Module 2

Productivity

1
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 Introduction
The productivity of a certain set of resources
(input) is therefore the amount of goods or services
(output) which is produced by them. Land and building
materials, machines, manpower (labor), technology etc.
are the resources at the disposal of a manufacturing
company. Therefore higher (improved) productivity
means that more is produced with the same expenditure
of resource i.e. at the same cost in terms of land, materials,
machine, time or labor, alternatively, it means same
amount is produced at less cost in terms of land, materials,
machine time or labor that is utilized.

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Learning Objectives

Define productivity.

Determine the factors affecting

productivity

Calculate single-factor and multi-factor

productivity.

Calculate the change in productivity.

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 Definition
Productivity is the ratio between output and input. It
is quantitative relationship between what we produce
and what we have spent to produce.

Productivity is nothing but reduction in wastage of

resources like men, material, machine, time, space,
capital etc. It can be expressed as human efforts to
produce more and more with less and less inputs of
resources so that there will be maximum distribution
of benefits among maximum number of people.
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 Definition
Productivity is measure of how well resources are
brought together in organizations & utilized for
accomplishing set of results. Productivity is reaching
higher level of performance with least expenditure
of resources.

Productivity is combination of effectiveness &

efficiency & Effectiveness related to performance,
efficiency to resource utilization.
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 Definition
Productivity generally expresses the relationship
between the quantity of goods and services
produced (output) and the quantity of labor,
capital, land, energy, and other resources to
produce it (input)

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 Productivity vs. Production

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 Importance of Higher Productivity

If the level of output is increased faster than that of

input, productivity will increase. Conversely,
productivity will be increased if the level of input is
decreased faster than that of output. Also, an
organization may realize a productivity increase
from producing more output with the same level of
input. Finally, producing more output with a
reduced level of input will result in increased
productivity.

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 Importance of Higher Productivity

• Productivity is a key to prosperity.

• Higher productivity leads to economic

growth and social progress.

• Higher productivity requires elimination

of waste in all forms.

• Improvement in productivity is
important for country
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 PRODUCTIVITY can be improved:

► By increasing outputs to with same inputs.

► By decreasing inputs but maintaining same

output

► By increasing outputs & decreasing inputs to

change ratio favorably.

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 Factors of Productivity Improvement

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 Techniques for Measuring Productivity

► Single-factor measures
▪ Output / (Single Input)

► All-factors measure
▪ Output / (Total Inputs)

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 Single-factor Productivity

Single-factor Productivity

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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 Single-factor Productivity

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
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 Single-factor Productivity Example
Labor productivity: The important function in
any production set-up is that the budgeted quantity
of work must be achieved over a period of time.
Labor productivity depends upon how labors are
utilized. Labor productivity can be higher or lower
depending on factors like availability of work load,
material, working tools, availability of power,
work efficiency, level of motivation, level of
training, level of working condition (comfortable
or poor) etc. Labor productivity can be measured
in terms of hours or money.
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 Single-factor Productivity Example

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 Labor Productivity Example

Consider the following situations;

10,000 Units Produced
Sold for $10/unit
500 labor hours
Labor rate: $9/hr

Compute the labor productivity in terms of units/hr,

$/hr, unit/$ and unitless.

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 Labor Productivity Example

Solution;
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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 Labor Productivity Example

A company that processes fruits and vegetables is

able to produce 400 cases of canned peaches in
one half hour with four workers. What is the
labor productivity?

Labor productivity = Quality Produced / Labors

Hours
= 400 cases/ (4 workers x 1/2 hours / workers)
= 200 cases per labor hour
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 Labor Productivity Example
Find the productivity if four workers installed 720 square
yards of carpeting in eight hours.

Productivity = yards of carpeting install / Labors Hours

worked
= 720 square yard / (4 workers x8 hours / worker)
= 720 yards / 32 Hours;
= 22.5 yards/ hours

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 Machine Productivity Example

Compute for the productivity of a machine which produced

68 usable pieces in two hours.

Productivity = Usable Pieces / Production Time

= 68 usable pieces / 2 hrs;
= 34 pieces/ hours

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 Total/Multi-factor Productivity

Total/Multi-factor Productivity
Productivity may be measured either on an
aggregate basis or individual basis. On aggregate
basis, output is compared with all inputs taken
(added) together. This is called as total
productivity. On individual basis, output is
compared with any one of the input factor and this
i s cal l ed as p a r t i a l p r o d u c t i v i t y o r f a c t o r
productivity.

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 Total/Multi-factor Productivity
This index measures the productivity of the entire organization with
use of all resources. It is a way of evaluating efficiency of entire plant
or firm. It has been said that the challenge of productivity has become
a challenge of measurement. Productivity is difficult to measure and
can only be measured indirectly, that is, by measuring other variables
and then calculating productivity from them. This difficulty in
measurement stems from the fact that inputs and outputs are not only
difficult to define but are also difficult to quantify.

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 Total/Multi-factor Productivity Example
Example 1
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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 Total/Multi-factor Productivity Example
Example 2
A wrapping paper company produced 2,000 rolls of paper one day.
Standard price is $1/roll. Labor cost was $ 160, material cost was $ 50,
and overhead was $ 320. Determine the multi-factor productivity.

Multifactor productivity =Quality produced at standard price/(Labor

cost +Material cost + Overhead)

= 2,000 rolls x $ 1/ ($160+ $ 50 + $320)

= 3.77 rolls output per dollars
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 Change in Productivity Example

At Modern Lumber.Inc., Art Binley, president and producer of apple

crates sold to growers, has been able, with his current equipment to
produce 240 crates per 100 logs. He currently purchases 100 logs per
day and each log requires 3 labor hours to process .he believes that he
can hire a professional buyer who can buy a better quality log at the
same cost. If this is the case, he can increase his production to 260
crates per 100 logs. His labor hours will increase by 8 hours per day.
What will be the impact on productivity ( measurement in crates per
labor hour) if the buyer is hired?

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 Change in Productivity Example

Current Labor Productivity ( when no buyer ) =Output / Input

Output = 240 crates

Input = Material required + labor hours
One log requires 3 labor hour. Therefore 100 logs require 300 labor
hour.

Current Labor Productivity = 240 crates / ( 100 logs * 3 hours/ log )

= 240 / 300
= .8 crates per labor hour
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 Change in Productivity Example

New Labor Productivity with buyer= Output /

Input
New Output = 260 crates
Increase in labor hours = 8

Labor Productivity = 260 crates / { ( 100 logs * 3

hours/ log ) + 8 hours }
= 260 / 308
= .844 crates per labor hour

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 Change in Productivity Example

Change in Productivity Formula

 
 
 

 
 

As a result, there is an increase in productivity from .8

to .844 crates per labor hour with 5.5%.
The higher change in productivity the better.
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 Exercises
1. 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.
Compute single factor productivity of labor in the old system. (Compute it in four possible
ways.) Compute multi-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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 Exercises
2. 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 MFP 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
multi-factor productivity for the old and the new systems. Determine the change in productivity.
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 End of Module 1
Thanks for Listening!

by: Engr. Nomer M. Sarmiento

Engr. Jerald M. Fernandez

32
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