Production Planning & Control

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PRODUCTION PLANNING AND CONTROL

Contents Chapter

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Chapter 1 – Nature & scope of production planning & control Planning Execution Control

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Chapter 2 – Organisation of PPC Central programme planning group Methods engineering group Tool engineering group Material planning group Scheduling group Shop progress group

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Chapter 3 – Basic concepts of planning aircraft production Planning breakdown Man hours for Manufacture

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Chapter 4 – Learing curve theorey Improvement in manual skills Improvement in managerial action

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Chapter 5 – Work study performance indices and norms Techniques of work measurement

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Chapter 6 – Layout plant facilities Product layout, process layout, Fixed layout

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Chapter 7 – Aggregate production plan

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Chapter 8 – Scheduling

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Chapter 9 – Shop progress

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Chapter 10 – Shop management

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Chapter 11 – Plant maintenance

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Chapter 12 – Management information system Input information Output in terms of booked hours & SMH Payments Performance indices

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Chapter 13 – Incentive schemes Financial incentives for direct workers Financial incentives for indirect workers

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Chapter 14 – Factors affecting productivity

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PRODUCTION PLANNING AND CONTROL

PRODUCTION PLANNING AND CONTROL 1. NATURE AND SCOPE OF PRODUCTION PLANNING AND CONTROL Production management is the economic production of goods and supply of services of value to customers. In aircraft industry the term “Production of goods” relates to manufacture, repair and overhaul of aircraft and their components, including spare parts, ground handling equipment, tools and test equipments for supply to customers. The PPC system for manufacture of aircraft and their components essentially comprises the following 10 activities: Planning • Determining what products are to be produced and the quantities to be produced in defined time periods. • Dividing the complete product in to its component assemblies and individual parts. This process is called the planning breakdown. • Evolving the optimum methods for economic and timely production of the assemblies and their individual parts. • Assigning the task to be performed to identified groups such as divisions of company, department of a division, work centers of a department. • Scheduling the sequence, priorities and time periods for each task for each group. • Arranging to provide the resources in time for execution of the tasks. • Setting targets and standards of performance for each task in terms of time/cost/quality. • Authorizing the execution of work. Execution • Carrying out the tasks in each group as authorised by planning. Control • Constantly monitoring the progress of execution of the tasks in each group against the specified targets/standards of performance, analyzing the variances between actual achievement and the set targets/standards, evolving and taking corrective action in case of shortfalls in achievements when compared with the set targets/standards.

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2. ORGANISATION OF PPC The production engineering department of a division of a company engaged in aircraft production is typically organized as follows: • Central or Programme Planning Group This group is responsible for issue of the aggregate plan which specifies what products are to be produced in the next 1-3 years, the resources required to launch and sustain production, the broad assignment of tasks and the targets/standard of performance to be achieved by the groups engaged in execution and control. It derives the requirement of products to be produced from the marketing, R&D, personnel, purchase and finance departments. The programme planning group is also responsible for design of the plant layout and for taking “Make or Buy” decisions. •

Methods Engineering Group This group is responsible for studying the design specifications and manufacturing drawings, issuing manufacturing process instructions to the shops for each operation, part assembly. The instructions are issued together with an indication of time standards, inspection stages, requirement of production tools, standard tools, machine tools, production equipment and materials. • Tool Engineering Group This group responsible for study of the process instructions issued by methods engineering, planning, design, fabrication, proving, storage, issue and reconditioning of production tools. • Material Planning Group This group is responsible for specifying the requirements of materials in specified time periods for use in or supporting production. This group derives the information on material requirements as per process instructions issued by the methods. • Scheduling group This group schedules the sequence, priority and time periods for the fabrication of individual parts and their assemblies and assigns the tasks to be performed by each of the departments/shops/work centers. Scheduling provides the cues for timely provision of the resources required for execution of the tasks, which will include drawings, process instructions, production tools, standard tools, machinery and equipment, materials and manpower. • Shop Progress Group This group arranges to load the jobs to be performed by the shops together with the job card, drawings, process instructions, tools and materials so that no time is lost in starting and completing the job. The group thereafter, moves the material from one work centre to the next centre until the job is finished. The group provides feedback on the execution of the plans.

