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

The aim of this study was to investigate a productivity measurement at the SouthAfrican Minting Company and evaluate the relationship between productivity andquality.Special emphasis was given to profit-linked total factor model as the tool formeasurement. This was encouraged by their ability to separate productivity,profitability and price recovery. Three models were selected and evaluated. Thesemodels 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 allowfor route cause analysis with expert system, and more insight for the manager withMicrosoft 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 overallpositive contribution. There was a break-even of the price recovery for 2006 financialyear (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 2008financial year (period 4). This means there was much more inflation on inputresources and the recovery was not fully realised in the price of goods sold.Individual input costs show that the negative price recovery is culminating frommaterial, labour and energy costs contributions. There is a plausible explanation formaterial and labour, but not for energy. The metal volatility is the underlying cause ofthe price variation. Labour variation was a company strategy to adjust employee tohigher percentiles.Productivity was always positive with the highest contribution in the current financialyear (period 4). This means that the profitability at SA Mint has been driven byproductivity in the past two financial years.ivSurvey of the questionnaire shows average scores for productivity and quality. It isnoteworthy, that the lowest mean score for productivity is for the statement “Productsare produced in error-free process”. This is a productivity quality measure. Inaddition, the same variable shows r2 value of 0.42. A conclusion is that even thoughproductivity 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 pricerecovery becomes more difficult when the quality is not always good. Defectiveproduct is a cost, because the product does not reach the customer and if theproduct is reworked it is still a cost, though low, but more importantly it decreases theavailable capacity.This study was successful in setting up APC model and producing data that is worthyto the company and academic world. Finally, this study was successful in its quest toestablish the relationship between productivity and quality.