UNIT- II

MANAGEMENT CONCEPTS

MANAGEMENT BY OBJECTIVE (MBO)

What Is MBO?

MBO is a technique and philosophy of management based on converting an organisational

objective into a personal objective on the presumption that establishing personal objectives makes
an employee committed, which leads to better performance. Koontz and others have defined MBO
as follows:

“MBO is a comprehensive managerial system that integrates many key managerial activities
in a systematic manner, consciously directed towards the effective and. Efficient achievement
of organisational objectives.”

Thus, MBO is a system for integrating managerial activities. As depicted in Figure A, the
organization’s overall objectives are translated into specific objectives for each succeeding level
(that is, divisional, departmental, individual) in the organization. But because lower-unit managers
jointly participate in setting their own goals, MBO works from the “bottom up” as well as from the
“top down.” The result is a hierarchy of objectives that links objectives at one level to those at the
next level. And for the individual employee, MBO provides specific personal performance
objectives. Each person, therefore, has an identified specific contribution to make to his or her
unit’s performance. If all the individuals achieve their goals, then their unit’s goals will be attained
and the organization’s overall objectives will become a reality. There are four ingredients common
to MBO programs: goal specificity, participative decision making, an explicit time period, and
performance feedback. The objectives in MBO should be concise statements of expected
accomplishments. It is not
enough, for example, merely to state a desire. to cut costs, improve service,- or increase quality.
Such desires have to be converted into tangible objectives that can be measured and
evaluated. To cut departmental costs by 7 percent, to improve service by ensuring that all telephone
orders are processed within 24 hours of receipt, or to increase quality by keeping returns

Figure A: Cascading of Objective

Each objective has a specific time period in which it .is to be completed. Typically that period is 3
months, 6 months, or 1 year. So managers and employees have not only specific objectives but also
stipulated periods in which to accomplish them. The final ingredient in an MBO program is
feedback on performance. MBO seeks to give continuous feedback on progress toward goals so
that individuals can monitor and correct their own actions. Continuous feedback, supplemented by
more formal periodic managerial evaluations, takes place at the top of the organization as well as at
the bottom. The vice president of sales, for instance, has objectives for overall sales and for each of
his or her major products. He or she will monitor ongoing sales reports to determine progress
toward the sales division’s objectives. Similarly, district sales managers have objectives, as does
each salesperson in the field. Feedback in terms of sales and performance is provided to let all these
people know how they are doing. At formal appraisal meetings, managers and their employees can
review progress toward goals and further feedback can be provided.

Concept of MBO:

MBO has be defined as a process whereby superior and subordinates jointly identify thecommon
objectives, set the results that should be achieved by the subordinates, assess thecontributions of
each individual in terms of the results expected of him, and integrateindividuals with the
organization so a to make best use of organizational resources.
The forgoing definition reveals the following characteristics of MBO:
1.MBO is both a philosophy and a technique of management.
2.MBO is a goal-oriented process and not a work-oriented process.
3.Self-direction and self-control are the built-in features of MBO.
4.It lays down an evaluative mechanism through which the contribution of eachindividual is
measured.
5.Under MBO a linkage is created between organizational goals and individualgoals.
6.Performance of individual is periodically evaluated in the light of pre-determinedtargets.
7.MBO is a continuous process or a never-ending process.

Features of MBO

In the light of the above definitions of MBO, the following features of it can be identified.

1. It is a technique and philosophy of management.

2. Objective setting and performance review are made by the participation of the concerned
managers.
3. Objectives are established for all levels of the organisation.
4. It is directed towards the effective and efficient accomplishment of organisational
objectives.
5. It is concerned with converting an organisational objective into a personal objective on
the presumption that establishing personal objectives makes an employee committed
which leads to better performance.
6. The basic emphasis of MBO is on objectives. MBO tries to match objectives with
resources.
7. Objectives in MBO provide guidelines for appropriate systems and procedures.
8. Periodic review of performance is an important feature of MBO.
9. MBO provides the means for integrating the organisation with its environment, its sub-
systems and people.
10.Employees are provided with feedback on actual performance as compared to planned
performance.
Process of MBO

MBO is a process for accomplishing enterprise objectives, enhancement of employees commitment

and participation.

This process consists of a number of steps. They are:

1. Setting of organisational objectives. The first step in MBO is to set verifiable objectives
for the organisation. The objectives that are set also indicate the measures for achieving
the objectives. The objective setting usually commences at the top level of the organisation and
moves downwards to the lowest managerial levels. It goes in sequence like this:
(a) Defining the purpose of the organisation
(b) Long-range and strategic objectives
(c) Short-range organisational objectives
(d) Departmental objectives
(e) Individual manager’s objectives.

2. Setting of subordinates’ objectives. Since organisational objectives are accomplished through

individuals, eachindividual manager should know in advance what he is expected to accomplish.
The objectives of the subordinates are set by the superior with their onsultation and agreement.
This process makes them committed.

3. Matching resources with objectives. When objectives are set, there should be a connection
between objectives and resources. This helps the organisation in allocating the
resources in an economical manner.

4. Appraisal. Appraisal is the periodical review of performance to measure whether the

subordinate is accomplishing his objective or not. If not, what are the problems and how
these problems can be overcome.

5. Recycling. The process of objective setting involves recycling. It means that first of all
objectives are set in consultation with the subordinates, then the subordinates set objectives for
their subordinates, and so on. Thus, objective setting is a joint process through interaction between
the superior and the subordinates. The three aspects involved in the recycling process consist of
setting of objectives at various levels, action planning in the
context of those objectives, and performance review (Figure B). Each of these aspects provides the
base for others.

Benefits of MBO
An effective system of MBO leads to the following results in the organisation.

1. MBO helps in improving productivity as the management team concentrates on the

important task of reducing costs.

2. MBO helps in making a more systematic evaluation of performance.

3. It provides greater opportunity to managers for personal satisfaction on account of

participation in objective setting and rational performance appraisal.

4. It helps in locating weak and problem areas because of improved communication and
organisation structure.

5. It serves as a device for organisational control integration.

6. It stimulates the subordinates’ motivation.

7. It is the basis for organisational change as there is a constant process of interaction

between the superiors and the subordinates.

