Tag: Productivity

Guest Post: What a Chinese Drone Ban Means for U.S. Farming

Dr. Misty Blessley is a professor at Temple U. She shares her insights monthly.

DJI, a Chinese company and the world’s largest manufacturer of commercial and industrial drones, faces scrutiny in the U.S. over alleged cybersecurity risks. It is now close to being banned here.

One U. S. business that sells spray-drone kits reported that its challenges began last year when importing DJI drones became significantly more difficult. This uncertainty has caused concern across industries that rely on these tools, from public safety and construction to supply chain logistics. For American agriculture specifically, a ban could cut off access to vital equipment, leaving fields unmonitored, untreated, and risking harvest losses.

DJI drones are favored by farmers as they save weeks of labor by spraying seeds, fertilizer and fungicide from the sky.

Agriculture has adopted drones more rapidly than almost any other sector. Monitoring drones help detect disease and water stress early, while spray drones enable precise application of fertilizer and pesticides during narrow weather windows. They have become crucial for reducing input costs (China is accused of subsidizing their drone industry, which might explain some of the cost differences), protecting yields, and facilitating smooth food movement through supply chains. If imports are halted, many farmers could miss critical windows, leading to lower yields and creating issues along the supply chain, from processors to consumers.

Mitigation Strategies
To prepare, farming businesses should apply lessons learned from managing recent supply chain disruptions:
 Diversify suppliers – Start testing U. S. or non-Chinese alternatives, even if they are currently less cost-effective. Early adoption minimizes dependence.

Stock critical parts – As restrictions tighten, building an inventory now provides a safety buffer.

Use mixed fleets – Combine current drones with alternative technologies like ground sprayers to prevent single points of failure.

Plan operational slack – Stagger schedules or adjust operations to account for potential delays.

Collaborate and advocate – Engage with farm bureaus and trade associations to push for phased implementation, subsidies, or funding for domestic options.
 

Classroom discussion questions:
1• What are the challenges and drawbacks of each mitigation strategy?
2• Considering that the Chinese drone ban is likely, how should user decision-making be updated? (Refer to Module A Decision-Making Tools and consider these facts:◦ Drones can cut labor costs by up to 90% and reduce chemical use by 20–30%. ◦ A high-end U.S.-made drone can cost nearly $30,000, compared to a similar DJI unit costing $6,500).

OM in the News: The Port Strike and Automation

An economically devastating port strike was averted last week after a 3-day work stoppage. Dockworkers secured a 62% pay raise, but the central dispute was never solely about wages, even though the tentative deal that averted the strike will result in dockworkers at the NY-NJ port earning more than $500,000 a year on average.

Port automation could ease supply chains

The ocean carriers, which pay the bills at U.S. ports, can perhaps afford that level of increase. What they can’t afford, and the U.S. economy can’t either, is a ban on the future use of automated cargo-handling technology at ports along the East and Gulf coasts. “Absolute, airtight language that there will be no automation or semi-automation” remains a key demand of the Longshoremen’s union that still must be negotiated ahead of a new Jan. deadline.

Why is this such a crucial issue, and why do port managers adamantly oppose the demand? The key reason is the need to create future port capacity. Since the U.S. is building new port facilities at a snail’s pace, the only way to expand capacity is by handling more cargo more quickly through existing facilities. The only way to do that is with automated cargo handling.

The lack of automation in the U.S.—only 3 port facilities are fully automated, all on the West Coast—exposes ports as an Achilles’ heel of U.S. trade competitiveness. High costs and inefficiency have long been the status quo. Not one U.S. port ranks in the top 50 globally in productivity, reports The Wall Street Journal (Oct. 8, 2024). Charleston is the highest at No. 53.  The consequence of low port productivity is that “instead of facilitating trade, the port increases the cost of imports and exports, reduces competitiveness, and inhibits economic growth,” says the World Bank.

The purpose of automation isn’t to lower costs by replacing workers with machines but to increase it within existing port footprints to accommodate growth. The fully automated Long Beach Container Terminal can handle 12,000 to 15,000 20-foot equivalent units per acre per year versus 1/2 that at a nonautomated terminal.

