If there’s one thing I find missing in every business news story I’ve read, it’s: productivity.
If there is an article about productivity, it usually is in the context of labour efficiency or how much output workers churn out over a given period. Some media writers define productivity as to how many tasks we complete versus what we plan in a day.
These definitions are well and fine but unfortunately, they distract us from productivity’s higher meaning.
Productivity builds from efficiency in which it is not only how much is produced over a given time but also how much is delivered and progressed towards strategic objectives in ratio to resources spent and assets utilised.
Efficiency is:
Output / Input (or Capacity)
Productivity is:
Actual Output / Target Output / Input of Resources
Most business firms don’t have productivity measures pertaining to the above, if they have any at all. Instead, many businesses opt to measure efficiency or just plain output over a given time. They balance this by monitoring cost although as a separate indicator.
This is understandable as measuring productivity in relation to used-up resources is more complicated than just calculating output or cost. We’d rather like to keep things simple, after all.
Productivity, however, is more than just a measure. It is an attribute or characteristic that our business organisations we should strive for, even more than quality and value.
Productivity encompasses how well we progress toward our goals given what we value; it’s not just how much we make versus what we put in and for how long. Hence, it covers aspects such as quality (how good our products & services are), net worth (the financial value of our enterprise net of costs & liabilities), sustainability (the conservation & utilisation of resources), agility (velocity of accomplishing goals), versatility (flexibility & responsiveness to change with the times), and resilience (how well we address adversities).
In short, productivity should be the core of our mission in how we do things and we should aspire for it particularly when it comes to our operations, or more specifically, our supply chain relationships.
Supply chains are the operating relationships within and between our enterprises. Productivity is what we aim for in our supply chains. Because when our supply chains are productive, chances are our enterprises are also optimally productive, as we keep pace with our partners to make it so.
Every client firm I’ve worked with had unique problems with their supply chain operations.
Examples:
- Inventory was too high.
- Customer orders weren’t being served; if they were, they’re often too late or incomplete.
- Some items were always out of stock.
- There was costly waste in materials, operating hours, off-quality products, and rework.
- Machine capacities were not fully utilised.
- Scheduling was haphazard.
- Customers were rejecting and returning too many items.
Often, these problems led me to an underlying issue: the supply chain operations of the client firms were simply unproductive. Not only in the sense that the enterprises’ operations were lacking in capacities in manufacturing, were not performing up to par in their distribution networks, proper policies & procedures were absent, or there was poor planning or coordination between functions (e.g., purchasing, production, logistics). But also, in that the firms had very little in the way of systematic and structural relationships with their partners, i.e., vendors, customers, & service providers.
A medium-sized printing press company was purchasing cardboard paper of various specifications from three (3) vendors. The company’s buying department had pre-allocated business to the three (3) vendors, giving 50% to the first, 30% to the second, and 20% to the third. When the printing press’s production department requisitioned any needed carboard, the buying department will order from the three (3) vendors based on the preset allocations.
If the first vendor failed to deliver the ordered quantity at the specified time & quantity, the buying department would revise upward its orders from the second and third vendors. Sometimes the buying department will cancel the order from the first vendor if the second and third vendors deliver completely and on time.
But none of the vendors ever delivered completely and on time. This was because the printing press company’s buying department always gave not more than one to three days for the vendors to deliver. At best, each vendor delivered partial quantities, never mind if they had to scramble their schedules to produce and dispatch the printing press company’s orders.
One can imagine the exasperation of the three (3) vendors. Because the deadlines were tight, and there was uncertainty in how much order quantities would be changed if not altogether cancelled, the three (3) vendors would build in extra charges into their quoted prices.
The printing press company would complain about the ‘high’ prices and eventually seek new vendors who often at first would offer lower prices at least until they experience the same exasperation from the demanding printing press’s buying orders.
Productivity was far from perfect for the printing press company and its vendors. And it was likely that the printing press company’s delivery productivity to its customers was not that great either. Indeed, the printing press company was often adjusting its production schedules given the uncertainty of whether the cardboard paper it needed would arrive or not. Its customers would complain about unserved orders and late deliveries, to the extent that customers would revise quantities downward, if not cancel orders altogether.
It’s no surprise then that the printing press company would encounter complaints like what we see in the list above.
Many businesses like the printing press spend time trying to fix their internal systems and structures without looking at the big picture of their supply chains. As much as the printing press can make its operations more visible (e.g., putting up performance measures), more methodical (e.g., writing detailed policies & procedures), and more participative & coordinative (e.g., implementing a sales & operations planning system), the company could only go so far in reaping benefits. If vendors and customers aren’t in the loop and working with our enterprises, we would never improve our and our partners’ supply chain’s productivity, no matter how much we invest in our own operations.
Productivity is not efficiency, and it isn’t just a performance measure. It is an attribute or a characteristic we aim for not only in our internal operations but also in our supply chain partnerships with vendors and customers.
Many of the complaints we have about our operations are rooted in issues with the productivity of the systems and structures that underlie our operations and our supply chain relationships.
When we take the initiative to fix our operations in the context of improving the productivities of our supply chains, we will be making big strides toward breakthrough improvements.
Ellery's Essays 