ari nousiainen measuring productivity in a production environ

94 Pages·2016·1.46 MB·English

by  Nousiainen, Ari E.

ARI NOUSIAINEN
MEASURING PRODUCTIVITY IN A PRODUCTION ENVIRON-
MENT
Master of Science Thesis

Prof. Petri Suomala has been ap-
pointed as the examiner at the Coun-
cil Meeting of the Faculty of Business
and Build Environment on November
4th, 2015.
i

ABSTRACT
NOUSIAINEN, ARI: Measuring Productivity in a Production Environment
Tampere University of Technology
Master of Science Thesis, 85 pages, 3 Appendices (4 pages)
May 2016
Master’s Degree Programme in industrial engineering and management
Major: Industrial Management
Examiner: Professor Petri Suomala

Keywords: Productivity, productivity measurement, time-based measuring, per-
formance
A vast amount of productivity research has been conducted regarding the measuring of
productivity since acknowledging the term in firm environment. Although only a part of
it has been focusing on environment, where a high level of customization in capital in-
tensive products exists. The objective of this thesis is to find out the current state and
challenges of measuring productivity in the case company’s four global equipment facto-
ries and suggest a more standard way of measuring the productivity in manual assembly
in order to better control and improve productivity. Based on the literature review, a the-
oretical framework for measuring productivity has been made, which is used as a theo-
retical base for this thesis. The material in this thesis was collected through semi-structure
interviews held with the key persons in the factories.
The findings in the current state are made regarding the use of productivity metrics, meas-
uring in general, and setting of targets. Moreover, the challenges discovered in produc-
tivity measuring are concerned with the definition of productivity, commensurability of
inputs and outputs, defining of standards, target setting, production planning and control,
data utilization, and the narrow interpretation of measures.
As another result of this thesis, suggestions are made for a more standard way of meas-
uring. Jointly with the framework constructed in literature review, it is suggested that both
manual assembly efficiency (MAE) and value-added time to total time can be used for
measuring productivity, while tracking and monitoring several production hours simulta-
neously. Moreover, it is emphasized that the measuring should be concerned with multi-
ple levels of the organization and done in interplay with other departments. In addition,
the targets for measuring are emphasized to be defined and updated through work meas-
urement and the use of a learning curve formula. Furthermore, an updated framework
based on the results of this thesis is presented.
ii
TIIVISTELMÄ
NOUSIAINEN, ARI: Tuottavuuden mittaaminen tuotannollisen ympäristön
Tampereen teknillinen yliopisto
Diplomityö, 85 sivua, 3 liitettä (4 liitesivua)
Toukokuu 2016
Tuotantotalouden tutkinto-ohjelma
Pääaine: Teollisuustalous
Tarkastaja: Professori Petri Suomala