Limitations of Management By Objectives MBO :-

1. Time-consuming: MBO is time-consuming process. Objectives, at all levels of the

Organisation, are set carefully after considering pros and cons which consumes lot of time.
The superiors are required to hold frequent meetings in order to acquaint subordinates with
the new system. The formal, periodic progress and final review sessions also consume time.
2. Reward-punishment approach: MBO is pressure-oriented programme. It is based on reward-
punishment psychology. It tries to indiscriminately force improvement on all employees. At
times, it may penalize the people whose performance remains below the goal. This puts
mental pressure on staff. Reward is provided only for superior performance.
3. Increases paper-work: MBO programmes introduce ocean of paper-work such as training
manuals, newsletters, instruction booklets, questionnaires, performance data and report into
the Organisation. Managers need information feedback, in order to know what is exactly
going on in the Organisation. The employees are expected to fill in a number of forms thus
increasing paper-work. In the words of Howell, "MBO effectiveness is inversely related to
the number of MBO forms.
4. Creates organizational problems: MBO is far from a panacea for all organizational
problems. Often MBO creates more problems than it can solve. An incident of tug-of-war is
not uncommon. The subordinates try to set the lowest possible targets and superior the
highest. When objectives cannot be restricted in number, it leads to obscure priorities and
creates a sense of fear among subordinates. Added to this, the programme is used as a 'whip'
to control employee performance.
5. Develops conflicting objectives: Sometimes, an individual's goal may come in conflict with
those of another e.g., marketing manager's goal for high sales turnover may find no support
from the production manager's goal for production with least cost. Under such
 circumstances, individuals follow paths that are best in their own interest but which are
detrimental to the company.
6. Problem of co-ordination: Considerable difficulties may be encountered while coordinating
objectives of the Organisation with those of the individual and the department. Managers
may face problems of measuring objectives when the objectives are not clear and realistic.
7. Lacks durability: The first few go-around of MBO are motivating. Later it tends to become
old hat. The marginal benefits often decrease with each cycle. Moreover, the programme is
deceptively simple. New opportunities are lost because individuals adhere too rigidly to
established goals.
8. Problems related to goal-setting: MBO can function successfully provided measurable
objectives are jointly set and it is agreed upon by all. Problems arise when: (a) verifiable
goals are difficult to set (b) goals are inflexible and rigid (c) goals tend to take precedence
over the people who use it (d) greater emphasis on quantifiable and easily measurable
results instead of important results and (e) over-emphasis on short-term goals at the cost of
long-term goals.
9. Lack of appreciation: Lack of appreciation of MBO is observed at different levels of the
Organisation. This may be due to the failure of the top management to communicate the
philosophy of MBO to entire staff and all departments. Similarly, managers may not
delegate adequately to their subordinates or managers may not motivate their subordinates
properly. This creates new difficulties in the execution of MBO programme.

Theory Z

Theory Z is the name applied to the so-called "Japanese Management" style popularized
during the Asian economic boom of the 1980s. In contrast Theory X, which stated that workers
inherently dislike and avoid work and must be driven to it, and Theory Y, which stated that work is
natural and can be a source of satisfaction when aimed at higher order human psychological needs,
Theory Z focused on increasing employee loyalty to the company by providing a job for life with a
strong focus on the well-being of the employee, both on and off the job. According to Dr. William
Ouchi, its leading proponent, Theory Z management tends to promote stable employment, high
productivity, and high employee morale and satisfaction.

Ironically, "Japanese Management" and Theory Z itself were based on Dr. W. Edwards Deming's
famous "14 points". Deming, an American scholar whose management and motivation theories
were rejected in the United States, went on to help lay the foundation of Japanese organizational
development during their expansion in the world economy in the 1980s. Deming's theories are
summarized in his two books, Out of the Crisis and The New Economics, in which he spells out his
"System of Profound Knowledge". He was a frequent advisor to Japanese business and government
leaders, and eventually became a revered counselor. Deming was awarded the Second Order of the
Sacred Treasure by the former Emperor Hirohito, and American businesses ultimately tried
unsuccessfully to use his "Japanese" approach to improve their competitive position.
Pre theory Z
Abraham Maslow, a psychologist and the first theorist to develop a theory of motivation based
upon human needs produced a theory that had three assumptions. First, human needs are never
completely satisfied. Second, human behavior is purposeful and is motivated by need for
satisfaction. Third, these needs can be classified according to a hierarchical structure of importance
from the lowest to highest (Maslow, 1970).

1. Physiological need
2. Safety needs
3. Belongingness and love needs
4. The esteem needs – self-confidence
5. The need for self-actualization – the need to reach your full potential

Maslow's hierarchy of needs theory helps the manager to understand what motivates an employee.
By understanding what needs must be met in order for an employee to achieve the highest-level of
motivation, managers are then able to get the most out of production. Theory X, Y and Z all play a
role in how a company should manage successfully. Theory X and Theory Y were both written by
Douglas McGregor, a social psychologist who is believed to be a key element in the area of
management theory. In McGregor’s book The Human Side of Enterprise (1960), McGregor
describes Theory X and Theory Y based upon Maslow’s hierarchy of needs, where McGregor
grouped the hierarchy into a lower order (Theory X) needs and a higher order (Theory Y) needs.
McGregor suggested that management could use either set of needs to motivate employees, but
better results could be gained by the use of Theory Y, rather than Theory X (Heil, Bennis, &
Stephens, 2000).

Characteristics of the Theory Z

* Long-term employment and job security

* Collective responsibility
* Implicit, informal control with explicit, formalized measures
* Collective decision-making
* Slow evaluation and promotion
* Moderately specialized careers
* Concern for a total person, including their family
Theory Z

Theory Z is a form of management in which workers are involved in the work process on
the factory floor. Schedules, division of labor, work assignments, and other aspects of the labor
process are given over to workers to do as they see best. Investment policies, wages, fringe benefits
and kind of product are not given over to workers to decide; only how best to do that decided by
top management.

Theory Z was developed by William Ouchi, in his book 1981 'Theory Z: How American
management can Meet the Japanese Challenge'. William Ouchi is professor of management at
UCLA, Los Angeles.

Theory Z is often referred to as the 'Japanese' management style. It's interesting that Ouchi
chose to name his model 'Theory Z', which tends to give the impression that it's a Mcgregor idea.
Theory Z essentially advocates a combination of all that's best about Mcgregor's XY theory
and modern Japanese management, which places a large amount of freedom and trust with workers,
and assumes that workers have a strong loyalty and interest in team-working and the organisation.
Theory Z also places more reliance on the attitude and responsibilities of the workers,
whereas Mcgregor's XY theory is mainly focused on management and motivation from the
manager's and organisation's perspective.

Mcgregor's XY Theory

Douglas McGregor was an American social psychologist. He proposed his famous XY

theory in his 1960 book 'The Human Side Of Enterprise'.
Theory X and Theory Y are referred to commonly in the field of management and
motivation and Mcgregor's XY Theory remains a valid basic principle from which to develop
positive management style and techniques. McGregor's XY Theory also remains central to
organizational development, and to improving organizational culture.
McGregor's XY theory is based on the natural rules for managing people.
McGregor maintained that there are two fundamental approaches to managing people.
Many managers tend towards theory X, and generally get poor results. Enlightened managers use
theory Y, which produces better performance and results, and allows people to grow and develop.
Theory X ('authoritarian management' style)

* The average person dislikes work and will avoid it he/she can.
* Therefore most people must be forced with the threat of punishment to work towards
organisational objectives.
* The average person prefers to be directed; to avoid responsibility; is relatively unambitious,
and wants security above all else.

Theory Y ('participative management' style)

* Effort in work is as natural as work and play.

* People will apply self-control and self-direction in the pursuit of organisational objectives,
without external control or the threat of punishment.
* Commitment to objectives is a function of rewards associated with their achievement.
* People usually accept and often seek responsibility.
* The capacity to use a high degree of imagination, ingenuity and creativity in solving
organisational problems is widely, not narrowly, distributed in the population.
* In industry the intellectual potential of the average person is only partly utilised.

KAIZEN

What is Kaizen? - In simple terms Kaizen is Japanese for ‘a change for better’, which results in
‘continuous improvement’. Kaizen ideology can be traced back to the 1980’s; Kaizen was first
adopted in the West with the influx of Japanese car manufacturers brought a wave of new thinking.

Kaizen logic was first enshrined in written text with Masaaki Imai’s book ‘KAIZEN - The Key To
Japan’s Competitive Success’ (1996) this book showed what the fundamental Kaizen logic is. We
shall be exploring the issues discussed in this text.

Kaizen uses the Japanese logic of bringing improvements internally from within the workplace; this
goes against the European ethics of using external sources such as consultants to improve
processes.

