Productivity Index of a Machine Tool Company – A Case Study

[Joseph George Konnully*1, H. Krishnamurty Dora2, S. Irfan Sadaq3, V. Dharam Singh4, Abdul Raheem Junaidi5]

Abstract - Productivity is the heart of economic growth and development. The government is concerned about the low productivity in our country. The developing country like India wants to raise the standard of living by increasing productivity and the economic system. High productivity leads to prosperity which in term leads to higher and higher productivity.

The aim of the paper is to explain the various productivity measurement technique and to study and analyze the reasons for the low productivity in the organization on recommend the solution to improve the productivity of the organization.

In the introduction, a brief introduction is given about productivity. In the literature survey the various facts of productivity like the factors affecting productivity, benefits of higher productivity, and benefits of productivity measurement in the organization, common productivity indicators, and productivity improvement techniques were discussed.In the background of the organization is given in the case study, the problem identification methodology adapted, conclusion of the analysis were explained. Recommendations to improve productivity of the organization are also explained.

Keywords –Productivity, Productivity Index, Labour Productivity, Capital Productivity, Energy Productivity.

  1. Introduction

Productivity is the heart of economic growth and development. IT is the focal point of current public interest in business and economic matters all over the world. In all contemporary discussions of business and economic affairs, productivity is directly or indirectly involved. This is so because the facts of productivity one among the fundamental facts in business and economics.

Productivity touches all its members, employers and employees, Governments and citizens, corporate giants and small scale industries, public and private sectors. The Government is concerned about the low productivity in our country. The Management wants automation to increase productivity. The trade unions resist productivity linked wages and bonuses. The high productivity levels in Japan, Tiawan and South korea are the envoy of Americans. The standard of living by increasing productivity and the economic system. The western world knows that the best way to maintain the high levels of income and standard of living of their people is by concentrating on productivity.

1,2,3,4,5 Assistant Professor,

MED, MJCET, INDIA.

*Corresponding Author: Joseph George Konnully

Email:

The concept of productivity, productivity trends, productivity measurement, productivity improvement are the important contemporary issues. The levels of productivity in a country is the index of standard of living of people. Low productivity means wasting or resources or exploiting the resources at a relatively high cost. High productivity on the other hand leads to more income, less price and more employment. Thus high productivity leads to prosperity. Which in turn leads to higher and higher productivity?

The national productivity index, the per capita income in India is barely Rs. 1900 as against Rs. 88000 in Japan and Rs. 63,000 in USA. Rate of growth of productivity in India is only 1.4% which is 6% in Japan.

  1. Literature Survey
  1. Origin of the Word Productivity

The world productivity has become such a buzz word these days that it is almost rare not to find it mentioned in some context or the other in trade magazines, newspapers, managements briefs, shareholders reports, political speeches, T.V news etc., just to name a few. Where did this word come from actually?

  1. Factors Affecting Productivity:

There are a number of factors affecting productivity. The united states of department of commerce (1981) catalogued 25 different factors that are believed to have contributed to the decline of productivity growth. Some of the factors contributing to the decline of productivity are –

  • Investment
  • Capital / labor ratio
  • Research and development
  • Capacity utilization
  • Government regulations
  • Age of plant and equipment’s
  • Emergency cost
  • Work force mix
  • Work ethic
  • Workers fear about loss of job
  • Union’s influence
  • Management
  1. Total Factor Productivity

It is the ratio of net output to the sum of associated labour and capital inputs. By “net output” means total output minus intermediate goods as services purchased.

Total factor productivity;

=

  1. Total Productivity:

It is in the ratio of total output to the sum of all inputs factors

Total Productivity:

=

  1. Productivity improvement techniques:

TECHNOLOGY BASED TECHNIQUES:

  • Computer Aided Design (CAD)
  • Computer Aided Manufacturing (CAM)
  • Laser Beam Technology
  • Energy Conservation.
  • Rebuilding old machinery.
  • Group technology.
  • Maintenance Management

EMPLOYEE BASED TECHNIQUES:

  • Financial incentives.
  • Fringe benefits.
  • Employee promotion.
  • job rotation.
  • Working conditions improvement.
  • Training.
  • Education
  • Supervision
  • Job Enrichment
  • Recognition
  • Punishments
  • Quality circles
  • Zero defects

