PRODUCTIVITY

It is an index that measures output (goods and services) relative to
input (labor, material, energy and other resources) used to produce
them.

A measure of the effective use of resources, usually expressed as
the ratio of output to input.
Outputs
Productivity =
Inputs

For non-profit organization higher productivity means lower costs

For profit organization productivity is important factor in determining
how competitiveness of a company .

For a nation rate of productivity is of great importance
COMPUTING PRODUCTIVITY
Partial measures: based on single input
Partial productivity =
Output
Capital
Output
Labor
Output
Machine
Output
Energy
Multifactor measures: based on multiple input, more than one input,
multifactor measures.
Output
Output
Multifactor productivity (MFP) =
Labor + Capital + Energy
Labor + Machine
Total measures: based on total (all) input and output
Total productivity =
Goods or services produced
All inputs used to produce them
INPUT
OUTPUT
PROCESS
Facility
Capital
Labour
Transport
Utility
Proc 1
MFP=0.167
Proc 2
MFP=0.400
Material
Technology
LARGER the productivity
value BETTER the process
2-2
Bread
5000 unit/
day
EXAMPLE 02

Compute the multifactor productivity measure for each of the
weeks shown. Assume 40 hrs weeks and an hourly wage Tk. 12.
Overhead is 1.2 times the total weekly labor cost. Material cost is
Tk. 3 per kg. Standard price of the product is Tk. 140 per unit.

Also compute the productivity growth of week 2, 3 over week 1 of
this problem.
PROB 3, PAGE 65
Output
(Unit)
Labor
($)
Overhead ($)
Material MFP (unit/$)
($)
1
30,000
6*40*12=
2880
Labor cost*1.5=
2880*1.5= 4320
450*6=
2700
Output/(Labor+O
head+Material)
30000
unit/$(2880+432
700)= 3.03 Unit/$
2
33,600
7*40*12=
3360
3360*1.5= 5040
470*6=
2820
33600/(3360+504
2820)= 2.99 unit
3
32,200
3360
5040
460*6=
2760
32200/(3360+504
2760)= 2.89 unit
4
35,400
8*40*12=
3840
3840*1.5= 5760
480*6=
2880
35400/(3840+576
2880)= 2.84 unit
2-4
Week
PRODUCTIVITY GROWTH
• Productivity growth is the increase in productivity from one
period to the next relative to the productivity in the
preceding period.
• Productivity Growth of Week 3 compared to Week 1
Productivity Growth =
Current period productivity – Previous period productivity x 100
Previous period productivity
= ((MFP (W3) – MFP (W1))/MFP (W1))*100
=(2.89-3.03)/3.03*100 =- 4.62%
Growth of W3 over W1
Output
(Unit)
Labor
($)
Overhead ($)
Material LP (unit/$)
($)
1
30,000
6*40*12=
2880
Labor cost*1.5=
2880*1.5= 4320
450*6=
2700
Output/Lab
30000/2880
= 10.42 Unit
2
33,600
7*40*12=
3360
3360*1.5= 5040
470*6=
2820
33600/3360=
10.00 unit/$
3
32,200
3360
5040
460*6=
2760
32200/3360=
9.58 unit/$
4
35,400
8*40*12=
3840
3840*1.5= 5760
480*6=
2880
35400/3840=
9.22 unit/$
2-6
Week
Output
(Unit)
Labor
($)
Overhead ($)
Material OP
($)
(unit/$)
M
(
1
30,000
6*40*12=
2880
Labor cost*1.5=
2880*1.5= 4320
450*6=
2700
Output/O
verhead
Cost
6.94
O
M
C
1
2
33,600
7*40*12=
3360
3360*1.5= 5040
470*6=
2820
6.67
1
3
32,200
3360
5040
460*6=
2760
6.39
1
4
35,400
8*40*12=
3840
3840*1.5= 5760
480*6=
2880
6.15
1
2-7
Week
Employee ($) Material
($)
Overhead
($)
Labor
MF
Productivi (Cu
ty
(Customer
/ $) ($/$)
36
4*8*25=800
36*5=180
Labor*1.0=
800*1=800
Output/
Labor
=36/800
= 0.045
40
5*8*25= 1000
40*5= 200 1000*1=
1000
60
8
20
3
40/1000=
0.040
2-8
Output (No.
Customer
served)
Ou
+M
Ov
=36
180
=0
40/
(10
100
Employee ($) Material
($)
Overhead
($)
Labor
MF
Productivi (Cu
ty
(Customer
/ $) ($/$)
36+4=40
4*8*25=800
40*5=200
Labor*1.0=
800*1=800
Output/
Labor
=40/800
= 0.05
40+5=45
5*8*25= 1000
45*5= 225 1000*1=
1000
60
8
20
3
45/1000=
2-9
Output (No.
Customer
served)
Ou
+M
Ov
=40
200
=0
45/
(10
100
PARTIAL PRODUCTIVITY MEASURES …
Labor
Productivity
Units of output per labor hour
Units of output per shift
Value-added per labor hour
Machine
Productivity
Units of output per machine hour
Dollar value of output per machine hour
Capital
Productivity
Units of output per dollar input
Dollar value of output per dollar input
Energy
Productivity
Units of output per kilowatt-hour
Dollar value of output per kilowatt-hour
WHY PRODUCTIVITY MEASUREMENT IS NEEDED …
• Used to track performance over time
• Allows managers to judge performance
• To decide where improvements are needed
• Judge the performance of the entire industry
• Judge the productivity of a country as a whole
• Serve as scorecards of the effective use of resources
• Productivity relates to competitiveness
• National productivity relates to nation’s standard of living
EXAMPLE 01

A wrapping paper company produced 2000 rolls of paper one
day. Standard price is 1Tk/roll. Labor cost was Tk. 160,
material cost was Tk. 50 and overhead was Tk. 320.
Determine the multifactor productivity.

Solution:
Multifactor productivity =
Quantity produced @ standard price
Labor cost + Material cost + Overhead
=
2000 rolls x 1Tk. / roll
160 + 50 +320
=
3.77 Tk output per Tk. input
FACTORS AFFECTING PRODUCTIVITY
Capital
Quality
Technology
Management
FACTORS THAT AFFECT PRODUCTIVITY

Numerous factors affect productivity include
Methods
 Capital
 Quality
 Technology and
 Management


Other factors that affect productivity include
Standardizing
 Quality differences
 Use of the internet
 Computer viruses
 Scrap rates
 New workers
 Safety

FACTORS THAT AFFECT PRODUCTIVITY

Other factors that affect productivity include

Shortage of information technology workers and other
technical workers

Layoffs

Labor turnover (negative effect on productivity; replacements
need time to get up to speed)

Design on workspace

Incentive plans
IMPROVING PRODUCTIVITY …

Develop productivity measures

Determine critical operations

Develop methods for productivity improvements

Establish reasonable goals

Get management support

Measure and publicize improvements

Don’t confuse productivity with efficiency