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3. BASIC CONCEPTS OF PLANNING AIRCRAFT PRODUCTION •

Planning Breakdown An aircraft comprises thousands of individual parts suitably assembled in stages. The “Planning Breakdown” defines the major structural components of the aircraft, their individual parts, sub assemblies and the systems installed in each major component, the sequence of manufacture of the individual parts and the stages of assembly. The Planning Breakdown is derived from a study of the manufacturing drawings. • Man Hours for Manufacture Man hours is the time required under specified conditions expressed in hours by an average worker/group of workers to execute a given job with or without the assistance of tools and production aids such as machine tools, production tools, standard tools, and other production equipment. In the execution of jobs there are four major time elements: (i) Set up time i.e. preparing for executing the job which includes setting up of jigs, tools, fixtures. (ii) Time for loading the job onto the jig/fixture/machine. (iii) Time for carrying out the operation. (iv) Time for unloading the job.

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4. Learning Curve Theory Man-hours for manufacture of aircraft decrease with progress of production. The decrease is significant during production of the 100 to 200 aircraft. The decrease is due to a combination of several factors, which can be broadly grouped as: (a) Improvement in manual skills due to familiarization with the jobs done repeatedly and, (b) Improvements in managerial action by way of introducing improvements to design to ease production, more economic processes of manufacture, training of personnel. More effective supervision and quality control, etc. In the traditional “WRIGHT” Learning Curve as the number of aircraft manufactured doubles, unit man hours for manufacture decrease by 80%. Thus if man hours for first unit is say 1000 hours, man hours for second unit will be 800, for fourth unit 640, eighth unit 512 and so on. This pattern of reduction of man hours with increase in number of units manufactured is termed as the individual unit Learning Curve.” WRIGHT “ curve to more accurately represent experience of various firms with different aircraft programmes. The learning curve slope (which is straight line when plotted on log scale with number of units of aircraft produced being plotted on the X axis and number of man hours required on the Y axis ) percentage decrement made not always be 80%. The percentage learning depends on a number of circumstances. The decrement due to learning id less for license projects as part of the learning has already occurred in the licensor’s works and the benefits are available to the license. Learning curve slopes for work done in assembly shops is steeper than for work done in manufacturing shops. Beyond 100-200 units effects of learning are not significant. Some aircraft companies follow the cumulative average curve. In this, as the number of aircraft manufacture doubles, the average man hours decrease by a fixed percentage.

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5. WORK STUDY PERFORMANCE INDICES AND NORMS Work study provides a scientific basis for establishing the work content involved in fabrication of individual parts and assembling them. Work-study comprises of Methods Study and Work Measurement. ‘Method study’ is defined in the British standards “The systematic recording and critical examination of the factors and resources involved in existing and proposed ways of doing work, as a means of developing and applying easier and mire effective methods and reducing costs”. Work measurement “is defined by the same British standards as, “The application of techniques designed to establish the time for a qualified worker to carry out a specified job at a defined level of performance”. Methods engineer or process planner studies the design drawings and arrives at a process of manufacture largely based on past experience. He will be familiar with the various manufacturing processes and associated materials, production tools, machine tools and standard tools. The process planner writes out in detail the instructions for each of the operations, indicating the sequence of operations, the material, production and machine tools to be used, speeds, feeds, and other machine parameters controlling the operation, stages of inspection and testing to ensure conformance with the design specifications, the work centre in which the work is to be accomplished. The process sheet indicates the previous assembly in which the part assembly will be used. The information given in the process sheet guides the operators in executing the given job. Work measurement is carried out in terms of “Standard Man Hours “ (SMH) which can be defined as the average time taken by a qualified worker working at average pace to perform a given job, due allowance being made for relaxation and other contingencies. Time study observed can arrive at a standard time by applying rating factor to the observed times based on their large experience. Willful idle time and enforced idle time when the worker has to remain failure etc are excluded in the computation of SMH. The techniques of work measurement are as follows. (a) Time study Breaking down a job into its elements and recording the times taken by a worker to perform each element of the job under specified conditions and analyzing the data recorded so as to arrive at the time necessary for performing each element of the job at a standard rate of performance. The elemental times are aggregated to determine the total time required to perform the specified job. This method is widely adopted for determining SMH for assembly operations. (b) Synthesis Building up the elemental times for a job with reference to a data bank of predetermined elemental timed established by previous time studies on similar job elements. This method is commonly adopted for fabrication of individual parts of the aircraft. Chapter 5 Nov 01 Page 1