Understanding the Kaizen Process: Steps and Goals

Kaizen is all about continuous process improvement, not just of products and the way things are
done, but also the environment at work. Learn about the Kaizen process steps and goals in this
article.
Kaizen comes from Japan. The word itself means "continuous improvement," and that's what
Kaizen methodologies focus upon. Kaizen is not a methodology for total quality improvement that
only focuses upon the top tier at a company. Instead, Kaizen's methodologies focus upon the entire
company. Kaizen companies are open to suggestions from employees and stakeholders at all
levels and they take these suggestions and implement them on a regular basis. Companies that
implement Kaizen are constantly defining, meeting, and redefining standards. Why implement
Kaizen principles in a company? Easy, because by seeking continuous improvement, a company's
bottom line is always being increased, employees are becoming more productive, and customers
are becoming more satisfied.

Kaizen Process

Kaizen events are among the most important activities of a Lean enterprise. Successful
Kaizens help build a Lean culture and measurably improve company performance. Kaizen success
requires effective Planning, Implementation, Follow-up and Evaluation. IMEC’s expert Lean
Implementers will work with your company at each phase of the Kaizen process, helping plan and
prepare for events, facilitating Kaizen events, working with your team to ensure effective follow-up
and completion of the improvement process, and evaluating the results to continuously improve
your Kaizen process.

Plan

The Kaizen Planning phase, within the 6 Sigma DMAIC framework, seeks to Define,
Measure, and Analyze the process that will be the Kaizen focus. There are three levels of Kaizen
planning.
• High-Level Planning links the Enterprise Lean Deployment Strategy to the specific
processes that need to be improved and the timeline for improvement.

• Mid-Level Planning uses Value Stream Mapping to select specific areas of improvement
that will be addressed through Kaizen events versus 6 sigma projects and “just-do-it” activities.

• Event-Level Planning uses checklists and standard documents to ensure that everything is in
place so each Kaizen event is conducted successfully. Event planning includes:

- Kaizen team member selection

- Kaizen charter approval
- Location preparation (including equipment, materials, etc.)
- Data needs identification and preparation

Implement

Kaizen event implementation , within the DMAIC framework, is primarily focused on actual
Improvement, although some additional Measurement and Analysis may be required. Kaizen
Implementation requires a company to:

• Train members of the Kaizen team on the Lean principles that they will be applying
• Review the VSM, and perform additional measurements and analyses, if needed
• Facilitate an ideation/brainstorming processes to identify improvement options
• Implement improvements by “breaking apart” the process and putting it back together without the
waste
• Prepare an action plan with a list of activities required to complete the Kaizen process
• Verify the alignment of the selected improvements with the future state VSM
• Identify expected measurable improvements
• Obtain participant feedback
• Report Kaizen results to Champions and celebrate success

Follow-up

This phase of the Kaizen process involves the completion of the Improvement and Control DMAIC
elements. The success of the Kaizen depends on timely completion of the Improvement process and
effective change management. This process involves:

• Following-up to ensure that action items are successfully completed

• Working with Lean Champions to breakdown obstacles
• Measuring the actual results of the Kaizen to document and quantify benefits
• Establishing process control to ensure the ability to consistently obtain improved performance

Evaluate

This is the last phase of the Kaizen process cycle. A Lean enterprise is a learning organization that
recognizes Kaizen as a continuous process of improvement through:

• Identifying improvements to the Kaizen implementation process

• Encouraging employees to identify further improvement opportunities
• Establishing a schedule to re-evaluate the VSM and start a new Kaizen improvement cycle

Kaizen Process Steps

In order to properly implement Kaizen principals for process improvement, there are ten steps
towards reaching successful implementation of Kaizen:
1. Get rid of any fixed ideas you may have based upon conventions. Just because you've
always done something a particular way, doesn't mean that it's the best way to complete that
task. Instead, allow yourself to scrap conventions in exchange for potentials for growth.
2. Think about the "hows," not the "whys." Let me explain this. Perhaps you're looking for
a way to cut costs on materials while engaging in the green movement. Many people would
point out "why" this is not possible. If, instead of looking at why something cannot be done,
you look at how it can be done, you focus upon action. Focus upon solutions to problems,
not on the problems themselves.
3. No excuses are allowed. It is so easy to get to the point where you've found a place where
improvement can occur, and you've even determined how to enforce the improvement and
just stop. Why do companies stop at this point? They begin focusing on the negative,
pessimistic view again - they make excuses. "I can't do x, because x is too hard." Scrap this
line of thinking and take action!
4. Perfection seeking does not lead to progress. Just the word "perfect" can stop most people
in their tracks. Do not wait until you have determined the "perfect" course of action.
Scientists don't wait until they've created the "perfect" experiment (and those who do don't
find employment for too long). Determine a course of action and follow it until you need to
adjust it.
 5. When mistakes occur, don't wait to correct them! If a tailor waited until the whole dress
was complete before ripping out an uneven seam, he would create more work for himself.
Correct mistakes as they occur. Make continuous adjustments throughout the process of
implementing improvements.
6. Practice the art of continuous monitoring and review. Don't wind up in Argentina when
you're trying to get to Vancouver. Make sure that you monitor the progress of the
improvements being implemented and review whether the implementations are truly
improvements.
7. Practice the five why approach to determining root causes. When faced with a problem
or a mistake, ask the question, "Why" to go deeper into the problem.
8. Implement the 3G approach for decision making. The 3G approach
involves Gemba (place or location), Genbutsu (the product), and Genjitsu (the problem
being specifically looked at). By viewing the problem, in a given space, related to the
product, it helps you to be specific about the changes you wish to implement.
9. Improvements need to occur on a daily basis. Every day, in a Kaizen workplace, a new
improvement should be put forth.
10. Look to the group rather than the individual. While an individual may be extremely
gifted at what she does, groups tend to put forth synergy - the conglomeration of new ideas
and new thinking. By focusing upon collaboration, new ideas can spring forth.

Kaizen Process Goals

The Kaizen process has seven goals. These goals drive forth the process steps outlined on the first
page of this article. The seven goals of Kaizen strategies are:
1. Kaizen simplifies the job. By having employees, management, and other
important stakeholdersconstantly suggesting improvements, it simplifies everyone's jobs -
improvements should streamline all processes.
2. Kaizen changes things up. Do you like doing the same old same old every day? If not,
Kaizen is a great way to keep you on your toes and remove the boring tasks from the radar.
3. Kaizen keeps things from being a total pain in your rear. If something's not working,
why continue to do it? Instead, it is far better to suggest improvements to solve problems
before costly defects occur. Kaizen keeps your work from becoming a huge burdon.
4. Kaizen improves job safety records. By constantly improving processes, you will be
abreast of important new safety standards, the latest in advances in equipment and
technology, and the safest way to do things.
5. Kaizen improves everyone's productivity. If you eliminate wasteful tasks, then you save
time. For example, is it necessary to create a report of reports every month? Are there less
wasteful ways to do things? Is everyone making the best use of their time? Look into the
answers to these questions to meet this Kaizen process goal.
6. Kaizen improves the quality of your products. By following the Kaizen process steps,
you can improve product quality. It is important to have quality products because this will
increase your customer base, and ultimately, it will increase your bottom line.
7. Kaizen saves you money and it saves you valuable time. By having high quality products,
few accidents, few burdons, and highly productive employees, you will save time. When
you save time, you save money. It's a win-win situation, all around.

Why Use Kaizen Process Steps and Goals?

Kaizen process steps and goals lead ultimately to success. Kaizen isn't only useful for
implementing in business and project management situations. If you are looking to self
improvement, you can follow the principles of Kaizen. Remember step nine, improvements need to
occur on a daily basis. Every day, you should strive to improve something new in your self or your
company. By focusing on total quality improvement, not only will you meet the above goals with
stunning success, but you will also have a more rewarding career and your business will soar.
SIX SIGMA

What is Six Sigma Concepts?

