analysis can be done. Does not consider intangible factors of
input and output.
Provides both firm level and operational
unit level productivity.
19
American Productivity Centre
(APC) Model
• American Productivity Centre has been advocating a
productivity measure that relates profitability with
productivity and price recovery factor.
• Profitability= Sales Costs
• {Output Quantities x Prices} {Input Quantities x
Unit Costs}
• Productivity x Price Recovery Factor.
• The APC model is different from other models in its
treatment, by inclusion of Price Recovery Factor.
20
What is price recovery factor?
• It is a factor that captures the effect of inflation.
• The changes in this factor over time indicate
whether changes in input costs are absorbed,
passed on, or overcompensated for, in the price
of the firm’s output.
• Thus inclusion of this factor will show whether
gains or losses of a firm are due to changes in
productivity or it merely indicates the
fluctuations in the prices of material consumed
and sold.
21
Sumanth’s Five Pronged Model
• All efforts towards productivity improvement have
always been focused on the resources i.e. men, material,
money, time, machinery, etc and the processes through
they undergo to give output.
• In 1982, Sumanth and Omachanu proposed Five
Pronged Approach, classifying fifty four different
techniques based on the five basic types:
(1) Technology
(2) Employee
(3) Product
(4) Process, and
(5) Material 22
• In the areas of product and process
improvement: value analysis aids in eliminating
non-value adding function i.e. those function
resulting in low performance at high costs from
the product and processes.
• On the technology front, extremely precise and
accurate high-speed machines and systems like
CAD,CAM,CIM,FMS etc have drastically reduced
the processing time.
• On the human front, incentive plans, job
enrichment, fringe benefits etc are used to
encourage value-adding inputs from people.
23
• Inventory control, MRP, material handling
systems etc. reduce the time, space, effort and
money involved in making material available
for its time and place utility.
• Techniques like work-study, ergonomics, etc
eliminate motions that are non-productive or
make them easy to perform are included in the
human factor.
• Today, Lean Production System approach is a
holistic one, which covers all areas of
productivity improvement.
24
• In order to sustain, a few other techniques like
JIT, TPM, TQC, KAIZEN, Quality Circles etc can
be applied simultaneously.
Summary
A. Technology Based
- CAD, CAM, Integrated CAM, Robotics, Laser
Beam Technology, Energy Technology, Group
Technology, Computer Graphics, Simulation,
Maintenance Management, Rebuilding Old
Machinery, Energy Conservation.
25
B. Employee Based
- Financial Incentives, Group Incentives, Fringe
Benefits, Promotions, Job Enrichment, Job
Enlargement, Job Rotation, Worker
Participation, MBO, Skill Enhancement,
Learning Curve, Working Condition
Improvement, Communication, Zero Defects,
Punishment, Recognition, Quality Circles,
Training, Education, Role Perception,
Supervision Quality.
26
C. Product Based
- Value Engineering, Product Diversification, Product
Simplification, R&D, Product Standardization,
Reliability Improvement, Advertising & Promotion.
D. Task Based
- Method Engineering, Work Measurement, Job
Design, Job Evaluation, Job Safety Design,
Ergonomics, Production Scheduling, Computer Aided
Data Processing.
E. Material Based
- Inventory Control, Material Requirement Planning,
Materials Management, Quality Control, Material
Handling and Recycling.
27
ILO Approach to Productivity Improvement
• The classic ILO approach is Task Based.
• It breaks manufacturing time into basic work
content, added work content, and ineffective
time.
• The main focus is on reducing inefficient time in
the total work content.
A. The Basic Work Content
- The amount of work “contained” in a given
product or process measured in man-hours or
machine hours. 28
- The basic work content is the irreducible
minimum time theoretically required to produce
one unit of output.
B. Added Work Content
(1) Work content added by defects in the design or
specification of the product. It may be due to
lack of standardization and/or incorrect quality
standards.
- This additional work content is the time taken
over and above the time of the basic work
content due to features inherent in the product
which could be eliminated. 29
(2) Work content added by inefficient methods
of production or operation.
- This is the time taken over and above the basic
work content plus (1), due to inefficiencies
inherent in the process or method of
manufacture or operation.
- This includes wrong machine used, processes
operated in bad conditions, wrong tools used,
bad layout, operator’s bad working methods
etc.
30
C. Ineffective time
- All interruptions which cause the worker or
machine or both to cease producing or carrying
out the operations on which they are supposed
to be engaged.
- Irrespective of the cause, these must be
regarded as ineffective time because no work
towards completing the operation in hand is
being done during the period of the
interruption.
31
(1) Ineffective time due to shortcomings on the
part of the management.
- Time during which man or machine or both are
idle because management failed to plan, direct,
coordinate or control efficiently.
(2) Ineffective time within the control of the
worker.
- Time during which man or machine or both are
idle for the reasons within the control of the
worker himself.
32
Focus on reducing added work content &
inefficient time in the total work content
• Following are the methods by which added
work content & inefficient time can be
reduced.
→By reducing
1. Poor design and frequent design changes
2. Waste of materials
3. Incorrect quality standards
4. Poor layout and poor utilization of space
5. Inadequate material handling
33
• Frequent stoppage in production
• Ineffective method of work
• Poor planning of work
• Frequent breakdowns
• Absenteeism & late coming
• Poor workmanship
• Accidents and occupational hazards.
34
Quality Circles
• Quality Circles were the logical consequence of
the various waste elimination programmes that
were run in many Japanese corporations in
early fifties.
• It provided a platform for the workers to get
together and use techniques for their quest for
continuous self-development and
organizational improvement.
• In 1980, the first Quality Circle was launched in
Hyderabad plant of Bharat Heavy Electricals
Limited. 35
Definition and Meaning
• Quality Circle is a small group of employees in
the same work area or doing a similar type of
work who voluntarily meet regularly for about an
hour every week to identify, analyze and resolve
work related problems, leading to improvement
in their total performance ad enrichment of their
work life.
• This definition is quite comprehensive and most
commonly accepted.
• Every part of the definition is significant.
36
→ Why small group of employees?
- Experience indicates that the optimum number
of a Q.C. is about eight to ten.
- If a circle is formed with less than five members,
one can imagine the strength of the group when
absenteeism is high.
- Interaction and participation becomes more
pronounced when group members are more
than say, six.
37
→ Why in the same work area or doing similar
type of work?
- This ensures Q.C. to be a homogeneous and
cohesive group
- The discussion that takes place remains
interesting to everyone only if members are
from the same background.
- It also helps the members to understand the
intricacies of the problem.
- Also the application of QC tools that are
recommended require the expertise in the field.
38
→ Why is participation voluntary?