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(c) Analytical Estimating The time required to carry out the elements of a job at standard level of performance is estimated partly from knowledge of the elements concerned and partly from synthetic data. Performance indices and norms used in PPC include the following : i) Labour utilization and productive yield, ii) Machine utilization, iii) Time cycles, iv) Rejection and rework v) Manufacturing scrap, and vi) Inventory levels A norm or target of “Productive Yield i.e. “. Direct labour utilization per month is 300 hours in two shifts or 150 hours per shift per month per direct worker. The actual hours booked on production per direct worker per month is termed “Production Yield”. This should be distinguished from attendance hours as a worker may not be usefully engaged in production throughout the period of his attendance due to the unavoidable losses due to waiting for work, material, tools, machines, material handling equipment etc. and willful idleness. Productive yield multiplied by the worker’s performance efficiency will give the standard man hours of output. A norm or target for SMH output per direct worker per month is 120. The norm for machine utilization follows the same pattern as labour utilization. A commonly adopted norm of machine utilization per machine per machine per month is 150 hours in one shift operation. Costly machines such as CNC machines, need to be utilized for three shifts to the extent possible. If this is not done the machine hour cists would increase. Time cycles for completing manufacture of individual parts and assemblies is of importance in scheduling the manufacturing activities. The time cycles are usually established on the basis of actual experience and suitable norms fixed for different categories of parts and assemblies. For example, the time cycle norm for machined parts may be 3-5 days and for sheet metal parts 1-2 days. For assemblies, jig cycle times ma range from a week for sub assemblies, 4-6 weeks for major structural assemblies, 6-8 weeks for equipment installation and final assembly and about 2-4 weeks each for ground tests and flight tests. Suitable norms are prescribed for rejections and rework, expressed as a percentage of parts produced or, in terms of SMH expanded upto the point of rejection; material, labour and overhead costs are also computed for control purposes. A norm for rejection is less than 1% of parts produced ; no norm is prescribed for rejection of assemblies, as it is expected that for assemblies there will be no rejections.

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Apart from rejections, material wastages occur in the manufacturing operations, the stock size of material selected, lack of care in storage, moving and handling, etc., no rejections. Apart from rejections, material wastages occur in the manufacturing operations, the stock size of material selected, lack of care in storage, moving and handling, etc. Suitable norms are evolved by each company and set as targets for controlling the material wastages. Inventory of materials is broadly grouped as follows: (a) Raw material and components held in stores, (b) Raw material and components issued to the shops for fabrication of individual parts and assemblies and which are not yet started or only partially completed; this is commonly referred to work in progress(WIP) (c) Finished foods or Stock In Trade (SIT) which will be the complete aircraft or its components included for sale. High inventories will reduce profitability of operations due to lock up of funds. The norms for level of inventory are expressed in monetary terms as a target value. A typical norm in terms of months of consumption of raw materials and components is 6-9 months.