The Six Sigma is perhaps one of the most famous business philosophies in the world to
date. It is, of course, more than just a corporate culture—it is a management methodology that
seeks to increase company profitability by minimizing or even eliminating variances in business
processes.

This is in contradiction to how laymen would usually perceive “increase in profitability”:

most people would think that, in order to increase a company’s profits said company should also
increase production or output. The Six Sigma concept revolves around the oft ignored fact that
company profitability can also increase by decreasing costs.

According to the Six Sigma paradigm, a company could bleed as much as 20 to 30 percent
on its profit just by adhering to inefficient systems, correcting mistakes that shouldn’t have been
made in the first place and compensating the customer/client for the inconvenience of those same
mistakes.

The concept behind the Six Sigma took root in Motorola back in 1986, when the company
upper echelons looked inwardly into their company and took critical notice of their company’s lack
of profitability. It was a the concept was revolutionary at that time, and since then, Motorola (and
other high-profile companies such as General Electric and Bank of America) began advancing the
Six Sigma paradigm all over the world. Today many of the Fortune 500 companies adapt the Six
Sigma philosophy into their companies—testament to how effective the concept was in execution
and not just on paper.

It can be said that one of the key concepts behind Six Sigma is the merging of both science
and leadership, and the emphasis on quantity (output) without compromising quality.
A fine example of how these concepts came together was during Henry Ford’s time: mass
production didn’t really happen until Henry Ford invented the assembly line. There, people worked
like separate cogs in the machinery, coordinating and working together simultaneously in a
controlled process to create cars by the hundreds, something that no one has ever done before at
that point in history.

Six Sigma seeks to better the assembly line so to speak. In any given company, an “invisible
factory” exists where one department is beholden and responsible for another, and how an
individual’s performance does affect the whole.
The Six Sigma methodology was originally developed for manufacturing companies,
though today it encompasses a more general approach to maximizing value and minimizing
mistakes. It slants heavily towards statistical use: to sum it up, Six Sigma posits that the ideal
company should be able to make 3.4 defects per millions of units produced (echoing its
manufacturing industry origin)—which translates to 99.99966% of units made (or quantifiable
services rendered).

The difference between a normal company and a company that have their “cogs” or
departments that follow through the Six Sigma approach (of minimizing variations to 3.4 defects
per million) is the difference between a courier company losing 20,000 lost articles of mail per hour
to 7 lost articles of mail per hour; or the difference between a hospital performing 5,000 incorrect
surgical operations per week as opposed to one that practices 1.7 incorrect surgeries in a week.
This separates a “good” company and a company that follows the methodology of Six Sigma. The
difference is significant indeed, and so is the quality of the output, as well as the profit margins.
What is Six Sigma Methodology?

Six Sigma involves two methodologies namely DMAIC and DMADV. DMAIC stands for
Define, Measure, Analyze, Improve, and Control. This methodology is the basic one given to all
employees. DMAIC defines the needs of the customers, project goals, and the problem. It also
analyzes the data available in order to verify the cause-and-effect relationships and to know the root
cause of the problem. The company can then improve the processes by using the tools and
techniques of Six Sigma. With all these done, the company can control the future processes by
knowing any deviations from the goal and to prevent the defects from happening.

DMADV methodology also has 5 phases, namely define, measure, analyze, design, and
verify. This methodology defines the goals that are consistent with customer satisfaction and
demands. It measures and identifies the factors and characteristics that are critical to quality, risks,
capabilities in production process, and product capabilities. Alternatives are designed and analyzed
in order to choose the best design that the company will accommodate. The details are then
designed and optimized for design verification. Lastly, the design is verified by having pilot runs
and implementing the production process.

Methods

Six Sigma projects follow two project methodologies inspired by Deming's Plan-Do-Check-Act
Cycle. These methodologies, composed of five phases each, bear the acronyms DMAIC and
DMADV.
 DMAIC is used for projects aimed at improving an existing business process. DMAIC is
pronounced as "duh-may-ick".
 DMADV is used for projects aimed at creating new product or process designs. DMADV is
pronounced as "duh-mad-vee".

DMAIC
The DMAIC project methodology has five phases:
 Define the problem, the voice of the customer, and the project goals, specifically.
 Measure key aspects of the current process and collect relevant data.
 Analyze the data to investigate and verify cause-and-effect relationships. Determine what
the relationships are, and attempt to ensure that all factors have been considered. Seek out
root cause of the defect under investigation.
 Improve or optimize the current process based upon data analysis using techniques such
as design of experiments, poka yoke or mistake proofing, and standard work to create a
new, future state process. Set up pilot runs to establish process capability.
 Control the future state process to ensure that any deviations from target are corrected
before they result in defects. Implement control systems such as statistical process control,
production boards , visual workplaces, and continuously monitor the process.

DMADV or DFSS
The DMADV project methodology, also known as DFSS ("Design For Six Sigma"), features five
phases:
 Define design goals that are consistent with customer demands and the enterprise strategy.
 Measure and identify CTQs (characteristics that are Critical To Quality), product
capabilities, production process capability, and risks.
 Analyze to develop and design alternatives, create a high-level design and evaluate design
capability to select the best design.
 Design details, optimize the design, and plan for design verification. This phase may require
simulations.
  Verify the design, set up pilot runs, implement the production process and hand it over to
the process owner(s).

What is Six Sigma Used For

 Six Sigma is a tool for quality improvement. Its main objective is to design and systematize
a process or processes in order to eliminate defects and inefficiency. It was originally
invented by Motorola, USA in the year 1980s. Later on, it has become popular in the
corporate world due to its effectiveness and proficiency.

 Six Sigma aims to give incomparable performance, high value and extremely reliable
products or services to its target customers. It is considered to be one of the most powerful
tool in Total Quality Management.

Though Six Sigma is developed and designed especially for Quality Control, it is also used
in many different ways. These include:

 Improving communications with customers, employees and shareholders and;

 Improving the total process of interaction, communication and product design.

Why should Six Sigma be adopted?

 - It defines a concrete process for a certain problem.

 - Six Sigma is usually adopted since it is a proven tool to solve problems or issues.
 - Six Sigma is proven to be consistent with its results.
 - It focuses on the bottom line that entails credibility from the top of the organization.

Six Sigma Calculator

To accomplish a Six Sigma level, a production process must generate less than 3.44 defects
per 1,000,000 opportunities, as shown in the table below:

The Six Sigma Levels and their corresponding defects

Quality Circles

The concept behind quality circles is widely believed to have been developed in Japan in
1962 by Kaoru Ishikawa as a method to improve quality, though it is also argued that the practice
started with the United States Army soon after 1945, whilst restoring the war torn nation, and the
Japanese adopted and adapted the concept and its application.

A quality circle is a volunteer group of employees from the same work area who meet
together to discuss workplace improvement. The circle is empowered to promote and bring quality
improvements through to fruition. Though quality circles are not the silver bullet solution for
quality improvement, with the right top end management commitment, resources, and organisation,
they can support continuous quality improvement at shop floor level.

Because of the social focus of a Quality Circle group, they can not only improve the performance
or an organisation, but also motivate and enrich the work lives of fellow employees. A typical
Quality Circle group will display a good approach to:

* Analysing the context of a problems and its situation

* Define exactly what the problem is and the relationship between its component parts
* Identify and verify that the causes are indeed causes, ensuring that solutions address the real
problem
* Define, quantify and measure the impact of a given problem
* Understand the quality objectives
* Create a solution to a given problem

Quality Circle groups generally address issues such as improving safety, improving product design,
and improving manufacturing process. Because Quality Circle groups remain intact from project to
project they have the advantage of consistency, though they retain the option to call in expertise or
request training when needed.