Avainsanat: Tuottavuus, tuottavuuden mittaaminen, aikaperusteinen mittaami-
nen, suorituskyky
Tuottavuuden mittaamista on tutkittu tuotannollisessa ympäristössä paljon, mutta vain
vähän tutkimusta esiintyy liittyen ympäristöön, jossa tuotteet ovat pääomaintensiivisiä ja
usein räätälöity asiakastarpeiden mukaisesti. Tässä työssä tavoitteena on kuvata case-yri-
tyksen neljän globaalin tehtaan tuottavuuden mittaamisen nykytila, haasteet sekä ehdottaa
yhtenäisempi tapa mitata manuaalisen kokoonpanotyön tuottavuutta, tarkoituksena tuo-
tannon parempi kontrollointi ja parantaminen. Työn aihepiiriin liittyvän kirjallisuuskat-
sauksen perusteella on luotu tuottavuuden mittaamisen viitekehys, jota on hyödynnetty
työn teoreettisena pohjana. Työhön vaadittava materiaali on kerätty haastattelemalla teh-
taiden avainhenkilöitä puolistrukturoitua haastattelumenetelmää hyödyntäen.
Tämän työn tuloksissa kuvattiin tehtaiden tuottavuuden mittaamisen nykytila sekä haas-
teet. Tulokset tehtaiden nykytilanteen kuvaamisesta on jaettu käytettyihin mittareihin,
mittaamiseen yleisesti sekä mittaamisen tavoitteiden määrittämiseen. Haastattelututki-
muksen perusteella tunnistetut tuottavuuden mittaamiseen haasteet havaittiin liittyvän
tuottavuuden termin määrittämisen, tuotosten ja panosten yhteismitallistamiseen, standar-
dien määrittämiseen sekä tavoitteiden asettamiseen, tuotannon suunnitteluun ja kontrol-
lointiin, datan hyödyntämiseen sekä mittareiden suppeaan tulkintaan.
Muut työn tulokset koskettavat tuottavuuden mittaamisen standarditapaa. Viitekehykseen
sidotut, tehtailla käytettävät mittarit, on esitetty olevan manuaalisen kokoonpanotyön te-
hokkuuden mittari (MAE) ja arvoa lisäävän ajan mittaaminen suhteessa tuotannon koko-
naisaikaan, yhdessä useiden tuotannon käyttämiä tunteja seuratessa. Perustuen työn tu-
loksiin on myös ehdotettu, että tuottavuuden mittaamisen prosessin tulisi koskea tuotan-
non kaikkia vaiheita työn tuntien määrittämisen sekä tuottavuuden mittaamisen osalta.
Lisäksi, laitteiden standardit tulisi määrittää ja päivittää hyödyntäen työaikatutkimuksia
sekä oppimiskäyrää. Teorian perusteella luotu tuottavuuden mittaamisen viitekehys on
päivitetty suhteessa työn tuloksiin.
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PREFACE
The process of this thesis was kind of challenging and the road was somewhat bumpy.
However, in the end hard work pays off and the thesis was carried out in a decent manner.
Thanks of this thesis go to Prof. Petri Suomala and Ville Purhonen for commenting and
evaluating the thesis and also to the people who I had the privilege to interview and talk
to as part of this thesis. Moreover, I’m also grateful for heavy metal music and to my new
friend, coffee, who have helped me through some long hours of working.
Also, big thanks to two of my friends for commenting the draft of the thesis. And, espe-
cially, thank you mom and dad for all the support you have provided to me throughout
my studies.
Now, however, new challenges and opportunities await and it is time to turn the page.
Tampere, May 3th, 2016

Ari Nousiainen
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TABLE OF CONTENTS
1. INTRODUCTION .................................................................................................... 1
1.1 Background .................................................................................................... 1
1.2 Research objective, questions and limitations................................................ 3
1.3 Research approach.......................................................................................... 4
1.4 The structure of the thesis .............................................................................. 6
2. LITERATURE REVIEW ......................................................................................... 8
2.1 The concept of productivity measurement ..................................................... 8
2.1.1 Productivity concept ........................................................................ 8
2.1.2 Purpose of productivity measurement ............................................ 11
2.1.3 Productivity as part of performance measurement ........................ 13
2.2 Productivity measurement models ............................................................... 17
2.2.1 Total productivity measures ........................................................... 17
2.2.2 Partial productivity measures ......................................................... 18
2.2.3 Time-based productivity measures ................................................ 20
2.3 Management of productivity measurement .................................................. 21
2.3.1 Productivity measurement process................................................. 22
2.3.2 Productivity as part of performance measurement in different levels
of an organization ......................................................................................... 23
2.3.3 Challenges of measurement planning and control ......................... 26
2.3.4 Target setting as part of productivity measurement ....................... 28
2.4 Challenges, criteria, and suggestions of productivity measurement ............ 30
2.4.1 Challenges of productivity measurement ....................................... 30
2.4.2 Criteria and suggestions for productivity measurement ................ 35
2.5 Measuring of manufacturing productivity.................................................... 38
3. RESEARCH ENVIRONMENT AND METHODS ............................................... 41
3.1 Research context .......................................................................................... 41
3.2 Data collection and analysis ......................................................................... 42
4. RESULTS ............................................................................................................... 45
4.1 The current state of productivity measurement ............................................ 45
4.1.1 Productivity measurement in the case environment ...................... 45
4.1.2 Summary of productivity measurement ......................................... 53
4.1.3 Challenges in productivity measurement ....................................... 56
5. DISCUSSION ......................................................................................................... 63
5.1 Results in accordance to literature ............................................................... 63
5.1.1 Productivity metrics ....................................................................... 63
5.1.2 Measuring productivity .................................................................. 65
5.1.3 Target setting.................................................................................. 68
5.1.4 Planning and controlling ................................................................ 69
5.2 A standardized way of measuring productivity............................................ 70
6. CONCLUSION ....................................................................................................... 74
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6.1 Conclusion and implications to management............................................... 74
6.2 Research process .......................................................................................... 76
6.3 Relevancy and limitations ............................................................................ 76
6.4 Areas of future research ............................................................................... 79

