Financial benefits of shop floor productivity improvements

Doctoral thesis, 2014

The prevailing situation in the global economy calls for innovative productivity investment approaches aiming to prevent further labour force reductions and to restore manufacturers’ competitiveness. The purpose of this research initiative has been to motivate production managers to invest in productivity improvements by establishing a framework that explains how shop floor productivity improvements provide financial benefits. The research initiative has employed an iterative research process that is based on case study research and interviews. Productivity is, however, a broad term concerning materials, energy consumption, human skills and capabilities, production technology and capital. This thesis presents an explanatory framework that focuses on shop floor productivity, i.e. productivity concerning activities and resources used to refine, assemble and transform materials into finished goods. The explanatory framework bears upon a set of productivity analysis tools and techniques that are used to decompose shop floor work content into parts that can be analysed. The framework emphasizes the importance of efficient utilization of a firm’s current resources before investing in new technology for solving capacity issues. Several stakeholders can use the information provided by this framework. For instance, it can be used for increasing operators’ awareness of the economic impact of quality losses, rework or idling production lines. Also, the framework can be used to increase production managers’ and the treasury department’s awareness of the production system’s inherent capacity limitations and how the production system’s current capacity is used to ensure and provide customer satisfaction. And finally to prevent unnecessary technology investments in situations in which utilization improvements with small investment means provide better economic payoff compared with capital-intensive technology investments. Three improvement actions have been proposed based on the explanatory framework presented in this thesis. These are real capacity improvements, production policy improvements and inventory policy improvements. Each proposal refers to improvements of a production system’s existing resources with small or non-monetary investments that in a direct fashion contribute to improved financial performance.