Techniques used by a Quality Circle group will usually consist of process capability flow charts, lot
sampling, brainstorming, cause and effect analysis, reverse engineering, value analysis, and pareto
analysis.

Japanese Quality Circles demonstrated the effectiveness of worker teams in identifying and solving
process problems in their own work areas. However the more serious quality problems from non-
manufacturing organisations often arise in activities that span more than one department or
function.

Concept of Quality circle

Quality circle is a group activity, practiced at regular intervals, which focuses on quality practices.
By quality practice ,it is meant teamwork,2 way communication between top and bottom
caders,use of scientific methods for analysis ,continuous problem solving ,humanitarian
approach ,continuous up gradation of work related knowledge and recognition for good work.
Quality circle is voluntary movement. Employees in the organization should be motivated to join
this movement.
Effectiveness of the QC depends on the following factors:
 Commitment of top management
 Following the rule of the game
 Rewarding system prevalent in the organization
Following actions from CEO may be worthwhile:
  Attending quality circle presentations ,whenever in station
 Visiting shop floor and having informal enquires
 Inviting the employees, who have done quality work, to the room and praising them
 Invariably stressing the need for quality work in all the meetings
 Encourage people who work towards quality improvement, by word and deed
Objectives of Quality circle:
 To develop individual skill
 To maintain harmony at workplace
 To create problem solving capability
 To improve self-esteem of members
 To reduce errors on job
 To increase productivity
 To improve communication flow
 To enjoy synergic effect

Structure of quality circle:

A Quality Circle has an appropriate organisational structure for its effective and efficient
performance. It varies from industry to industry, organisation to organisation. But it is useful to
have a basic framework as a model. The structure of a Quality Circle consists of the following
elements.
i. A steering committee: This is at the top of the structure. It is headed by a senior
executive and includes representatives from the top management personnel and
human resources development people. It establishes policy, plans and directs the
program and meets usually once in a month.
ii. Co-ordinator: He may be a Personnel or Administrative officer who co-ordinates
and supervises the work of the facilitators and administers the programme.
iii. Facilitator: He may be a senior supervisory officer. He co-ordiates the works of
several quality circles through the Circle leaders.
iv. Circle leader: Leaders may be from lowest level workers or Supervisors. A Circle
leader organises and conducts Circle activities.
v. Circle members : They may be staff workers. Without circle members the
porgramme cannot exist. They are the lifeblood of quality circles. They should
attend all meetings as far as possible, offer suggestions and ideas, participate
actively in group process, take training seriously with a receptive attitude.The roles
of Steering Committee, Co-0rdinator, Facilitator, Circle leader and Circle members
are well defined.

Advantages:
 Inculcate team spirit among the circle members
 Introduce participative culture in the organization
 Fulfil the higher order psychological needs such as social needs, self esteem needs and self
actualization needs of the members concerned
 Improve the problem solving capacity of members
 Mould the personality of the members in terms of sociability, communication
ability,punctuality,assertiveness,self confidence ,updating of work related knowledge and
self esteem
 Bring in tangible benefits to the organization which in some cases amounts to even lakhs of
rupees of saving per month
 Serve as a venue for “letting off the steam “for employees who are highly stressed
 Proved to be a good channel of upward communication in the organization
 Improve the general morale of the employees
  Cultivate a sense of owing among the employees

Considerations:
 Care should be taken in implementing the quality circle activities in an organization
 Efforts should be taken to make everyone in the organization understand the principle and
advantages of quality circles.
 As said in the beginning ,it is totally voluntary and under no circumstances it should be
forced on the employees
 Slow and steady progress will always have a long life
 Training is very important for the successful implementation of quality circles
 Every single successful effort made by the quality circle should be identified and due credit
given. Proper recognition and reward will motivate members to carry on with vigor
 Achievements of quality circle should be made public at the appropriate time. The other
people in the organization will come to know about the problem, the method of analysis,
solution and implementation processes involved in the problem solved by a particular
quality circle.
 Quality circle members should be encouraged to have the meetings during the working
hours and all possible help should be rendered to conduct the meetings effectively.
 Efforts should be taken to invite even the non-members to participate in the quality circle
deliberations as invitees.
 The members of the quality circles and the other responsible members in the organization
should be patient in answering the questions of the critics and making them understand the
concept in the correct perspective.

What quality circle can do to me and to my organization?

 Increase my self confidence
 My physiological needs are fulfilled
 Gives me more friends
 Relationship between me and my boss improves
 I master problem solving
 Gives me job satisfaction
 It helps me recognize my inner strength
 Quality of my work improves

BPR(BUSINESS PROCESS REENGINEERING)

Business Process Reengineering means not only change -- but dramatic change. What
constitutes dramatic change is the overhaul of organizational structures, management systems,
employee responsibilities and performance measurements, incentive systems, skills development,
and the use of information technology.
Successful BPR Model can result in enormous reductions in cost or cycle time. It can also
potentially create substantial improvements in quality, customer service, or other business
objectives. The promise of BPR is not empty -- it can actually produce revolutionary improvements
for business operations.
On the other hand, BPR projects can fail to meet the inherently high expectations of reengineering.
Recent surveys estimate the percentage of BPR failures to be as high as 70%. Some organizations
have put forth extensive BPR efforts only to achieve marginal, or even negligible, benefits. Others
have succeeded only in destroying the morale and momentum built up over the lifetime of the
organization.
Many unsuccessful BPR attempts may have been due to the confusion surrounding BPR, and how
it should be performed. Organizations were well aware that changes needed to be made, but did not
know which areas to change or how to change them. As a result, process reengineering is a
management concept that has been formed by trial and error -- or in other words practical
experience. As more and more businesses reengineer their processes, knowledge of what caused the
successes or failures is becoming apparent.

Emergence of BPR

In 1990 and again in 1993, some definitive works were put forth by Dr. Michael Hammer,
James Champy, and Thomas Davenport. Hammer, named by Business Week as one of the four
preeminent management gurus of the 1990s, together with Champy, chairman of CSC Index, Inc.

“Business Reengineering is the fundamental rethinking and radical redesign of business

processes to achieve dramatic improvements in critical, contemporary measures of performance,
such as cost, quality, service, and speed."
-- Dr. Michael Hammer

Common Steps when Performing BPR

Project Phases Required For Successful BPR:

Phase 1: Begin Organizational Change
Phase 2: Build the Reengineering Organization
Phase 3: Identify BPR Opportunities
Phase 4: Understand the Existing Process
Phase 5: Reengineer the Process
Phase 6: Blueprint the New Business System
Phase 7: Perform the Transformation

Phase 1: Begin Organizational Change

Activities:
- Assess the current state of the organization
- Explain the need for change
- Illustrate the desired state
- Create a communications campaign for change

The first step is to take a long, hard look at how the organization operates. The focus of this
examination is on the operating procedures and the bottom-line results that are generated by them.
The purpose of performing the analysis described below is to determine whether dramatic change
by doing BPR is really necessary. It may be that only marginal change (the result of Continuous
Process Improvements, Total Quality Management, and other similar programs) is needed -- which
would expose the change initiative and the organization to much less risk.

Aspects of the business that need to be evaluated are: how things are currently done, what
changes may be occurring, and what new circumstances exist in our business environment. Next, a
look at how certain operating procedures within the organization have caused or will cause
irreparable damage to the company’s livelihood. What is the source of the organization’s concern?
Maybe the demands of the marketplace are shifting. Perhaps competitors have made significant
advancements in products and services. Regardless of the reasons, it should be clear whether or not
the organization, in its current state, is able to meet the needs of the markets it serves. The
consequences of inaction should be identified and well understood. In most cases, these
consequences are the loss of jobs by shutting down portions of the business, or perhaps the entire
business. Finally, the proper future direction of the organization should be decided. The future
 "vision" of how the business must operate will serve as a clear and concise guide with
measurable goals for employees to focus on.

