Productivity Measurement

Productivity Measurement
Measures the relationship between
ACTUAL INPUTS USED (quantities and
costs) and ACTUAL OUTPUTS
PRODUCED.
ACTUAL INPUTS USED
Direct materials, Manufacturing conversion,
Selling and customer service, Research and
development

ACTUAL OUTPUTS PRODUCED

Units of finished product produced

 The LOWER the INPUTS for a given

quantity or the HIGHER the OUTPUT,
the HIGHER the PRODUCTIVITY.
If
OUTPUT is 15,000 units
A - INPUT = 25,000 units
B - INPUT = 20,000 units = higher prod

or
INPUT is 15,000 units
A - OUTPUT = 9,000 units
B - OUTPUT = 10,000 units = higher
prod

 Productivity measurements are

compared over time.
PM of CURRENT YEAR 2000
vs
PM of PREVIOUS YEAR - 1999

2 Types of Productivity
Measurement
1) Partial Productivity

2) Total Factor Productivity

Partial Productivity
Most frequently used productivity
measure
Compares the quantity of output
produced with the quantity of an
INDIVIDUAL INPUT USED.
Expressed as a ratio

Partial Productivity
Partial Productivity
Quantity of OUTPUT produced
= _________________________
Quantity of INPUT used

Quantity of CX1 units produced

during 2000
=

_____________________________________

Direct materials quantity used to

produce CX1 in 2000
1,150,000 units of CX1
= _______________________
2,900,000 sq. cm. of DM

=
0.40 units of CX1 per sq. cm.
of DM
or 1 sq.cm = 0.40 unit

INPUT

Direct
Materials
Manufacturin
g Conversion
Selling and
Customer
Service
R&D

Partial
Partial
Productivit Productivi
y in 2000
ty in 1999
1,150,000
2,900,000
= 0.40
1,150,000
1,750,000
= 0.66
1,150,000
55
= 20,909

1,150,000
3,450,000
= 0.33
1,150,000
1,875,000
= 0.61
1,150,000
60
= 19,167

1,150,000
39
= 29,487

1,150,000
40
= 28,750

Percentage
Change
from 1999
to 2000
0.40 - 0.33
0.33
= 21.2%
0.66 - 0.61
0.61
= 8.2%
20,909
19,167
19,167
= 9.1%
29,487
28,750
28,750

Evaluating changes in partial

productivities
It is important to distinguish between
the partial productivity effects of
variable and fixed components.

Evaluating changes in partial

productivities
WHY?
Because VARIABLE-cost elements, such as
direct materials, productivity improvements
automatically result in fewer inputs
resources.
On the other hand, for FIXED-cost
elements such as conversion cost, to
improve productivity, management must
take actions to release workers or reduce
capacity which is difficult to implement.

Advantages
-Focuses on a single input therefore
they are easy to calculate and easily
understood by operations personnel.

Disadvantages
Because partial productivity focuses
on only one input at a time, it does
not allow managers to evaluate the
effect of input substitutions on
overall productivity.

Total Factor Productivity

Is the ratio of the quantity of output
produced to the costs of all inputs
used, where the inputs are combined
on the basis of current period prices.

Total Factor Productivity

Total factor productivity
=

Quantity of output used

Costs of all input used

 Total factor productivity for year

2000
= Quantity of output produced in 2000
Costs of input used in 2000 based
on 2000

 Direct Material cost per unit = $1.50

Manufacturing conversion cost per
unit = $6.20
Selling and Customer service cost
per unit = $80,000
R & D = $100,000

INPUT

2000

1999

Cost per
unit
For 2000

Direct
Materials

2,900,000

3,450,000 $1.50

Manufactur
ing
Conversion

1,750,000

1,875,000 $6.20

Selling and
Customer
Service

55

60

$80,000

R&D

39

40

$100,000

Total Factor Productivity

______1,150,000_________________
= (2,900,000 x $1.50)+(1,750,000 x
$6.20)+(55 x $80,000)+(39x$100,000)
=

1,150,000
$23,500,000

= 0.048936 units of output per dollar of

input costs

Total Factor Productivity

By itself, the 2000 Total Factor
Productivity of 0.048936 is not
particularly helpful , therfore, we need
something to compare the 2000 TFP
against.
2000 TFP
vs
1999 TFP

Benchmark TFP
= Quantity of output produced in 2000
Costs of inputs that would have
been used in 1999 to produce 2000
output

______1,150,000_________________
= (3,450,000 x $1.50)+(1,875,000 x
$6.20)+(60 x $80,000)+(40x$100,000)

1,150,000
$25,600,000

=
0.044922 units of output per dollar
of input costs

 Therefore
= (0.048936 0.044922)
0.044922
= 8.94%
An increase of 8.94%
25,600,000 23,500,000
Or savings of $2,100,000
2,100,000 / 23,500,000 = 8.94%

 END!
Nothing follows.