- ‘Voluntary’ in the Japanese context has a different
interpretation as compared to what is normally
understood in the Indian context.
- To the Japanese , the very word ‘voluntary’ implies
100% participation.
- Hence, when a company in Japan decides to
implement Quality Circle, every body has to enroll
as a member.
- Japanese have refrained from using from using the
word ‘compulsory’ as it indicates not just 100%
participation but achievement of targets as well.
39
• Quality circle requires some amount of
creativity that is not under control, therefore,
the word voluntary is used to indicate that
achieving targets is not mandatory, but
participation is compulsory.
• In India the term ‘voluntary’ has been used to
circumvent the possible opposition from the
trade unions.
→ Why to meet regularly for an hour every
week?
• Meeting regularly is absolutely essential for
the success of Q.C. 40
• If the meetings are kept at longer intervals
then cancellation of one or two meetings will
further lengthen the interval leading to
complete stoppage of work.
→ Why to analyze and resolve work related
problems?
• As employees know more about their own
work area than any body else, they are in a
better position to solve problems occurring
there.
41
Structure of Quality Circle
Steering Committee/
Departmental Committee
Top Management
Coordinating
centre
TM
Steering Committee
Facilitator
Leader/Deputy Leader
Member
Non Member
42
Role of Each Element
1. Non-Members
- Initially, all the employees in a particular work
area may not volunteer in joining QC activity.
- Some others may not be interested in activity but
prefer not to get directly into it.
- QC members must understand that solutions they
find cannot be implemented without the
cooperation of these non-members.
- Members must encourage non-members to
participate in activities so that they change their
attitudes and form circle on their own. 43
2. Members
- Members must be restricted to grass root level
persons.
- If membership is kept open only to officers and
executive, the very purpose of QC gets
defeated.
- Members actively participate in selecting
problems of their concern, analyzing it, finding
solution to it and finally making presentation to
the management.
44
3. Leader/Dy. Leader
- In Japan, first line supervisors are nominated as
leaders.
- However, in India, it is advisable to make
members choose their own leader.
- Earlier there used to be only one person as
leader.
- But considering heavy absenteeism that
prevails in our country, there can be one
deputy leader who will take charge in absence
of leader.
45
• The leader or the deputy leader’s endeavour is
- To maintain cohesiveness of the team.
- To plan agenda for meetings.
- To ensure participation from every member by
assigning them work.
- To encourage consensus decision making
process.
4. Facilitator
- Facilitator is the senior officer of the
department where QC is working and is
nominated by management.
46
• The facilitator
- Can facilitate more than one QC.
- Is responsible for success of QC’s operating in
his area.
- Ensures necessary facilities are available to the
team for operation.
- Joins Steering Committee meetings and gives
results of activities of QC.
47
5. Steering Committee
- The committee comprises of heads of major
functions as members and chief executive as
the chairman.
- The committee makes top management’s
support visible.
• Steering committee
- Meets regularly once in two months.
- Takes overview of QC activity in entire
organization.
- Gives policy guidelines fr the propagation of
movement 48
6. Coordinating Agency
- The job of coordinating agency is similar to
facilitator but on a large scale.
- It coordinates QC activities throughout the
organization.
- Steering committee decides the composition of
coordinating agency.
• Coordinating agency
- Organizes a training programme for members
when QC is formed.
- Evolves norms to assess performance of different
QCs. 49
- Prepares budget for QC activity.
- Arranges guest speaker or library facility for
members.
7. Top Management
- Top Management does not fall within the formal
structure of QC.
- Its main job is to
• Convey its commitment to all employees
• Extend necessary support by attending
conventions and sanctioning funds.
• Form quality council and establish a conducive
atmosphere. 50
Quality Control Tools
• Quality circles use certain basic tools to
identify, analyze, and resolve their problems,
called QC tools.
A. Stratification
• Stratification refers to segregation of problem
area into smaller units so that each can be
taken more effectively.
• What appears to be a single problem may
actually consist of a set of problems, each with
a different root cause.
51
• For instance, the problem of ‘Low output
during the day’ may have different set of causes
during the first and second shift.
• There is no way of knowing the correct way of
stratifying the problem but when faced with a
problem, one needs to use his skills and
expertise to be able to do good stratification.
• The underlying principle is that when you find
a problem, break into sub problems and find out
the root cause of each.
• This procedure becomes faster and simpler.
52
Examples of Stratification
Operation Wise Skill, Experience, Years in job, Gender, individual, Union,
Educational qualification.
Machinery Type of machine, Machine number, order new, structure, functions,
moulds, jigs etc.
Material Wise Maker, lot, date of arrival, date of use, Type, constituents, storage
period, storage place, production place.
Method Wise Operation method, place of operation, Temperature, Humidity,
Pressure, No. of revolutions, speed, sampling etc.
Time Wise Day, day and night, shift (in case of shifts), days of the week,
month, normal day and the day after holiday, immediately after
commencement, right before end, hour, around machine
adjustment.
Product Wise Lot, vendor, New & old products, standards, special products. Etc.
Inspection, Inspector, Testing machine, Gauge, person in charge of calibration,
calibration place of calibration.
53
B. Check Sheet or Tally Table
• A data-recording tool where the frequencies of
each type are marked against it.
• The frequencies against each will indicate its
relative importance and subsequently help in
drawing pareto diagramme.
Sr. No. Cause Tally Marks Frequency Remarks
1. Broken Pin //// // 7 -
2 Broken Link /// 3 -
3 Loose contact //// //// // 12 -
4 No Power // 2 Known Before
54
C. Pareto Analysis
• This technique was developed by Italian
economist Pareto which showed that 20%
population of a country controls 80% wealth
and vice versa.
• This is applicable in most cases and is called
80-20 principle.
• Along these lines, Pareto diagramme can be
drawn by finding out which 20% causes create
80% problems.
55
Pareto’s Analysis- A Case Study- Cause of decline in production
in Rubber component manufacturing company.
Code Item Causes Time (Min) Time
(Min)/Case
A Rubber Recovering 16 145 9.1
B Repair Delays 3 255 85.0
C Repairs 5 344 68.8
D Adjustments 12 206 17.2
E Preparations 48 232 4.8
F Component Search 5 137 27.4
G Component 9 110 12.2
Replacement
H Raw Material Delay 2 780 390
I Miscellaneous 17 303 17.8
Total 117 2512 21.5
56
• It can be seen problem H consumes most of the
time.
• If we take care of this problem then there will
be a dramatic increase in productivity as
compared to taking other problems in the
beginning.
• Thus the important problems need to be tackled
on top priority.
57
D. Histogram
• Histogram is also called frequency distribution
chart and represents the condition of variance
through the chart .
