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INDEX APPROACH
Productivity
models
or
Index
approaches are used to measure the
Total factor productivity and Partial
productivity.
Various models have been suggested
by different authors so as to fit to
different productivity measurement
scenario such as business level,
national accounts or industry level.
Kendrick-Creamer Model
Craig-Harris Model
Hiness Model
APC model
Total Productivity Model
Mundels Model
Taylor-Davis Model
Kendrick-Creamer Model
Kendrick
and
Creamer
(1955)
introduced productivity indices at the
company
level
in
their
book
Measuring company productivity.
Their indices are basically three
types; total productivity, total factor
productivity and partial productivity.
Advantages
Each of partial productivity measure
is useful in indicating the saving
achieved through time in each of the
input per unit of output.
In the short run, the increase in total
productivity may mean better rates
of utilization of capacity. In long run,
the increase in total productivity.
Craig-Harris Model
Craig-Harris (1972-75) point out the
fallacies
of
partial
productivity
measures as If a companys labour
productivity
is
increased
by
improving the raw material quality,
then it could be disastrous for a
management to award a wage hike
to its labour based on improved
labour productivity.
They give total productivity (Pt)
Pt =Qt / (L+C+R+Q)
Where
Pt = total productivity,
L = labour input,
C = capital input,
R = raw material input,
Q = miscellaneous input and
Qt = total output.
Hiness Model
Hines (1976) stated that the need for
measurement and improvement function
in manufacturing is still important.
Hines
said
that
manufacturing
productivity at the firm level should be
considered
as
a
prime
area
for
development in the practice of industrial
engineering.
Hines gives the definition of output and
input as follows.
Output :
Oi = j Pj Ui,j
where
Oi = output for period i(current period)
Pj = price/unit for iteam j in the base
period
Ui,j = no. of production units of iteam j
produced in period i
Inputs :
labour input
Li = k ni,k wk
Where
Li = labour input measured in period i
ni,k = no. of employees in category k in
period i
wk = base period wage for category k
capital input
Ci = j ci,j
Where ci,j = uniform annual cost for item j in
period i
material input
Ri = j vi,j mi
Where vi,j = volume of material j consumed in
period I
mi = base period cost for material j
APC Model
The American Productivity Centre
(APC) gives productivity measure that
relates profitability with productivity
and price recovery factor.
Profitability = sales / cost
= (output qt. price)/(input qt.
unit cost)
= (output qt./ input qt.)(price/ unit
cost)
= (productivity) (price recovery
Mundels Model
Mundel(1976) gives two alternatives
form of productivity indices.
First
PI = (OMP/IMP) / (OBP/IBP) 100
Second
PI = (OMP/OBP) / (IMP/IBP) 100
Where
PI = productivity index
OMP = aggregate output, measured period
IMP = input, measured period
OBP = aggregate output, base period
IBP = input, base period
Mundel does not specify exactly how the outputs
and inputs are broken down and measured.
Taylor-Davis Model
Taylor-Davis(1977) introduced a total
factor productivity measure for a firm
TFP = [(S + C + MP) E] /
[(W + B)+{(Kw + Kf) Fs df}]
= total value added output /
total input(capital + labor)
Where S = net adjust sales
= sales dollars for the period /
(price deflector/100)
C = inventory change
MP = manufacturing plant (internal
maintenance and repair internally
produced machinery and equipment)
E = exclusion (material and service
purchased + depreciation on building,
machinery + rentals)
W = wages and salaries
Drawbacks of Index
Approaches
They do not :
1. measure change in productive
efficiency
with respect to some
standard.
2. help to choose the optimal
combination
of
output
for
an
organization.
3. give the optimal consumption of
input for optimization of cost.
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