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Productivity Measurement and Improvement
Prepared by: Bhakti JoshiDate: November 29, 2012
DefinitionProductivity is commonly defined as a ratio of a volume measure of output to a volume measure of input use OR
Productivity = Output Input
Generated from
production or service
Provided to create this
output
The concept of productivity can be applicable to any economy, business (small, medium and large), government and individuals
Numerical Example 1
Britannia Industries produces 30000 units of biscuits in October and the number of workers employed during this months was 30. These workers normally work 8 hours a day. Calculate the productivity for the month of October.
30000/30 = 1000 units per
labour
OUTPUT
INPUT• Total Hours worked by
workers = 30 workers * 8 hours = 240
• Total working days = 20 days. 4 weeks in a month * 5 working days.
• 240*20 = 4800
30000/4800 = 6.25 units per
worker
Problem 1: Quarterly Productivity DataParameters Quarter 1 Quarter 2
Unit Selling Price Rs 20 Rs 21
Total Units Sold 10,000 8500
Labor cost/hour Rs 10 Rs 10
Number of employees 15 15
Working hours 10 hour/employee 8 hours/per employee
Labour hours 10*15*20*3 = 9000 hours
8*15*20*3 = 7200 hours
Labour input cost 9000*10=90000 7200*10=72000
Output Value 10000*20 = Rs 200000 8500*21 = 178500
Labour Productivity 200000/90000= 2.22 178500/72000 = 2.48
By what percentage has labour productivity improved or not improved?
Problem 1: Quarterly Productivity Data (Contd…)
Parameters Quarter 1 Quarter 2
Material Usage 1600 KGs/month 1500 KGs/month
Material Cost Rs 15/KG Rs 15.50/KG
Other Costs Rs 6500/month Rs 5000/month
Materials Input Cost 1600*3*15=72000 1500*3*15.50=69750
Other Inputs Costs 6500*3=19500 5000*3=15000
Total Material and Input Costs
72000+19500= 91500 69750+15000=84750
Material Productivity 200000/91500= 2.18 178500/84750 = 2.11
By what percentage has material productivity improved or not improved?
Quarterly Productivity Data (Contd…)
• Determine the total productivityParameters Quarter 1 Quarter 2
Output Value 200000 178500
Total Input Cost 90000+91500=181500 72000+84750 =156750
Total Productivity 200000/181500=1.10 178500/156750=1.14
• What about Profit?
By what percentage has material productivity improved or not improved?
Problem 2
A brewery produces 50,000 bottles of beer each week. The equipment costs are Rs 10000 and will remain productive for 3 years. The annual labour cost is Rs100000. Calculate the total productivity in units of output per rupee of input over a 3 year period
Problem 2 – SolutionParameters Calculation Result
Total Output Units 50000*52*3 7800000
Machine Input Cost -- Rs 10,000
Labour Input Cost 100,000*3 Rs300000
Total Input Cost 10000+300000 Rs 310000
Total Productivity 7800000/310000 25.2 ORApproximately 25 bottles/Re input
Suppose, the management has an option of Rs 20000 equipment with an operating life of 5 years that reduces labour cost to Rs 40000 per year. Should the management purchase this equipment (using productivity calculation methods)?
Problem 2 – Solution (Contd…)Parameters Calculation Result
Total Output Units 50000*52*3 7800000
Machine Input Cost -- Rs 20,000
Labour Input Cost 40000*3 Rs 120000
Total Input Cost 20000+120000 Rs 140000
Total Productivity 7800000/140000 55.7 ORApproximately 55 to 56 bottles/Re input
What does this mean?
Problem 3
WEEK OUTPUT SALES (Rs)
MATERIAL COST (Rs)
LABOUR COST
OVERHEAD COST
TOTAL COST
TOTAL PRODUCTIVITY
1 300 42000 270 2880 4320 7470 5.62
2 338 47320 276 3360 5040 8676 5.45
3 322 45080 276 3360 5040 8676 5.20
4 354 49560 286 3840 5760 9886 5.01
Productivity Measurement - TypesPartial Factor Productivity
Total Factor Productivity
Multi-Factor Productivity
Labour
Capital
Labour Capital
Capital Labour Energy Materials
Partial Factor Productivity• Traces labour requirement per unit or • Reflects change in input coefficient of labourPURPOSE
• Ease in measurement and readable• Mostly easy to obtain relevant dataADVANTAGES
• Partial productivity measure• Misinterpreted as technical change or
efficiency/effectiveness of individuals in the labour force
DISADVANTAGES
Total Factor Productivity• Traces growth in an economy or a business• Includes labour and especially capital that is
representative of mostly infrastructurePURPOSE
• Ease in obtaining data and to understandADVANTAGES
• Other inputs ignored• Net output does not reflect the efficiency of
production system in a proper way• Not representative to technological change
DISADVANTAGES
Multi-Factor Productivity• Overall changes in a firm/industry• Captures technical change, efficiency,
economies of scale, etcPURPOSE
• Role of intermediate inputs are also included• Measures technical change in an industryADVANTAGES
• Difficult to obtain data on all inputs• Inter-industry linkages and aggregation is
difficult to communicateDISADVANTAGES
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