Enhancing Productivity: Key to Organizational Success

Productivity
Why Productivity Matters

Kinds of Productivity

Why Productivity Matters

Higher Productivity Lower Costs Lower Prices

Higher Standard of Living

Higher Profits

Higher Market Share

Objectives
1. Define productivity. 2. Describe how productivity is the key to an increase in standard of living. 3. Discuss how the relationship between productivity and the nature of work has changed over time.

4. Explain labor, capital, and material productivity.

5. Calculate productivity in single and multiple factor cases. 6. Discuss important trade-offs among the factors of productivity. 7. Explain the relationship between wage rate and productivity. 8. Discuss ways to enhance productivity.

What is Productivity? Defined

Productivity is a common measure on how well resources are being used. In the broadest sense, it can be defined as the following ratio: Outputs Inputs

In other words Early Definition of Productivity was

output Productivity = input

Productivity and Related Issues

Understanding Productivity Assessing Productivity The inputs of Productivity Enhancing Productivity Technology and Productivity Improvements

Understanding Productivity :
Different Types of Productivities Is Money More Important than Productivity? Productivity and the Nature of Work Productivity in Manufacturing versus Service Firms The Quality Condition

Different Types of Productivity Measurements

Partial Measure Productivity Multifactor Measure Productivity Total Measure Productivity

Partial Measure Productivity

Partial measures of productivity =
Output Labor or Output Capital or Output Materials or Output Energy

Multifactor Measure Productivity

Multifactor measures of productivity =
Labor +

Output
Capital or +

.
Energy

Labor +

Output
Capital +

.
Materials

Total Measure Productivity

Total Measure Productivity = Outputs Inputs or
= Goods and services produced All resources used

Sinks model of productivity based on Unit cost

L+C+M+Q Total unit cost = O

where L / O = Labour unit cost C / O = Capital unit cost M / O = Material unit cost Q / O = Other input unit cost

Sumanths total productivity model, based on Product oriented indices

It is based on total productivity of the firm TPF = OF/IF where OF = Total tangible output of the firm and I F = Total tangible input of the firm

Sumanths total productivity model based on Product oriented indices cont

TPF = OF/IF =
i N N

Oi
i

Ii

where OF = Total tangible output of the firm Oi = Total tangible output corresponding to product i of the firm and IF = Total tangible input of the firm Ii = Total tangible input corresponding to Product i=Sigma j of Iij

Sumanths total productivity model based on Product oriented indices cont

( j ) = ( H, M, C, E, X ) where H = Human input M = material input C = Capital input E = Energy input X = Other expenses input N = Total number of products produced

Is Money More Important than Productivity?

In improving the standard of living, productivity is more important than money because productivity determines the output while money measures the value of the output.

Productivity and the Nature of Work

Worker
University faculty

Activity
Educate students and/or educate them better

Measure
Student credit hours taught. Problems with this measure are that it does not take into account what students have learned or other duties of faculty, including curriculum design, research, and service.

Method of Improvement

Increasing class size leads to more student credit hours Assigning more sections per faculty leads to more student credit hours Distance learning provides access to education that might not otherwise be available Innovative teaching methods can improve the quality and/or the quantity of what is learned
Equipment improvements that speed up the sorting process Job training

Postal worker

Oversee the operation of an automatic sorting machine Manages the care of children in foster homes

Number of pieces of mail sorted in an hour

Case worker for children services

Number of cases under management. Problems with this measure are not consider the degree of difficulty of the cases or the quality of the service provided.

Information systems, Communication technology that gives access to foster parents, service providers, and support services

Productivity in Manufacturing versus Service Firms

The reasons that productivity gains in the service sector have lagged behind the manufacturing sector :
Fear of job loss by manufacturing workers, pressurises them to work harder and smarter. Macroeconomic factors, such as the low savings rate.

The Quality Condition

If an organization produces more output with the same level of resources, but the quality of the output is lower, productivity may not increase. If firms find ways to make a product with higher quality using the same or fewer resources, productivity may increase.

