1. 1 Productivity Measurement Operations Management

2. 2 Productivity equals labor intensity – meaning where there is high labor input, there must be low productivity or where there is a high degree of automation there must be high productivity Productivity is solely a measure of labor productivity – meaning, usually that we use the term productivity in relation to direct labor Performance can be measured solely by productivity – meaning if the company made a profit, then this is a sufficient measure of performance Productivity equals profitability – meaning that one term is synonymous with other Productivity applies only to the manufacturing sector. Cost cutting can improve productivity Productivity WHICH OF THE ABOVE STATEMENTS IS(ARE) CORRECT ?

3. 3 Productivity equals labor intensity – meaning where there is high labor input, there must be low productivity or where there is a high degree of automation there must be high productivity Productivity is solely a measure of labor productivity – meaning, usually that we use the term productivity in relation to direct labor Performance can be measured solely by productivity – meaning if the company made a profit, then this is a sufficient measure of performance Productivity equals profitability – meaning that one term is synonymous with other Productivity applies only to the manufacturing sector. Cost cutting can improve productivity Productivity

4. 4 Productivity, numerically defined: Productivity = OUTPUT(s) INPUT(s) Input = the amount of resource (manpower, materials, information, energy, capital, time Productivity = value to customer = effectiveness cost to producer efficiency Effectiveness = Efficiency = Productivity

5. 5 Productivity, numerically defined: Productivity = OUTPUT(s) INPUT(s) Input = the amount of resource (manpower, materials, information, energy, capital, time Productivity = value to customer = effectiveness cost to producer efficiency Effectiveness = doing the right things in the best way Efficiency = the least possibly cost Productivity

6. 6 OUTPUTS [Goods and Services] Productivity = ------------------------------------------ INPUTS [Resources:labor, capital] HOW CAN IMPROVE PRODUCTIVITY? Decrease the Inputs but maintain the outputs Increase outputs with the same inputs Productivity

7. 7 Productivity, numerically defined: (i) Total Factor Productivity (TFP) = Pt = Ot/(L+C+R+Q) Pt = Total factor Productivity Ot = Total output (sales value £) L = Labour Input factor (£) C = Capital Input factor (£) R = Raw materials/ purchased parts (£) Q = Other miscellaneous services (£) (ii) Partial Factor Productivity (PFP) = Ot/ L or C or Ot/ a combination of inputs Productivity

8. 8 Relation between output and the input provided to create the output Efficient use of resources in the provision of services and the manufacturing of products Relationship between results and the time taken to accomplish them. – managerial productivity What productivity means for: A politician An economist Operations manager? Some definition of productivity Productivity

9. 9 Productivity means for A politician: to spend money on roads and hospitals An economist: health, vitality and competitive strength of an economy Operations manager: comparative measure of improvement Some definition of productivity Productivity

10. 10 CAPITAL: Level of capital investment and cost of labor LABOR: Basic education and skills; motivation, labor availability MANAGEMENT: Education Major constituents of productivity Productivity

11. 11 QUESTION A state owned transportation company charges €18 per ticket, plus a €3 surcharge to fund planned equipment. It expects to sell 4,700 tickets during the eight week summer season. During that period, the service will experience €110,000 in labor costs. Materials required for each passage sold (tickets, a tourist-information sheet, and the like) cost €1.3. Overhead during the period comes to €79,000. 1. What is the total Productivity ratio? 2. If the staff works an average of 310 person-hours per week for the eight weeks of the summer season, what is the labor productivity ratio? Calculate labor productivity here on an hour basis. Productivity

12. 12 ANSWER OUTPUTS Multifactor Productivity = -------------- INOUTS Tickets sold = 4,700 Price = € 18 value of the output = 4,700 x [18+3]= 98,700 Surcharge = €3 Labor cost = €110,000 Materials costs = €1.3 value of the input = 110,000 + [1.3 x 4,700] + Overheads = €79,000 79,000 = 195,100 1.miltifactor Productivity= 98,700/195,100 = 0.51 2.labor productivity = 98,700/[8x310] = 39.8 Productivity

13. 13 QUESTION Calculate the productivity for the following operations: 1.Three employees process 600 insurance policies in a week. They work 8 hours/day, 5 days/week. 2.A team of workers make 400 units of a product, which is valued by its standard cost of €10 each (before markups for other expenses and profit). The accounting department reports that for this job the actual costs are €4,000 for labor, € 1,000 for materials, and €300 for overhead. Productivity

14. 14 ANSWER Policies processed Partial [LABOUR] Productivity =------------------------ Employee hours 600 policies ----------------------------------------- = 5 policies/h [3 employees) x [40 h/employee] Quantity at standard cost Multifactor Productivity = ----------------------------------------------------- Labor cost + Materials cost + Overheads [400 units] x [€10/unit] € 4,000 ----------------------------- = ---------- = 0.75 €4000 + €1,000 + €300 € 5,300 Productivity

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