CONCEPT OF PRODUCTIVITY

MODES OF CALCULATING

PRODUCTIVITY

INTRODUCTION

The ratio between “Output of Work” and “Input of resources”

used in the process of creating wealth. – ILO

Productivity = Output (within a defined time and good quality)

Input

It is the ratio between the amount produced and amount of

resources used in production

This definition applies to an industry or an economy as a

whole.

Input Output

Waste

(Muda)

Process

Units of Input means resources utilised

Units of output means anything generated from production

Land – Hectares

Material - Metric ton

Plant and Machinery – machine hours

People – Man Hours

Capital – Rupees

Eg: a worker producing 100 pieces is now able to produce 130 pieces

after undergoing a training session. Productivity of worker has

increased by 30%

FACTORS AFFECTING PRODUCTIVITY

Controllable or internal factors

Product – extent to which it meets requirements

Plant and equipment – availability and reduction of idle time

Technology – automation

Material and energy – reduce material and energy consumption

Human factors – motivation and training

Work methods – improvement in the way of doing things

Management style – communication, policy and proceedure

Uncontrollable or external factors

Natural resources – manpower land and raw materials

Government and infrastructure – government norms. Transport,

power, etc.

DIFFERENCE BETWEEN PRODUCTIVITY AND PERFORMANCE

Output in relation to input

Productivity = Output

Input

Considers output alone

Performance Index

= Actual work done

expected or standard work

Productivity Performance

Eg:

It takes 3mts. Of cloth to make a coat. In a day Prashant is

expected to make 50 coats. He makes 40 coats from 111mts. of

cloth

Performance Index is = 80%

Prashant’s productivity is = 108%

Cloth Productivity = 0.36 coats/mt.

Performance Index = 40/50 * 100 = 80%

Prashant’s productivity = 120/111*100 =108%

Cloth productivity = 40/111=0.36 coats/mt.

To workers:

Yields more wages

Better standard of living

Improved morale

Satisfied worker

Resulting into goodwill

To the organisation:

Higher production of goods and services.

Reduction in costs

High turnover, More profits and dividends

Cheaper goods to customers

Revenue to government

Wide spread markets and overall prosperity

BENEFITS OF INCREASED PRODUCTIVITY

To the nation

High employment opportunities

Increased Gross National Produce

Improved utilisation of resources

Expansion in international markets

To Consumers and Society in General

Increase in supply of quality goods and services

Reasonable cost of goods and services

Greater customer satisfaction

WAYS AND MODELS OF CALCULATING PRODUCTIVITY

1. Partial productivity

Ratio of output to one particular class of input.

Partial Productivity = Output

A particular class of input

Often there is a factor which plays an important role.

There is one factor which is an appropriate factor for

comparison, this is called an “apple to apple” comparison

Such ratios are used for selection of a particular area of

improvement.

Organistions can use this formula to determine performance

of labour, machines, energy, capital, department,

organisation, etc.

EXAMPLES

Bajaj Auto produces 5000 scooters in a shift employing

200 workers, whereas Hero motors manufactures 9000

scooters employing 300 workers. The productivity in

relation to manpower of Hero motors is higher compared to

Bajaj Autos.

R. petroleum sells its petrol at Rs.30000 with the help of

three pumps in an area of 1000sq ft. whereas Y petroleum

sells its petrol worth Rs.40000 with the same parameters.

Partial Productivity space Y petroleum is better than R

because of better layout and an appropriate entry and exit

system.

Easy to understand.

Easy to obtain the data.

Easy to compute the

productivity indices

Easy to sell to management

because of the above three

advantages.

Some partial productivity

indicator data is available

industry wide.

Good diagnostic tools to

pinpoint areas for productivity

improvement, if used along

with total productivity

indicators

Profit control through partial

can be a hit-

and-miss approach.

Tend to shift the blame to

the wrong areas of

management control.

Do not have the ability to

explain overall cost

increases

If used alone, can be very

misleading and may lead to

costly mistakes.

Advantages Limitations

2. Total Productivity

is the ratio of Total Output and Total Input

Total Productivity = Total Output (Value of Produce)

Total Input (Value of Input)

3. Total Factor Productivity

Labour and capital are always considered important

contributors to the process of production.

In TFP model was developed by John W. Kendrick

He has taken labour and capital as only two input factors

for calculating TFP

Data is easy to obtain in TFP

It does not consider the impact of material and energy

input, even though materials constitute 60% of the cost

Example: production worth Rs.80 lakhs was

manufactured and sold in a month. It consumed

labour hours worth Rs.12 lakhs and capital worth

Rs.48 lakhs

TFP = Output

Inputs of (Labour + Capital)

= 80 = 1.33

(12+48)

4. Multi Factor Productivity

Scott D. Sink further developed the total factor

productivity model

MFP model considers labour, material and energy as

major inputs

Capital was left out since it is very difficult to estimate

how much capital is being consumed in a unit of time.

MFP = Output

Inputs (labour + energy + material)

5. V. Sumanth’s Total Productivity Model

It is the ratio of tangible output to tangible input

Total Productivity (Pt) = Total Tangible Output (Ot)

Total Tangible Input (It)

Pt = 01 + 02 + 03 + 04 + 05

H + M + FC + WC + E + X

Where,

Total tangible Output (Ot)

01 – finished goods produced

02 – partial units produced

03 – dividends from securities

04 – interest from bonds

05 – other incomes

Total tangible Input (It)

H - human inputs

M – material purchased

FC – fixed capital

WC – working capital

E – energy inputs

X – other expenses (taxes,

transport, office cost, etc.)

Disadvantages

Data is difficult to compute

Does not consider intangible inputs and outputs

Advantages:

All quantifiable inputs are considered

Provides firm level and operational unit level productivity

6. APC Model

American Productivity Center (APC) has been advocating

a productivity measure that relates profitability with

productivity and price recovery factor.

The price recovery factor takes care of inflation

Over a period of time changes in this factor indicate:

Whether the firm has been able to absorb the changes

in the cost inputs

Has passed on or has over compensated the same

price of the company’s output

Profitability = Sales = Quantities of Output * Price

Costs Quantities of Input * Price

= Productivity * Price Factor

Price Recovery Factor:

Captures the effect of inflation.

Inclusion of this factor will show whether gains or losses

of a firm are due to changes in productivity or it merely

indicates the fluctuations in the prices of the material

consumed and sold

WAYS TO IMPROVE PRODUCTIVITY

Technology based

CAD, CAM, integrated CAM, Robotics, laser beam

technology, energy technology, group technology,

computer graphics, simulation, maintenance

management, rebuilding old machinery, energy

conservation

Employee Based

Financial incentives, group incentives, fringe benefits,

promtions, job enrichment, job enlargement, job rotation,

worker participation, MBO, Skill enhancement, learning

curve, working condition improvement, communication,

zero defects, punishment, recognition, quality circle,

training, education, role perception, supervision quality.

Material Based

Material planning and control, purchasing, logistics,

material storage and retrieval, source selection and

procurement of quality material, waste elimination

Process based

Methods engineering and work simplification, job design

evaluation, job safety, human factors engineering

Product based

Value analysis and value engineering, product

diversification, standardisation and simplification,

reliability engineering, product mix and promotion

Task based

Management style, work culture, communication in the

organisation, motivation, promotion group activity