Energy Consumption (KWH or Energy C

ost)
Productivity
We have discussed earlier that when MULTIFACTOR MEASURE:
competing on cost, quality improvements
will result to improvements in MFP =
productivity. And it is the responsibility of Output
the operations manager to achieve Labor + Capital
productive use of the organization’s
resources.
MFP =
Output
PRODUCTIVITY
Labor + Capital + Energy
 measure of economic performance TOTAL PRODUCTIVITY:
that indicates how efficiently
inputs are converted into output
TP =
 an index that measures output
(goods and services) relative to the Quantity or value of goods or services pro
input (labor, materials, energy, duced
and other resources) used to All inouts used to produce the goods or ser
produce it. vices
 We have learned from the video
that productivity is a measure of
economic performance that Examples of productivity
indicates how efficiently inputs are
converted into output
measures
This table lists some examples of
productivity measures. The choice of
Productivity is usually expressed as the
productivity measure depends primarily
ratio of output to input:
on the purpose of the measurement. If the
purpose is to track improvements in labor
Productivity = Output productivity, then labor becomes the
Input obvious input measure.

The Productivity Challenge

The operations manager’s job is to
enhance (improve) this ratio of outputs to
inputs. Improving productivity means
improving efficiency

This improvement can be achieved in two

ways:

 reducing inputs while keeping

output constant
 increasing output while keeping
inputs constant

Productivity Measures
Productivity measures can be based on a Productivity Growth
single input (partial productivity), on
more than one input (multifactor  Ratio of the change in output to
productivity), or on all inputs (total change in inputs
productivity).  The increase in productivity from
one period to the next relative to
PARTIAL MEASURE: the productivity of the preceding
Labor Productivity = Output period and it can be expressed as:
Labor Hours
Machine Productivity = Output PG =
Current Productivity − Previous Productivit
Mahine Hours y x100
Capital Productivity = Output Previous Productivity

Cost of Capital
Partial Productivity Measures
Energy Productivity =
Output
 Materials: $520
Overhead: $2,000

𝑀𝑢𝑙𝑡𝑖𝑓𝑎𝑐𝑡𝑜𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦=
𝑂𝑢𝑡𝑝𝑢𝑡/(𝐿𝑎𝑏𝑜𝑟 𝑐𝑜𝑠𝑡+ 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠 𝑐𝑜𝑠𝑡
+ 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑)

= (7,040 𝑢𝑛𝑖𝑡𝑠)/($1,000+$520+$2,000)

= 2 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑑𝑜𝑙𝑙𝑎𝑟 𝑖𝑛𝑝𝑢𝑡

Sample Problem #1
Four workers installed 720 square yards
of carpeting in eight hours.
Sample Problem #4
Productivity =
Yards of carpter installed
Labor hours worked

= 720 square yards

4 workers x 8 hours per worker

=720 sq yds
32 hrs

= 22.5 yards per hour

Sample Problem #2 Sample Problem #5

A machine produced 70 pieces in two Panny’s Bakeshop currently produces 800
hours. However, two pieces were cupcakes each 8-hour shift. If production
unusable. is increased to 1,200 cupcakes each shift,
what is the increase in productivity?

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 (𝐶𝑃)=1200/(8

P = Usable Pieces

ℎ𝑟𝑠)=150 𝑢𝑛𝑡𝑖𝑠/ℎ𝑟
Production Time

𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 (𝑃𝑃)=800/(8

= 70 − 2 = 68 usable pieces

ℎ𝑟𝑠)=100 𝑢𝑛𝑖𝑡𝑠/ℎ𝑟
2 hours

𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝐺𝑟𝑜𝑤𝑡ℎ= (𝐶𝑃 −𝑃𝑃)/𝑃𝑃

= 34 pieces per hour
𝑥100
Multifactor Productivity
Calculations of multifactor productivity 𝑃.𝐺.= (150−100)/100 𝑥100

𝑃.𝐺.= 50/100 𝑥100

measure inputs and outputs using a
common unit of measurement, such as
cost. For instance, the measure might use
cost of inputs and units of the output: Productivity Growth = 50%

= (𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛)/(𝐿𝑎𝑏𝑜𝑟
𝑐𝑜𝑠𝑡+ 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠 𝑐𝑜𝑠𝑡 + 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑)
Sample Problem #6
Weekly output for a process is shown
Note: The unit of measure must be the below, together with data for labor and
same for all factors in the denominator. materials. The product can be sold at
$125 per unit. Overhead is charged
weekly at a rate of $1,500 plus .5 times
direct labor cost. Let us assume that there
Sample Problem #3 is a 40-hour work week with an hourly
wage rate of $16. Material cost is $10 per
Determine the multifactor productivity for
foot.
the combined input of labor and machine
time using the following data:

Output: 7,040 units

Inputs: Labor: $1,000

 whole. These productivity
measures are aggregate measures.

 In essence, productivity
measurements serve as scorecards
of the effective use of resources.

 Business leaders are concerned

with productivity as it relates to
What is the weekly multifactor competitiveness
productivity?
What is the average multifactor  Government leaders are concerned
productivity? with national productivity because
of the close relationship between
Step 1: Compute for Week 1 Multifactor productivity and a nation's
Productivity standard of living.

 High levels of productivity are

largely responsible for the
relatively high standards of living
enjoyed by people in industrial
nations.

 Furthermore, wage and price

increases not accompanied by
productivity increases tend to
create inflationary pressures on a
nation's economy.

Step 2: Compute for Week 2 Multifactor

Productivity

Productivity Variables
These are the factors that are critical to
productivity improvements

 Labor
Step 3: Compute for the average  Capital

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑀𝐹𝑃=(𝑊𝑒𝑒𝑘 1 𝑀𝐹𝑃+𝑊𝑒𝑒𝑘

multifactor productivity  Management

2 𝑀𝐹𝑃)/2

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑀𝐹𝑃=(1.451+1.463)/2 Productivity Variable: Labor

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑀𝐹𝑃=2.914/2
Improvement in the contribution of labor
to productivity is the result of a healthier,
better educated and better nourished
= 1.457 labor force

To sum it up, the factors that improve

Importance of Productivity labor productivity are:
 Productivity measures are useful
on a number of levels. For an  Appropriate basic education
individual department or  Proper diet
organization, productivity  Social overhead (transportation &
measures can be used to track sanitation)
performance over time.

 This allows managers to judge

performance and to decide where Productivity Variable: Capital
improvements are needed.
 Human beings are tools-using animals,
 Productivity measures also can be and capital investment provide those
used to judge the performance of tools
an entire industry or the  Capital investments are influenced by
inflation and taxes mainly because
productivity of a country as a
both affect the cost of capital
  When the capital invested per
employee drops, we can expect a drop
in productivity.

Productivity Variable:
MANAGEMENT
Management is a factor of production and
an economic resource

 Management is responsible for

ensuring that labor and capital are
effectively used to increase
productivity
 Productivity improvements can happen
through the use of knowledge and the
application of technology
 Using knowledge and technology is
critical in postindustrial societies.
 Consequently, postindustrial societies
are also known as knowledge societies

Productivity in the Service

Sector
Productivity of the service sector has
proven difficult to improve because
service sector work is:

 Typically labor intensive

 Frequently individually processed
 Often an intellectual task performed by
professionals
 Often difficult to mechanize
 Often difficult to evaluate for quality