If an organization wishes to change the way it operates, it must turn to its people to make it
happen. People are the agents of change. Creating business plans and strategies are important, but
they are only tools to guide the actions of people.

Phase 2: Build the Reengineering Organization

Activities:
- Establish a BPR organizational structure
- Establish the roles for performing BPR
- Choose the personnel who will reengineer

An infrastructure must be established to support reengineering efforts. Although this phase

consists of only a few tasks, it has a tremendous impact on the success of a BPR endeavor. Who are
the people that will be chartered to reengineer the business? What will their responsibilities be?
Who will they report to? These are the questions that must be answered as the reengineering staff is
gathered together to communicate, motivate, persuade, educate, destroy, create, rebuild, and
implement.
One of the most important members of the reengineering effort is the executive leader. The
leader must be a high-level executive who has the authority to make people listen, and the
motivational power to make people follow. Without the commitment of substantial time and effort
from executive-level management, most BPR projects cannot overcome the internal forces against
them and will never reach implementation.
A process owner is responsible for a specific process and the reengineering effort focused
on it. There should be a process owner for each high-level process being reengineered. Allocating
the responsibility of a process to a specific person ensures that someone is in charge of how that
process performs. Process owners are usually appointed by the executive leader.
The process owner convenes a reengineering team to actually reengineer his or her process.
The team dedicated to the reengineering of a specific process should be made up of current
insiders, who perform the current process and are aware of its strengths and weaknesses, along with
outsiders who can provide objective input to spark creative ideas for redesign. The team should be
small, usually five to ten people. Since they will be the ones who diagnose the existing process, and
oversee the redesign and implementation, they should be credible in their respective areas. This
qualification plays an important role in reducing the resistance by company personnel to the new
process.
In some BPR initiatives it is helpful to institute a steering committee. Especially in larger or
multiple reengineering projects, a steering committee can control the chaos by developing an
overall reengineering strategy and monitoring its progress.
Lastly, a reengineering specialist can be an invaluable addition to the overall effort. A
reengineering specialist can assist each of the reengineering teams by providing tools, techniques,
and methods to help them with their reengineering tasks.

Phase 3: Identify BPR Opportunities

Activities:
Identify the core/high-level processes
- Recognize potential change enablers
- Gather performance metrics within industry
- Gather performance metrics outside industry
- Select processes that should be reengineered
- Prioritize selected processes
- Evaluate pre-existing business strategies
- Consult with customers for their desires
- Determine customer's actual needs
- Formulate new process performance objectives
- Establish key process characteristics
- Identify potential barriers to implementation
In this phase, we begin to break away from normal patterns of identifying business
opportunities. We start by dividing the entire organization into high-level processes rather than the
usual vertical business areas such as marketing, production, finance, etc. These processes, usually
less than a dozen, are the major or core processes of the organization. This activity is not a time
consuming task, but it is difficult because it requires a shift in how we think of ourselves. One goal
here is to identify the process boundaries (where the process begins and where it ends), which will
help set the project scope for those processes that are to be reengineered.
In many cases, seeing the company from the customer’s point of view can help identify
what these high-level processes might be. For example, when Texas Instruments outlined their
major processes for their semiconductor business, they came up with only six processes as follows:
Strategy Development, Product Development, Customer Design and Support, Order Fulfillment,
Manufacturing Capability Development, and Customer Communications. Each of these processes
converts inputs into outputs.
At this point, it is helpful to begin thinking about potential change levers which may lead to
dramatic changes in the organization’s processes. Change levers usually will fall under one of three
categories: the use of information, the use of information technology, and human factors. What new
information is available and easily accessible to the organization? What new technologies have
recently been introduced, or are on the horizon, that can change how businesses and customers
interact? What new ways of structuring cross-functional work teams, compensation systems, and
incentive methods have proven to be effective in improving operations within other organizations?
In many instances, a modification in one of these areas requires changes in the other two areas to be
the most effective.
Once the major processes have been defined, we need to decide which of our high-level
processes needs to be reengineered. The most objective and accurate way is to compare the
performance of our high-level processes, identified earlier, with the performance of our competitors
as well as organizations outside of our industry. Even if we outperform our direct competition,
there may be companies in other industries which may be much more effective in performing a
similar task -- such as order fulfillment or product development. If we fulfill orders in six months,
Phase 4: Understand the Existing Process
Activities:
- Understand why the current steps are performed
- Model the current process
- Understand how technology is currently used
- Understand how information is currently used
- Understand the current organizational structure
- Compare current process with the new objectives

Now that we know which process to reengineer, we need to take a look at why we currently
perform the process the way we do. Understand is a key word here. We may not need to scrutinize
every detail of how we are performing the process -- this effort has the potential to go on
indefinitely, sometimes referred to as analysis paralysis, which can weaken the momentum needed
to carry the project all the way to implementation. What we need to do is understand the underlying
reasons why the existing process is carried out the way it is, so that we can question those
assumptions during our reengineering sessions later on. When we have the new process objectives
clearly defined (in Phase 3), we can measure our existing process in terms of the new objectives to
see where we are and how far we have to go.
 Modeling the current process is an important part of this phase. It not only helps us to better
understand the existing process, but also helps with planning the migration from the old to the new
process and executing the physical transformation of personnel, organizational structures,
information requirements, and how technology is used. Information that should be included in the
models are process inputs (such as task times, data requirements, resources, demand, etc.) and
process outputs (such as data outputs, cost, throughput, cycle time, bottlenecks, etc.).
Understanding how and why the current processes use information is also important. Do staff
members have access to essential information? Are some business areas wasting time and effort by
creating duplicate information when it can be shared across organizational boundaries? Why is
technology used to support some tasks and not others? How effective are the current interfaces?
Are they easy to use, or are they counter-intuitive and thus inhibit the effectiveness of current
tasks? In what way does the existing process take advantage of technology, and in what way has
technology imposed artificial restrictions? We need to end up with an estimate of the current cost,
robustness, and functional value of each technology and information systems currently being used.

Phase 5: Reengineer the Process

Activities:
- Ensure the diversity of the reengineering team
- Question current operating assumptions
- Brainstorm using change levers
- Brainstorm using BPR principles
- Evaluate the impact of new technologies
- Consider the perspectives of stakeholders
- Use customer value as the focal point

During this phase, the actual "reengineering" begins. We’ve moved from strategy and
analysis phases into the redesign phase. The Reengineering Team that was formed to take
part in the reengineering sessions should consist of designers and implementers, including people
well versed in technology. These team members should come from both inside and outside the
existing process.

The "inside" perspective may reveal information about the existing process that was not
uncovered in Phase 4. Having people who will be the future process owners, or those responsible
for the new process, is a critical component of the Team. Including the future owners will help to
ensure that the reengineered process succeeds once it is implemented.

Equally important is the "outside" perspective of someone who will look at the process with
a "fresh eye" and raise questions about operating assumptions that may not be obvious to the
insider who might be too close to the process to see this.
Lastly, a technologist will provide insight as to how technology can be applied in new and
innovative ways. In other words, the technologist will help to visualize how the process can be
performed outside the boundaries of the current implementation. Including both outsiders and
technologists on the team will help spark "out-of-box" thinking (thinking creatively above and
beyond the current restrictions - the walls of the box).
Having developed a good understanding of how the existing processes work in the previous
phase, it is now necessary to question the operating assumptions underlying the processes. Is there
some (outdated) historical reason why a process has been performed a certain way? Are there
customer requirements that dictate the steps in a process? Many times the operating assumptions
can be thrown out and new ones developed. However, it is important to evaluate the impact the
assumptions have outside the process in question.
 The Reengineering Team is now tasked with brainstorming to create new process ideas.
According to Hammer, brainstorming sessions are most successful when BPR principles are
considered.