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6. Layout plant facilities The plant facilities include machinery, equipment and associated building and services. The requirement of plant facilities is established from a consideration of the following: (a) For production shops with reference to the manufacturing processes adopted, (b) For indirect departments with reference to the job design, systems and procedures adopted, (c) The stabilized production rate (d) The type of plant layout adopted (e) Provision for expansion if this is envisaged in the long term plan. The major objectives of designing the plant layout are the following: (a) Optimum utilization of the facilities, (b) Providing a smooth flow of materials (c) Ease of material handling (d) Access for installation, maintenance and removal of machinery and equipment (e) Providing a comfortable and safe environment for working. The principal types of layouts are the following: (a) Product layout Where different items of machinery and equipment are arranged in the sequence of operations. For example, a product may require turning as the first operation, milling as the second operation and drilling as the third and final operation. The lathes, mills and drills are arranged in this sequence, all jobs moving from lathes to mills to drills. (b) Process layout Here the machinery and equipment are arranged in groups, each group relating to a particular process. For example, in a machine shop all lathes may be grouped together and so on. The job moves from one work centre to another depending on the sequence of operations required in the process chosen for the products. The sequence of operations may vary from one product to another. (c) fixed position layout In this, the item to be worked on is stationary and all resources required to do the jobs on it are taken to this fixed location. This kind of layout is of limited application to series production of aircraft and is more applicable to R&D work. Costly test facilities are often arranged in a fixed location. A product layout is favored when the product mix is limited to a few basic types, the products have a high degree of standardization of parts, the production volumes are high and period of production long. The process layout is preferred when there is a need for flexibility to handle a large variety of products with different sequence of operations, when there is little standardization of parts and when production volumes are low. Under these conditions the process layout offers high utilization of the facilities and low investment costs.

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7. AGGREGATE PRODUCTION PLAN An aggregate production plan in the aircraft industry usually covers a period of 12 years and specifies what products are to be produced and delivered during each month of the plan period. The projections for the first year will be precise and the projections for the first year will be precise and the projections for the second year a little less. The plan will be revised each year. The plan is generally based on existing resources and resources previously planned and which will become available in the plan period. However, improvements in productivity such as improvements to yield, efficiency, machine utilization, reduced rejection/rework levels, reduced manufacturing wastages etc., which have planned for, will be taken into account in the preparation of the plan. The aggregate production plan will spell out the tasks to be performed by each shop/department in fulfillment of the plan. Set targets of performance, estimate the financial results expected on implementation of the plan, highlight constraints to be overcome and bring them to the attention of the concerned departments. The aggregate plans will be co-ordinated with the firm’s long term or corporate plans. In turn, the aggregate plan provides the cues for detail scheduling. The stages in preparation of the aggregate plan are briefly describes below (a) In the first instance, the items to be produced/delivered in the plan period are clearly defined. This is done with reference to the order book, items produced or delivered in the previous year, balance items to be produced/delivered and delivery commitments made to the customer. Aircraft are considered produced when they have successfully completed flight tests and are accepted by the government inspection agency. Aircraft are considered delivered when they are collected by the customer’s pilots or the customer’s duly authorized representatives. (b) Having quantified the items to be produced during the plan period, the next step is to compute the work content in terms of SMH and time cycles for the provide as a whole and for its component parts, there after, the work content to be discharged in each shop to meet the planned production programme is computed. The computer can be programmed to predict work load in each quarter/month taking into account capacity in terms of men/machine and time cycles. (c) Having computed the work load for each shop on an annual basis, the resources required to fulfill the plan in terms of men and machinery/equipment are worked out, taking into account yield, efficiency and machine utilization recorded in the precious year and the planned improvements, if any, in the first and second tears of the plan. (d) The requirement of production materials and tools is computed with reference to the bill of materials, planned manufacturing processes and production programme. (e) The requirement of men, machines, materials and tools are then checked against the available resources and gaps in resources, are identified. (f) Various options to meet shortfall in capacity or anticipated shortfall in materials/production tools are examined. Some of the options are to avail of subcontract, share work with other divisions, obtain items from collaborators, negotiate with customers for revision of delivery dates. Chapter 7 Nov 01 Page 1

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8. SCHEDULING The next step in PPC is to formulate schedules or short term plans, each schedule covering a period of a month, week or day. Scheduling breaks down the requirements of the aggregate plan and gives the item wise details of individual parts, sub-assemblies, major assemblies, and aircraft final assemblies to be started and completed in each month/week/day. Aggregate plans represent planning at the “macro” level, whereas scheduling represents planning at the “micro” level. Scheduling is a dynamic activity in that schedules for successive periods need to be updated and revised, taking into account the following: (a) Actual extent of execution of the schedules of the previous period, (b) Additional orders placed or cancellation of existing orders, (c) Changes in priorities of products to be delivered, (d) Availability of input resources, which include product design specifications, drawings, schedules, process instructions, production jigs, fixtures, tools, machine tools, standard tools, energy, materials, manpower and funds. Prompt feedback (e) reports on the above mentioned factors is essential for formulating the schedules for the next period. The basic aims of scheduling are to meet the customer’s requirements in terms of delivery periods of the products and at the same time ensure optimum utilization of resources. Scheduling determines the following: (a) Itemised list and quantities of “jobs” which have to be loaded on the manufacturing / assembly / overhaul shops in each scheduled period, (b) Itemized list and quantities of jobs to be completed by the shops in each scheduled period. (c) The sequence in which the jobs are to be loaded and completed, (d) The supporting schedules for making available the required input resources.