Classroom discussion questions:

  1. What are the top-ranked ports in the world and how does the U.S. differ from them?
  2. What can the U.S. do to be more competitive?

OM in the News: Fried Chicken Chain Cut Worker Steps by 9,000 a Day

Pollo Campero workers at an Orlando restaurant which features the company’s new kitchen design.

Pollo Campero plans to more than double its U.S. store count. But first, it’s halving the number of miles workers walk each day. The chicken chain mapped how workers were moving around stores and revamped its restaurant design to allow people to work more efficiently, reports Bloomberg.com (April 4, 2024). It slashed the number of steps taken by the staff member who ensures orders are delivered promptly and accurately from 18,000 per shift – or 3.4 miles – to 9,500.

“Every step you save adds to the bottom line and saves labor costs,” said the firm’s VP. The reduction can also result in faster service and happier customers. Pollo Campero’s initiative mirrors an industry-wide push for higher productivity as restaurants face elevated costs. While many restaurants now say that staffing and turnover are back to pre-pandemic levels, the median base wage for their workers is 18% higher than three years ago.

These elevated costs have added increased urgency to chains’ quest for efficiency, boosting interest in techniques (such as counting workers’ footsteps), that have been used for years. Higher productivity can help cut costs, the thinking goes, and allow restaurants to serve more customers per hour. Improving the metric — known as throughput in Supp. 7 of our text— can lead to higher sales. Companies looking to boost capacity include Popeyes, which is revamping its kitchens, and Starbucks, which is rolling out machines that brew coffee in 30 seconds.

At a Pollo Campero store in Orlando, the kitchen has a double-sided center island stocked with chicken and sides. Workers assembling orders for the drive-thru stand on the left and those putting together dine-in orders on the right, a setup that prevents them from bumping into each other. Boxes, condiments and napkins are all within reach.

The Orlando location is 2,600 square feet, 9% smaller than the average store blueprint. It also has 20% fewer seats than usual, owing to a shift toward on-the-go eating that has surged. The more compact store requires 10% fewer workers per shift.

Outside, the drive-thru features a digital board that customers can consult before pulling up to the speaker to place the order, helping avoid the “can I get uhhh”  when they don’t have enough time to study menus.  The goal is to clear dine-in customers in 5 minutes and drive-thru diners in 3.

Classroom discussion questions:

  1. In what other ways could fast food chains increase throughput?
  2. What other chains are moving to smaller stores? Why?

OM in the News: U.S. Manufacturing Isn’t Doing So Bad After All

A mid-20th-century IBM typewriter factory

A common perception is that the U.S. “doesn’t make anything anymore.” According to this narrative, the country is a former manufacturing titan brought low by the forces of globalization that have left the rusting hulks of once‐​humming factories in its wake.  But The Wall Street Journal (April 2, 2024), quotes a recent Cato Institute study that U.S. manufacturing accounts for a larger share of global output than Japan, Germany, South Korea and India combined.

It appears that America’s productivity is far ahead, too. In 2019, the value added by the average American manufacturing worker was $141,000, exceeding second-place South Korea by more than $44,000 a worker and China by more than $120,000.

Global markets reflect this strength. Between 2002 and 2021, U.S. manufacturing exports more than doubled, with sales second only to China, which dominated low-end production. America’s success is thanks to its ability to move from low-tech, less-productive sectors to higher-value ones such as computers, pharmaceuticals, medical and scientific instruments, aerospace, and electrical machinery. (The U.S. even understates its performance because its definition of manufacturing is old. Software, for example, now accounts for about half the value of a new car).

 American manufacturing is productive, requiring fewer workers. Consider the much-protected steel industry. U.S. steel output increased 8% between 1980 and 2017, despite a workforce 1/4 its prior size. America isn’t the only country moving to higher-productivity manufacturing with fewer workers. From 1976 to 2016, manufacturing employment fell by 1/2 in Germany and 2/3 in Australia.

The U.S. has adapted to huge economic transitions before. In 1900, some 40% of Americans toiled in agriculture. Today farmers account for 1- 2% of workers, but they grow much more food. Between 1948 and 2017, U.S. agricultural output tripled while the number of hours worked plunged 80%.

