TOPIC
PRODUCTIVITY
LEARNING OUTCOME
Define productivity
Compute productivity for a given data
Describe the important of productivity improvement
Explain the factors affecting productivity
Use the techniques of productivity improvement
PRODUCTIVITY
Productivity
A measure of the effective use of resources, usually
expressed as the ratio of output to input
Productivity measures are useful for
Tracking an operating unit’s performance over time
Judging the performance of an entire industry or
country
WHY PRODUCTIVITY MATTERS
High productivity is linked to higher standards of living
As an economy replaces manufacturing jobs with lower productivity
service jobs, it is more difficult to maintain high standards of living
Higher productivity relative to the competition leads to
competitive advantage in the marketplace
Pricing and profit effects
Businesses compete with each
other!!
BUSINESSES COMPETE USING
MARKETING
Identifying consumer wants and
needs
Pricing
Advertising and promotion
2-5
BUSINESSES COMPETE USING
OPERATIONS
Product and service design
Cost
Location
Quality
Quick response
2-6
BUSINESSES COMPETE USING
OPERATIONS
Flexibility
Inventory management
Supply chain management
Service and service quality
Managers and workers
2-7
EXAMPLE 1
Manufacturing company produce 10,000
electronic calculator and hires 50 employees
who work 8 hours/day for 25days.
SOLUTION
Output =10,000 calculators
Productivity (labor )= 10,000 calculator = 1
calculator
50 x 8 x25 man-hours
Production to 12,000 machine and
employed 10 workers to work8 hours/ day
for 25 days, then
Output =12,000 calculators
TYPE OF PRODUCTIVITY
PARTICAL PRODUCTIVITY
- ratio of an output to an input class
- example : labour productivity, material
productivity and capital productivity.
TOTAL-FACTOR PRODUCTIVITY
- ratio of net output to the total input of
labour and capital (factor).
- net output – total minus good and service
purchased.
TOTAL PRODUCTIVITY
- ratio of output to the sum of all input
PRODUCTIVITY MEASURES
Output
Productivity =
Input
Output Ouput Output
Partial Measures ; ;
Single Input Labor Capital
Output Ouput Output
Multifactor Measures ; ;
Multiple Inputs Labor +Machine Labor +Capital +Energy
Goods or services produced
Total Measure
All inputs used to produce them
Productivity Growth
Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity
2-11
Examples of Partial Productivity Measures
Table 2.6
Labor Units of output per labor hour
Units of output per shift
Productivity Value-added per labor hour
Machine Units of output per machine hour
Dollar value of output per machine hour
Productivity
Capital Units of output per dollar input
Dollar value of output per dollar input
Productivity
Energy Units of output per kilowatt-hour
Dollar value of output per kilowatt-hour
Productivity
2-12
EXAMPLE 2
ABC company which production data as below:
Output - RM1000
Labour input - RM 300
Material input - RM 200
Capital input - RM 300
Energy input - RM 100
Other expenses input - RM 50
Solution – Partial Productivity
Human Productivity = output/human input =
1000/300 =3.33
Other Expenses Productivity = output /other
expenses input
= 1000/50 = 20
Net Output = 1000-(200+300+100+50) =1000 –
650 = 350
Total Factor Productivity = 350 = 0.583
300 + 300
Total Productivity = total output
(human + material + capital+ energy + other
EXAMPLE
Determine the partial productivity:
a) 4 people finished cooking 100 packets of nasi
lemak in 8 hours/worker
b) A lathe machine produced 1000 work pieces
in 2 hours
EXAMPLE
7040 Units Produced
Cost of labor: $1,000
Cost of materials: $520
Cost of overhead: $2000
What is the multifactor productivity?
2-16
EXAMPLE 3: SOLUTION
MFP = Output
Labor + Materials + Overhead
MFP = (7040 units)
$1000 + $520 + $2000
MFP = 2.0 units per dollar of input
2-17
PRODUCTIVITY GROWTH
Current productivity - Previous productivity
Productivity Growth = 100%
Previous productivity
Example: Labor productivity on the ABC assembly line was 25 units per hour in 2006.
In 2007, labor productivity was 23 units per hour. What was the productivity growth
from 2006 to 2007?
EXERCISES
An operation has a 10% scrap rate. As a result
72 pieces per hour are produced. What is the
potential increase in labor productivity by
eliminating the scrap?
FACTORS AFFECTING PRODUCTIVITY
Capital Quality
Technology Management
2-20
OTHER FACTORS AFFECTING
PRODUCTIVITY
Standardization
Quality differences
Use of Internet
Computer viruses
Searching for lost or misplaced items
Scrap rates
New workers
2-21
OTHER FACTORS AFFECTING
PRODUCTIVITY
Safety
Shortage of IT workers
Layoffs
Labor turnover
Design of the workspace
Incentive plans that reward productivity
2-22
OUTSOURCING
Higher productivity in another company is a key
reason organizations outsource work
Improving productivity may reduce the need for
outsourcing
2-23
IMPROVING PRODUCTIVITY
Develop productivity measures
Determine critical (bottleneck) operations
Develop methods for productivity
improvements
Establish reasonable goals
Get management support
Measure and publicize improvements
Do not confuse productivity with efficiency
2-24
Fuel
guzzler….....
Fuel
Efficient…………
Don’t confuse productivity with efficiency
Efficiency = getting the most out of fixed
resources
Think of fuel efficiency ( Perdana V6 vs Kancil)
Productivity = how much output or work that was
done