Phase 6: Blueprint the New Business System

Activities:
- Define the new flow of work
- Model the new process steps
- Model the new information requirements
- Document the new organizational structure
- Describe the new technology specifications
- Record the new personnel management systems
- Describe the new values and culture required

Blueprints are detailed plans required to build something in accordance with the designer’s
intentions. In BPR, blueprints must be created to identify all the necessary details of the newly
reengineered business system and ensure it will be built as intended. This phase of the project takes
the reengineered process developed in the previous phase, and provides the details necessary to
actually implement it.
Blueprinting involves modeling the new process flow and the information required to
support it. Just as we modeled the "as is" process and information requirements in Phase 4, we need
to create "to be" models to illustrate how the workflow will be different. The information models,
or data models, will indicate where the new process will use information that is shared across
functional areas of the business.
The blueprints should also contain models of the redesigned organizational structure.
Instead of the traditional organization chart, a different kind of chart is needed. This chart will show
the new process flow along with the process team members, the process owners, the case managers,
the process facilitators. The chart should also indicate parts of the organization which interact with
the process personnel.
In addition, detailed technology specifications required to support the new process should
be defined. Although minor changes, or fine tuning adjustments to the technical configuration will
probably occur during the implementation phase, an initial physical description of the technologies
used and their physical specifications should be recommended inthis phase, to set the stage for
rapid application development.
Included in the blueprints should be the new management systems and values or belief systems of
this redesigned area of the business. New management strategies, along with new performance
measurements, compensation systems, and rewards programs should be outlined. The reengineered
process may require a change in the values or belief systems of the company. The redesign may
require an entirely different culture, or atmosphere, than what is prevalent in the organization
today. It is critical to have these areas, and their responsibilities, defined as we go into the
implementation phase.

Phase 7: Perform the Transformation

Activities:
- Develop a migration strategy
- Create a migration action plan
- Develop metrics for measuring performance during implementation
- Involve the impacted staff
- Implement in an iterative fashion
- Establish the new organizational structures
- Assess current skills and capabilities of workforce
- Map new tasks and skill requirements to staff
- Re-allocate workforce
- Develop a training curriculum
- Educate staff about the new process
- Educate the staff about new technology used
- Educate management on facilitation skills
- Decide how new technologies will be introduced
- Transition to the new technologies
- Incorporate process improvement mechanisms

Now we are ready to transform the organization. We have communicated, strategized,

analyzed, reengineered, and blueprinted our ideas for the new process. This is where all of the
previous efforts are combined into an actual business system -- something we can see and feel and
use to enable our organization to meet the market demands of today and tomorrow.
The first step in transforming the organization is to develop a plan for migrating to the new
process. We need a path to get from where the organization is today, to where the organization
wants to be. Migration strategies include: a full cutover to the new process, a phased approach, a
pilot project, or creating an entirely new business unit. An important point to consider is the
integration of the new process with other processes. If only one process is reengineered, then it
must interact with the other existing processes. If multiple processes are slated for reengineering,
then the new process must not only integrate with existing processes, but also with the newly
reengineered processes that will come on line in the near future; therefore, the implementation of
the new process must be flexible enough to be easily modified later on.
Successful transformation depends on consciously managing behavioral as well as structural
change, with both sensitivity to employee attitudes and perceptions, and a tough minded concern
for results. BPR Implementation requires the reorganization, retraining, and retooling of business
systems to support the reengineered process.
The new process will probably require a new organization, different in structure, skills, and
culture. The new management structure should result in the control paradigm being changed to the
facilitation paradigm. The new process team structure should result in the managed paradigm being
changed to the empowered paradigm. Once the new structures are established, we should map tasks
in the process to functional skill levels, and ultimately to workers.
Transforming the workforce will require an array of activities. It begins with an assessment
of the current skills or capabilities of the workforce to include soft skills, operational skills, and
technical skills. This inventory may require personal evaluations (including areas of interest), peer
evaluations, and supervisor evaluations. Feedback should be provided to all personnel to ensure
accuracy of current skills and interests for all staff. Armed with the new process skill requirements
and a current skills inventory, the gaps can be assessed. Is the new process feasible with the current
skill set? Which are the areas to focus on to enhance personnel skills to meet the requirements of
the new process? An education curriculum needs to be established to get all employees educated on
the business and, most important, on how their jobs relate to the customer.

Need of BPR

Why do BPR?

· Defines set of standards and benchmarks for stakeholders to follow

· Drives out efficiency savings in the business
· Promotes a higher return on investment on existing IT initiatives
· Satisfies regulatory and/or risk pressures
Which areas require business processes defined?

· Parts of business where ownership is confused

· Processes that require large numbers of collaborators
· Process that have a high expectation
· Process to mitigate key risks
· There is dependency on 3rd parties
· There are legal or regulatory obligations

Productivity and Production Management

Production is the process of creating, growing, manufacturing, or improving goods and
services. It also refers to the quantity produced.

In economics, productivity is used to measure the efficiency or rate of production. It is the amount
of output (e.g. number of goods produced) per unit of input (e.g. labor, equipment, and capital).

In biology, productivity is a measure of the efficiency with which a biological system converts
energy into growth

By Ismael D. Tabije

In economics, productivity is the amount of output created (in terms of goods produced or
services rendered) per unit input used. For instance, labor productivity is typically measured as
output per worker or output per labor-hour.

Production, however, is the act of making things; in particular the act of making products that
will be traded or sold commercially. Production decisions concentrate on what goods to produce,
how to produce them, the costs of producing them, and optimizing the mix of resource inputs used
in their production.

Productivity and production management is the art of conducting and directing, through the
application of frameworks and techniques, all aspects and operations of developing, creating, and
innovating products.

Productivity and production management's ultimate goal is the efficient consumption and
allocation of resource inputs to maximize the quality and quantity of goods produced or services
rendered.

To improve productivity and production management, organizations should use forecasts on

demand to preordain production plans. Through it, miscalculations could be sidestepped.
Businesses that produce to order would be able to supervise the backlog of unfilled orders, while
those that produce to stock would be enabled to observe and control the level of inventory.
Forecasting capabilities could be enhanced by way of incorporating excellent information
technology.

Another tool for enhancement is standardization—a necessary foundation on which

innovations can be focused. Standardizing methods can be implemented by prognosticating
revolution on product and on process. These involve methodologies such as process reengineering
and major product redesign, both requiring process automation. Some enterprises choose to do
small upgrading at a time to minimize the cost of these processes.
 Another way to improve productivity and production management is keeping managers
vigilant of the factors that constitute problems regarding quality, cost and time in the production
area. The most popular approaches are lean manufacturing and workplace improvement. Both
approaches encourage worker and management collaboration emanating mutual respect; and
straightforward and transparent improvement methodologies.

Lean marketing is the methodical extermination of wastes that are the root of productivity and
production incompetence and slow advancements. These wastes may include: overproduction;
inaccurate inventory; slow-paced transportation; product defects; and unnecessary processes.

Workplace improvement involves activities such as developing good relationships circling

around the workers, management, suppliers and consumers; acquiring proper and state-of-the-art
technology; empowering workers to make improvements; improving production scheduling, quality
assurance, inventory, manufacturing methods and efficiency control; and conserving materials,
energy and time.

