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The Productivity Formula
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-1
Dimensions of Quality
PerformanceFeaturesReliabilityConformanceDurabilityServiceabilityAestheticsPerceive quality
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-2
Consequences of Poor Quality
Limited resourcesWhen the quality of an organization’s goods or services is
poor, the whole organization suffers. The organization loses business and therefore revenues, and it
also has more difficulty attracting other important resources.Higher costs
Businesses spend billions of dollars each year on inspections, errors, rework, repairs, customer refunds, and other costs to find and correct mistakes.
Attracting new customers costs several times more per customer than keeping existing customers satisfied.
Quality programs may carry some start-up costs, but the cost of poor quality is higher.
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-3
Types of Quality Control
Product quality controlAn organization’s efforts to prevent or correct
defects in its goods or services or to improve them in some way.
Process quality controlQuality control that focuses on ways to improve
the product itself.
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-4
Methods for Improving Quality Control
Statistical quality controlZero-defects approachEmployee involvement approachSix sigmaTotal Quality Management
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-5
Quality Standards
Malcolm Baldrige Quality AwardLeadershipStrategic planningCustomer and market focusInformation and analysisHuman resource focusProcess managementBusiness results
ISO 9000BenchmarkingDelivering greater customer value
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-6
Guidelines for Quality Control
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-7
Trends in Productivity in the United States
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-8
Constraints on Productivity
Management limitationsEmployee attitudes and skillsGovernment regulationsUnion rules
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-9
Measuring Productivity
The basic way to measure productivity is to divide outputs by inputs.
To increase productivity, a supervisor needs to increase outputs, reduce inputs, or both.
Quantity without quality does not boost productivity.
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-10
Improving Productivity
Do equal work at a lower cost, and increase output without a cost increase.
Improve process quality so that employees work more efficiently and do not have to spend time correcting mistakes or defects.
Understand the goals of quality programs and their own role in achieving those goals.
Use their specific knowledge of the tasks and processes their teams perform to find unique ways to contribute to productivity.
Use as many of these strategies as will work.Encourage and use employees’ ideas for saving money.
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-11
Improving Productivity (continued)
Use budgetsReview budget reportsObserve employee use of resources
Increase outputIncrease output without boosting costs
Ensure the new output goals are reasonableCommunicate new goals carefully
Electronic monitoring
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-12
Improving Productivity (continued)
Improve methodsReengineeringProcess control techniques
KaizenGive employees more control over the way they
workDesign jobs to be interesting
Reduce overheadMonitor work areasEliminate unnecessary paperwork
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-13
Improving Productivity (continued)
Minimize wasteReduce downtimeReduce detour behaviorUse e-mail filtering softwareSet a good example
Regulate or level the work flowEnsure adequate planning for the required workWork with others to examine and solve work-flow
problemsUse temporary employees during peak periods
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-14
The Costs of Uneven Work Flow
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-15
Improving Productivity (continued)
Install modern equipmentCompute the payback periodFind the average rate of return (ARR)
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-16
Payback period = Cost of new equipment
Savings per year
Average rate of return = Average annual earnings or savings
Amount invested (cost)
Improving Productivity (continued)
Train and motivate employeesMinimize tardiness, absenteeism, and
turnoverEmployees tend to arrive late or not at all if they
dislike their jobs or find them boringAbsenteeism may be the first step to leaving the
companyHigh turnover is expensive, because the
organization must recruit and train new employees
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-17
Employee Fears About Productivity Improvement
Many employees believe that cost reductions can lead to less overtime pay, more difficult work, and even layoffs
Supervisors must respond to employee fearsBe prepared with informationPresent the information to the employeesAllow employees to ask questions
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.2-18