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Manufacturing productivity can be measured by contrasting the rate of output per unit of input used in the production process. Productivity increases when the same quantity of inputs results in more outputs, or when you get the same output quantity using fewer inputs. 

It’s important to note that measuring labour hours as the sole input is only a partial measure of productivity. Multifactor productivity = Units of Output / (Units of Labor + Units of Capital + Units of Materials). Using this method results in a more accurate ratio than using labour alone because changes in capital and materials used in production may also increase or decrease labour costs.

Inventory Management

Inventory refers to a company’s goods and products that are ready to sell, along with the raw materials that are used to produce them. Inventory can be categorized in three different ways, including raw materials, work-in-progress, and finished goods.

Inventory management is important for businesses of any size. Knowing when to restock inventory, what amounts to purchase, and what price to pay can easily become complex decisions.

A reorder point, or ROP indicates an inventory item’s minimum stock level at which new stock should be ordered to avoid a stockout. It can thus also be viewed as the last time to replenish stock to avoid a stockout.

ROPs are always calculated separately for each individual item. The calculation consists of an item’s delivery time, demand or consumption rate, and, if applicable, its safety stock level. Since all of these are dynamic variables, the ROP of an item can vary greatly depending on changes in the supply chain, market circumstances, selected suppliers, etc. The ROP model is based on analyzing historical consumption and lead time data to predict consumption rates.

As the above graph visualizes, lead time represents the amount of time in days it takes for items to become available from the moment they are ordered. It is thus an instrumental part of the ROP calculation and helps to avoid inventory levels falling below the safety stock line.

Supplier selection

Suppliers provide inputs to the operations system. They may supply raw materials, components (as in car assembly), finished products (for example a pharmaceutical company providing drugs to a hospital, or an office supplies company providing it with stationery), or services (as in the case of a law firm providing legal advice). 

Finding and choosing suppliers can be particularly challenging because organizational requirements are quite diverse. On top of that, not every single standard can be precisely matched, despite the numerous options. Suppliers can be chosen on the following factors:

Cost efficiency – With this process, companies can compare the offers from various third-party vendors or service providers and pick the one offering the most competitive pricing. 

Quality assurance – Finding the most appropriate suppliers through this meticulous system ensures high-quality goods and services without worrying about defects or rejects. 

Risk mitigation – One of the steps in the procedure identifying threats in quality, finances, and ethics, and ensuring that are measures to mitigate these risks. 

Supply chain reliability – Disruptions in the supply chain, such as late deliveries or materials scarcity, could impede operations. By reviewing suppliers through this process, companies can assess their dependability. 

Long-term collaboration – Compatibility, shared values, and mutual goals are factors companies often look for in their suppliers, resulting in enduring partnerships.