Lesson 05

3. Productivity

Productivity is a measure of the effective use of resources, usually expressed as the ratio
of output to input .Also called Efficiency at times

•Productivity ratios are used for

Planning workforce requirements

Scheduling equipment

Financial analysis
Productivity

Partial measures is output/(single input)

Multi-factor measures is output/(multiple inputs)

Total measure is the output/(total inputs)

Productivity Growth = Current Period Productivity – Previous Period Productivity

Previous Period Productivity

Productivity Growth = Unit less Quantity

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total = Goods or Services Produced

measure All inputs used to produce them

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 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

machine hour

Capital Productivity Units of output per Rs. input

Dollar value of output per Rs. input

Energy Productivity Units of output per kilowatt-hour

Rupee value of output per kilowatt-hour

Example

What is the multifactor productivity “MFP”? if 7500 Units Produced and

Sold for Rs.10/unit with Cost of labor of Rs.10,000, Cost of materials: Rs.5,000 and
Cost of overhead: Rs.20,000.

Solution

MFP = Output
Labor + Materials + Overhead

MFP = (7500 units)*(100)

10,000 + 5,000 + 20,000
MFP = (750,000)
35,000

MFP = 21.420

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Factors Affecting Productivity

Productivity stands tall on four important pillars of Capital, Quality, Management and
Technology. These pillars are also responsible for positively as well as negatively
affecting the Productivity of the Organization.
1. CAPITAL An existing machine or facility if it is not functioning up to full
capacity or turning out products which are not acceptable can lower productivity.
A new machine or repair of existing machine would require capital input.

2. QUALITY Poor quality products would not meet customer requirements and
would need repairs and reworks on the product to meet the standards.

3. MANAGEMENT With better scheduling, planning , coordinating and controlling

activities of management the machine operations can be carried to improve
productivity.

4. TECHNOLOGY Technological improvements have increased productivity . A

machine of today would outperform machine of yesterday but may not withstand
machines of tomorrow.

CAUTION. without careful planning technology can reduce productivity as it often

leads to increased costs, inflexibility or mismatched operations . all leads to reduction
in value.

Other Factors Affecting Productivity

Standardization We live in a world where for the sake of convenience, reliability

and safety, majority of the products and services have been standardized. If for a
moment any process whether its relates to manufacturing or services is made standard
less, the vital concept of compatibility would be lost. Think for a moment if there is a
fire at a Montessori school or at a crowded stadium, if there is no standardization of
fire hose attached to the fire truck and fire hydrant present at the site, no effort would
succeed in putting out the fire and saving the lives of the people.

Use of Internet .Use of Internet/Extranet especially for the services side, even though
there are knowledge base applications available for the manufacturing side as well but
primarily it has the been the services side which has been able to exploit the
resourcefulness of the Internet.

Computer viruses . A lot of time IT based services industry have fallen a prey to
computer viruses and hackers.

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Searching for lost or misplaced items. This speaks low about the coordinating
activities and can lead to loss in production time and increase in idle time. Often this
also leads to increase in replacement costs

Scrap rates Any aberration in the raw materials or processed product can lead to
increase in scrap. The increase in scrap rate in fact can decrease the utilization of
resources in general and raw material

New workers Organizations spend millions of Rupees every year to train their
employees. A trained workforce is not only reliable and dependable but also ensures
good

Host of other Factors Affecting Productivity:

Safety

Shortage of IT Trained Workers

Layoffs

Labor turnover

Design of the workspace

Incentive plans that reward productivity

E. Bottleneck Operation

Bottleneck is one process in a chain of processes, such that its limited capacity (
increased time of completion, or increased labour requirement) reduces the
capacity of the whole chain

A related concept is critical path (see Project Management) and the Theory of
Constraints (from the field of Industrial Engineering and Operations
management).

Theory of constraints (TOC) is a body of knowledge on the effective management
of (mainly business) organizations, as systems.

The figure below clearly shows that a machine requiring 12 hours to complete the job is
the real bottleneck. A manufacturing bottle neck like this normally leads to delayed
completion and extended time for job. Similar bottlenecks are observed in the Service
side as well.

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 10/h
Machine A

10/h
Machine B
Bottleneck 30/h
Operation
Machine C
10/h

Machine D 10/h

Develop productivity measures

Determine and isolate critical (bottleneck) operations

Develop methods for productivity improvements

Establish reasonable goals

Get management support

Measure and publicize improvements

Clearly differentiate between productivity and efficiency

Example of Productivity Measurement

You have just determined that your 20 Operations ( Service) department employees have
used a total of 2200 hours of labor this week to process 480 insurance forms. Last week
the same crew used only 2000 hours of labor to process 400 forms.

Which productivity measure should be used?

Answer: Could be classified as a Total Measure or Partial Measure and Time/Labor
productivity.

Is productivity increasing or decreasing?

Answer: Last week’s productivity = 400/2000 = 0.2, and this week’s productivity is =
480/2200 = 0.22. So, productivity is increasing slightly.

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Pakistani Productivity Example 1

Calculate the change in productivity of Pakistani Textile Industry between the years
2003-04 and 2004-05? ( Installed Capacity)

Parameter 2003/4 2004/5 Change

Number of 399 426 6.77

mills
Spindles (000) 9286.8 9815.5 5.69

Rotors(000) 145.6 151.6 4.12

Pakistani Productivity Example2

Calculate the change in productivity of Pakistani Textile Industry between the years
2003-04 and 2004-05? ( Working Capacity)

Parameter 2003/4 2004/5 % Change

Number of 4.3 4.9 13.95

Looms(000)
Spindles (000) 7710.0 8531.0 10.65

Rotors(000) 67.3 75.1 11.59

Textile Productivity Example 3

Calculate the Productivity of Pakistani Textile Industry between the years 2003-04 and
2004-05? ( Weaving Sector Capacity)

Parameter Installed Working % Effectiveness

I W W/I

Power Loom 225258 220447

Sector
Independent 26034 25500
Weaving Unit
Integrated 10249 4947
Textile Unit
Total 261541 220447

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Pakistan Automobile Industry
Calculate the Productivity Change for Pakistani Automobile Industry between the years
2003-04 and 2004-05?

Type 2003-04 2004-05 % change in

Productivity
Cars 79,655 100,213
Motorcycles 263,149 386,589
Trucks 1,669 1,999
Buses 1,151 1,503

Tractors 28,583 35,308

How countries/nations can improve productivity

As students of Operations Management in Pakistan we need to know and understand how

the concepts of productivity can help nation improve its quality of life and economy.

Increase capital formation by saying no to foreign goods. This would increase

savings and decrease consumption. Foreign goods only make why to a market if
there is high consumption. BE PAKISTANI BUY PAKISTANI

Decrease in administrative ( non productive) regulations of the government. Self
explanatory.

Right balance between Services and Manufacturing activities. In the city of
Lahore, there is an availability of surplus services, which is often less productive
than manufacturing operations

An emphasis on both long term and short term objective based performance.
(Closely monitor and audit the variances between planed and actual results).

Exploit the inherent resources of domestic market .Let it be known to all that the
best productive market for Pakistani Producer is Pakistani market.

SUMMARY

The important concepts of Productivity, Competitiveness and Strategy when considered

in cohesion enhance the overall performance of any service based or manufacturing
organization. Organizations formulate operational and organizational strategies to
achieve competitive advantage over its competitors. Different types of competencies
allow organizations to formulate time or quality based strategies to achieve competitive
advantage and increase their revenues. The same concepts find equal application for a
country to gain competitive advantage over other countries.

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