Productivity

Productivity
A measure of the effective use of resources, usually

expressed as the ratio of output to input

Productivity ratios are used for
Planning workforce requirements Scheduling equipment Financial analysis

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Productivity
Partial measures

output/(single input) output/(multiple inputs) output/(total inputs)

Multi-factor measures

Total measure

Outputs Productivity = Inputs

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Productivity Growth

Productivity Growth =
Current Period Productivity Previous Period Productivity Previous Period Productivity

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Measures of Productivity
Table 2.4

Partial measures
Multifactor measures Total measure

Output Labor

Output Output Machine Capital

Output Energy

Output Labor + Machine

Output Labor + Capital + Energy

Goods or Services Produced All inputs used to produce them

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Examples of Partial Productivity Measures

Table 2.5

Labor Productivity
Machine Productivity Capital Productivity

Units of output per labor hour Units of output per shift Value-added per labor hour
Units of output per machine hour machine hour Units of output per dollar input Dollar value of output per dollar input

Energy Productivity
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Units of output per kilowatt-hour Dollar value of output per kilowatt-hour

Example 3
7040 Units Produced Cost of labor of $1,000 Cost of materials: $520

Cost of overhead: $2000

What is the multifactor productivity?
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Ans. 2.0 units per dollar of input

Example 3 Solution
MFP = Output Labor + Materials + Overhead

MFP =

(7040 units) $1000 + $520 + $2000 2.0 units per dollar of input

MFP =

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Process Yield
Process yield is the ratio of output of good

product to input Defective product is not included in the output

Service example:
Ratio of cars rented to cars available to rent

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Factors Affecting Productivity

Capital Quality

Technology

Management

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Other Factors Affecting Productivity

Standardization Quality Use of Internet

Computer viruses
Searching for lost or misplaced items Scrap rates

New workers

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Other Factors Affecting Productivity

Safety Shortage of IT workers

Layoffs
Labor turnover Design of the workspace

Incentive plans that reward productivity

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Outsourcing
Higher productivity in another company is a key

reason organizations outsource work Improving productivity may reduce the need for outsourcing

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Improving Productivity
Develop productivity measures Determine critical (bottleneck) operations Develop methods for productivity improvements Establish reasonable goals Get management support

Measure and publicize improvements

Dont confuse productivity with efficiency

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