Productivity

Single-factor measures All-factors measure Productivity Single-factor measures Output / (Single Input) All-factors measure Output / (Total Inputs)

Measures of Productivity Single-factor Output Output Output Output measures Labor Machine Capital Energy All-factors Output measure All inputs

Single Factor Single-factor Output Output Output Output measures Labor Machine Capital Energy If we produce only one product, the numerator can be either the total units of the product or the total $ value of the product. If we produce several products, the numerator is the total $ value of all products. The denominator can be the units of input or the total $ value of input.

Example: Single Factor Productivity 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr What is the labor productivity?

Example: Labor Productivity 10,000 units / 500hrs = 20 units/hr (10,000 units * $10/unit) / 500hrs = $200/hr 10,000 units / (500hrs * $9/hr) = 2.2 unit/$ (10,000 units * $10/unit) / (500hrs * $9/hr) = 22.22 The last one is unit-less

Some Single Factor Measurements Labor Productivity Quantity (or value) of output / labor hrs Quantity (or value) of output / shift Machine Productivity Quantity (or value) of output / machine hrs Energy Productivity Quantity (or value of output) / kwh Capital Productivity Quantity (or value) of output / value of input

All Factors All-factors Goods or Services produced measure All inputs used to produce them If we produce only one product, the numerator can be either the total units of product or total $ value of the product. If we produce several products, the numerator is the total $ value of all products. Usually, the numerator is the total $ value of all outputs. The denominator is total $ value of all inputs.

Example 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr Cost of raw material: $30,000 Overhead: $15,500

Example : All-Factor Productivity Output Labor + Materials + Overhead AFP = (10,000 units) * ($10) (500)*($9) + ($30,000) + ($15,500) AFP = AFP = 2.0

What are the factors that affect productivity? Training Methods Technology Management

Assignment 1.1…………….. Due at the beginning of the next class A company that makes shopping carts for supermarkets recently purchased new equipment, which reduced the labor content needed to produce the carts. Information concerning the old system (before adding the new equipment) and the new system (after adding the new machines) includes: Old System New System Output/hr 80 84 Workers 5 4 Wage $/hr 10 10 Machine $/hr 40 50 Compute labor productivity for both the Old System and the New System. Compute AFP productivity for both the Old System and the New System. Suppose production with old equipment was 30 units of cart A at a price of $100 per cart, and 50 units of cart B at a price of $120. Also suppose that production with new equipment is 50 units of cart A, at a price of $100 per cart, and 30 units of cart B at a price of $120. Compare all-factor productivity for the old and the new systems.

Assignment 1.2…………….. Due at the beginning of the next class A company has introduced a process improvement that reduces the processing time for each unit and increases output by 25% with less material but one additional worker. Under the old process, five workers could produce 60 units per hour. Labor costs are $12/hour, and material input was $16/unit. For the new process, material input is now $10/unit and overhead is charged at 1.6 times direct labor cost. Finished units sell for $31 each. Compute single factor productivity of labor in the old system. (Compute it in four possible ways.) Compute all factor productivity for both old and new systems. Factor Old System New System Output 60 60(1.25) = 75 # of workers 5 6 Worker cost $12/hr $12/hr Material $16/unit $10/unit Overhead 1.6(labor cost) 1.6(labor cost) Price 31 31

Assignment 1.3……… For your own practice A milk factory seeks advice from an external consulting company concerning its business and production processes. The final consulting report describes several steps to increase productivity including implementation of cutting-edge processing techniques through more powerful filtering systems. Calculate the labor productivity for the existing as well as the proposed system. Find the All-Factor Productivity for both systems. Assume that current processing includes 700 gallons of Grade-A milk sold at $2.40/gallon and 300 gallons of Grade-B milk at $1.90/gallon. Furthermore, assume that under the proposed system, processing will include 600 gallons of Grade-A milk at $2.40/gallon and 400 gallons of Grade-B milk at $1.90/gallon. Compare all-factor productivity for both the existing and the new system. Existing System Proposed System Workers 12 9 Milk Output/hour 1,000 gallons 1,400 gallons Wage Rate/hour $12 Filtration Cost/hour $120 $170