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9. SHOP PROGRESS The progress staffs are located in each of the manufacturing and assembly shops. The functions are as follows: (a) Load the jobs to be performed on the designated work centre in each shop in accordance with the starting schedules. Loading of the jobs involves collection of required materials, production and standard tools, drawings, test schedules, process instructions, inspection schedules and documentation and supplying these to the individual or group of workers of the designated work centre. (b) Follow the progress of execution of the jobs and report when each part or assembly is completed to the scheduler. (c) Arrange to provide assistance to the shops when problems arise in manufacture/assembly. Solution of the problems may require co-ordinated action by design liaison staff, process planners, tool designers, quality control staff and shop supervision. Shop progress will assist in assembling the required personnel. (d) Credit the completed parts/assemblies to holding stores or directly to the next shop here further work may have to be done. (e) Move material, tools, documents from work center to work center with in the shops and between stores and shops. Job preparation involves collection of materials, tools, documents etc., well in advance of loading. Several alternate jobs will be kept ready for loading for each work center. If for any reason a particular job cannot be loaded strictly in accordance with the set schedule the next job can be loaded without loss of time. Kit marshalling for assembly shops involves collection of all the component parts of the assembly in the form of a set or kit, well in advance of scheduled date of loading the parts for assembly. This serves the same purpose as job preparation for manufacturing shops.

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10. SHOP MANAGEMENT Effective “man management” is the essence of good shop management. The shop manager should possess leadership qualities, namely self confidence, ability to analyze and take decisions promptly, inspire and motivate the group reporting to him, be receptive to new ideas, encourage participation, be good at communication, have persistence in following through implementation of jobs, a balanced temperament. The workers in the shops, suitably grouped for convenience of control, will report to a first line shop supervisor. A first line shop supervisor may be in charge of 10-20 workers. Where the work centers are large in size, they will be further subdivided, and each subdivision placed in charge if a first line supervisor. Where the work centers are small, two or more work centers may be placed in charge of a first line supervisor. Depending on the size and complexity of operation, there may be one or two levels of middle supervisors, through whom the first line supervisors will report to the shop manager. In a shop with say 200 workers, there may be 10-15 work centers each in charge if a first line supervisor and there may be 4-5 middle level supervisors. The duties of the different levels of supervision are as follows: (A) First line supervision Assign work. Clarify instructions contained in drawings, process sheets, test schedules. Assist workers in solving problems encountered in execution e jobs assigned. Where required, demonstrate how the job is to be performed. Carry out first off-inspection (i.e. inspection of the first part made in a batch). Maintain safety precautions. Ensure healthy work discipline. Invite and be receptive to workers suggestions. Counsel workers on measures to improve quality and efficiency, if found wanting, (B) Middle level supervision: The emphasis is on problem solving beyond the competence of the first line supervision and in coordinating the supporting services so as to ensure that workers are not kept idle for reasons beyond their control. Middle level supervision will report to the Shop Manager. (C) Shop Manager: The shop manager is ultimately responsible for the proper performance and administration of the shop. He will closely monitor shop performance, review and take corrective action so as to maintain the set schedules. The shop manager has to design and maintain an environment in which workers in which workers put in their best efforts keeping in view the management’s objectives of efficient resource utilization and economic production.

