The Techniques Used in Measuring Productivity: Topic 9

The Techniques Used in
Measuring Productivity
Topic 9
Labor Skills
About half of the 17-year-olds in the U.S. cannot
correctly answer questions of this type
Productivity
• Productivity is the ratio between output and input. It
is quantitative relationship between what we
produce and what we have spent to produce.
Hence, Productivity= 𝑜𝑢𝑡𝑝𝑢𝑡 /𝑖𝑛𝑝𝑢𝑡
• Productivity is , above all, a state of mind-set. It is an
attitude that seeks the continuous improvement of
what exist. It is a conviction that one can do better
today than yesterday, and that tomorrow will be
better than today.
• It is the driving force or dynamism behind developing
and upgrading the quality of industrial activities.
Importance of Productivity
• Productivity increases output.
• High productivity results in lower cost per unit of
output resulting in higher levels of profit for a business.
• Higher profits for the firm will mean more funds
available for its expansion, new business ventures and
community support.
• Gains from productivity can be transferred to the
consumers in form of lower priced Products or better
quality products.
• These gains can also be shared with workers or
employees by paying them at higher rate.
• A more productive entrepreneur can have better
chances to exploit expert opportunities.
• It would generate more employment opportunity.
• Overall productivity reflects the efficiency of
production system.
• More output is produced with same or less input.
• The same output is produced with lesser input.
• More output is produced with more input.
• The proportional increase in output being more
than the proportional increase in input.
Aggregate Basis
• On aggregate basis, output is compared with all
inputs taken (added) together. This is called as
Total Productivity.
Hence, Total Productivity Index = Total output/Total input
• Where Total Output=Total production of goods and
services and Total Input=Labor + Material + Capital
+ Energy.
• This index measures the productivity of the entire
organization with use of all resources. It is a way
of evaluating efficiency of entire plant or firm.
Individual Basis
• On individual basis, output is compared with any
one of the input factor and this is called as Partial
Productivity or Factor Productivity.
• Factor productivity or partial productivity indices
are of following types:
i. Labor productivity
ii. Material productivity
iii. Machine Productivity
iv. Capital productivity
i. Labor Productivity
• Labor productivity is simply defined as the ratio of
Total output to the Labour input i.e.
• Labor productivity depends upon how labors are
utilized.
• Labor productivity can be higher or lower
depending on factors like availability of work load,
material, working tools, availability of power, work
efficiency, level of motivation, level of training, level
of working condition (comfortable or poor) etc.
Labor Productivity = 𝑻𝑶𝑻𝑨𝑳 𝑶𝑼𝑻𝑷𝑼𝑻/𝑳𝑨𝑩𝑶𝑼𝑹 𝑰𝑵𝑷𝑼𝑻
ii. Material Productivity
Material Productivity = Total output/ Material input
or
Material Productivity = Number of Units Produced/
Total material cost
• Material productivity plays important role in cost of
production
• Material productivity depends upon how material
is effectively utilized in its conversion into finished
product
• Material productivity can be increased by using
skilled workers, adequate machine tools, good
design of products etc.
iii. Machine Productivity
• Production system converts raw material into
finished product through mechanical or chemical
process with the help of machines and
equipment's.
Machine productivity= Total output/ Machine input
or
M.P= Output in standard hours / Actual machine
hours
• Machine productivity depends upon availability of
raw material, power, skill of workers, machine
layout etc.
iv. Capital Productivity
• For any production set-up, facilities of machines,
tools, land etc. are required which are assets of
organization. Capital is needed for such assets.
Capital productivity= Total output /Capital input or
Capital productivity= Total output/ Capital
employed
• Capital productivity depends on how effectively
assets are utilized.
Factors Affecting Productivity
• What are the factors that affect productivity?
– Training
– Methods
– Technology
– Management
Example
Collins title wants to evaluate its labor and multifactor
productivity with a new computerized title-search system.
i. The company has a staff of four, each working eight
hours per day (for a payroll of cost of $640/day) and
overhead expenses of 400$ per day. Collins processes
and closes on eight titles each day.
ii. 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 800$ per day.
What is the labor productivity and multifactor
productivity with old and new system?
Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
Old labor 8 titles/day

productivity = 32 labor-hrs
Old System:

productivity = 32 labor-hrs = .25 titles/labor-hr
Old System:
New System:
14 titles/day Overhead = $800/day

New labor 14 titles/day

productivity = 32 labor-hrs
Old System:
New System:

New labor 14 titles/day

Old System:
New System:
Old multifactor 8 titles/day

productivity =
$640 + 400
Old System:
New System:

productivity = = .0077 titles/dollar
$640 + 400
Old System:
New System:

$640 + 400
New multifactor 14 titles/day

productivity =
$640 + 800
Old System:
New System:

$640 + 400
New multifactor 14 titles/day

$640 + 800
Method of Productivity
Improvement
• Employ Based Technique
i. Financial incentives
ii. Fringe benefits
iii. Employ promotion
iv. Job rotation
v. Education
vi. Zero defects
vii. Quality circle
viii. Communication
ix. Working environment
x. Zero defect
• Material Based Technique
i. Inventory control
ii. Material handling system
iii. Quality control
iv. MRP
v. Material management
• Task Based
i. Method engineering
ii. Job evolution
iii. Human factor engineering
iv. Job design
v. Work measurement
• Product Based Technique
i. Product diversification
ii. Product simplification
iii. Product
iv. Value analysis
v. Research and development
• Technology Based
i. Computer engineering
ii. CAD
iii. CAM
iv. Electronics data processing
v. Robotics
vi. Group technology
Improving Productivity
at Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14 seconds
scoop per drink
New espresso machines Saved 12 seconds
per shot
Improving Productivity
at Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have
helped Starbucks
Stop requiring signatures increase
Saved yearly
8 seconds
revenue per outlet
on credit card purchases perby $250,000 to
transaction
under $25 $1,000,000 in seven years.
Change the size Productivity
of the ice hasSaved
improved by 27%,
14 seconds
scoop or about 4.5% per
peryear.
drink
New espresso machines Saved 12 seconds
per shot
Role of Material Management
• To procure raw material at low cost.
• To maintain consistent quality.
• To ensure continuous supply of raw material.
• To minimize the carrying costs and ordering costs.
• To maintain good relationship with supplier.
• Efficient record-keeping and prompt reporting.
• To develop new sources and new materials.
• Training and development of personnel.
Advantages of Productivity
• It emphasizes the efficient utilization of all the
factors of production which are scarce universally.
• It attempts to eliminate wastage.
• It facilitates the comparison of the performance of
a company to its competitors or related firms, in
terms of aggregate results and of major
components of performance.
• It enables the management to control the
performance of the company by identifying the
comparative benefits rising out of the use of
different inputs.
Importance of Measuring
Productivity
• Set overall productivity goals for organization
• Raise awareness among employees Establish
productivity management function
• Access your company current performance
• Identify the gaps and areas of improvement Diagnose
• Set targets and formulate strategy
• Implement specification Develop road map Implement
measurement system
• Link effort and reward to employees
• Monitor the review parts Implement performance
management system
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The Techniques Used in

Old labor 8 titles/day

Old labor 8 titles/day

Old labor 8 titles/day

New labor 14 titles/day

Old labor 8 titles/day

New labor 14 titles/day

Old multifactor 8 titles/day

Old multifactor 8 titles/day

Old multifactor 8 titles/day

New multifactor 14 titles/day

Old multifactor 8 titles/day

New multifactor 14 titles/day

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