Assessing Productivity
If the automatic machine can make 200,000 roofing nails in 40 hours, then 200,000 roofing nails Machine Productivity = 40 machine hours
= 5,000 roofing nails per machine hour

Assessing Productivity--Continued
Now, the machine is able to produce 210,000 nails in the same 40-hour period. Productivity has increased from 5,000 nails per hour to 5,250.
Change in Productivity

Percent Increase in Productivity = (100)

Productivity Prior to Change

5,250 - 5,000 Percent Increase in Productivity = (100) 5,000 = 5 percent

The Inputs of Productivity

In an economic sense, the inputs are:

Managers Workers Externally purchased services,

Productivity measurement should also include:

(1) Multiple inputs with different economic values. (2) Multiple outputs with different economic values

The Key Factors of Productivity

Capital Productivity Material Productivity Important Trade-Offs Trading Capital for Labor Trading Capital for Material or Energy Substituting Materials for Labor

Examples of productivity measurement

Labour productivity Multifactor productivity

Labor Productivity

units produced

Labor Productivity =
labor hours (or labor cost)

Example -1 of Labour Productivity Measurement

Determine that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms. Which productivity measure should be used? Answer: Could be classified as a Total Measure or Partial Measure. ( Labour productivity Measurement) Is productivity increasing or decreasing? Answer: Last weeks productivity = 480/2000 = 0.24, and this weeks productivity is = 560/2400 = 0.23. So, productivity has decreased slightly.

Example-2
A travel agency processed 240 customers on Day 1 with a staff of 12, and 360 customers on Day 2 with a staff of 15. What can be said about the productivity shift from Day 1 to Day 2? An increase in productivity from Day 1 to Day 2 A decrease in productivity from Day 1 to Day 2 The same productivity from Day 1 to Day 2 Can not be computed from data above None of the above

a. b. c. d. e.

Answer: a. An increase in productivity from Day 1 to Day 2 (Day 1 productivity = 240/12=20 Day 2 productivity = 360/15=24)

Multiple Factor Productivity

Multiple Factor Productivity=

output (units produced or the value of those units) labor + capital + materials + energy + other

Performance Measures
Productivity : Outputs/Inputs Capacity:
Utilized capacity/Available capacity

Speed of Delivery
Lead time. Variability of due date

Performance MeasuresCont..
Flexibility
Set up costs for a switchover. Volume Flexibility Set up time Product Mix Flexibility

Summary of productivity
Productivity=Outputs/Inputs Partial Measures
Output/Single Input

Multi Factor Measure

Output/(Multiple inputs)

Total Measure
Output/(Total Inputs)

Some Partial Measures

Restaurant Retail Store Power Plant Customers/labour hours Sales/Square foot Kilowatts/ton of coal

A Numerical Example
Output Finished Goods : 10,000 Dividends : 2500 Bonds : 1000 Total Output : 13500 Input 1.Human 2.Capital 3.Energy 4.Misc. Expenses Total Input

: 3000 : 10000 : 693 : 1500 : 15193

Total Measure=13500/15193 =.89 Some Multi-Factor Measures: Total w.r.t Human and Energy=13500/693 =19.48 Some Partial Measures: Finished goods w.r.t Capital= 10000/10000=1.00

Capacity Measures
Fast Food Restaurant Brewery Ford Call Centers Customers/Hour Barrels/Year Cars/Hour Number of calls/Hour

Examples
Multiple Factor Productivity = 600 applications (6 employees)(40 hrs./wk.)($18/hr) + 1,200

Multiple Factor Productivity = 600 applications/$5,520 = 0.109 applications/dollar of input

example Example
Multiple Factor Productivity = 650 applications (5 employees)(40 hrs./wk.)($18/hr) + 1,800 = 650 applications/$5,400 = 0.120 applications/dollar of input

example Example-Continued
Percent Increase in Productivity = Change in Productivity (100) Productivity Prior to Change = 0.120 0.109 (100) 0.109 = 10.1 percent

Impact of Productivity Improvements on the Workforce

Productivity improvements are essential for designing and building more goods and services at a lower cost. Jobs are created to sell and service the equipment.

Enhancing Productivity
Productivity is affected by: Issues related to the structure of operations. The equipment and methods used in the activities. The detailed analysis of the individual jobs and activities.

Ways for Improving Productivity

Develop productivity measure for all opns Determine Critical operations (bottlenecks) Develop Methods for productivity improvements Establish reasonable productivity Goals Get management Support and employee Involvement Measure and Publicize improvements

Some Reasons For Poor Productivity

Underestimating foreign competition Viewing labor as cost not as an investment Too much focus on short-term financial results, lack of operations strategy Lack of coordination between organizations and between different departments (e.g. marketing and production)

Service Productivity
Typically labor intensive Frequently individually processed Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality

Several approaches used to increase productivity:

Technology Innovation Automation Economies of Scale Business Process Redesign Learning and Experience Human Resources Job Design and Work Measurement

Technology and Productivity Improvements:

Organizations can reduce time in the system, expand options, and reduce costs. Decision making need gather, organize, analyze, and present data effectively. Makes it possible for suppliers and manufacturers to share data and coordinate design and operating decisions. Allows retail customers to place orders quickly and to verify that suppliers have the product on hand.