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11. PLANT MAINTENANCE The aircraft industry has costly machinery and other production equipment. If these are not maintained in a serviceable condition, cost of production will increase, quality deteriorate and skilled workers will idle. To ensure proper condition, preventive maintenance schedules are drawn up according to which the machine tools and production equipment are inspected and serviced at periodic intervals. Where possible the maintenance is carried out in the third shift. Maintenance is also carried out in holidays. The object of preventive maintenance is to avoid machine breakdown. If despite all precautions the machine does breakdown, arrangements are made in advance to carry out repairs expeditiously. A norm generally achieved in well maintained facilities is that machine breakdown should not exceed 2% of the gross available hours, Periodic performance capability studies are carried out on each of the machine tools, say once a year, in which the machine performance is critically examined and a record maintained of the dimensional tolerances achieved under actual conditions of usage by a skilled worker.

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12. MANAGEMENT INFORMATION SYSTEM FOR PPC Management Information System (MIS) is one of the systems of management whose objective is to provide timely and relevant information for deciding making by managers at all levels. The process of management involves co-ordinated planning, organizing, leading and controlling functions. The shop manager is vitally interested in knowing how well or badly the shop is performing in relation to the set schedules/planned targets and to what extent the resources provided, in particular men, machines and materials, are utilized in relation to the target norms of utilization. MIS reports on direct labour utilization. Typical entries in monthly report indirect labour utilization for an aircraft factory is given below. Explanatory notes on terms used in the report are given against each item in parentheses. Input Information 1. Number of men on rolls. This is the number of direct workers allocated to the shops as per the appointments register. 2. Number of men available for production in the shops. This is the number of direct workers on rolls excluding those deputed to outstations or deployed for indirect tasks. 3. Purchased hours. This is equal to the number of direct workers available for productive jobs in the shops multiplied by the number of working days in a month multiplied by 8 hours per shift. 4. Gross available hours. This is equal to purchased hours less hours spent at outstations/on indirect work. 5. Shift short hours. In some companies the shops work unequal shift hours. For example, the first shift may be of 8 ½ hours duration, of which ½ hour is earmarked for lunch recess and the second shift of 8 hours duration. 6. Hours lost due to absenteeism of direct workers. This may range from 10-20% and is an important element of lost time. 7. Hours booked on overtime. Overtime should be booked with caution and only in emergencies to make good delivery commitments, which may have slipped due to production shortfalls. Continuous resort to overtime will lead to loss of productivity 8. Net available hours. This is equal to gross available hours plus overtime hours and less short shift hours and hours lost due to absenteeism. 9. Available capacity in the month. This is equal to the number of direct workers multiplied by a prescribed norm of utilization, say 120 standard man hours per direct worker per month. 10. Cumulative capacity. This is the sum of capacity in the month and preceding months of the accounting year. Output in terms of booked hours and SMH 11. Number of actual man hours booked by the shops on current production work orders pertaining to manufacture of aircraft and their components. 12. Number if man hours booked on other current work orders. “Other” work orders pertain to production jigs, fixtures, tools etc., which are needed in the production process but which are nor incorporated in the finished. 13. Total number of man hours booked on all work orders. This is a measure of man hours booked on productive work. Chapter 12 Nov 01 Page 1

