Chapter 2
PRODUCTIVITY
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A Cold Hard Fact
Better quality, higher productivity, lower costs, and the
ability to respond quickly to customer needs are more
important than ever, and…
the bar is getting higher
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Productivity Improvement
Productivity Improvement (PI) is the result of managing and
intervening in transformation or work processes.
PI will occur if:
O O O O O
I I I I I
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Productivity measures are useful for
Tracking an operating unit’s performance over time
Judging the performance of an entire industry or country
Why Productivity Matters
➢High productivity is linked to higher standards of living
◦ As an economy replaces manufacturing jobs with lower productivity service jobs, it is
more difficult to maintain high standards of living
➢Higher productivity relative to the competition leads to competitive advantage in the
marketplace
◦ Pricing and profit effects
➢Nowadays, the issue of productivity improvement, especially in developing countries,
has become important for manufacturing firms 'managers, strategic planners government
policy makers and it is becoming a key factor affecting the overall performance of
firms
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Measuring Productivity is an important aspect in manufacturing firm and In
developing countries
❖ In any manufacturing organization
productivity play a vital role for improving the reputation of the firms.
❖ The environment of firms running in globalized competition between the various company and
firm.
Not only firm’s productivity increased but also partial productivity of labor, partial productivity of
raw material, and partial productivity of capital should be increased.
In developing countries,
the issue of productivity, partial productivity, total productivity has become most important aspect
for any manufacturing firm.
The productivity measurement is the quantification of both the output and input resources of
production system.
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A conceptual
model of
individual
productivity.
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Material productivity in manufacturing concern is a vital factor in ensuring a high level of
effectiveness and efficiency.
Capital productivity is frequently measured as the output of goods or services in each
number of machine hours.
Capital productivity = Output/capital input.
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Advantages of Single-Factor
Productivity:
i. Ease in obtaining relevant data and
easy to comprehend.
ii. Acts as a good diagnostic measure
to identify areas of improvement by
evaluating inputs separately across
the output.
iii. Ease in comparing with other
businesses in the industry.
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Second:
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Advantages of Total Factor
Productivity:
i. Ease in obtaining data and to
understand.
ii. Ease in understanding.
iii. Ease of aggregation across
industries.
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➢ Total Productivity Model was developed by David J. Sumanth in 1979 considered
five items as inputs.
These are human, material, capital, energy and other expenses.
This model can be applied in any manufacturing or service organization.
❑ Total Tangible Output
= Value of finished units produced + Partial units produced + Dividends from
securities + Interests from bonds + other incomes.
❑ Total Tangible Inputs
= Value of human inputs + Capital inputs + Materials purchased + Energy inputs +
other expenses (taxes, transport & office expenses etc.).
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Using a productivity ratio to calculate the impact of company training
(personnel)
For example, if a new sales team receives 12 additional hours of training than the sales team from
the prior year, then the number 12 represents the input. If the new team made $1,109,900 in sales
— while last year's team made $809,900 in sales —
then subtracting the total from the previous year would make the output $300,000.
$300,000 / 12 = $25,000
This means that each additional hour of group training yields an annual result of $25,000 in team
sales.
Using a productivity ratio to calculate labor
Labor is the time, effort and energy that employees put into their work. Calculating labor productivity
measures the outcomes that relate to that effort.
EX: Imagine that an eyewear company wants to measure labor productivity for an entire year. If they make
180,000 pairs of black eyeglasses in the year, and it takes a combined total of 22,500 hours of labor to
produce them —
then the output is 180,000 and the input is 22,500
= 180,000 / 22,500 = 8
This means that the people working in manufacturing produce an average of eight pairs of black eyeglasses
every hour.
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Using a productivity ratio to calculate revenue and units
Units are the number of products that a company develops, produces or sells. Calculating and tracking
productivity is likely to positively impact revenue and help you reach target markets.
EX: If a company earns $500,000 per month selling plush toys, they can use a productivity ratio to
calculate the revenue generated by each employee per hour. If the 10 employees responsible for
creating the toys work 1600 accumulative hours in the month,
then $500,000 would represent the output and 1600 would represent the input.
$500,000 / 1600 = $312.50
This means that the company earns $312.50 for each hour that a person works.