APPENDIX 1: Factory interview codes
APPENDIX 2: Factory 1 metrics
APPENDIX 3: Factory 2 metrics
1
1. INTRODUCTION
1.1 Background
Productivity has been discussed as a crucial factor part of production performance of
firms or nations. Especially at firm level, productivity is seen as one of the most important
factors affecting profitability and competitiveness. (Hannula 1999.) Moreover, the im-
portance of measuring productivity particularly for improvement work has also been rec-
ognized and discussed vastly in literature (Mohanty and Rastogi 1985; Wilson 1994;
Tangen 2005). However, a lack of understanding can exist in multiple regimes built for
measurement and improvement of productivity. Hence, this can be understood rather as
a pragmatic actions of improvement, or a failed possibility to improve important factors
of competiveness and success. (Tangen 2005, p.34.)
The measuring of productivity can be challenging for companies to get reliable measures
when different products are manufactured for different customer needs and purposes. Dif-
ferent outputs and inputs are not easily converted to a common unit and to determine a
single value for the organization output. (Hannula 1999.) Productivity measurement and
improvement in a firm have been acknowledged to go hand in hand; as the old saying in
management accounting goes, “one cannot improve what one cannot measure” (Mam-
mone 1980, p.37). Moreover, it is noted that also the measuring below firm level is im-
portant, as it consists from the overall parts of a company’s productivity (Mammone
1980). It is in common interest that the use of productivity improvement analysis holds
managers accountable for planning and controlling of productivity at all levels of man-
agement, and to recognize the effect of changes when, for instance, product mix changes,
or there are variations in utilization rates on productivity (Mammone 1989, p.36; Hannula
1999)
However, many of the productivity measurements used in organizations are based mostly
on historical data and not the use of current data (Gonsalves and Eiler 1996). Hence, as it
seems logical, these measurements have been noticed not to be very accurate to measure
or evaluate the future, nor identify the causes of poor or high performance (Hannula
1999). In general, the need for increased operating efficiency at company level remains
high, but some disparities between financial and plant level measures of productivity exist
in different contexts. A more sophisticated and enhanced method of gathering data, and
alignment between factories, can improve the efficiency of a company in different con-
texts (Mckinsey 2010.)
2
The majority of productivity research is dated in the 80s and 90s, while focusing on
productivity measurement and improvement in general. The more recent literature con-
ducted in the 2000s has been focusing more on discussing the measuring of performance.
Despite the vast amount of productivity research, a lack of productivity measurement
standards for estimating has been acknowledged, albeit it would be evident (Song and
Abourizk 2009, p. 787). In recent years, some researches have been carried out on the
impact of labor skills, favorable working environment and R&D on manufacturing
productivity in labor-intensive industries (Islman and Shazali 2011), but not many of
them concerning the measuring of productivity, especially in customized product envi-
ronment. Retrospectively, the observation of measuring and use of measures in a highly
customized product environment has been showing signs of decrease in recent years, re-
sulting from a lack of relevant research conducted. In addition, most of the researches are
concerned with studying productivity including the monetary values in the measuring,
while not offering concrete approaches on how to measure productivity in real terms.
Realizing the importance of such an approach, it will be further discussed in the theoret-
ical and empirical observation of this thesis.
While the productivity measurement and measures used have been vastly studied in few
comprehensive researches conducted in global manufacturing environment (Hannula
1999; Tangen 2005), a more recent research for the current state of measuring productiv-
ity seems to prevail. In literature, different measures of productivity are recognized to be
used regarding to total productivity, partial productivity and time-based measures. Alt-
hough the problems regarding to productivity measurement and measures have been dis-
cussed in literature (see for example Misterek 1992; Hannula 1999; Pekuri et al. 2011),
not many of them have been observing the problems in manufacturing environment in a
more extensive manner. The most fundamental problems in productivity measurement
have been recognized as the commensurability problem of input and output factors and
the incongruence of terms in productivity research discussions (Mohanty and Rastogi
1985; Stainer 1992; Hannula 1999). Moreover, it has been recognized that there is an
extensive amount of means to improve productivity, while the most appropriate ap-
proaches for productivity improvement actions are case specific (Tangen 2005, p.6). Also
the tools for improving productivity have been often found misconceived, while lacking
the effectiveness and accuracy in measuring (Wilson 1994). Furthermore, multiple mod-
els of measuring productivity have been discussed in literature, while many of them being
acknowledged as somewhat static way of measuring (for example Sink and Tuttle 1989;
Grundberg 2004),
This master’s thesis is conducted to a case company located in multiple countries glob-