• It is a visual presentation of the spread on
distribution of data to monitor a process and
determine its consistency in meeting customers’
requirements.
• The population in the data is classified on the
basis of their similarity into different groups or
classes.
58
• Each class or group is classified on the basis of
their similarity into different groups or classes.
• Each class or group is represented by a
rectangle or a bar.
• The class interval or causes of the problem or
defects are placed on x-axis and frequencies or
the number of defects is placed on the y-axis.
• The height of each bar is proportional to the
number of frequency of its class interval and
each bar should be of same width.
59
60
Uses of Histogram
• The shape of the diagramme reveals the mean
value variance.
• By frequency distribution chart the standard
deviation and mean deviation can be calculated.
• By comparing with rated value, the process
efficiency and rate of defective goods could be
calculated.
• By visualizing variances, abnormalities come to
light.
61
E. Ishikawa or Fish Bone Diagramme (Cause and
Effect Diagramme)
• Investigative tool developed by Dr. Ishikawa of
Japan.
• This diagramme is arrangement of all possible
causes, which give rise to the effect or problem
in hand.
• Prior to plotting this diagramme, it is necessary
to list down all possible causes by brain
storming, so that no important cause is missed.
• They are segmented broadly into four ‘M’s viz
Men, Machine, Method, and Material. 62
Machines
Men
Sub cause Sub cause
Final Effect
Sub cause
Sub cause
Method
Materials
63
F. Control Charts
• Control charts are used to investigate whether
the manufacturing process is in stable condition
or not and is used to maintain the
manufacturing process in stable condition.
• Central line (CL), upper control line (UCL),
and lower control limit (LCL) are the main
three lines which constitute a control chart.
UCL
CL
LCL
64
→X (bar) Charts
• Central Line =Grand Mean
• UCL= Grand Mean + A2 x Mean Range
• LCL= Grand Mean - A2 x Mean Range
→R (bar) Charts
• Central Line= Mean Range
• UCL= D4 x Mean Range
• LCL= D3 x Mean Range
65
A case of a Vending Machine
• Shalini is a vending machine operator at a
coffee shop. The machine at her shop gives 50
ml of coffee at a time. Lately Shalini has noticed
that machine never fills the glass exact ml but it
either under fills or over fills. She complained to
the manufacturer who sent Sachin, the service
engineer to her shop. After inspecting the
machine, Sachin said “I think we must test this
machine fr precision and accuracy.”
• “How do we do that?” asked Shalini
66
• “Let us take five samples of four readings each
of this machine and then we can plot control
chart and know answers to our questions.”
• Following is the chart that shows the readings
recorded by Sachin and Shalini.
Sample No.
X1 X2 X3 X4
1 49 50 50 49
2 49 49 49 50
3 48 48 50 49
4 48 48 48 49
5 50 49 51 48
For sample size n=4 ; A2= 0.729, D3= 2.28 and D4= 0
67
• Looking at both the graphs, Sachin told Shalini, “ Your
machine is perfectly all right. And whatever variations
you are getting is the inherent variation of the
machine.”
→ Thus control charts help workers monitor the quality
of their work, doing away with inspection.
G. Scatter Diagrammes
• It is a graphical technique for studying relationships
between two variables (which occur in pairs) to figure
out if there is a connection between the variables and
how strong this relationship is.
• The density and the direction of the cloud indicates
how the two variables influence each other.
68
• A positive relationship between two variables
means that increasing values of one variable are
associated with increasing values of the other.
• A negative relationship means that increasing
values of one variable are associated with
decreasing values of the other.
→A scatter diagramme is used after a cause and
effect analysis to determine what will happen to
the one variable if the other is changed.
69
Benchmarking
• Benchmarking is the systematic and
continuous process of determining what the
best performances and underlying skills of
leading organizations are in their strive for
excellence.
• And based on above, stimulate the
organization’s own strive for excellent
performances at all organizational levels.
• It is a strategy to stimulate changes and
optimize performances.
70
The Benchmark Process
2. Identify the
1. What is to be benchmark
benchmarked partners
8. Implementation 3. Gather
& Monitoring data
4. Analyze the
7. Develop action data
plans
6. Formulate the 5. Determine the
functional goals performance gap
71
When do you use Benchmarking?
• Benchmarking is mostly used to compare processes and
performances against those of recognized leaders.
• Based on this, the performance gap between the
organization and the best competitor is evaluated.
• Organizational processes usually used for benchmarking
are:
(a) Marketing,
(b) Sales,
(c) Purchasing,
(d) Technology development,
(e) Product development, and
(f) Logistics
72
Types of Benchmarking
1. Internal Benchmarking
- Internal benchmarking involves comparison of
internal activities and processes within own
company.
- Usually of interest to large organizations
where it is determined as to how far other
departments and divisions execute similar
activities within their own organizations more
efficiently and effectively.
73
2. Competitive Benchmarking
- A comparison is made with direct competitors.
- Operations processes of these competitors are
measured and compared against its own situation.
- Based on what is done by the competitor and what is
lacking within the own organization, the own
processes can be adjusted to improve efficiency and
produce a better and cheaper product.
- For example, a software producer who wants to
improve his competitive position can try to figure out
what Microsoft has done to become the market
leader.
74
3. Process Benchmarking
- Involves search for the best in class of a certain
process, regardless if it is a competitor or not and in
which industrial branch it is applicable.
- For example, the logistical activities of a chemical
company can be compared with an electronics
company with an excellent logistical process.
4. Strategic Benchmarking
- Used to obtain sweeping breakthroughs in the areas of
productivity in order to strengthen its competitive
position.
- This type of benchmarking helps determining the
relative competitive position of all business activities
and suggests the best course to follow.
75
• This can be done in several ways such as
- Comparing your own strategy and financial
performance against those of competitors.
- Determining from the strengths and
weaknesses of the competitors in which areas
your organization can outdo these competitors,
and
- Which improvements are best contributed to its
own core competencies.
76
Steps to execute Benchmarking Process
1. Determine what should be benchmarked.
- It is determined which functions, tasks,
processes, or activities within the own
organization will be subjected to
benchmarking.
- Based on the critical success factors, one or
more of processes will be selected for
benchmarking.
- Appoint a team that will map these processes
in detail. 77
- The team will identify process stages and
determine the process flow, the procedure for
each process stage, relevance performance
indicators, inputs and outputs of the process
and customer requirement.
2. Identify the benchmark partners.
- Important criterion for the selection of
benchmark partners should be outstanding
regarding the competitiveness of activities,
availability of reliable information about the
partners.
78
- Identifying benchmark partners requires
consultation of sources such as databases,
professional magazines, newspapers, bank
reports, annual report of competitors,
seminars, consultancy bureaus, universities etc.