The U.S. economy’s evolution from agriculture to manufacturing and now to services, a topic we discuss in Chapter 1, reflects changes in what Americans buy. Today, that means spending on healthcare, entertainment, sophisticated equipment and education. Commercial services now account for a quarter of all exports, with computers, research and development, and health activities in the forefront.

The 21st-century economy, including modern manufacturing, will depend on innovation in AI, quantum computing and other technologies.

Classroom discussion questions:

  1. Explain the 2 models by which productivity is measured.
  2. What are the main strengths of U.S. manufacturing?

OM in the News: Robotic Harvesting Systems are Revolutionizing Farming

As we suggest in our text, the trade off between labor and capital investment is ongoing.

Harvesting Robots Are Making Big Leaps

The growing demand for food supply that derives from the continuously increasing population has made agricultural productivity growth an important priority. Labor availability pressure driven by demographics of an aging population, increasing urbanization, climate change and land degradation, as well as certain limitations regarding the arable land availability push forward slowly but steadily, the use of advanced agricultural technologies.

Incorporating such technologies into agricultural production benefits the overall productivity and in turn supports the economic development and growth. (For details, see this new 29 page report titled “A Survey of Robotic Harvesting Systems and Enabling Technologies.”) Additionally, automation in agriculture helps improve the difficult work conditions of farmers and agricultural workers that are generally linked to various musculoskeletal disorders.

Functionalities and hardware typically required by an operating agricultural robot harvester include: (a) vision systems, (b) motion planning/navigation methodologies (for the robotic platform and/or arm), (c) Human-Robot-Interaction (HRI) strategies with 3D visualization, (d) system operation planning and grasping strategies and (e) robotic end-effector/gripper design.

Application of robotic solutions for crop monitoring and harvesting has significant beneficial effects on production profits, enabling faster and easier automated harvest and increasing crop quality and yield. So the development of robotic technologies and their application in agriculture is becoming a growing topic of operations management interest.

 

Classroom discussion questions:

  1. Summarize some of the applications noted in this video and report.
  2. Why is this an operations management issue?

Guest Post: What Does a Super Bowl Parade Cost?

Dr. Misty Blessley, Associate Professor of Statistics, Operations, and Data Science at Temple U., shares her sports preferences with us today.

Next week, the winners of Super Bowl LVII will be honored by their hometown fans in a Super Bowl Parade. This Sunday, the Kansas City Chiefs will face off against the Philadelphia Eagles. Everyone loves a victory parade, but how does a city plan for a parade that might not happen? As a faculty member at Temple University, upon seeing the Eagles clinch the NFL Conference Championship, on Sunday, January 29th, I looked into parade operations. In 2018, the parade celebrating the Eagles’ Super Bowl LII win was held the following Thursday. Public transit was halted to Temple’s campus, which disrupted a joint event with Institute for Supply Management.

If the parade were to be held on the Thursday following Super Bowl LVII, it would disrupt a Supply Chain Management consulting event. My first stop was to Google, When is the Super Bowl parade in Philadelphia?, and the response was,“omg, please stop Googling this until the big game actually happens.” (The Philadelphia Inquirer, January 30, 2023). As of earlier this week, Mayor Jim Kenney, “… doesn’t really want to talk about it.”(NBCSports.com, February 7, 2023).

The EA Madden game is going with an Eagles victory (Fortune, February 6, 2023), as are the legalized betting organizations. Still, we forge on with consulting event planning. I took a picture of a long line of portable toilets north of City Hall, which were in preparation for Pope Francis’ visit in 2015. It is to be food for thought about all that goes into planning a parade. “Kansas City officials are planning a multimillion-dollar parade for Feb. 15…,” (The Kansas City Star, February 2, 2023).

I’ll be cheering for the Eagles, but my heart belongs to the Pittsburgh Steelers. If you are like me, this Super Bowl commercial is for you – https://www.youtube.com/watch v=4taNFpPmZag . Still, enjoy the game!