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Problem:
•Gibson Valves produces cast bronze valves on an assembly line to produce 1600 valves per
shift. If the production is increased to 2000 valves per shift, labor productivity will
increase by:
•-Labour productivity will increase by = units after increasing – units before %
units before
= 2000 – 1600 % = 25 %
1600
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Problem:
The Dulac Box plant works two 8-hour shifts each day. In the past, 500 cypress packing
boxes were produced by the end of each day. The use of new technology has enabled
them to increase productivity by 30%. Productivity is now approximately
In the past, productivity was = units produced÷(number of shift X time works per shift)
= 500 ÷ (2 X 8)
= 31.25 units
Productivity after using a new technology increases by 30%
= productivity in the past X the percent increased
= 31.25 units X 30% = 9.375 units
Productivity became to be
= units in the past + units after using a new technology
= 31.25
+
9.375
= 40.625
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Some Productivity Improvement Models
Model 1. Material Based Measures:
This method includes material planning and control (MPC), purchasing,
logistics, material storage and retrieval, source selection and procurement of
quality material, waste elimination.
Model 2. Product Based Measures:
Productivity can be improved by improving product design, by improving the
quality of parts of product.
Productivity can be improved by taking following action regarding product:
i. Value analysis and value engineering.
ii. Product diversification.
iii. Standardization and simplification.
v. Product mix and promotion.
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Model 3. Process or Task Based Measures:
Process based productivity is based on management style, communication in the
organization, work culture, motivation, promotion group activities.
include improvements in doing work like; process design and human factor
engineering, to increase productivity; there are two main techniques (method
Study and work measurement) of simplifying any task(a) Method Engineering is the systematic recording and critical examination of
the present and the proposed way of doing work as a means of developing
better economical, easier and efficient way of doing work and implementing
it.
(b) Work Measurement is an application of technique designed to establish and
time required by qualified worker to carry out specified tasks at defined level of
performance. In short, measurement of time to do work.
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Model 4. Technology Based Measures:
This included use of advanced and updated technology to increase productivity.
It consist CAD/CAM/CIMS, Robotics, Laser technology, Modern maintenance technology, Energy
technology, Flexible manufacturing system (FMS).
(a) Computer Aided Design (CAD):
CAD refers to design of products, processes or systems with the help of computers. The impact of CAD
on human productivity is significant. Speed of evaluation of alternative designs, Minimization of risk of
functioning, and Error reductions are the advantages of CAD.
(b) Computer Added Machining (CAM):
CAM is very much useful to design and control the manufacturing. It helps to achieve the effectiveness
in production system by line balancing. CAM helps in production planning and control (PPC), capacity
requirements planning (CRP), manufacturing resources planning (MRP-II) and materials requirement
planning (MRP) and automated inspection.
(c) Computer Integrated Manufacturing (CIMS):
Computer integrated manufacturing is characterized by automatic line balancing, machine loading
(scheduling and sequencing), automatic inventory control and inspection. It includes robotics, modern
maintenance techniques, energy technology, Flexible Manufacturing System (FMS).
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Model 5. Management Based Measures:
Management can increase productivity by taking the actions like; management
technique, communication and promoting group activity, work culture and
motivation.
(a) Work Culture:
Work culture is a combination of qualities in an organization and its employees
that arise from what is generally regarded as appropriate ways to think and act.
Work cultures that mix of practices and ideologies arising from the interactions of
people with their work environments have been shaped in all by diversity.
(b) Motivation:
To have motivated employees means increased productivity at work. To do this,
offer rewards for milestones they achieve. If employees are rewarded, they will see
their hard work paying off in tangible way productivity.
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Model 6. Employee or Labor Based Measure:
It includes:
i. Financial and non-financial incentives at individual and group level.
ii. Employee promotion.
iii. Job design, job enlargement, job enrichment and job rotation.
iv. Worker participation in decision-making.
v. Quality circles (QC), small group activities (SGA).
vi. Personal development.
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Mechanisms of Aggregate Total Factor Productivity Growth
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Effective - producing the expected output or serving the intended purpose. It is
about 'doing the right things' and achieving goals/targets
Efficient - performing in the most optimal manner. It is about 'doing things right'.
doing it in the least time or in a least expensive way.
Process Cycle Efficiency (PCE) is a lean metric that measures the value-added time
spent in a process to the total lead time. Higher the PCE, higher is the efficiency of
the process.
PCE = (Value Added Time) / (Total Lead time)Time)
Productivity is the rate or efficiency of production or the output per unit of input.
This could be calculated for a person, team, function, unit, department, organization, nation etc.
Enhancement in productivity makes organizations more profitable and hence is a key objective in most
organizations.
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Productivity levels versus productivity growth rates
➢ The calculation of both labor productivity and MFP provides estimates of the level of
productivity.
➢ Productivity growth is the opportunity to increase output without increasing inputs
and incurring these costs.
Year-to-year changes in productivity growth can be volatile (reflecting changes in
market conditions or the influence of the business cycle.
At an industry level,
productivity growth can be important to allow the industry:
❖ to compete with other sectors of the economy for resources (labor, capital and
raw materials)
❖ to maintain international competitiveness.
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