- Also, interviews with customers, suppliers,
employees and bankers.
3. Gather Data about the performances of
partners.
- Through interviews, surveys, consultation and
technical magazines.
79
- Process and working methods of partners are
examined thoroughly.
- Performance indicators are measured and
qualitative and quantitative data is gathered.
4. Analyze the data.
5. Determine the gap between the performance
level of organization and that of its benchmark
partner.
- Differences in working methods and causes of
the differences in performance is documented.
- The main question to be asked is “why is the
efficiency and effectiveness of the own process
lagging behind that of the best in class?”
80
6. Based on the results of the benchmark study,
new functional goals are established to close
the performance gap.
7. The goals are now transformed into concrete
action plans.
8. Implement specific actions and monitor the
progress.
- Verify whether actions are executed as
planned, whether the process is changing, and
if the benchmark goals are being met.
- If required, possible adjustments are made.
81
9. Start again
- Benchmarking is a process of continuous
improvement.
- There are always better and improved
methods.
- Competition is not standing idle.
- In due course of time, new best practices are
developed.
82
Example from Rank Xerox, Netherlands
• “In the past, the order processing department of Rank
Xerox had 20 employees, wherein the throughput time
of an invoice was 5 to 8 days. After a benchmark study,
the activities within the department were divided into
four segments based on the invoice amount. Finally, the
number of persons in the department was reduced and
an invoice was sent within 24 hours in respect of 95%
orders.”
• The reason for the benchmark study was that
customers were displeased about long delivery time.
• A shorter delivery time also resulted in an accelerated
invoicing, a smaller department, a higher customer
satisfaction and improved liquidity.
83
Creativity Based Techniques
• Innovators have known since long that the
process of generating ideas is not logical or
analytical process; it is a creative process.
• Some of the commonly used creativity
techniques are:
(1)Brainstorming
- Brainstorming is defined as a means of getting
large number of ideas from a group of people
in a short time by following certain rules.
84
• The definition focuses on three aspects:
(a) Large number of ideas
- Brainstorming is a tool to generate a large
number of ideas.
- There is no guarantee that the ideas will be
practicable.
- There is no guarantee that the ideas will be
best.
- The hypothesis underlying the efficacy of
brainstorming is that the quantity leads to
quality.
85
- Often good ideas are under the bad ones in the brain
and unless the bad ideas are permitted to exit, the good
ones do not surface.
(b) A group of people
- Brainstorming is a group process.
- The optimum size of a group is about twelve; but it can
vary between six to twenty.
- Ideally the group should be heterogeneous, with as
much diversity in gender, age, qualifications and
experience, as possible.
- Such heterogeneity permits observation of problem
from different view points, which is the crux of the
brainstorming process.
86
(c) In a short time
- This refers to the rate of flow of ideas.
- This rate can be as high as one hundred ideas in a
period of ten minutes.
- Once again, the emphasis is on quantity.
→ The success of Brainstorming
- Following four basic guidelines can ensure the success
of a brainstorming process.
(a) Suspend judgment
- Just listen and list the ideas.
- Do not try to judge or evaluate any idea till you finish
the session
87
(b) Encourage free-wheeling of ideas
- Permit wild ideas; encourage dreaming, and thinking
around the problem.
(c)Quantity
- Go for quantity i.e. number of ideas.
- Do not examine quality or feasibility of idea at this
stage.
(d) Cross fertilization of ideas
- Encourage members of the brainstorming group to hitch
hike on each other’s ideas.
- Show no interest in identification of ownership of each
idea.
88
The Stages of Brainstorming
• The process of brainstorming consists of six
stages
(1)Stating the problem
- All the participants of brainstorming sessions
must know some details of the problem.
- Therefore, in the first stage, we need to state
the problem and try to provide some
information about it.
(2) Re-stating the problem
89
- Ask the participants to look at the problem in a
different ways and identify as many facets of it
as they can.
- Participants restate the same problem
depending on the way they look at it.
- If the problem is looked at from many angles, it
becomes easy to generate a large number of
solutions.
(3) Select a basic re-statement
- After listing down all the re-statements, select
one or two of these as a lead to brainstorming
session. 90
- This selection is done by the leader alone.
- This stage must be closed with a clear
definition of the objective of the brainstorming
session i.e. expected outcome.
- If this is not done, the session could easily turn
into a ‘gossip’ session.
(4) Warm up
- In this stage participants do free-wheeling for
the purpose of actual generation of ideas.
- Some participants observe silence for a few
minutes.
91
- Silent meditation can be a great tool for use in
this stage.
(5) Idea generation
- Generally participants sit in circle.
- The leader displays the selected statement and
invites ideas.
- People are encouraged to speak out the moment
they get an idea.
- The leader notes down each and every idea,
without evaluation or judgment.
- The process goes on till the ideation dries up.
92
(6) Wildest idea
- In this final stage, the group takes up the
wildest of the ideas and attempts to turn into
something useful for further brainstorming.
- After this, the session is ended.
→Dos and Don'ts of Brainstorming
Do’s Don'ts
Suspend judgment Spend too long on initial discussion
Allow wild and silly ideas Allow observers
Have a warm up session Tape record the proceedings
Encourage noise and laughter Accept interruptions
Take more than one statement of the Drag a session that has dried up.
problem
93
(2) Nominal Group Technique
- In the Nominal Group Technique, a group of
qualified individuals come together to present
their ideas and then vote for the most favoured
one.
- This idea is taken up as the decision of the
group.
- The group is referred to as ‘nominal’ since the
group members do not directly interact with
each other.
- Every member works on the solution
independently. 94
Steps of Nominal Group Technique
1. A small group gathers around a table, receives
instructions, and identifies the problem.
2. Participants silently write down ideas about problem
solving.
3. Each participant presents ideas one at a time; leader
writes them on the chart.
4. Group discusses, clarifies and finally evaluates each
idea.
5. Participants privately rank ideas in order of their
preference.
6. The highest ranking idea is taken as group decision.
95
Advantages & Disadvantages
• It allows formation of an informed opinion.
• Ranking of ideas by the group members is facilitated by
supplying information held by each member to all other
members.
• Fairly rapid process, permitting objective exchange of
ideas.
• Requires a trained facilitator to run the session.
→ As it is important to remove the element of personal
bias and prejudices, it is advisable to record the ideas
without mentioning the name of the person giving it.
96
Lateral Thinking
→“You are on the terrace of a ten storied
building.” Prashant was posing a riddle before
his friends, “and suddenly you hear a fire alarm.
How will you reach the ground floor?”
