17 January 2013
CHAPTER 2: PRODUCTIVITY AND QUALITY
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
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).
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
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.
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.
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