Professional Documents
Culture Documents
Basic Concepts of Productivity PDF
Basic Concepts of Productivity PDF
Basic Concepts of Productivity PDF
Unit I
Assume that the company purchases all its materials and services, including the energy,
machinery and equipment (on lease), and other services, such as marketing, advertising,
information processing, consulting, etc.
Advantages and limitations of using the three basic types of productivity measures in
companies.
Advantages
limitations
Unit I
2. Profit control through the use of total
productivity indices is a tremendous
benefit to top management.
The percent increases in prices and labor productivity are inversely correlated in fig 1 .1 and
1.2, reinforcing the above statement.
Unit I
Fig 1.2 Relation between price increases and labor productivity in selected
industries, 1960 to 1978.
For an example of the relationship between productivity and price increases, consider
the case of the Eli Lilly Company, one of the better known pharmac eutical companies in the
world. During the period 1963-1974, by increasing its total factor productivity at a rate of
10.1% years on average. Lilly decreased its prices at an average annual rate of 0.4% [Virts
and Cocks, 1976].
John W. Kendrick, a well-known professor of economics at George Washington
University, is reported by the Chicago tribune (January 11, 1979) to have said that
productivity could be a potent weapon in fighting inflation.
Geoffrey Moore [1973] (Vice President of Research at the National Bureau of
Economic Research, and Senior Research Fellow at The Hoover Institution, Stanford
University, in 1972) also points out in great detail the need for increasing productivity to
combat inflation over the next several years.
Fig 1.3, taken from a recent publication of United States Chamber of Commerce
[1979], points out that the money supply in the United States grew faster in the 1970s than
it did in the 1960s. Faster growth in the money supply and slower real growth in output have
produced higher inflation. In other words, the money supply grew faster in recent years than
did the national output of goods per unit of labor resource (labor productivity).
Money
Supply
Gross
Money
National Supply
Product
Inflation Portion
Fig 1.3 Money supply growth faster than real growth in GNP, thereby causing inflation
Source: Productivity Engineering and Management by David J. Sumanth navanth31@yahoo.co.in
Unit I