→ “Very simple” exclaimed Shalini, “ I will rush
down the staircase. Don’t tell me there is no
staircase.”
→ “I’ll use the elevator”, Sachin joined in, “a ten
storied building is bound to have an elevator. It
will be faster.”
97
→ “I have a faster way” said Prashant, “I can
jump down from the terrace”
→ “Talk sense” Sachin said, “You will not reach
in one piece.”
• Sachin and Shalini’s reactions are quite
expected because Prashant’s solution sounds
illogical.
• But it is certainly not impossible.
• Our resistance to change makes us reluctant to
accept something new or different.
98
• When we have a couple of standard, tried and
tested solutions in hand, we stop looking
further.
• We fall into the syndrome of ‘the good being
the enemy of the better.’
• Having something good, we cease our search for
the better.
• To be more innovative, we must learn to think
in radically different ways, away from
conventional patterns of thinking.
99
Definition and Meaning
• Lateral Thinking is defined as a thinking process
in which we make deliberate attempts to
generate new ideas by introducing a
discontinuity in our thought process.
• Lateral thinking implies considering a problem
from fresh perspective, a point o view which is
different from the norm, the obvious.
• The change in perspective can be relaxing as
well as productive.
100
• Some examples are:
(a) Visualizing the extreme opposite of the
situation or reversing the objective.
- Suppose you want to bring down your high
inventory levels, try thinking “what can be
done to increase inventory?”
- This might bring to light some inherent
weaknesses in the system.
- Even if you don’t strike the solution, you will
at least know what Not to do.
101
(b) Looking at the surroundings of the problem
rather than the problem itself.
- Suppose you have a machine that breaks down
frequently.
- Is it a machine designed for air-conditioned
room but kept at room temperature.
(c) Challenging the assumption
- Believe that your information is wrong.
- Try something that goes against the assumption.
- It may turn out that that some of the old ways
can be improved or replaced.
102
The Principles of Lateral Thinking
(a)Background
- The need for Lateral Thinking arises from the
fact that dominance of an idea or concept
suppresses other useful and efficient ideas
stopping the progress.
- Dominance blocks the way to explore
continuously more and more useful and
efficient ideas stopping the progress.
103
(b) Escape
- This principle suggests recognition of the dominant idea
and deliberate search for alternate ways of doing things.
- The search has to be for alternate ways and not for the
best way.
(c) Provocation
- This assumes that it may be necessary to be wrong at
some stage in order to reach the final right solution.
- Therefore, we use one idea to provoke or generate
another set of ideas, rather than checking its individual
correctness.
104
Difference Between Conventional Thinking
and Lateral Thinking
Conventional (Vertical) Thinking Lateral Thinking
Conventionally we think to chose and Here we think to generate and explore
prove something. ideas.
It is in search of answers. It is in search of questions.
Uses information in its meaning. Uses information for its effect.
Seeks continuity i.e. expects one thing to Seeks discontinuity.
follow another.
Concentrates only on relevant facts Doesn’t consider anything as irrelevant.
eliminating irrelevant facts.
It is a close ended procedure aimed at It is an open ended process giving
result. maximum results, but makes no promise.
105
Whole Brain Thinking
→ “Reaching Somaiya Campus……..Visiting
SIMSR, the canteen…. …The first day of the
class…..new faces, new ways of learning……..”
→“Hey, where are you,” said Shalini, snapping her
finger in front of Vaibhavi’s face.
→ Suddenly, coming back to reality, Vaibhavi
shook her face and said smilingly, ‘just moved
from my right brain to the left.’
→What did she mean?
→ She was referring to the split-brain theory.
106
The Split-Brain Theory
• The theory proposed by neurosurgeon Rober
Sperry says that our abilities, skills and
personality traits are strongly influenced by our
habit of using one side of the brain more than
the other.
• The two hemispheres of our brain have distinct
thinking processes.
• Visualization, emotions, intuition, and motor
skills are housed in the right brain.
107
• Logic and communication are functions of the
left brain.
• Our genes and the way we have been brought up
or trained often determines which hemisphere of
our brain we prefer to use and in turn that
determines the way we function.
• We could be right dominated or left and
accordingly our interests or abilities would
emerge.
• Artists or sportspersons are right dominated while
those excelling at maths or language would be
left dominated. 108
• Whatever our dominance or preference be, we
do make automatic shifts as per the occasion.
• When Vaibhavi was daydreaming, her right
brain was at work.
• And then she experienced a shift as she used
her left brain to analyze what she had been
doing.
• Typically, we use our right brain while listening
to music or while painting and the left brain
while speaking or solving a puzzle.
109
Examples of your Hemispherical
Dominance
→ How would you go about solving a problem?
• Would you follow an organized approach like defining
the problem and breaking into parts, conducting
research and recording possible solutions, eliminating
the non-viable solutions and then selecting the best of
the rest?
• If yes, then you are probably a left dominant.
• A right dominant person would try to see the picture as
a whole, get a feel of what will work and place his
trust in hunches or gut feeling.
110
→ How would you guide a person to a particular
place if asked to give directions.
• A left dominant person would be precise and say
something like “take the second left and then the
first right.”
• Right dominant go for visuals cues, say “Turn
left when you come across this tall green
building with a dome-shaped structure at the
top.”
111
Why Whole Brain Thinking?
• Ever tried giving a speech?
• The best of the words and impeccable grammar
wouldn’t be sufficient to deliver an effective
rhetoric.
• In terms of public speaking, we would say that
speech needs to come from the heart to make
an impact.
• If we use the terms of split brain theory, we
would say that in order to speak well, we must
use both sides of the brain.
112
• Left brain skill to form thoughts into words and
the right brain ability to give the speech an
emotional touch, thus making it more absorbing.
• Learning to use both sides of brain would help
unleash a little more of the enormous amount of
brain power we have.
• We would be able to take better control of
situations if we consciously selected the task-
appropriate hemisphere to meet each demand.
• If we think in terms of management functions:
planning, organizing, communicating etc these
are all left brain skills. 113
• Increasingly, managers are recognizing that
problems cannot be solved by logic, discipline,
and detailed analysis.
• To arrive at better solutions, free-spirited
innovation and comprehension of overall
picture is equally important.
• Hence, we must learn to draw from both the left
side of the brain, home of logic and efficiency
and the right side of brain, home of creativity,
intuition and inspiration.
114
Delphi Technique in Creativity
• A method of pooling a large number of expert
judgments through a series of increasingly
refined questionnaires i.e. gathering the
judgments of experts for use in decision making.
• Used for complex, unstructured problems, to
develop the strong pros and cons for alternative
solutions.
• Based on generation of suggestions and
arguments and clustering on most favoured and
least favoured alternatives.