PRODUCT BASED TECHNIQUES:

  • Value Engineering
  • Product Diversification
  • Product simplification
  • Research & development
  • Product Standardization
  • Product reliability improvement

TASK BASED TECNHIQUES:

  • Methods Engineering
  • Work measurement
  • Job design
  • Job evaluation
  • Human factor engineering

MATERIAL BASED TECHNIQUES:

  • Inventory control
  • Materials requirement planning (MRP)
  • Materials Management
  • Quality control
  • Material Handling system improvement
  • Material re-use and recycling.
  1. History of the Company

The company was incorporated as a joint stock company in the private sector under the Indian companies Act in 1943 with the limited objective of manufacturing high speed cutting tools and precision measuring instruments, with the technical assistance of a few czechoslovkian engineers.

  1. Case Study

Problem Identification:

The organization which produced profits and bagged many awards like best exporting company in the year upto 1985/86/87 is landed into heavy losses within a short period. The financial position of the organization has gone down to such a critical condition that it is struggling for its working capital for day to day transactions. Bills are overdue for payment to suppliers of raw materials Cutting tools etc, are piled up. Cheques issued to various suppliers are dishonoured and the organization lost its reputation and no supplier or sub-contractor is ready for any business transaction with the organization. This situation further damaged the organizations reputation due to prolonged delays in dispatching the products to the customers.

In such situation an investigation is required to find the reasons for the losses. For any organization the input factors are men, materials, money, energy etc., and output is the products. If these input factors are not utilized properly, the productivity of the organization will be low and the organization lands in to losses. Hence the various inputs factors are to be critically examined to find which factor is contributing more to low productivity. These identified factors are to be improved by suitable measures.

  1. Methodology adapted:

As everyone knows that efficient utilization of the available resources yields maximum profits to any organization, the various inputs factors are analysed by various productivity measurement techniques. The following parameters are measured to know the reasons for low peoductivity:-

  • Material productivity
  • Labour productivity
  • Capital productivity
  • Energy productivity
  • Percentage of utilization
  • Performance index
  • Value dependent productivity
  • Age dependent productivity

The past data from 1985-86 was collected and all these parameters were analysed.

  1. Results of the Analysis:

Table 1: Thematerials productivity and productivity index

Year / Material
Consumption
(Rs in Lakhs) / Value of
Production
(Rs in Lakhs) / Productivity / Productivity
Index
84-85 / 753.70 / 1822.45 / 2.41 / 1.00
85-86 / 1116.53 / 2406.14 / 2.16 / 0.89
86-87 / 1894.42 / 3357.47 / 1.77 / 0.73
87-88 / 2020.61 / 3918.42 / 1.94 / 0.80
88-89 / 2361.18 / 4763.17 / 2.02 / 0.84
89-90 / 2345.16 / 5032.33 / 2.15 / 0.89
90-91 / 2343.10 / 5060.39 / 2.16 / 0.89
91-92 / 2022.87 / 4783.57 / 2.36 / 0.97
92-93 / 1647.89 / 4399.01 / 2.67 / 1.10
93-94 / 1112.40 / 3412.62 / 3.06 / 1.26

Figure 1: Material Productivity Graph

Table 2: The labour productivity and productivity index

Year / Production
(Rs in Lakhs) / Labour
(Rs in Lakhs) / Productivity / Productivity
Index
84-85 / 1822.45 / 382.43 / 4.77 / 1.00
85-86 / 2406.14 / 465.79 / 5.17 / 1.08
86-87 / 3357.47 / 527.29 / 6.36 / 1.33
87-88 / 3918.42 / 647.56 / 6.05 / 1.23
88-89 / 4763.17 / 903.87 / 5.27 / 1.10
89-90 / 5032.33 / 968.07 / 5.20 / 1.09
90-91 / 5060.39 / 1139.84 / 4.44 / 0.93
91-92 / 4783.57 / 1088.39 / 4.40 / 0.92
92-93 / 4399.01 / 1198.53 / 3.67 / 0.77
93-94 / 3412.62 / 1199.28 / 2.85 / 0.59

