The company, productivity and standards
A line with 90 % availability, 86 % performance and 97 % good parts seems to be working well, but its overall effectiveness is 76 %: of 450 planned minutes, only 340 produce good parts at the ideal speed.
01The company as a production system
An industrial company transforms inputs —materials, energy, labor, capital, information— into products and services that it sells in a market. It can be seen as a system with inputs, a transformation process, outputs and control loops: planning sets objectives, measurement compares what was achieved and management corrects. Its legal forms, such as the corporation or the limited liability company, were covered in commercial companies.
| Structure | How it groups | Advantage and limit |
|---|---|---|
| Functional | By specialty: production, engineering, sales, finance | Technical efficiency; coordination between areas is slow |
| Divisional | By product, customer or region | Each division answers for its result; duplicates resources |
| Matrix | By function and by project at the same time | Flexible; each person has two bosses |
02Productivity
Productivity relates what is produced to the resources used. It can be partial —parts per labor hour, per kWh, per kilogram of material— or total, when outputs are compared with all the inputs valued in money. It is not the same as output: producing more by using proportionally more resources does not improve productivity. It is improved with better methods, better technology, less waste, better quality and better-trained people.
03Standards
A standard is an agreed reference that makes it possible to plan, compare and control. In a company there are time standards, the time a qualified worker needs for a task with a defined method; product standards, the specifications and technical norms it must meet; materials and cost standards; and management standards, such as the ISO 9001 quality or ISO 14001 environmental standards. Without standards there is no way to know whether a result is good or bad.
04Overall equipment effectiveness
Overall equipment effectiveness (OEE), born with total productive maintenance in Japan, measures what fraction of the planned time is converted into good parts at the ideal speed. It breaks down into three factors:
A 480-minute shift with 30 minutes of planned stops and a machine with an ideal cycle of 30 s. The bars show how minutes are lost from the planned time down to the effective time of good parts.
05In the laboratory
Draw the organization chart of a well-known electronics company from its public information and classify its structure.
Measure the labor productivity of a board assembly in the laboratory before and after improving the method.
During a practice session, record the stops, parts and defects of a machine or a process, and calculate its overall effectiveness.
06Common mistakes
- Confusing output with productivity. Producing more is not better if proportionally more is used.
- Looking at only one factor of overall effectiveness. A machine that is always available but slow, or that produces defects, yields little.
- Using the actual cycle as the ideal cycle. It hides the speed losses.
- Setting standards without a defined method. The standard time is valid for one method; if the method changes, it has to be measured again.
07Self-assessment
With the initial lab values, what are D, R and C?
D = 405/450 = 0.90; R = 700 · 30 s / 405 min = 0.864; C = 680/700 = 0.971.
And the overall effectiveness?
0.756: equivalent to 680 good parts at 30 s each, 340 minutes of the 450 planned.
What advantage and what limit does a matrix structure have?
It combines specialties in each project; in exchange, each person reports to two bosses.
What is a standard time?
The time a qualified worker needs, at a normal pace and with a defined method, plus allowances for rest and personal needs.
08Further reading
- International Labour Organization (George Kanawaty, ed.). Introduction to Work Study. 4th ed., ILO, 1992. (Spanish edition: “Introducción al estudio del trabajo”, 4th ed., ILO, 1996.) Productivity and the study of methods and times, freely available.
- Seiichi Nakajima. Introduction to TPM: Total Productive Maintenance. Productivity Press, 1988. The origin of overall equipment effectiveness and its six big losses.
- Idalberto Chiavenato. Introducción a la teoría general de la administración. McGraw-Hill. (In Spanish.) Organizational structures and their characteristics.