115
→ The stages are:
(1) Generation of individual opinions on the nature
of problem and possible solutions.
(2) Tabulate results and show them to the group,
preserving anonymity.
(3) The most and least favoured opinions must be
restated, preserving anonymity.
(4) The group members read the list of opinions
and, individually, re-state their opinions.
(5)Results are re-tabulated and shown to the
group.
116
• Track suggested solutions.
• Vote on alternatives, their desirability.
• Vote on arguments, their importance and validity.
→ Delphi is based on anonymity of the grop
members.
→Oriented towards avoiding any direct
confrontation.
→ Decisions with Delphi express opinions rather
than facts which require group members to be
experts.
→ Delphi does not require physical presence.
117
Total Quality management
• Total Quality management is defined as an
integrated approach in delighting customer –
both internal and external- by meeting their
expectations on continuous basis, through
everyone involved with the organization,
working on continuous improvement along
with proper problem solving methodology.
• The term ‘customer’ refers to all those to
whom we supply a product or a service or
information.
118
• Thus, apart from the ultimate users, the
retailers and stockists become the external
customers to the company while the
transporters become the suppliers to the
company.
• Departments within the company become
internal customers to each other.
• Thus, the Production department is a customer
to the purchase department and supplier to the
sales and dispatch department.
119
Definition of Quality
1. Quality is fitness for use.
- Definition put forth by Juran represents the
customers’ point of view.
- Customers are usually multiple, and they may
put the product or service to such multiple
uses, which the manufacturers may not have
intended.
- In any case, customer’s viewpoint is most
important as it is he who uses the product.
120
2. Quality is establishing standards and specifications.
- If the customer’s voice in terms of ‘fitness for use’ is
to be incorporated into the product or service, it can
be done only by laying down standards or
specifications for the product or service.
- Various agencies such as BIS (Bureau of Indian
Standards), United States Pharmacopeia (USP),
Japanese Industrial Standards (JIS), International
Standards Organization (ISO) establish a list of
standards, specifications and tolerances to facilitate
manufacture of products of good quality.
121
3. Quality is conformance to standards
- Standards are meaningless unless they are
conformed to.
- Statistical Process Control (SPC), Poka Yoke
(Mistake Proofing), and many Q.C. tools, focus
on conformance to standards.
• Very peculiarly if 99.9% conformance to
standards is maintained in the product, the
customer satisfaction does not rise
proportionately .
122
• When the conformance to standards reaches
100%, the customer satisfaction jumps to 100%.
• Customer delight, is all about gaining customer
satisfaction in excess of 100%.
• Attempting customer delight before customer
satisfaction is impossible.
► A significant view of Total Quality
Management.
• Meeting the agreed requirements of the
customer, at the lower cost, first time and every
time.
123
• The standards and specifications provided by the
customer constitute the agreed requirements of
the customer.
• First time every time means without rework or
rejection.
• TQM is not one time activity but has to be
pursued by all the employees of the organization
continuously.
124
Deming’s 14 points of Management
1. Create constancy of purpose for the
improvement of product and service.
- Establishing constancy of purpose means
• Innovation
• Put resources into research and education
• Continuously improve in product and service
• Invest in the maintenance of equipment,
furniture and fixtures.
125
2. Adopt the new philosophy
- Don’t ask your customers to pay for your defects and
delays.
3. Cease dependency on Mass Inspection
- Quality comes not from inspection but from
improvement of the process.
- If products are of high quality then there should not be
any need for inspection.
- Inspection of finished product would mean just a
rework.
- If the problem can be eliminated at first stage then it is
possible that the final product will be defect free.
126
4. End the practice of awarding business on price
tag alone.
- Price has no meaning without a measure of the
quality being purchased.
5. Improve constantly and forever the system of
production and service.
- Improvement is not a one-time process.
- To ensure whether a firm is improving or not ask
the following questions
• Is the firm doing better than a year ago?
• Is marketing more effective?
127
• Whether customer satisfaction has increased?
• Whether pride and performance of empolyees
has improved?
6. Institute Training and Retraining
- Employees should be trained different set of
skills for different jobs.
7. Institute Leadership
- Leadership is the job of management.
- Leadership has to help people do their jobs
better and also to take responsibility for their
success and failure.
128
8. Drive out fear
- People are afraid of
• Losing their raises and promotions.
• New assignments
• Superior’s threats
• Admitting mistakes, etc
- Therefore, workers should feel secure so that
they will come up with innovative ideas,
suggestions and improvements over existing
systems.
129
9. Breakdown barriers between staff areas
- It is management job to help the staff areas
work together to promote teamwork because
people work in systems which management has
created.
10. Eliminate the slogans, exhortations and
targets for the workforce
- Due to slogans, employees feel offended
instead of being inspired.
- A goal without a method for reaching it is
useless.
130
11. Eliminate numerical quotas
- It turns out to be numbers rather than quality.
12.Remove barriers to Pride of Workmanship
- Management should listen and watch workers
voicing their frustrations at being unable to
perform their jobs the way they should like to.
13. Institute a vigorous programme of Education
and Retraining
- It is not enough to have good people in the
organization.
- They must be continually acquiring the new
knowledge and new skills. 131
- Education and retraining – an investment in
people- are required for long term planning.
14. Take action to accomplish the transformation
- Every employee of the company, including the
manager should acquire a precise idea of how
to improve quality continuously.
- The initiative must come from the management.
132
PDCA Cycle
1. What could be the most
Plan important accomplishments
of this team? What changes
might be desirable? What
4. Study the results. data is available? Are the
What did we learn? observations needed?
Act Do
2. Search for data on hand
3. Observe the effects of that can answer the question
the change or test propounded in step 1. Or carry
out the changes or tests
decided upon.
Check
133
• Step 1.
- Study the process, decide what changes might
improve it.
- Organize appropriate teams.
- The team to comprise of people from
engineering, purchase, production etc.
- Find what data are necessary.
- Do the data already exists or is it necessary to
carry out a change and observe it?
134
• Step 2.
- Carry out tests or make the change, preferably
on a small scale.
• Step 3.
- Observe the effects
• Step 4.
- Understand the outcome of the test.
- Repeat the test if necessary, preferably in a
different environment.
135
Traditional Management Vs TQM Approach
Parameters Traditional Management TQM Approach
Organization structure Is hierarchical and has rigid Becomes flatter and more
lines of authority and flexible and less
responsibility. hierarchical.
Focus On maintaining the Status On continuous
Quo and operating improvement in the system.
efficiency.
Relations between workers Dependence, fear and Workers perceive
and supervisor control. supervisors as coaches and
facilitators.
