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Introduction to Management II - Lecture 002

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

17 January 2013 CHAPTER 2: PRODUCTIVITY AND QUALITY PRODUCTIVITY CHALLENGE Productivity is a measure of efficiency that compares how much is produced with the resources used to produce it (IE: Resource to products, inputs to outputs). The more we are able to produce while using fewer resources, the more productivity grows and everyone benefits. Productivity has both international and domestic ramifications. If a country is more productive than another country than it is wealthier, if it is less productive then their standard of living will fall. There are four factors that interact in response to the productivity challenge process: Customers, quality, productivity, and profits. People and raw materials cost money. The more time you spend and the more materials you use making a product the more it costs. Operations managers are concerned with the best way to make things. Labour Productivity is a partial productivity ratio calculated by dividing gross domestic product by total number of workers (commonly used by most countries). The focus on labour, rather than resources, is preferred because most countries keep accurate records on employment and hours worked. LABOUR PRODUCTIVITY OF A COUNTRY = GDP / TOTAL NUMBER OF WORKERS National Productivity A measure of how productive an economy is (IE: GDP population, GDP workers). A country is productive when it has plentiful, cheap, high quality factors of production. A study showed that Canadian producers that had foreign units were just as productive as foreign owned plants. Another study that reported productivity of 23 different countries showed that Belgium is 28% higher and New Zealand is 31% lower than all the average countries. Productivity growth differences are due to factors of technologies, human skills, economic policies, natural resources and traditions (IE: Japan’s food and automotive industries are fragmented, food production compared with U.S. is inefficient). Domestic Productivity Nations must be concerned about domestic productivity regardless of their global standing. Additional wealth from higher productivity can be shared among workers as higher wages, investors, as higher profits, and customers as stable prices. When productivity drops however, wages can be increased only by reducing profits, penalizing investors, or by increasing prices, penalizing customers. Manufacturing vs. Service productivity Manufacturing productivity is higher than service productivity. The Baumol’s Disease argued that since the service sector focussed more on hands on activity that machine couldn’t replace, it would be more difficult to increase productivity in services. Productivity gains are starting to appear among a wide array of service providers (IE: Airlines, pet stores, package delivery companies) because many of these have increased productivity by becoming more like factories using modern information technology to eliminate inefficiencies. Industry Productivity Agriculture is more productive in Canada than in many other nations because we use more sophisticated technology and superior natural resources. A reason for the improvement is a new technology called continuous casting (IE: Machines turning molten metal into slabs while still red-hot instead of cooling, stripping and reheating). The productivity of specific industries concerns labour unions because they need to take into account in negotiation contracts since highly productive industries can give raises more easily. Investors and suppliers consider industry productivity when making loans, buying securities, and planning their own future production. Company Productivity An individual business’ measure of outputs (products or services) to inputs (labour, money, materials). A high ratio of output to outputs result in higher profits. High productivity gives a company a competitive edge because its costs are lower so they can offer products at lower prices and allow companies to pay workers higher wages. Comparing productivity of several companies in the same industry helps investors in buying and selling stocks. Employee profit-sharing plans are often based on the company’s productivity improvements each year. And managers use information about productivity trends to plan for new products, factories, and funds to stay competitive. QUALITY MANAGEMENT A product’s fitness for use in terms of offering the features that consumers want, meeting or surpassing the customer’s expectations. By using resources more efficiently, the quality of output will be greater. The quality trilogy is quality planning, quality control and quality improvement. It identifies management steps for ensuring quality. Total Quality Management (TQM) is a concept that emphasizes that no defects are tolerable and that all employees are responsible for maintaining quality standards. The
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