Figure 2: Labour Productivity Graph

Table 3: Capital productivity and productivity index

Year / Output / Capital
input / Productivity / Productivity
Index
84-85 / 1822.45 / 1800.80 / 1.01 / 1.00
85-86 / 2406.14 / 2233.66 / 1.08 / 1.07
86-87 / 3357.47 / 2801.95 / 1.20 / 1.19
87-88 / 3918.42 / 3099.22 / 1.26 / 1.19
88-89 / 4763.17 / 3818.07 / 1.25 / 1.24
89-90 / 5032.33 / 4444.72 / 1.13 / 1.12
90-91 / 5060.39 / 4703.41 / 1.08 / 1.06
91-92 / 4783.57 / 5179.84 / 0.92 / 0.91
92-93 / 4399.01 / 5158.49 / 0.85 / 0.84
93-94 / 3412.62 / 5060.47 / 0.67 / 0.66

Figure 3: Capital Productivity Graph

Table 4: Energy productivity and Productivity index

Year / Output / Energy input / Productivity / Productivity
Index
84-85 / 1822.45 / 78.62 / 23.18 / 1.00
85-86 / 2406.14 / 99.63 / 24.15 / 1.04
86-87 / 3357.47 / 111.47 / 30.12 / 1.30
87-88 / 3918.42 / 111.59 / 35.11 / 1.51
88-89 / 4763.17 / 133.73 / 35.62 / 1.54
89-90 / 5032.33 / 161.18 / 31.22 / 1.35
90-91 / 5060.39 / 178.63 / 28.32 / 1.22
91-92 / 4783.57 / 212.36 / 22.53 / 0.97
92-93 / 4399.01 / 146.05 / 40.20 / 1.73
93-94 / 3412.62 / 119.58 / 28.53 / 1.23

Figure 4: Energy Productivity Graph

Table 5: Total factor productivity and productivity index

Year / Net output / Labour + Capital input / Productivity / Productivity
Index
84-85 / 1068.50 / 2183.23 / 0.49 / 1.00
85-86 / 1289.61 / 2699.45 / 0.48 / 0.98
86-87 / 1463.05 / 3329.24 / 0.44 / 0.90
87-88 / 1897.81 / 3746.78 / 0.51 / 1.04
88-89 / 2401.99 / 4721.96 / 0.51 / 1.04
89-90 / 2687.17 / 5412.79 / 0.50 / 1.02
90-91 / 2717.29 / 5843.25 / 0.47 / 0.96
91-92 / 2760.70 / 6268.02 / 0.44 / 0.90
92-93 / 2751.12 / 6357.02 / 0.43 / 0.88
93-94 / 2300.22 / 6258.75 / 0.37 / 0.76

Net Output = Total Output – Material Purchased

Figure 5: Total Factor Productivity Graph

Table 6: Total productivity and Productivity Index

Year / Total output / Total input / Productivity / Productivity
Index
84-85 / 1068.50 / 3015.55 / 0.6044 / 1.00
85-86 / 1289.61 / 3915.61 / 0.6145 / 1.016
86-87 / 1463.05 / 5335.13 / 0.6293 / 1.041
87-88 / 1897.81 / 5908.31 / 0.6632 / 1.097
88-89 / 2401.99 / 7216.84 / 0.6600 / 1.092
89-90 / 2687.17 / 7919.13 / 0.6355 / 1.051
90-91 / 2717.29 / 8365.98 / 0.6049 / 1.000
91-92 / 2760.70 / 8503.46 / 0.5625 / 0.9306
92-93 / 2751.12 / 8150.96 / 0.5397 / 0.8932
93-94 / 2300.22 / 7491.73 / 0.4555 / 0.7536

Total Output=Value of Production

Total Input=Material Cost + Labour Cost +Capital Cost + Energy Cost.

