1. Roland E. Sprague – Slide 1 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

2. Roland E. Sprague – Slide 2 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 For an industry, high relative productivity makes it less likely it will be supplanted by foreign industry

3. Roland E. Sprague – Slide 3 Measures of Productivity Partial Output Output Output Output measures Labor Machine Capital Energy Multifactor Output Output measures Labor + Machine Labor + Capital + Energy Total Goods or Services Produced measure All inputs used to produce them

4. Roland E. Sprague – Slide 4 Productivity Growth Current Period Productivity – Previous Period Productivity Previous Period Productivity Productivity Growth =

5. Roland E. Sprague – Slide 5 Measures of Productivity Partial Output Output Output Output measures Labor Machine Capital Energy Multifactor Output Output measures Labor + Machine Labor + Capital + Energy Total Goods or Services Produced measure All inputs used to produce them

6. Roland E. Sprague – Slide 6 Units of output per kilowatt-hour Dollar value of output per kilowatt-hour Energy Productivity Units of output per dollar input Dollar value of output per dollar input Capital Productivity Units of output per machine hour machine hour Machine Productivity Units of output per labor hour Units of output per shift Value-added per labor hour Labor Productivity Examples of Partial Productivity Measures

7. Roland E. Sprague – Slide 7 Example 10,000 units produced Sold for $10/unit 500 labor hours Labor rate: $9/hr Cost of raw material: $5,000 Cost of purchased material: $25,000 What is the labor productivity?

8. Roland E. Sprague – Slide 8 10,000 units/500hrs = 20 units/hour or we can arrive at a unitless figure (10,000 unit x $10/unit)/(500hrs x $9/hr) = 22.22 But can we combine these into one meaningful expression? Example - Labor Productivity

9. Roland E. Sprague – Slide 9 Example--MultiFactor Productivity (The Higher, the Better!) MFP = Output Labor + Materials MFP =(10,000 units) x ($10) (500) x ($9) + ($5000) + ($25000) 2.90 units/dollar MFP =2.90 units/dollar

10. Roland E. Sprague – Slide 10 Factors Affecting Productivity CapitalQuality TechnologyManagement

11. Roland E. Sprague – Slide 11 Standardization Use of Internet Computer viruses Searching for lost or misplaced items Scrap rates New workers Cuts in health benefits Factors Affecting Productivity

12. Roland E. Sprague – Slide 12 Safety Shortage of IT workers Layoffs Labor turnover Design of the workspace Incentive plans that reward productivity Factors Affecting Productivity

13. Roland E. Sprague – Slide 13 Improving Productivity Develop productivity measures Determine critical (bottleneck) operations Develop methods for productivity improvements Establish reasonable goals Get management support Measure and publicize improvements Don’t confuse productivity with efficiency

14. Roland E. Sprague – Slide 14 Bottleneck Operation Operation Bottleneck Operation Bottleneck Operation