Classroom discussion questions:
1. How can project management be used to plan a parade? What activities will most likely need to be crashed/require crashing cost payment?
2. What are the advantages and disadvantages of Philadelphia’s and Kansas City’s positions? Win or lose, what do they mean for city officials, planners and for workers employed in the hometown, in terms of productivity?
3. How can forecasting be used in the planning process?

OM in the News: Improving Productivity at Starbucks

A barista prepares a drink at the lab inside Starbucks HQ.

In Starbucks headquarters lies a technology lab that is plotting the firm’s renewal. That includes rethinking the onerous path its baristas must take to make a Frappuccino. Inside the massive space, baristas working in a mock-up of a cafe walked back and forth between refrigerators, blenders and syrups to make a single blended coffee topped with cold foam and caramel drizzle. They asked if the company could build kitchens that bring the equipment closer together (see the topic of layout in Chapter 9) and make syrup pumps, milk dispensers and ice bins that work better.

“Starbucks, the chain that made espresso ubiquitous, now faces daily crises in dispensing it,” writes The Wall Street Journal (Sept. 1, 2022). U.S. stores designed a decade ago struggle to meet today’s consumer demand. Cafes that once averaged 1,200 orders a day are now asked to make 1,500. Workers have been pressing for better pay, staffing levels and hours. Turnover has shot up. One in 4 baristas are quitting their jobs within 90 days, up from 1 in 10 previously.

So Starbucks also has been testing how to overhaul operations to improve the experience for both employees and customers. If employees spend less time running around fetching foam and carrying 20-pound buckets of ice, maybe they will be happier working there.

As Starbucks expanded, so did its menu (see Chapter 5). It started serving Frappuccinos in 1995, and pumpkin spice latte and other flavors followed. Warm sandwiches came in 2003. It introduced cold brew and draft nitro coffee in the 2010s. In 2015, the company launched an app that allowed customers to pay for their drinks ahead of time and to customize their coffee orders in 170,000 ways!

The firm expects workers to deliver handcrafted beverages fast. A store clipboard, used to track workers’ drive-through delivery times, said “Expectations: Under 50 Seconds.” But stores are heavily restricted by design and need a remodel to cope. Starbucks has upgraded equipment periodically, including adding espresso machines that can pull 3 shots for complex orders, rather than 2. It conducted motion studies (our topic in Chapter 10) to measure how long it took baristas to walk across the floor to pump extra syrup, among other tasks.

Engineers mocked up designs for the cafe prep area, producing prototypes with 3-D printers. Technicians studied milk dispensers, ice machines and the size of dispensers for strawberries. “Every second matters with customers waiting,” says the new CEO.

Classroom discussion questions:

  1. What do you think Starbucks can do to improve productivity? (See Chapter 1)
  2. What can they do to lower turnover?

OM in the News: U.S. Workers to Become More Productive

Workers process fish in Massachusetts. With labor hard to obtain and demand strong, businesses have some of the strongest incentives in years to figure out ways to be more productive

American workers didn’t get much more productive last year, writes The Wall Street Journal (Feb. 4, 2022). But this year could be different. Productivity, as measured by how much the average worker produces in a typical hour, grew at a 6.6% annual rate in the 4th quarter from the previous quarter. For the whole of 2021, productivity only rose 1.9%. That was less than 2020’s 2.4% productivity gain, and the 2% in the pre-pandemic year of 2019.

The U.S. could really use a productivity boost right now. As we point out in Chapter 1, the more a worker can produce in an hour, the lower the labor costs for production go. When productivity growth is high, businesses can sell more, pay workers more and increase profits while leaving prices unchanged.

Better productivity might be on the way. One reason is that the pandemic precipitated changes in the way people work that, if the Covid eases this year, could pay big dividends. The ability to work from home when that is the better option and head into the office when it isn’t, or to meet virtually sometimes and in-person others, can make people far more efficient. The productivity payoff from online menus and ordering systems many restaurants have put in place may arrive as the restaurant business is now recovering.

But the supply chain snarls and product shortages that have beset the economy since the pandemic hit have been, among other things, huge time wasters. If goods start moving more freely, a lot of workers could suddenly become much more productive. And to the extent that car manufacturers and others have products that are fully built except for some hard-to-obtain semiconductors, the installation of some chips could create a real productivity miracle.

