PRODUCTIVITY

Prof. Dr. Muhammad Rashedul Islam

 Productivity: Definition

Productivity is the relationship between the

outputs generated from a system and the inputs
that are used to create those outputs.
Mathematically

O
P =
I
 Systems Concept

inputs outputs
transformations Customers
Land Goods
people and
SYSTEM
capital services
facilities
equipment
tools O
energy I
materials
information productivity
 Productivity Improvement

Productivity Improvement (PI) is the result of

managing and intervening in transformation or
work processes.
PI will occur if:
 Productivity

• Single-factor measures
– Output / (Single Input)
• All-factors measure
– Output / (Total Inputs)

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 Measuring Productivity

• Static: P=O/I in a given period of time (t). Useful

for benchmarking purposes.
• Dynamic: p(1)=O(1)/I(1); p(2)=O(2)/I(2); then
p(2)/p(1) yields a dimensionless index that reflects
change in productivity between periods. ((p(2)-
p(1))/p(1))*100 yields the percentage change
between periods.
Application of Productivity Measures

• Individual level
• Group level
• Department level
• Corporate level
• National level
• Global level
Measures Affecting Productivity

• Efficiency
• Effectiveness
• Quality
• Quality of Work Life
• Innovation
 Efficiency

• Measures the resources expected to be

consumed to the resources actually consumed.

• It focuses on the input side of the system. (To

what degree did the system utilize the “right”
things.)
 Effectiveness

• Measures what the system sets out to

accomplish (objective) with what was actually
accomplished; plan vs. actual

• Hence, effectiveness is an output measure. (Is

the output “right” - right quality, right quantity, on
time, etc.)
 Quality

• Degree to which the outputs (products and

services) from the system conform to
requirements or meet customer expectations.

• The focus is on quality attributes (e.g.,

conformance, performance, convenience,
responsiveness, perceived quality.)
 Quality of Work Life (QWL)

• Measures the way that employees in a

system respond to the sociotechnical
aspects of that system.
 Innovation

• Measures the applied creativity of the system.

• Relates to the design and development of

improved products, services, and processes.
 Measures of Productivity

Single-factor Output Output Output Output

measures Labor Machine Capital Energy

All-factors Output
measure All inputs

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 Single Factor

Single-factor Output Output Output Output

measures Labor Machine Capital Energy

If we produce only one product, the numerator can be either

the total units of the product or the total $ value of the
product. If we produce several products, the numerator is
the total $ value of all products.

The denominator can be the units of input or the total $ value

of input.

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 Example: Single Factor Productivity

10,000 Units Produced

Sold for $10/unit

500 labor hours

What is the
labor productivity?
Labor rate: $9/hr

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 Example: Labor Productivity

• 10,000 units / 500hrs = 20 units/hr

• (10,000 units * $10/unit) / 500hrs = $200/hr

• 10,000 units / (500hrs * $9/hr) = 2.2 unit/$

• (10,000 units * $10/unit) / (500hrs * $9/hr) = 22.22

•The last one is unit-less

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 Some Single Factor Measurements

• Labor Productivity
– Quantity (or value) of output / labor hrs
– Quantity (or value) of output / shift
• Machine Productivity
– Quantity (or value) of output / machine hrs
• Energy Productivity
– Quantity (or value of output) / kwh
• Capital Productivity
– Quantity (or value) of output / value of input 18
 All Factors

All-factors Goods or Services produced

measure All inputs used to produce them

If we produce only one product, the numerator can be either

the total units of product or total $ value of the product.
If we produce several products, the numerator is the total
$ value of all products.

Usually, the numerator is the total $ value of all outputs.

The denominator is total $ value of all inputs.

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 Example

10,000 Units Produced

Sold for $10/unit

500 labor hours

Labor rate: $9/hr

Cost of raw material: $30,000

Overhead: $15,500
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 Example : All-Factor Productivity

Output
AFP =
Labor + Materials + Overhead

(10,000 units) * ($10)

AFP =
(500)*($9) + ($30,000) + ($15,500)

AFP = 2.0

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What are the factors that affect productivity?

Training Method
s

Technology Managemen
t

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 Multifactor Productivity

Newer productivity measures tend to include not only

labor inputs, but the other operating costs for the product
or service as well.

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 Example 1

A specialty laboratory performs lab tests for the area hospitals.

During its first two years of operation the following
measurements were gathered:

Measurement Year 1 Year 2

Price per test ($) 50 50
Annual tests 10,000 10,700
Total labor costs($) 150,000 158,000
Material costs ($) 8,000 8,400
Overhead ($) 12,000 12,200

Determine and compare the multifactor productivity for

historical benchmarking.
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 Solution

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 Example 2

Nurses in Unit A worked collectively a total of

25 hours to treat a patient who stayed 5 days,
and nurses in Unit B worked a total of 16
hours to treat a patient who stayed 4 days.
Calculate which of the two similar hospital
nursing units is more productive.

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 Solution
First, define the inputs and the outputs for the analysis. Is
the proper measure of inputs the number of nurses or of
hours worked? In this case the definition of the input
would be total nursing hours. When the total number of
nursing hours worked per nurse is used as the input
measure, then the productivity measures for the two units
are:

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 Assignment 1

1. A company that makes shopping carts for supermarkets recently purchased

new equipment, which reduced the labor content needed to produce the
carts. Information concerning the old system (before adding the new
equipment) and the new system (after adding the new machines) includes:

Old System New System

Output/hr 80 84
Workers 5 4
Wage $/hr 10 10
Machine $/hr 40 50

a) Compute labor productivity for both the Old System and the New System.
b) Compute AFP productivity for both the Old System and the New System.
c) Suppose production with old equipment was 30 units of cart A at a price of
$100 per cart, and 50 units of cart B at a price of $120. Also suppose that
production with new equipment is 50 units of cart A, at a price of $100 per
cart, and 30 units of cart B at a price of $120. Compare all-factor productivity
for the old and the new systems.
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 Assignment 2
2. A company has introduced a process improvement that reduces the
processing time for each unit and increases output by 25% with less
material but one additional worker.
Under the old process, five workers could produce 60 units per hour.
Labor costs are $12/hour, and material input was $16/unit.
For the new process, material input is now $10/unit and overhead is
charged at 1.6 times direct labor cost. Finished units sell for $31 each.
a) Compute single factor productivity of labor in the old system.
(Compute it in four possible ways.)
b) Compute all factor productivity for both old and new systems.
Factor Old System New System
Output 60 60(1.25) = 75
# of workers 5 6
Worker cost $12/hr $12/hr
Material $16/unit $10/unit
Overhead 1.6(labor cost) 1.6(labor cost)
Price 31 31
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 Assignment 3
3. A milk factory seeks advice from an external consulting company concerning its
business and production processes. The final consulting report describes
several steps to increase productivity including implementation of cutting-edge
processing techniques through more powerful filtering systems.

Existing System Proposed System

Workers 12 9
Milk Output/hour 1,000 gallons 1,400 gallons
Wage Rate/hour $12 $12
Filtration Cost/hour $120 $170

a) Calculate the labor productivity for the existing as well as the proposed system.
b) Find the All-Factor Productivity for both systems.
c) Assume that current processing includes 700 gallons of Grade-A milk sold at
$2.40/gallon and 300 gallons of Grade-B milk at $1.90/gallon. Furthermore,
assume that under the proposed system, processing will include 600 gallons of
Grade-A milk at $2.40/gallon and 400 gallons of Grade-B milk at $1.90/gallon.
Compare all-factor productivity for both the existing and the new system.
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