1. Productivity Measurement and Improvement Prepared by: Bhakti Joshi Date: December 05 2014

2. Definition Productivity is commonly defined as a ratio of a volume measure of output to a volume measure of input use OR Productivity = Output Input Generated from production or service Provided to create this output The concept of productivity can be applicable to any economy, business (small, medium and large), government and individuals

3. Numerical Example 1 Britannia Industries produces 30000 units of biscuits in October and the number of workers employed during this months was 30. These workers normally work 8 hours a day. Calculate the productivity for the month of October. 30000/30 = 1000 units per labour OUTPUT INPUT Total Hours worked by workers = 30 workers * 8 hours = 240 Total working days = 20 days. 4 weeks in a month * 5 working days. 240*20 = 4800 30000/4800 = 6.25 units per worker

4. Problem 1: Quarterly Productivity Data ParametersQuarter 1Quarter 2 Unit Selling PriceRs 20Rs 21 Total Units Sold10,0008500 Labor cost/hourRs 10 Number of employees15 Working hours10 hour/employee8 hours/per employee Labour hours10*15*20*3 = 9000 hours 8*15*20*3 = 7200 hours Labour input cost9000*10=900007200*10=72000 Output Value10000*20 = Rs 2000008500*21 = 178500 Labour Productivity200000/90000= 2.22178500/72000 = 2.48 By what percentage has labour productivity improved or not improved?

5. Problem 1: Quarterly Productivity Data (Contd…) ParametersQuarter 1Quarter 2 Material Usage1600 KGs/month1500 KGs/month Material CostRs 15/KGRs 15.50/KG Other CostsRs 6500/monthRs 5000/month Materials Input Cost1600*3*15=720001500*3*15.50=69750 Other Inputs Costs6500*3=195005000*3=15000 Total Material and Input Costs 72000+19500= 9150069750+15000=84750 Material Productivity200000/91500= 2.18178500/84750 = 2.11 By what percentage has material productivity improved or not improved?

6. Quarterly Productivity Data (Contd…) Determine the total productivity ParametersQuarter 1Quarter 2 Output Value200000178500 Total Input Cost90000+91500=18150072000+84750 =156750 Total Productivity200000/181500=1.10178500/156750=1.14 What about Profit? By what percentage has material productivity improved or not improved?

7. Problem 2 A brewery produces 50,000 bottles of beer each week. The equipment costs are Rs 10000 and will remain productive for 3 years. The annual labour cost is Rs100000. Calculate the total productivity in units of output per rupee of input over a 3 year period

8. Problem 2 – Solution ParametersCalculationResult Total Output Units50000*52*37800000 Machine Input Cost--Rs 10,000 Labour Input Cost100,000*3Rs300000 Total Input Cost10000+300000Rs 310000 Total Productivity7800000/31000025.2 OR Approximately 25 bottles/Re input Suppose, the management has an option of Rs 20000 equipment with an operating life of 5 years that reduces labour cost to Rs 40000 per year. Should the management purchase this equipment (using productivity calculation methods)?

9. Problem 2 – Solution (Contd…) ParametersCalculationResult Total Output Units50000*52*37800000 Machine Input Cost--Rs 20,000 Labour Input Cost40000*3Rs 120000 Total Input Cost20000+120000Rs 140000 Total Productivity7800000/14000055.7 OR Approximately 55 to 56 bottles/Re input What does this mean?

10. Problem 3 WEEKOUTPUT SALES (Rs) MATERIAL COST (Rs) LABOUR COST OVERHEAD COST TOTAL COST TOTAL PRODUCTIVITY 1300420002702880432074705.62 2338473202763360504086765.45 3322450802763360504086765.20 4354495602863840576098865.01

11. Productivity Measurement - Types Partial Factor Productivity Total Factor Productivity Total Factor Productivity Multi-Factor Productivity Multi-Factor Productivity Labour Capital LabourCapital LabourEnergyMaterials

12. Partial Factor Productivity Traces labour requirement per unit or Reflects change in input coefficient of labour PURPOSE Ease in measurement and readable Mostly easy to obtain relevant data ADVANTAGES Partial productivity measure Misinterpreted as technical change or efficiency/effectiveness of individuals in the labour force DISADVANTAGES

13. Total Factor Productivity Traces growth in an economy or a business Includes labour and especially capital that is representative of mostly infrastructure PURPOSE Ease in obtaining data and to understand ADVANTAGES Other inputs ignored Net output does not reflect the efficiency of production system in a proper way Not representative to technological change DISADVANTAGES

14. Multi-Factor Productivity Overall changes in a firm/industry Captures technical change, efficiency, economies of scale, etc PURPOSE Role of intermediate inputs are also included Measures technical change in an industry ADVANTAGES Difficult to obtain data on all inputs Inter-industry linkages and aggregation is difficult to communicate DISADVANTAGES

15. Essentials for a Business BUSINESS Industry Working Environment Product / Product Mix Stakeholders InnovationRisks Investments

16. Results of Productivity RESULTS Monetary value Labour hours ×Value fluctuates ×Different weightings for different industries ×Confusion between efforts and efficiency ×Assumes quality is constant ×Diversity in products / service ×Does not reflect managerial ability and plant layout, product mix, and percentage of capacity utilization, age, skill and morale of employees

17. Efficiency and Effectiveness EFFICIENCYEFFECTIVENESS Meaning How well something is done OR Doing things the optimal way How useful it is OR Doing the right tasks, completing or achieving activities Effort oriented YesNo Process Oriented YesNo Goal OrientedYes Time orientedYesNo

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