Productivity measurement and its relationship to quality in a South African Minting Company

Abstract

The aim of this study was to investigate a productivity measurement at the South African Minting Company and evaluate the relationship between productivity and quality. Special emphasis was given to profit-linked total factor model as the tool for measurement. This was encouraged by their ability to separate productivity, profitability and price recovery. Three models were selected and evaluated. These models American Productivity Center (APC) Model, “Profitability = productivity + price recovery” (PPP) model and multi-factor productivity measurement model (MFPMM). APC model was selected as the suitable model because of its simplicity, easy to set up, its ability to produce both financial and non financial data, and allow for route cause analysis with expert system, and more insight for the manager with Microsoft Excels’ What if analysis “Goal seek”. APC model was set up for four periods, from 1 April 2004 to 30 September 2007. The overall profitability results of the circulation coins profit center show an overall positive contribution. There was a break-even of the price recovery for 2006 financial year (period 2). In 2007 financial year (period 3), there was a negative contribution, and this improved to almost break-even in the six month period during this 2008 financial year (period 4). This means there was much more inflation on input resources and the recovery was not fully realised in the price of goods sold. Individual input costs show that the negative price recovery is culminating from material, labour and energy costs contributions. There is a plausible explanation for material and labour, but not for energy. The metal volatility is the underlying cause of the price variation. Labour variation was a company strategy to adjust employee to higher percentiles. Productivity was always positive with the highest contribution in the current financial year (period 4). This means that the profitability at SA Mint has been driven by productivity in the past two financial years. iv Survey of the questionnaire shows average scores for productivity and quality. It is noteworthy, that the lowest mean score for productivity is for the statement “Products are produced in error-free process”. This is a productivity quality measure. In addition, the same variable shows r2 value of 0.42. A conclusion is that even though productivity and quality are highly correlated and show a highly positive relationship, there is a concern on quality in the company. A link can be made that low price recovery becomes more difficult when the quality is not always good. Defective product is a cost, because the product does not reach the customer and if the product is reworked it is still a cost, though low, but more importantly it decreases the available capacity. This study was successful in setting up APC model and producing data that is worthy to the company and academic world. Finally, this study was successful in its quest to establish the relationship between productivity and quality.