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14. Number of man hours lost to production. 15. Number of man hours booked on standing orders. Standing orders are issued for activities which are required to support production such as cutting of bars, shearing of sheets, part numbering, sand blasting, cleaning of parts, pressure testing, proof loading etc., these activities are performed by direct workers. 16. Number of standard man hours of output during the month. This is the work content of jobs/operations completed in terms of SMH, which are recorded for each project and the total for all projects. Payments 17. Salaries / wages of direct labour: This excludes overtime and incentive payments. Also excluded are employee benefits such as provident fund, gratuity, leave salary, leave travel concessions, house rent allowance, conveyance allowance, subsidies on canteen, transport, medical etc., The salaries and employee benefits of supervision are also excluded. All these excluded payments are charged to overheads. 18. Overtime payments: Payments for work done beyond regular shift hours. 19. Incentive payments: Incentive payments are made for rewarding performance of workers above a set norm and are regulated by the incentive scheme in operation. Incentive schemes are separately described. 20. Total payments in respect of salaries / wages, overtime and incentives. Performance indices 21. Total yield: This is equal to the net available hours recorded at no.8 in the month divided by the number of direct workers available for production at no.2 22. overall yield : This equal to total yield less lost time, divided by number of direct workers available for production. 23. Productive yield: This is equal to overall yield less hours booked on “other” work orders, divided by number of direct workers available for production. 24. Standard man hours of output per direct worker: This is equal to total SMH output divided by the number of direct workers available for production. 25. Efficiency in relation to booked hours: This is equal to total SMH output divided by total hours booked on work orders. 26. Efficiency in relation to attendance hours: This is equal to total SMH output divided by net available hours recorded at no.8 27. Capacity utilization: This is equal to total SMH output divided by available capacity as recorded at no.9 28. Overtime percentage: This is the percentage of overtime hours in relation to net available hours. 29. Lost time percentage: This is the percentage of lost time hours in each category, in relation to net available hours. 30. Direct labour cost per SMH : This is equal to total payments of no.20 divided by total SMH at no.16 31. Performance efficiency of direct workers: The performance efficiency of each direct worker is computed by dividing the SMH content of items produced by the hours booked on production by him during the month, incentive earnings which are related to performance efficiency, are also separately computed and recorded for each worker. Performance efficiency is a measure of direct labour productivity. Chapter 12 Nov 01 Page 2

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13. INCENTIVE SCHEMES Incentive schemes belong to two broad categories, one financial and the other non-financial. In financial incentive schemes the worker is rewarded by payment of a sum of money for performance above a set level. In non-financial incentive schemes, the reward is by way of recognition and appreciation, not involving any direct payment of sums of money, non-financial incentive schemes rely on principles of motivation and human behavior. Financial incentives for direct workers Financial incentive schemes for direct workers are basically related to the performance efficiency achieved by individual direct workers or group of direct workers. The performance efficiency is determined by dividing the SMH content of all jobs completed by a direct worker in a defined period divided by the man hours booked on production during the same period. Where the jobs are performed by a group of direct workers, the numerator and denominator are those pertaining to the whole group. The SMH content of only those operations , parts or assemblies which have been accepted after inspection during the specified period is taken into consideration in determining the SMH output. The hours booked on production will include all hours spent on rework up to the stage of rejection. In other words, the incentive reward is only for quality output. The level of performance efficiency achieved by a direct worker will determine his incentive payment. For a financial incentive scheme to work satisfactorily certain conditions should be satisfied. (a) The SMH content of all jobs should be scientifically determined and man hours booked in production correctly recorded, (b) There should be adequate work load to utilize the available capacity, (c) Job preparation should be done so that the direct workers are not kept idle, (d) The average incentive payments should be of the order of 25-35% of the normal salaries / wages of the direct workers, (e) The incentive payments should be clearly distinguished from the normal salary / wage payments so that the workers are aware that the incentive payments are for their extra effort. This is often arranged by making the incentive payments on a date separate from the normal salary / wage payments. (f) The incentive payments for a month should be paid in the following month. Financial incentives for indirect workers and supervisory / managerial staff It is difficult to measure the work done by these categories of workers and staff. On the other hand, pressures would exist to make incentive payments to them since it is recognized that the direct workers cannot perform their jobs without the active support of indirect workers and staff. Some companies pay incentives to indirect workers and staff as a proportion of the payments to the direct workers. Indirect workers and staff engaged closely with the activities of the shops, such as those in the production engineering, industrial engineering, quality control and plant maintenance departments will receive a higher incentive than those in departments which are relatively remote such as administration, finance and accounts etc., Chapter 13 Nov 01 Page 1

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14. FACTORS AFFECTING PRODUCTIVITY Productivity of an organization engaged in the production of goods and services is its ability to efficiently utilize its resources and effectively achieve the objectives set for itself by its top management. The primary objective is to generate a surplus of income over expenses, that is make a profit. Profit is essential for sustaining growth of the organization, secondary objectives include market leadership, quality and reliability of the goods and services, customer service, establishing a healthy relationship with its suppliers and living up to its social responsibilities. Achievement of high level of productivity requires the co-ordinated efforts of marketing, production, R & D, personnel and finance functions.

REFERENCES 1. Aircraft production technology & management, S.C Keshu & K.K Ganapathy

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