Moreover, with labor hard to obtain and demand strong, businesses have some of the strongest incentives in years to figure out ways to be more productive. Given the alternatives of losing sales or seeing labor costs take an ever bigger bite out of profits, many of them will come up with ways to be more efficient that they never would have when wages were stagnant and economic growth was mediocre.

Classroom discussion questions:

  1. How are restaurants increasing productivity? Supermarkets? Airlines?
  2. What is the difference between productivity and multi-factor productivity?

OM in the News: Monitoring Employees Who Work From Home

As we note in Chapter 10, labor is a costly component of most OM activities. So as we have moved to computer-oriented tasks, rather than manual tasks, new tools for evaluating productivity have been developed.  Now with millions of employees suddenly doing these tasks from home, more managers want to know how employees spend their time, writes The Wall Street Journal (April 20, 2020).

One new technology provides the ability to install a tool that takes computer screenshots of home-based employees every 10 minutes and records how much time they spend on certain activities. It gives managers productivity scores for remote workers or detailed reports on which tasks consume their days. Other tools are designed to catch employees who might be more tempted to download files from the company or violate security rules. At Teramind, whose technology can give employers a live look at employees’ computer screens or recordings of videos of their activities, inquiries have recently tripled, and 1/3 of the company’s 2,000 clients have requested additional licenses to track more users.

One S. Carolina manager states: “This is not a witch hunt to try and find the guy who spends 20 minutes a day on the news. The tool to track web browsing and time spent on work-related apps will pay longer-term dividends.We’re able to get a lot more granular insights into how much time they’re spending on individual tasks. Each staffer has access to their own data and can see how their own productivity levels fluctuate.”

Employers have wide legal latitude to use tracking tools, though the products can test employees’ threshold for privacy concerns “Frankly, employees already have an incentive to be productive, just by mere fact of wanting to keep their jobs,” says one Cornell prof.

Classroom discussion questions:

  1. Are there ethical and privacy issues that need to be addressed here?
  2. Why is such software now an important OM tool?

OM in the News: Productivity and “Digitization”

Lufthansa tests humanoid robot “Josie Pepper” at airport in Munich last week.

The next wave of productivity growth will be driven by digitization, writes The Wall Street Journal (Feb. 23, 2018). The diffusion of new technologies into everyday use holds promise for bringing back the kinds of annual 2% productivity growth seen in the past, but digitization is still at an early stage in many industries. Looking at the past half-century, the time from commercial availability of new technologies to 90% adoption ranges from about 8 to 28 years.

It’s a matter of some urgency. U.S. worker productivity grew below its long-run average for the 7th straight year in 2017, advancing a meager 1.2% from 2016. In Chapter 1, we note that labor productivity—real economic output divided by the numbers of hours worked—is key for economies to grow, improve living standards and keep inflation in check.

The waning of the 1990s productivity boom and the aftereffects of the financial crisis dragged down productivity growth by 1.9% on average across western countries since the mid-2000s. The retail sector is one of the laggards on digitization, along with agriculture, construction, hospitality, health care, government and education. Industries at the forefront of digitization include technology, media, and professional and financial services.

The retail industry is in the throes of technological disruption, with bricks-and-mortar retailers facing steep competition from e-commerce sales. Yet only 9 cents out of every dollar spent on retail is spent online, suggesting there is still enormous room for digitization.

Classroom discussion questions:

  1. Why is productivity an important OM issue?
  2. What is meant by digitization, and how can it impact productivity?

 

OM in the News: The U.S. Productivity Picture–Good or Bad?

“Perhaps 2018 will be the year productivity finally begins to pick up,” writes The Wall Street Journal (Dec.12, 2017). Technologies such as speech recognition, online chatbots and machine learning are being quickly adopted, capital spending is up, and tight labor markets give companies an incentive to find better ways of working. But productivity defies forecasters, who have wrongly predicted an uptick in productivity for over a decade. The real story is how little anyone really understands about what moves productivity, even though as we write in Chapter 1: “Only through increases in productivity can the standard of living improve.”

