![]() ![]() Unless they have been managing for some time, and they have built a level of intuiti on that is better than the formal system. Since most machines and processes are decoupled from actual demand, the Operations Manager builds to the plan provided by the ERP System, because they have nothing else to tell them otherwise. It is only productive if it turns into sales. The demand is not factored into the evaluation of productivity. For example, if you produce 1,000 units one week and 1,100 units the next, you are more productive the second week.” This example is a cost-world example. He goes on to say that “businesses often measure productivity by output during comparable time periods. Finding the right combination of productivity and efficiency helps you optimize your output while minimizing losses.” It’s not always possible to achieve 100 percent quality at maximum productivity levels. In its simplest form, an explanation of productivity versus efficiency is the difference between quantity and quality. “Increased efficiency can hinder productivity and vice versa. Sam Ashe-Edmunds of Demand Media explained this conundrum perfectly in his Small Business Chronicle blog post: ![]() Figure 1 (Adapted from TOC-ICO Dictionary, ) Productivity vs. BUT maximizing efficiencies results in increased work-in-process, which increases lead times and inhibits flow, thereby jeopardizing sales. When work is increased on the shop floor, local efficiencies go up and top management is satisfied. The operations manager then looks for work (even if it‘s not needed now) to keep the resource busy. Therefore, local efficiency is used to measure resources. In figure 1 below, the assumption on the B-D side is: A resource standing idle is a waste. The operations manager is under constant pressure to reduce waste and the biggest waste in operations is viewed as idle time on a resource (person or equipment). Operations manager core conflict (page 86): The conflict is between judging the Operations Manager‘s performance according to the local impact of decisions and judging the manager‘s performance according to the global impact of the manager‘s actions. Here’s how the terms efficiency and productivity set up a conflict for an Operations Manager: This paradigm conflicts with the cost-world paradigm. The unavoidable conclusion is that global improvement is the direct result of improvement at the constraint, and cost allocation is unnecessary and misleading. Throughput-world paradigm (page 123): The view that a system consists of a series of dependent variables that must work together to achieve the goal and whose ability to do so is limited by some system constraint. Perspective: This paradigm is in conflict with the throughput-world paradigm, which claims that global improvement is NOT the sum of local improvement and that the use of cost allocation often results in incorrect decisions. Usage: In the cost-world paradigm, global impact is believed to be the sum of all local impacts. Cost allocation is commonly used to quantify local impact. This view focuses on reducing costs and judges actions and decisions by their local impact. ![]() If you are an Operations Manager, you “feel the heat” on these two competing deliverables every day.Ĭost-world paradigm (page 35): The view that a system consists of a series of independent components, and the cost of the system is equal to the summation of the cost of all the sub-systems. There’s a big difference between managing efficiency and productivity using traditional thinking and using Constraints Management thinking. Let’s start by looking at how people usually define productivity and efficiency in practice ( from the TOC-ICO Dictionary). Let’s discuss why an efficiency metric is usually not the right metric and what a Lean manufacturing expert does when measuring true value in the supply chain. If I change to improve efficiency, what are the positive results, and what are the negative results? Also unknown is the outcome to the organization as a whole. When we look at the organizations of today, words like efficiency and productivity get thrown around with little understanding of what is required to improve one of these measurements (metrics). It is one of those words that I think we should remove from the English language. For s omeone who is a Constraints Management person, this is the equivalent of saying “Ni” to the Knights Who Say Ni (Monty Python reference, okay?) or like scratching your fingernails across a blackboard. I keep seeing the word efficiency in the manufacturing media. Measure efficiency and productivity against your REAL goal Productivity: Metrics that Matter…Until They Don’t ![]()
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