In my advisory and training visits to multiple companies I have been able to conclude that there must be as many staff productivity measurements as companies I have visited.
A priori, that wouldn't be a cause for concern. The problem arises when we investigate the calculation formula, the assumptions behind it, and what lies beyond the typical phrase. “our productivity is….” and enter the number you want.
Over the years, I've learned not to take the value companies display too seriously. I hope my clients don't get angry when I say this...
Whether it is said that “Our productivity is 84%” either “Our productivity is 48%” In both cases the most effective thing is to reply immediately “Would you allow me to see the calculation formula?”
And here it all begins…
Yes, the first thing that stands out is the number of assumptions and statements, poorly verified in reality, that determine the final result. It's assumed that this or that happens in the plant, which is why the calculations are made that way... A simple visit to the factory floor reveals the falsity of this assumption.
It also happens that what is understood by Staff Productivity is not always the same. Sometimes, there are even some conceptual errors regarding what Staff Productivity means. This is more complex to manage because there is often enormous resistance to recognizing it… (we don't like being told we're wrong…)
Without claiming to be exhaustive, let's start with what we believe should be taken into account when measuring Staff Productivity. That is, let's first present our assumptions. Our understanding of productivity. (As this is a long topic, we'll do it in several short notes.)
For the analysis we will use as an example Company XYZ, which manufactures a huge variety of products through the processing and welding of pipes.
What do we mean by Productivity?
First things first. According to Eliyahu Goldratt, the great systems thinker of organizations, “Something is productive only if it increases the company's profits.”
From this perspective, the first difficulties in measuring Staff Productivity arise. If I don't link it to profits and, as is often the case, only relate it to the time factor, then we could be measuring the speed of a process, which may be useful, but doesn't necessarily lead to an increase in the company's overall productivity. Here, then, we have the first problem: speed is not the same as productivity.
Systems Theory teaches that If a system is working as well as it can, only one of its component parts will be functioning at its best. In other words, this means that the strength of a chain is determined by its weakest link. Or, as the saying goes, a thread always breaks at its weakest point.
What does this mean?
It's pointless to improve a link and make it more resilient, "more productive," unless that link is the weakest in the chain, since only then will there be a real improvement in the system. If what we do is make the weakest link stronger, this means that the chain as a whole is now stronger. We have improved it by making it more "productive." If, on the other hand, we reinforce a link that is already more resilient than the weakest link, the result is nothing. We have improved nothing. And the chain will remain as strong as its weakest link.
This applies to a chain as well as to an administrative process, a production line, and any other continuous improvement process.
So, when measuring productivity, we should always link it to overall system improvement. And what interests us as a system is improving the company's profitability. Therefore, we return to what Goldratt always reminded us: We can say that something is productive only if it increases the company's profits.
From this point of view, the first conclusions appear.
If Staff Productivity is measured without considering the entire company system, we may fall into the error of measuring local speed in this area or that one of the company. We are looking at the tree instead of the forest, and as we said, if the point being analyzed is not the weakest, that is, if this sector whose productivity is being measured is not the true bottleneck, improving it will not imply any benefit for the system as a whole. Since Improving any part other than the operational constraint is of no use.
Let's go to our example.
Company XYZ processes pipe and let's suppose they want to manufacture 1000 chairs.
Sector A cuts the pipe, bends it and welds it.
Sector B paints it
Sector C covers it
Sector D delivers it to customers
In our hypothetical example and with the noble objective of improving the company's results, a “Productivity Award” which consists of measuring the number of parts processed by each sector per unit of time. A priori, it seems like a good idea, doesn't it?
The team of workers belonging to Sector A—cutting, bending, and welding pipes to create some of the products—think they can increase their monthly income with a little effort, since the prize is so attractive. What happens then? The group will work at top speed, trying to maximize production in order to win a tasty "Productivity Prize."
And you might ask, what's wrong with all this? Well, since the business isn't about cutting, bending, and welding pipes, but rather about selling chairs and collecting money for them, by favoring these types of prizes, the natural result is an overproduction of component parts (since the chair hasn't been finished yet, it can't be sold or collected money). Since the goal is to collect more prizes, more products are manufactured, whether they're necessary or not. Here, then, is the second problem: production is not the same as productivity.
What happens is that the company rewards the increased workload of the sectors, and for some reason still unknown, Sector B cannot keep up with Sector A, which increased production by 25%. Since this additional quantity cannot be processed by the next sector, it remains in process inventory. (This brings the additional inconvenience of requiring machine hours and man-hours to count, store, and move this excess production in some cases. To make matters worse, since the products were not used immediately, potential quality problems appear after a few days, when it is too late to understand the causes and avoid continuing to manufacture non-conforming products.)
If this practice continues every day, the consequences are dramatic: The members of Sector A will receive a substantial bonus at the end of the month. They deserve it! The company, for its part, will not have generated any additional income because all that extra production, which was rewarded by the company, never turned into final products that could be sold and collected.
Conclusions
Since a company's business is to maintain a continuous flow of products that meet real demand, it's pointless to measure individual effort alone. One of the unintended, but completely logical, consequences of doing so is that departments will work only for themselves, trying to prove they are more "productive." Doing so in a way that is disconnected from the rest of the organization has detrimental consequences for the company, as it generates other losses that only worsen the organization's performance. In our example, this is the loss due to overproduction.
Measuring the efforts of each person or each sector separately, without considering the entire company, although it may be beneficial to separate the wheat from the chaff, runs the risk of focusing only on the individual efforts of each person or sector, to the detriment of the company itself. This loses focus on the real business, even if everyone is doing their best.
As we said: Speed is not the same as Productivity. Production is not the same as Productivity. What we'll end up with is a sector producing more than necessary or sooner than required by the internal customer, which constitutes one of the 8 Lean Losses that should be combated. The tragedy is that not only are they not combated, but they are rewarded...
To be continued…
Ing. Raul A. Perez Verzini, MDCO
TPM Instructor No. 723 – JIPM