ally. The scope of the study is on four equipment factories that manufacture products with
high variety, low volume and a long lifecycle. This study explores the measuring of
productivity in the case environment, while serving the needs of the company. Moreover,
3
it gives a more updated perspective of measuring productivity in a global production en-
vironment, emphasizing the measurement of productivity at assembly level. In other
words, while serving the needs of the case firm, this study can shed light on the dilemmas,
problems and measurements found in, and focusing on, high product variety and low vol-
ume environment in capital-intensive goods. Deriving from the deficiencies acknowl-
edged in literature and the needs of the case company, the research objective, questions
and limitation are addressed in next chapter.
Moreover, this thesis is conducted to serve the global needs of the integrated supply chain
and controller organization. The thesis was assigned by one of the factory’s business con-
trollers and has been written under the guidance of a Tampere University of Technology
accounting professor and one of the company’s business controllers. The study acts as a
supporting study for the project of the company's integrated supply chain controller man-
ager’s project to define the whole production people capacity on the factories to harmo-
nize the production, and to find out the available hours in production.
1.2 Research objective, questions and limitations
The main objective of this thesis is to find out the current state of measuring productivity
in the case company’s four global equipment factories and suggest a standard way of
measuring in manual assembly in order to better control assembly productivity and move
towards better productivity. According to the objective, the three research questions of
this thesis are:
1. How is the manual assembly productivity measured in a global manufacturing
organization?
2. What are the most notable challenges in measuring the assembly productivity in a
global manufacturing environment?
3. How the measuring of productivity in manual assemblies can be improved to
achieve better productivity?
The research questions are answered based on literary review, interviews done with key
personnel, and other material collected. By answering the first question, the intention is
to clarify the current way of measuring productivity on which different metrics are in use,
and how the measuring is carried out in the factories as part of the daily operations in
production. The second question is answered by recognizing the current challenges in
measuring the productivity. By answering the first and second question, an understanding
of the current state of measuring assembly productivity can be made, through which it is
possible to answer the third research question and suggest a standard way of measuring
manual assembly productivity. In addition, an implication of this thesis to literature is to
get the current understanding of productivity measurement in a manufacturing environ-
ment with a high level of engineering-to-order in a global company.
4
The focus of this study is in manual assembly productivity in factories. The observation
was limited in the scope in manual assembly, as it is the most bottom level of productivity
measurement, shows the root level for improving productivity, and can contribute to bet-
ter total productivity measurement on other levels. The study is not focused on different
assembly processes and needs, or the number of assemblies on detailed level, but rather
finding out the use of measures in general.
Moreover, the purpose of this thesis is to observe the real productivity in the factories,
and therefore monetary values and capital inputs are left out of the scope. This decision
was done due to the interest to measure productivity at assembly level based more on
hours, even though the measuring can be done using multiple measurements and also the
measuring of monetary values. Nevertheless, measuring of real productivity is promoted
for improvement work also in literature (see for example Misterek et al. 1992; Grunberg
2004).
1.3 Research approach
The choice of research approach is always concerned with the research philosophy the
researcher adopts, which contains important assumptions about how the researcher views
the world. These assumptions will promote the choice of research strategy and the meth-
ods as part of that strategy. (Saunders et al. 2009, p.108.) For instance, a philosophy of
positivism1 reflects the stance of a natural scientist and, therefore, working with social
reality and the end products of such research can be law-like generalizations (Saunders et
al. 2009, pp.113-114).
Although the purpose of a research can vary depending on the research questions, this
thesis as a research can have multiple purposes to serve (Saunders 2009, p.138-139). The
different purposes of this study can be considered as a combination of exploratory2 and
descriptive3 case studies, as one of the objectives is to explore the different factories and
describe the current situation found there. According to Saunders et al. (2009, p.140) usu-
ally three principal ways are used to conduct an exploratory research:
1. use appropriate literature for theory;
2. interview experts of the subject;
3. conducting of focus group interviews.

1 An aspiration towards verified facts, which reject the uncertainties that are not observable (Olkkonen
1994, p.26).
2 Means of finding out what is happening and possibly to see the phenomena in an alternative way (Robson
2002, p.59)
3 The way of portraying an accurate profile of events or situations (Robson 2002, p.59).