Figure 6: Total Productivity Graph

Table 7: Age dependent productivity and productivity index

Year / Value
Production
(V) / Conservation
Cost
(Lakhs)
(C) / Productivity
Index / Plant and
Machinery
Book Value / Employees
wages
80-81 / 850.26 / 238.27 / 1.23 / 595.62 / 235.06
81-82 / 829.52 / 260.01 / 1.21 / 660.87 / 239.78
82-83 / 1074.29 / 305.69 / 1.22 / 726.12 / 279.33
83-84 / 1414.48 / 437.75 / 1.19 / 830.33 / 317.85
84-85 / 1822.45 / 657.39 / 1.16 / 904.35 / 382.43
85-86 / 2406.14 / 795.28 / 1.17 / 1171.68 / 465.79
86-87 / 3357.47 / 1012.45 / 1.17 / 1915.78 / 527.29
87-88 / 3918.42 / 953.72 / 1.21 / 1960.34 / 647.56
88-89 / 4763.17 / 1383.75 / 1.17 / 3284.34 / 903.87
89-90 / 5032.33 / 1603.24 / 1.15 / 2374.46 / 968.07
90-91 / 5060.39 / 1789.65 / 1.14 / 2485.67 / 1139.84
91-92 / 4783.57 / 1832.58 / 1.13 / 2768.56 / 1088.37
92-93 / 4399.01 / 2025.85 / 1.10 / 2803.17 / 1198.53
93-94 / 3318.70 / 1936.36 / 1.07 / ------/ ------

Figure 7: Age Dependent Productivity Graph

Table 8: Performance index

Year / STD-Hours
Produced
(Lakhs) / Available
Hours
(Lakhs) / Performance
Index
85-86 / 7.02 / 11.01 / 63.70
86-87 / 7.19 / 9.97 / 72.11
87-88 / 6.62 / 9.49 / 69.78
88-89 / 6.78 / 9.38 / 72.28
89-90 / 6.48 / 11.80 / 54.92
90-91 / 6.56 / 11.80 / 55.59
91-92 / 6.80 / 13.03 / 52.18
92-93 / 5.12 / 12.26 / 41.26
93-94 / 4.85 / 11.93 / 40.65

Figure 8: Performance Index Graph

Table 9: Percentage of hours machines used

Year / Available
Hours / Utilized
Hours / Percentage
Utilization
85-86 / 11.01 / 8.20 / 74.47
86-87 / 9.97 / 7.93 / 79.53
87-88 / 9.49 / 7.10 / 74.82
88-89 / 9.38 / 7.14 / 76.11
89-90 / 11.80 / 7.26 / 61.52
90-91 / 11.80 / 7.32 / 62.03
91-92 / 13.03 / 7.16 / 54.95
92-93 / 12.26 / 6.21 / 50.24
93-94 / 11.93 / 5.37 / 45.01

Figure 9: % Hours Machine used.

From the various parameters measured it is observed that capital productivity has increased from 1.08 in the 84-85 to 1.25 in the year 88-89 and from year 89-90 it started downward trend. It was 1.13 in year 89-90 and fallen to 0.67 in the year 93-94.

Similarly energy productivity also shown an increasing trend up to 88-89 and from the year 89-90 it started downward trend . Productivity was 23.18 in the year 84-85 and it reached 35.62 in the year 88-89. In the year 89-90 energy productivity was 31.22 and from these continuous downward trend and finally it reached to 28.53 in the year 93-94.

In case of labour productivity it was 4.77 in the year 84-85 and it increased upto 6.36 in the year 86-87. Later it is showing downward trend. Labour productivity was 6.05 in the year 87-88 and came down to 2.85 in the year 93-94.

In case of total factor productivity it is showing increasing trend upto the year 88-89 and later on downward trend followed. It was 0.49 in the year 84-85 it increased upto 0.51 in the year 88-89. In the year 89-90 total factor productivity was 0.50 and it fallen down to 0.37 in the year 93-94.

Performance index is showing upward trend upto the year 88-89 and then started down trend. In case of percentage of hours machine used it is 79.53 in the year 86-87 and it is 45.01 in the year 93-94.

  1. Conclusion from the Analysis:

From the analysis of the data there is downward trend in total productivity, labour productivity, energy productivity etc., from the year 1989-90. All the parameters are showing the down trend. From the analysis the low productivity was identified mainly because of labour productivity which is 4.77 in the year 1984-85 and the 2.85 in the year 1993-94. Standard hours produced was 7.02 lakhs in years 1985-86 and only 4.85 lakhs in year 1993-94. The reason for the low productivity of the labour and the poor performance index of labour was due to low percentage of utilization of machines. The machine utilization was 74.47% in the year 1985-86 and it was gone down to 45.01% in the year 93-94. It is evident from the analysis the low productivity was mainly due to low utilization of machines available in the organization.

References

[1].David J. Sumanth “Productivity Engineering & Management”.

[2].O.P. Khanna “Work Study”

[3].C. Leicester “Changes in Labour Productivity in British Economy Y. Cranefield Management Review.