Productivity

Introduction

 The ratio of outputs (goods and services) divided by one

or more inputs (such as labor, capital or management)
 The operations manager’s job is to enhance (improve)
this ratio of outputs to inputs.
 Improving productivity means improving efficiency.
Productivity Measurement

 Productivity=Output/Input
=Unit Produced/Input Used
Productivity Measurement

 Single Factor Productivity: Indicate the ratio of one

resource (input) to the goods and services produced
(output)
 Multifactor Productivity: Indicate the ratio of many or all
resources (inputs) to the goods and services produced
(output). Multifactor productivity is also known as total
factor productivity.
Measurements

𝑈𝑛𝑖𝑡𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑒𝑑
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝐿𝑎𝑏𝑜𝑟 ℎ𝑜𝑢𝑟𝑠 𝑢𝑠𝑒𝑑

𝑂𝑢𝑡𝑝𝑢𝑡
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
(𝐿𝑎𝑏𝑜𝑟 + 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 + 𝐸𝑛𝑒𝑟𝑔𝑦 + 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + 𝑀𝑖𝑠𝑐𝑒𝑙𝑙𝑎𝑛𝑒𝑜𝑢𝑠)
Problems in Measurement

 Quality may change while the quantity of inputs and

outputs remain constant.
 External elements may cause an increase or a decrease
in productivity for which the system under study may not
be directly responsible.
 Precise units of measure may be lacking.
Productivity Variables

The there factors are critical to productivity improvement

 Labor
 Capital
 Management
Labor

 Three key variables for improved labor productivity are:

 Basic education appropriate for an effective labor
force
 Diet of the labor force
 Socialoverhead that makes labor available, such as
transportation and sanitation.
Capital

 Inflation and taxes increase the cost of capital, making capital

investment increasingly expensive.
 When the capital investment per employee drops, we can expect a
drop in productivity.
 Using labor rather than capital may reduce unemployment in the
short run, but it also make economies less productivity.
Management

 Management is responsible for ensuring the that labor

and capital are effectively used to increase productivity.
 Using knowledge and technology is critical in
postindustrial society.
 Post industrial societies are also known as knowledge
society.
 A knowledge society in which much of the labor force
has migrated from manual work to work based on
knowledge.
Problem 1
Problem 2

 Collins Title wants to evaluate its labor and multifactor

productivity with a new computerized title-search
system. The company has a staff of four, each working 8
hours per day (for a payroll cost of Rs. 640/day) and
overhead expenses of Rs. 400 per day. Collins processes
and closes on 8 titles each day. The new computerized
title-search system will allow the processing of 14 titles
per day. Although the staff, their work hours, and pay
are the same, the overhead expenses are now Rs. 800
per day.
 Labor productivity with the old system:
8 titles per day/32 labor hour=0.25 titles per labor hour
 Labor productivity with the new system:
14 titles per day/32 labor hour=0.4375 titles per hour
 Multifactor productivity with old system:
8 titles per day/(600+400)=0.0077 titles per Rs.
 Multifactor productivity with the new system:
14 titles per day/(640+800)=0.0097 titles per Rs.
Problem 3

 Productivity can be measured in variety of ways, such as by

labor, capital, energy, material usage, and so on. At Modern
Lumber, Inc., Art Binley, president and produced of apple
crates sold to growers, has been able with his current
equipment, to produce 240 crates per 100 logs. He currently
purchases 100 logs per day, and each log requires 3 labor-
hour to process. He believes that he can hire a professional
buyer who can buy a better quality log at the same cost. If
this is the case, he can increase his production to 260 crates
per 100 logs. His labor hours will increase by 8 hours per day.
What will be the impact on productivity (measured in crates
per labor-hour) if the buyer is hired?
 Current labor productivity
=240 crates/(100 logs * 3hours/log)
= 0.8 crates per labor-hour .
 Labor productivity with buyer
=260 crates/[(100 logs * 3 hour/log) + 8 hours]
= 0.844 crates per labor-hour
Problem 4

 Art Binley has decided to look at his productivity from multifactor

perspective. To do so, he has to determine his labor, capital, energy,
and material usage and decided to use dollars as the common
denominator. His total labor-hours are now 300 per day and will
increase 308 per day. His capital and energy costs will remain
constant at $350 and $150 per day, respectively. Material costs for
the 100 logs per day are $1000 and will remain the same. He pays
an average of $10 per hour, Determine the percentage of
productivity increased.
Percentage Change=[(0.0568-0.0533)/0.0533]*100=0.066*100=6.6%
Problem 5

 This year, Benson Inc., will produce 57600 hot water

heaters at its plant in Florida, in order to meet expected
global demand. To accomplish this, each labor at the
plant will work 160 hours per month. If the labor
productivity at the plant is 0.15 hot water heaters per
labor-hour, how many laborers are employed at the
plant.
Problem 6

 In December, General Motors produces 6600

customized vans at its plant. The labor productivity at this
plant is known to have been 0.10 vans per labor-hour
during that month. 300 laborers were employed at the
plant that month.
a) How many hours did the average laborer work that
month?
b) If the productivity can be increased to 0.11 vans per
labor hour, how many hours would be the average
laborer work that month?
Factors Influencing Productivity

 Factors influencing productivity can be classified broadly

into two categories:
(A) controllable (or internal) factors and
(B) un-controllable (or external) factors.
CONTROLLABLE (OR INTERNAL) FACTORS

1. Product factor: In terms of productivity means the extent to which

the product meets output requirements product is judged by its
usefulness. The cost benefit factor of a product can be enhanced by
increasing the benefit at the same cost or by reducing cost for the
same benefit.
2. Plant and equipment: These play a prominent role in enhancing the
productivity. The increased availability of the plant through proper
maintenance and reduction of idle time increases the productivity.
Productivity can be increased by paying proper attention to utilization,
age, modernization, cost, investments etc.
3. Technology: Innovative and latest technology improves
productivity to a greater extent. Automation and
information technology helps to achieve improvements in
material handling, storage, communication system and
quality control.
4. Material and energy: Efforts to reduce materials and
energy consumption brings about considerable
improvement in productivity.
5. Human factors: Productivity is basically dependent upon
human competence and skill.

6. Work methods: Improving the ways in which the work is

done (methods) improves productivity, work study and
industrial engineering techniques and training are the
areas which improve the work methods, which in term
enhances the productivity.

7. Management style: This influence the organizational

design communication in organization, policy and
procedures. A flexible and dynamic management style is a
better approach to achieve higher productivity.
UN-CONTROLLABLE (OR EXTERNAL)
FACTORS
1. Natural resources: Manpower, land and raw materials
are vital to the productivity improvement.
2. Government and infrastructure: Government policies
and programs are significant to productivity practices of
government agencies, transport and communication
power, fiscal policies (interest rates, taxes) influence
productivity to the greater extent.
3. Structural adjustments: Structural adjustments include
both economic and social changes.