Management Perspective Labour and training as cost. Labour as asset and training
as investment.
Primary basis for decision Gut feel and instinct. Shifts to facts and systems.
Purpose To control To monitor and improve.
136
Deming’s Chain Reaction in TQM
Improve Quality Cost Decreases Productivity
improve
Capture market with
Provide jobs and Stay in business better quality and
more jobs lower prices
137
Quality Trilogy in TQM-Juran
• Juran defines quality as fitness fr use in terms of
design, conformance, availability, safety, and
field use.
• Juran introduced the managerial dimensions of
planning, organzing, and controlling and
focused on the responsibility of management to
achieve quality and need for setting goals.
• Juran was less concerned with detailed
techniques of quality control and much more
centered on the idea of management
responsibility. 138
• Juran emphasized that quality issue need to be
addressed through management action in the same
way as strategic issues, financial issues or other similar
concerns.
• He suggested the use of cyclical process of quality
management , linking quality planning, quality control
and quality improvement termed as ‘Quality Trilogy’
• ‘Juran Trilogy’ approach explains three managerial
processes used in managing quality, as shown below.
Quality Planning Quality Control Quality Improvement
Leading to not just quality control but success
139
►Quality Planning
• Objective: To achieve a process capable of
meeting quality goals.
- Identify customer needs (internal and external)
- Identify customer needs
- Develop features that satisfy customer needs
- Establish quality goods
- Process capability.
►Quality control
• Objective: To achieve conduct of operations
according to quality plans. 140
- Choose units of measurement
- Establish how to measure
- Establish standards of performance
- Measure actual performance
- Interpret difference (Standard v/s actual)
- Take actions on the difference
► Quality improvement
• Objective: To achieve conduct of operations at
levels of quality distinctly superior to planned
performance.
141
- Prove the need for improvement
- Build awareness of opportunities to improve
- Organize for diagnosis
- Provide remedies
- Prove remedies are effective
142
Value Analysis and Value Engineering
• Value Analysis is a technique that allows to increase
the value of a product or a service systematically,
eliminating all the functions that do not add any value
or benefit to the product.
• A product or process exists to fulfill a need.
• This need or set of needs is termed as a function, that
the product or process satisfies.
• For instance, knife exists to fulfill the need of cutting
and hence to cut is the function of knife.
143
What is meant by term Value?
• Value is a function of ‘Desired Performance’
and ‘Cost’.
• Expressed as Desired Performance (P) ÷ Overall
Costs (C)
• Desired performance is expressed by the term
worth which is defined as the lowest cost to
achieve the Use (work) function and Aesthetic
(sell) function.
144
How do define VA & VE
• Very often the two terms Value Analysis and Value
Engineering are used synonymously.
• However, difference between them will be clear from
the way they originated.
How VA originated?
• During the Second World War, U.S. government
reserved certain materials from armament industry.
• Therefore, General Electric Company found itself in fix
as many of their regularly used materials suddenly
became unavailable due to reservation.
145
• A purchase executive of the company, Lawrence D.
Miles made many substitutions in place of original
materials.
• Surprisingly, the results showed that substituted
materials did not affect the quality but brought costs
down.
• Later Larry developed a step by step approach for this
exercise and named the technique as Value Analysis.
Thus it is a step by step approach to identify the
functions of a product, process, system or service; to
establish a monetary value for that function and then
provide the desired function at an overall minimum
cost without affecting any of the existing parameters
like Quality, Maintainability, Productivity, Safety and
other Performance Characteristics.
146
• In the year 1954, U.S. Navy Bureau of Ships adopted
same technique in their effort at ‘cost avoidance’
during the design stage and saved million of dollars .
• They named this technique as Value Engineering.
Value Engineering is where the value of all
components used in construction of a product from
design to final delivery stage are completely analyzed
and pursued.
• Thus, Value Engineering indicates application at
design stage whereas Value Analysis is the
application on the product that is into
manufacturing.
147
Difference between Value Analysis
and Value Engineering
Value Analysis Value Engineering
Indicates application on the product Indicates application on the product
that is into manufacturing. at its design stage
Workers, subcontractors and Done by a specific product design
engineers come together to make a team (Engineers)
team with experience and knowledge
May change the present stage of the Changes are executed at the initial
product or operation stages only.
Worked out mostly with the help of Requires specific technical knowledge
knowledge and experience
148
What is the meaning of overall
costs?
For a manufacturer/ producer
• Overall cost is summation of all elements of the
costs required to produce or service such as
labour, material, overhead etc.
For a consumer
• Overall cost is the monetary sum (price) for
which the product or service is purchased in the
market.
149
The Value of the a function V= P/C can be increased by
four methods.
(1) Decrease the cost while ensuring the same level of
performance.
• Reduce the thickness of wooden drums in case of
packing of telephone cables.
• Earlier CDs and DVDs were sold at above Rs 100/-
Moser Baer introduced the same at almost half the
price.
(2) Enhance the performance at the same cost
• Providing a supplement of Mumbai Mirror along with
the copy of The Times of India at no extra cost.
150
(3) Decrease the cost and increase the performance
• Intel’s Pentium chip is cheaper and has much more
processing power than all its earlier chips.
(4) Increase both performance and cost ensuring that
performance increases more than the increase in cost.
• American cola giant increased quantity of soft drink
from 250 ml to 300 ml (20% more) but increased price
just by 10%
In all the above cases ‘cost’ is viewed at from
customer’s point of view.
151
Value Analysis Tests
►Each product or component is subjected to the following tests:
• Does its use contribute value?
• Is its cost proportional to its usefulness?
• Does it need all its features?
• Is there anything better for the intended use?
• Can a usable part be made by lower cost method?
• Can a standard product be found which will be usable?
• Is it made on proper tooling, considering quantities used?
• Do materials, reasonable labour, overhead, and profit total its
cost?
• Will another dependable supplier provide it for less?
• Is anyone buying it for less?
152
Functions-Use and Aesthetics
A. Use function
- Prashant wants to go for a trek to a place 15 kms from Karjat. He
wants to purchase shoes that will protect his feet from stones
and thorns etc. Therefore he opts for ‘Hunter shoes’.
- To protect feet is called as the Use Function of the shoes.
B. Aesthetic function
- Parag is preparing for prize distribution ceremony of his college.
Dressed in blazer he will be putting on black leather shoes with
good appearance.
- To give good appearance is called as the Aesthetic Function of
shoes.
Use and Aesthetic functions are always present in all the
products. Depending on the user and the need, one function
assumes predominance over other. 153
Primary Function & Secondary
Function
• AR Dairies is a Mumbai based milk and dairy products company.
