Operations Management

Module 3
Productivity
Efficiency
Effectiveness
Markov chains

Productivity

 Productivity
A measure of the effective use of resources,
usually expressed as the ratio of output to input

Productivity measures are useful for

Tracking an operating units performance over
time
Judging the performance of an entire industry or
country

Productivity
A measure of the quantity of output per unit of input.
Productivity = Amount of Output
Amount of Input
Input man hours/ machine hours / material consumed

Traditionally,labour productivity
Workers productivity =
Number of units of output
Number of days taken
Group of workers productivity =
Tonnes(or kg) of output
Number of workers
. Limited view

Assuming the level of input is the same, has the productivity

gone up or down during 2011 -2012 ?
Output
No. of tyres produced

Year
2010 - 2011
16,000

2011- 2012
20,000

Life of a tyre in km.

20,000

15,000

Price of a tyre in rupees

2,000

1600

No. of tyres 25 % increase

No. of tyre km = 6.66% decrease
Monetary output = constant
Depends on what is being measured
- Customer satisfaction
- Market share

Different Productivity Measures

1.

Labour productivity (partial measures )

2.

Capital productivity (partial measures )

3.

Raw materials productivity (partial measures )

4.

Total factory productivity index

5.

Multi factor

Labour Productivity
= Gross value added
Average daily employment
Gross value =
Ex factory price (raw material inputs + fuel + electricity)
Average daily employment =
Total attendance of all persons, all shifts, all working days / no.
of days worked

 Indias real productivity has increased by

65 % from 1998 2006
Chinas real productivity has increased by
180 % from 1998 2006

Because salaries have been cheap, we

(India) have never really cared about how
much inefficiency really hurts us. In the
West, because labour is costly, they do not
hire unless compelled to do so.
- Pramod Bhasin, President & CEO, Genpact

Capital Productivity
= Output
Capital
Where capital includes land, buildings,plant, machinery etc. Does
not include working capital

Raw Materials and Fuel Input

Productivity
Gross ex factory value of output
Combined value of raw materials, fuel etc

Multifactor Measures

Output
;
Multiple Inputs

Ouput
;
Labor+Machine

Output
Labor+Capital+Energy

Total Factory Productivity Index

= goods and services produced
All resources used

Q. If 180 pieces are produced at a standard price of Rs.150 each,

with a labour cost of Rs.4000 / -, material cost of Rs. 20,000
and overhead of Rs. 12,000 /- what is the multifactor
productivity ?

Productivity =
180 * 150
4000+20000+ 12000
= 0.75

Average inventory in India : 50 60 days

Average recoveries : 60 90 days
Professional management systems are absent
Quantity orientation

Best mfg co.s in india

L&T
Bombay Dyeing
HLL
Aditya Birla
Jindal Steel
Toyota
Haldia

Efficiency & Effectiveness

- Efficiency means doing something at the
lowest cost
- It is the ratio of actual output of a process
relative to some standard.
For eg. Consider a machine designed to
package cereal at a rate of 30 boxes per
minute. If an operator actually produces 36
boxes than the efficiency is 120 %.

 Effectiveness means doing the right things

to create the most value for the company

Markov Chains
Developed by Russian mathematician Andrei
A. Markov. They are a probabilistic models
known as stochastic processes.

It is a method of analyzing the current

behavior of some variable in an effort to
predict the future behavior of that same
variable.
It deals with the probabilities of future
occurrences by analyzing presently known
probabilities.

Applications
Useful in analyzing consumer buying
patterns by examining and predicting the
behavior of students in terms of their brand
loyalty.
For planning personnel needs
To study stock market movements
etc

Statistical Parameter Estimation

Reminder

The basic paradigm:

Data set

Model
Parameters:

Markov Process
Markov Property: The state of the system at time t+1 depends only
on the state of the system at time t

Pr X t 1 xt 1 | X 1 X t x1 xt
X1

Pr X t 1 xt 1 | X t xt

Markov Process
Simple Example
Weather:
raining today

40% rain tomorrow

60% no rain tomorrow

not raining today

20% rain tomorrow

80% no rain tomorrow

Stochastic FSM:

0.6

0.4

0.8

no
rain

rain
0.2

Markov Process
Simple Example
Weather:
raining today

40% rain tomorrow

60% no rain tomorrow

not raining today

20% rain tomorrow

80% no rain tomorrow

The transition matrix:

0.4 0.6

P
0.2 0.8

Stochastic matrix:
Rows sum up to 1
Double stochastic matrix:
Rows and columns sum up to 1

Markov Process
Coke vs. Pepsi Example

Given that a persons last cola purchase was Coke,

there is a 90% chance that his next cola purchase will
also be Coke.
If a persons last cola purchase was Pepsi, there is
an 80% chance that his next cola purchase will also be
Pepsi.

transition matrix:

0.9 0.1
P

0.2 0.8

0.
1

0.
9

coke

0.
8

pepsi
0.
2

Markov Process
Coke vs. Pepsi Example (cont)
Given that a person is currently a Pepsi purchaser,
what is the probability that he will purchase Coke two
purchases from now?
Pr[ Pepsi?Coke ] =
Pr[ PepsiCokeCoke ] + Pr[ Pepsi Pepsi Coke ] =
0.2 *

0.9

= 0.34

00.9.9 00.1.1
P

00.2.2 00.8.8
2

Pepsi ?

0.8

0.2

0.9 0.1 0.83 0.17

0.2 0.8 0.34 0.66

? Coke

Markov Process
Coke vs. Pepsi Example (cont)
Given that a person is currently a Coke purchaser,
what is the probability that he will purchase Pepsi
three purchases from now?
0.9 * 0.17 + 0.1 * 0.66 = 0.219

0.9 0.1 0.83 0.17 0.781 0.219

P

0.2 0.8 0.34 0.66 0.438 0.562

3

Markov Process
Coke vs. Pepsi Example

(cont)

Assume each person makes one cola purchase per week

Suppose 60% of all people now drink Coke, and 40% drink Pepsi
What fraction of people will be drinking Coke three weeks from now?

0.9 0.1
P

0
.
2
0
.
8

0.781 0.219
P

0
.
438
0
.
562

Pr[X3=Coke] = 0.6 * 0.781 + 0.4 * 0.438 = 0.6438

Qi - the distribution in week i
Q0=(0.6,0.4) - initial distribution
Q3= Q0 * P3 =(0.6438,0.3562)