The basics are in Equation (1-1): Labor productivity is real economic output divided by the numbers of hours worked. How many gingerbread lattes can each Starbucks barista churn out per hour? Give them a better machine or better training and the productivity rises. Economists say it is years of weak corporate investment, a dire education system, an aging workforce, and a shift from high-productivity manufacturing to low-productivity service sector that have made productivity worse.

The first half of the 1990s had a “productivity paradox” of technological change being highly visible, but not showing up in the economic data. Just as with the past decade’s development of smartphones, apps, financial technology and machine learning, it took time for laptops and PCs to increase output. It happened suddenly, with productivity leaping 2.5% in 1996 and growing that fast on average over the next decade.

So a big problem for forecasters is that technological change comes in unpredictable waves. In the long run productivity is all about innovation. But productivity did leap 3% in the 3rd quarter of this year, and while quarterly data are volatile, it is plausible that a productivity pickup is coming soon. A lesson many economists take from the past 10 years is that productivity has permanently slowed. Perhaps a better lesson is just that it is hard to forecast.

Classroom discussion questions:
1. Why is the productivity rate important to ordinary people around the world?

2. Why is productivity important to operations managers?

 

Guest Post: Productivity, Forecasting and Excel with Real Data

Our Guest Post today comes from Howard Weiss, who is Professor of Operations Management at Temple University. Howard has developed both POM for Windows and Excel OM for our text.

I often search the web for real data that I can use for forecasting, and just came across data from Lowes 10 – Year Financial Information report that can be used for both productivity and forecasting.

The report has 5 sections, with 2 that are of major interest to OM. The 1st is titled “Stores and People” and lists the productivity inputs and outputs of: (1)Number of stores; (2)Selling square feet; (3)Number of employees; (4)Total customer transactions; (5)Average ticket.

The next section includes the net sales. I have the students perform several exercises using these data. Here are 5 years of past data.

The Exercises

Exercise 1 – Data integrity:  For each of the years the net sales should be equal to the anticipated net sales (my definition) given by the average ticket multiplied by the number of transactions. Of course, the anticipated and reported net sales are not exactly equal. I ask the students to compute the percentage difference between the reported net sales and the anticipated net sales and also to determine the MAPE differences.

Exercise 2 – Productivity:  For each year, there are 3 productivity measures that can be computed comparing net sales to number of stores, selling square feet and number of employees. Unfortunately, there are no multipliers available to compute the multifactor productivity measures for the 10 years.

Exercise 3 – Productivity change: For all years except the first, I ask the students to compute the productivity change for each of the 3 productivity measures. There is one small issue the students need to recognize. The data is given as most recent first.

Exercise 4 –Graph in Excel: I ask the students to graph the 3 sets of productivity measures. If the students create scatter graphs using the dates in row 3 and the productivity measures that they create in a row below the data then the graph will be fine. If the students create a line graph using only the computed productivity measures then the graph will run backwards. That is, the time axis will be backwards. This is important for the final exercise.

Exercise 5 – Regression/Trend Line – I ask the students to draw a regression/trend line for each of the three measures. I have shown my students that right-clicking on the graph is the easiest way to create the line. I also ask the students to find the three average productivity changes based on the slope of the line in each of the three graphs.

The students very much appreciate applying Productivity to real data, using data that has more than 2 periods and having the opportunity to work in Excel, especially with the graphing capability and regression capability within the graph option.

OM in the News: How Services Drag Down Productivity Growth

Technology advances have boosted productivity in many sectors, but we still haven’t figured out how to build a better barber
Technology advances have boosted productivity in many sectors, but we still haven’t figured out how to build a better barber

As we point out in Chapter 1, growth in productivity—the goods and services a worker produces in an hour, a key determinant of wages and living standards—has petered out along with a slowdown in technological advances, which typically reduce the time spent to build a laptop or car. “It has been even more stubborn, though, on the services front,” writes The Wall Street Journal (Oct. 31, 2016). People want their hairdresser, therapists, accountants and lawyers, to take their time, often the definition of good service.

American households spent $8.3 trillion on services last year, more than double their expenditure on goods. Meanwhile, the share of Americans employed in the more-productive manufacturing sector has shriveled from 13% to 8% since 2000. At the same time, those working in the fast-growing health, education and food-and-beverage services has swollen from 17% to 23%.

