Fiji operates in markets with ever diminishing boundaries of trade, be they legislative, geographical or cultural. Fiji manufacturers and service providers compete with the people and organisations of nations from next door to half way around the world, not only for export dollars but also for the dollars spent domestically by competing with imports.
To compete in its existing niche markets, both domestically and abroad and gain entry into new markets, Fiji needs to continually improve productivity in all its forms at all levels of government and private enterprise.
The maxim of ‘we are what we measure’ applies to improving productivity as much as other initiatives an organisation might undertake. Many organisations however, do not think through sufficiently well what productivity they need to improve and therefore measure. The results in such cases may be a wasted effort and no or a negative return. Often organisations limit themselves to the return on their labour input. They do not manage constraints on a broad enough basis.
Productivity can be simply defined as the level of output divided by the level of input or asset. The inputs and outputs can be measured as units of items or time or dollars. If we consider the breadth of inputs into an organisation, then there are many more determinants of an organisation’s productivity than simply its labour input. Examples which easily come to mind are its fixed asset base, working capital, intellectual property and other financing inputs such as shareholder’s equity and borrowings.
Before setting out to measure and improve productivity it is important that organisations analyse their ‘business’ to understand what their constraints are. That is, what is it about their conversion of inputs that is restricting their ability to grow or to achieve their other objectives?
When I managed a lubricants manufacturing and distribution plant, one symptomatic problem was a congested warehousing and distribution space, which created delays in despatching, re-entry and re-picking of goods and eventually corruption of data which lead to delays in despatching etc., a classic value destroying circle. The answer to our apparent constraint was to build a bigger warehouse or put on more staff.
As an organisation, productivity was a key platform to achieve the efficiencies we regarded that were necessary to compete. The push which we had on productivity revolved around measuring productivity as the number of litres filled per man hour. It drove our view on investment, staff training and non monetary rewards.
The easiest way for our staff to get high productivity numbers was to fill 205 litre drums in favour of 60 and 20 litre containers as the volumetric fill rates were two to three times higher. That meant in turn that the last few thousand litres to be filled out of a vessel into 60 and 20 litre containers was left each day in favour of filling larger containers out of another vessel.
Products which needed to be manufactured in the vessel that had not been emptied were queued for up to twenty days or more waiting for the vessel to be finally emptied. It was calculated that to accommodate the long lead time to replenish stock about thirty percent more stock had to be held than otherwise would have been needed. The overflow of stock compromised the loading and despatching areas leading to the symptomatic problems.
The assets we had were theoretically enough to complete the task in one shift and yet we struggled to do so with 20% overtime. The more we pushed productivity in litres per man hour the worse our performance with customers became.
After a review of our manufacturing processes, it was determined that our constraint was our ability to repeatedly and reliably manufacture to plan in short lead times. The behaviour of the production staff driven by the choice of measure of productivity guaranteed long production lead times. Changing the productivity measure from litres per man hour to achieving 96% of manufacture and filling under a set maximum replenishment interval independent of the volume, led to several expected and unexpected results.
First the staff spent less time trying to improve the productivity figures from their own version of creative accounting. Second, stock levels were reduced by forty percent. Third, with shorter lead times, some products were able to be moved to a make to order system, further reducing stock levels. Fourth, space was created for loading and despatching to work as designed improving despatch turn around times and customer satisfaction. Fifth, productivity measured as litres per man hour increased due to less time being taken to rush orders through and make labour allocation adjustments on the fly.
Analysing an organisation’s constraints including poor policy and process design driving inappropriate behaviours, unsuitable assets creating bottlenecks and inappropriate competence levels of people creating deviations from efficient processes is a necessary step to improving productivity. Only after understanding the constraints can appropriate measures be developed and action be taken.