They used to supply milk (cow and buffalo) in 500 ml glass
bottles. Lately they have introduced Masala Milk in 200 ml
bottles, which became an instant success. While Masala Milk is
supplied throughout the day, other type of milk is supplied only
in the morning. While going through the audit reports, Shalini
found that there is a transit loss of 2% due to breakage of bottles.
To overcome that Shalini introduced polythene bags in place of
500 ml bottles. However Masala Milk continued to be sold in
glass bottles.
• Why did Shalini not introduce polythene bags for Masala Milk?
154
• The Primary Function of bottle is ‘to hold the liquid’
and Secondary Function is ‘to facilitate drinking’.
• In this case, shape of the bottle facilitates drinking;
however when primary function is achieved by some
other means i.e. polyethylene bag then secondary
function ceases to exist.
• As a consumer drinks Masala Milk on the spot,
secondary function of facilitation of drinking is very
important whereas cow milk or buffalo milk is never
drunk without heating it.
• Therefore Shalini could sacrifice secondary function in
case of cow & buffalo milk but not in case of Masala
Milk.
155
Higher Order & Lower Order Function
• The basic function of a Torch is ‘To Give Light’
• Let us analyze order of functions.
• Give Light (why) Facilitates Viewing (How) Light the Bulb
(How) Supply Current (How) Insert Battery
• When we ask question ‘Why’ to the basic function; then the
answer we get is called as ‘Higher Order function’.
• And when we put question ‘How’ to the Higher Order Function
we get ‘Lower Order Function’.
• Thus ‘Facilitate Viewing’ is higher order function and ‘Light the
Bulb’ is a lower order function.
• As we continue asking questions ‘How’ we will get functions still
lower in order.
• Therefore ‘Insert Battery’ is lower than ‘Supply Current’ which in
turn is lower than ‘Light the Bulb’. 156
• Incidentally if we take any part or function and
put the question ‘Why’ , then we will get
functions higher in order.
• Insert Battery (Why)Supply Current
(Why)Light the Bulb (Why)Facilitate
Viewing.
157
Summary of Functions
Type of Function Meaning
Use Function Perform some action, expresses in
active tone.
Aesthetic Function Pleases customer, expressed in passive
or non-measurable tone.
Primary Function Basic purpose for which a product
exists
Secondary Function Arises out of specific design chosen to
fulfill the Primary Function.
Higher Order Needs Reasons of satisfying the Basic
Function
Lower Order Needs Means of achieving the Basic
Function.
158
A product can have more than one primary function
• For example, LPG cylinder apart from holding the LPG
must also withstand high pressure and must prevent
leakage of gas. Therefore any cylinder design must
address all these factors.
Many times some of the secondary functions are
unnecessary or even undesirable.
• For example, Lamp used for producing image in OHP
also produces heat that calls for fan. The fan is quite
unnecessary but with present level of technology we
have not been able to produce light without heat.
• Therefore, a customer has to pay for fan even though it
does not add any direct value to him.
159
Function Analysis System Technique
• Helps in a thorough understanding of the scope and
intricacies of the problem under study.
• Provides a determinate logic for testing the functions.
• Assists in identifying the basic, required secondary
and unwanted functions, and establishes their inter-
linking in a logical sequence.
• Highlights the missing links or functions which might
have been overlooked.
• Demonstrates that the problem has been thoroughly
analyzed by the team and helps in persuading the
decision makers to accept the VE team
recommendations 160
FAST Diagramme for Pen
Part Function Remark
Head Position Refill
Locate Refill
Cylinder Provide Grip Serration on cylinder
Protect Refill
Improve Aesthetic Carry Name & Logo
Show ink-level Transparency
Tail Support Refill
Rings (Front & Back) Help Location
Cap Protect Tip
Facilitate Carrying Projection on the Cap
Refill Contain Ink
Control Flow
Ink in Refill Make Marks
161
The alternatives can be
(1) Eliminate head and make it part of Cylinder
(2) Eliminate Tail and make it part of Cylinder
(3) Eliminate Rings
Financials & Operational Report
(1) Design change suggested
(2) Reason for change
(3) Additional expenditure required for new die,
advertising expenses etc.
(4) Savings (cost of rings, elimination of one
process etc.) 162
Principles of Value Analysis
• Do not use a part that does not contribute to the value of the
product.
• Do not use a part whose cost is not proportional to its function/
usefulness.
• Do not provide any features to the component or finished
product that are not absolutely required.
• Accept change if part of required quality is made by a process
costing less than the alternative process.
• Use standardized parts wherever possible.
• Use proper manufacturing methods taking into account the
quantities.
• Use the material best suited for the purpose.
• Purchase the part instead of in-house manufacturing if suitable
supplier can provide the part of good quality at a reasonable
price.
163
When to Apply Value Analysis?
• Products are losing their market share and
there is a decline in sales.
• Products are priced higher than competition in
a price sensitive market or product cost is >
sales price of competition.
• New designs to be undertaken.
• Rising manufacturing costs.
164
Reasons for Unnecessary Costs
• Lack of relevant information leads to wrong
decisions which increase costs.
• Wrong beliefs in accepting opinions.
• Lack of ideas.
165
Strategic Steps In Value Analysis
• Determine function and cost of each element
in finished product.
• Consider alternatives that fulfill functions.
• Select best alternative which includes
standardized materials and standardized
dimensions.
• Strategic choice of make products or
subcontract.
• Modify design to reduce costs.
166
Value Analysis Procedure
• Identify items to be analyzed.
• Differentiate whether item or process.
• Identify internal and external customers.
• Identify basic functions.
• Identify secondary functions which support basic.
• To prioritize determine value or importance to
customer of each function.
• Break item/process into constituent components by
using flow chart.
• Associate components with functions.
• Look for components which can be modified or
eliminated. 167
Options in Value Analyses/Value
Engineering
• Modify
• Integrate
• Substitute
• Simplify
168
When to Use Value Analysis/Value
Engineering
• Aim is to evaluate real value of
Product/process
• Focus is on saving costs
• Aim is on increasing value of process/product.
169
Benefits of Value Engineering
• Cost reduction /elimination techniques.
• Balances costs and performance
• Prevents overdesign of product (Customer
Function Deployment)
• Increases profits and reduces costs.
• Increases customer satisfaction
170
Examples of Value Analysis
• Modify-Motor car engines have been modified
to run on LPG/CNG
• Integrate-Air conditioner and heater integrated
into one unit.
• Substitute-In-house wiring has been changed
from copper to aluminum or coke bottles
changed from Glass to Plastic.
• Simplify-Application software simplified by being
made modular. Earlier all modules were
bundled or an equipment made modular which
simplifies transportation and maintenance
171
THANK YOU
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