This is where the big drag is: Average annual productivity growth in these three sectors—from hospitals to the corner bar—ranged from minus-0.6% a year to zero over the 10 years to 2014. “The changing distribution of workers might be able to explain up to one-half of the slowdown in labor productivity growth from 2.5% to 1.5% per year since the 1960s,” says a U. of Houston economist.

Reforms that remove barriers to entry and promote competition in services, especially in health and education, could have a massive impact on aggregate productivity growth. Almost 30% of U.S. jobs—from carpenters and accountants to florists, dance teachers and interior designers—now require an occupational license, up from 5% in the 1950s. Absent such reforms, the service sector, expected to generate almost 95% of new jobs in the next decade, might be a ball and chain on productivity growth for some time.

Classroom discussion questions:

  1. Why is productivity such an important issue?
  2. What can be done to increase service-sector productivity?

OM in the News: The Productivity Challenge

productivityWhat better way to start the fall semester but with a discussion of the importance of productivity (see Chapter 1, pages 13-18). There we write: “only through increases in productivity can the standard of living improve.” For well over a century, the U.S. has been able to increase productivity at about 2.5% per year, meaning U.S. wealth doubled every 30 years. But in the past decade, the news is not good. As The Wall Street Journal’s (Aug. 10, 2016) front page headline declares: “Productivity Fall Imperils Growth.”

This longest slide in worker productivity since the late 1970s is haunting the U.S. economy’s long-term prospects. Productivity in the 2nd quarter was down 0.4% from a year earlier, the first annual decline in 3 years. That was a further step down from already tepid average annual productivity growth of 1.3% in 2007 through 2015, itself just half the pace seen in 2000 through 2007, and the trend shows little sign of reversing. Productivity has slowed dramatically since the information technology-fueled boom of the late 1990s, when strong productivity gains translated into robust growth for household incomes and the overall economy.

Adds Fed Chair Janet Yellen: “the outlook for productivity growth is a key uncertainty for the U.S. economy and a very difficult question that has divided the economics profession. Some are relatively optimistic, pointing to the continuing pace of innovations that promise revolutionary technologies, from genetically tailored medical therapies to self-driving cars. Others believe that the low-hanging fruit of innovation largely has been picked and that there is simply less scope for further gains.”

Throughout our text we examine how to improve productivity through operations management.

Classroom discussion questions:

  1. Why is productivity important to OM managers?
  2. What can be done to raise productivity levels in a company? In a country?

OM in the News: The Productivity Mystery

productivity“The higher that U.S. productivity is, the better off Americans will be,” writes The Wall Street Journal (May 5, 2016). But despite constant advances in software, equipment and management practices to try to make America more efficient, economic output is merely moving in lock step with the number of hours people put in, rather than rising as it has throughout modern history. From 2011-2015, the labor productivity measure shows only 0.4% annual growth in output per hour of work. That’s the lowest for a 5-year span since 1977-1982, and far below the 2.3% average since the 1950s.

Productivity, our topic in Chapter 1, is one of the most important yet least understood areas of OM. Over long periods, the reason an American worker makes much more today than a century ago is that each hour of labor produces much more in goods and services. If current productivity rates persist, our grandchildren will be no richer than we are. Here are 3 possible scenarios:

(1) Sad Scenario: The productivity slowdown is real, and it’s not going away. Earlier waves of innovation in technology (a computer on every desk) and management strategies (outsourcing) have been fully put into place, and so are no longer increasing productivity.

(2) Neutral Scenario: There is measurement error in how we count. Entire industries are being transformed in ways hard to account for in data on GDP, particularly in technology and services.

(3) Happy Scenario: Businesses are adding workers in preparation for the future, but it will take time for their investments to pay off. For example, engineers are hard at work trying to perfect driverless cars. At present, they are a sap on productivity — they put in thousands of hours of work with no economic output to show for it. But if successful, they could radically increase productivity in the decades ahead.

Classroom discussion questions:

  1. Describe the difference between single-factor and multi-factor productivity.
  2. Provide a 2nd “happy” scenario.