To gain productivity and production management advantage, the aforementioned can be

organizationally applied. If not, researching on ways on developing this field could be conducted.
One point is vital: total restructuring of productivity and production ways is harder than
maintaining good and tested practices.

Productivity of an organization is defined as the ratio of outputs produced by the

organization and the resources consumed in the process. Thus we can describe productivity
mathematically as:
Productivity = Output / Inputs
Here the output refers to the quantity of and services produced by the company, and inputs
refers to the quantities of resources such as labor, material, physical facilities, and energy
consumed for producing the same.
Production is the total output produced by an organization in a given period. These outputs
consist of the goods and services that are supplied by a company to its customers.
Productivity is concerned with the inputs used in the process. Thus productivity represents
only the numerator in the above equation for productivity.
Productivity is used to assess the extent to which certain outputs can be extracted from a
given input. We can measure productivity for a single input resource such as manpower used, or for
multiple resources. There can be many different types of productivity measurement depending on
the type of resources considered. Some of the most common types of productivity measurements
include labor productivity, machine or capital productivity, material productivity, and land
productivity. Here the term ‘land’ is used to denote all natural resources rather than just land.
Managers also need to pay attention to the total production to make sure that a company is
meeting the requirements of products and services required by the customers.
Managers also need to pay attention to production for production planning and scheduling.
Similarly, long term planning of sales volumes and production capacities also requires
focusing on production.
Any manufacturing unit would have a production facility where good are produced .Production
comprises of man , machine and material .Proper allocation of jobs , layout and material results in
cost efficient production .

What is productivity

Productivity measures the efficiency with which resources such as labour or capital are
employed in the production process. There are two widely used productivity measures; labour
productivity and multifactor productivity.

Labour productivity is measured as real output per hour worked. Multifactor productivity,
a broader measure of efficiency, is measured as real output per unit of combined inputs (capital,
labour, etc).In essence, this is the efficiency of all or your factors of production.

A business wishing to improve its profitability must undertake certain steps that can guarantee to
provide the desired results. One of the things that the management staff must give important
notice is the production and productivity of the business as a whole. As has been known, to
increase the profitability of an enterprise, certain things must be improved in the workplace. To
increase productivity is one of these.

Activity can be identified with production and consumption. Production is a process of combining
various immaterial and material inputs of production so as to produce tools for consumption. The
methods of combining the inputs of production in the process of making output are called
technology. Technology can be depicted mathematically by the production function which
describes the function between input and output. The production function depicts production
performance and productivity is the metric for it. Measures may be applied with, for example,
different technology to improve productivity and to raise production output.

Location:

Companies now days are shifting base to lower cost of production which make sense .
production base in cities or metros have become non viable as cost of living , cost of raw
material ,overhead cost and tranportation cost have gone above the roof . Companies are moving
to low cost areas like CHINA , INDIA , UKRAINE ,IRELAND , VIETNAM ETC .locally
companies have shut operation in DELHI , MUMBAI , CHENNAI , KOLKATA and moved to
areas like UTTARAKAND , JHARKHAND , JAIPUR , BADI , etc .

WORK STANDARDS
All standards for operations should be displayed at working stations in local language s
with do's and don'ts.

Autonomous Maintenance

Operators to be trained to do regular maintenance instead of waiting for maintenance

personnel to come and attend these breakdowns .Preventive maintenance to be scheduled for
better performance of Machines.

Manpower Allocation Per Machine

It has to be ensured that the manpower deputed per machine should be adequate and is not
low or high .
Tools
Necessary tools to be placed near work stations

Work And Time Study

Measure the time taken by a worker to complete a job with some industry standards and in
case execessive labour is employed then the additional one can be relocated .

Reduce Loss Of Time During Shift Change Overs

production boards at each work stations

Labour Productivity

Handling

The handling of product and raw material shoudl be reduced to minimum by either putting
of conveyors or automatic transfer to the machine .

Movement

To have minimum movement of manpower for getting material , tools and shifting .

Rework

To have zero defective and rework as it is nothing but pure waste . The first step towards
elimination is to adopt standards like ISO -9000 & GMP or in house standards.

Physical Stress

Study the positions of worker while working and eliminate those position were worker
feel uncomfortable or experience stress while working .This would help in better prod

FACTORS AFFECTING PRODUCTIVITY

Productivity is a technique of extracting greater output from the inherent input creativity of
various resources through the conversion efficiency. The conversion efficiency which changes the
level of productivity is largely affected by numerous factors. All these factors affect the level of
productivity either individuality or jointly. Some important are classified as under:

1) Technological;
2) Managerial;
3) Financial
4) Natural
5) Sociological, and
6) Government
Technological factors: The technological advancement always strives to achieve the increased of
production with minimum of costs and efforts, which always result into increased productivity e.g.
application of mechanized power, automation etc

Managerial factors: Progressive and imaginative managerial skill always taps greater output of the
human and nonhuman resources.
Good organizational relationships: Delegation of authority, true recognition of human factor,
imaginative judgment results into increased productivity and contented labor force.

Financial factors: The availability of financial resources enables the organization to spend moneys
for the research and development, employment of professional executives, adaptation of latest
technology, provision of amenities, effective stock piling and material control. All these factors
directly affect the level; of the productivity. The low level of productivity and poor industrial
growth of the underdeveloped countries is due to poor capital formation and constraints on the
financial resources.

Natural factors: The natural resources like geographical physical and climatic conditions directly
affect the level of the productivity. The effect of these factors is confined to certain type of
industries and the possibility of bringing them within the control e.g. humidification in textile
industry quality thickness ad depth of the mineral resources; climate effect on the labor efficiency
etc.

Sociology factors: The generic characteristics, racial quality etc has a great impact on the
productivity of the labor. The productivity is also affected by the attitude of the workers towards
the work and the approach of the management towards the working force and the provision of
working conditions.

Government Policy: The Government policy regarding financial incentives taxation policy, tariff
policy, industrial licensing labor laws etc also affects the productivity e.g. provision of concessional
loans for modernization tax incentives for the expenditures on research and development etc help in
increasing the level of productivity.

Productivity Movement in India:

Productivity in industrial under takings has assumed greater importance in recent years,
especially due to increased national and international competition and limitation of resources. It
encourages efficient utilization of scarce resources.

After independence Government of India intended to increase productivity consciousness in

the country. So in 1952 and 1954 it invited the team of experts of International Labor Organization
(ILO) with a view to establishing Productivity Center in the country. In 1957 Government of India
appointed a Committee on Productivity under the Chairmanship of DR Vikram Sarabhai. It visited
Japan to study the constitution, administration and working of Productivity Center of Japan. The
Committee submitted its report in March 1957. On the basis of the recommendations of the
Committee, the National Productivity Council (NPC) was established in India in February 1958.
NPC is registered as an independent autonomous body under the Societies Registration Act, 1860.
The main objects of the NPC are:

1) To promote productivity consciousness in all sectors of national economy

2) To disseminate the knowledge of the concepts n techniques of productivity and demonstrates
their values and validity in the practical application.

NPC is an autonomous national body having 75 members representing various groups as under:

a) Central Government (12 members)

b) Representatives of employers (12 members)
c) Representatives of employees (12 members)
d) Representatives of Local Productivity councils (12 members)
e) Representatives of several national, professionals and technical organizations

The administration of the NPC is done by the Governing Body. The Governing Body is
elected from among the members of the NPC with 25 members. It is represented by five members
each of Central Government, employers and employees plus representatives of local Productivity
Councils. It is a policy making body and meets once in a quarter.