Introduction To productivity

To understand productivity, we start with discussing the production

process That shows a simple Production process representation.
Inputs
 Output
Material
 Production
 Labor
 Service
 Capital
 Information
 Energy Production Function
 Information

Resources Production Service

Fig. 1. Production process

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Definition:
Productivity is defined as the ratio of output to input of a production system,
i.e. productivity
Meaning:
productivity of a production system is analogous to the efficiency of a machine.
Therefore, productivity is an efficiency of the production system.
Hence, to increase productivity we want to make this ratio of output to the
inputs as large as possible which can be practical. This can be achieved by :
i. Either producing more output with the same inputs.
ii. Or using fewer inputs for the same outputs.
Productivity-is a common measure of how well a country, industry or business
unit is doing using its resources or factors of production.
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Productivity and Production
 The concept of productivity and production are totally different. Production
refers to absolute measure of output whereas productivity is a relative term.
 Production may show a rise without a corresponding rise in the productivity and
vice versa. Note that rising productivity does not necessarily mean an increase in
production.
Productivity and Profitability
 Profitability is the (ratio of difference of revenue and cost to investment) i.e.,
Profitability= (Revenue- cost)/investment. Profitability can be increased by
reducing costs which in turn also increases productivity.
 productivity is a necessary but not a sufficient condition. Fore example,
profitability can be increased by increasing selling price. This may not increase
productivity, revenue is not related to productivity.
 A decrease in the price of the product may lead to decreasing profitability even
though productivity may be rising. 3
MEASUREMENT OF PRODUCTIVITY
There are three major types of productivity measures:
1. Partial Productivity
Partial productivity is the ratio of output to one class of input among many factors
of production. For example, labor productivity measures the productivity of
labor. Similarly, material, machine, land and capital productivities can be
defined. Thus,

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2. Total Factor Productivity
Total factor productivity is the ratio of the net output to the sum of associated labor
and capital (factor) inputs. Net output means output minus material, capital, energy
and other input expenses. Thus,

3. Total Productivity
Total productivity is the ratio of total output to the sum of all input factors.
Thus, it represents the joint impact of all the input factors in producing the
output.

Total tangible output = value of finished goods + value of partially finished units
+ dividends from securities + interest + other income
Total tangible input = value of human, material, capital, energy anil other inputs
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 PRODUCTIVITY INDEX
 Productivity index is used to compare the productivity during the current
year with the productivity during the base year. Base year is any year which
the company uses for comparative study.

Example 1: find the partial productivity and total productivity for a company for
which the following data is available:
Output= 15,000Birr, Labor input= 4,500Birr, material input= 3,000Birr, capital
input= 4,500Birr, energy input= 1,500Birr, other input expenses= 750Birr.
Assume the above values are in constant Birr with respect to a base period.
Solution: = = 3.33
= = 5.00

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= = 3.33
Energy= = 10
Other expenses= = 20

Net output= output – (material input + capital input + energy input + other input
expenses) 15000 - (3000 + 4500 + 1500 + 750)= 15000 - 9750 = 5,250 Birr
Therefore, = 0.583
= 1.05

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Example 2: Products X and Y are being manufactured by a company using materials
A and B. Both materials are equally suitable. Product X is expected, to sell at
75 Birr per unit and product Y at 35 Birr per unit. The operating data is Given
below:
Materials A Materials B
Output X 200 units 400 units
Output Y 300 units 200 units
Quantity of raw material usage 1000 kg 1000 kg
Labor usage 300 man-hours 250 man-hours
Electric energy consumption 1000 kwh 1500 kwh
Cost of raw material/kg 22 Birr 33 Birr
Labor cost per man hour 10 Birr 10 Birr
Electric Energy/kwhr 2.0 Birr 2.0 Birr

Compare the productivity of material, labor and electrical energy in using materials
A and B. comment on the relative advantage of using either of the materials. 8
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Solution: productivity
Sales value of output with material A= output of product X in units * rate/unit of X + output of product Y in units
* rate/unit of Y= 200*75 + 300*35=25,500
Sales value of output with material B= 400*75 + 200*35= 37,000
The partial productivity of different factors of production is as follows:
No Productivity (Type) Material A Material B
Productivity of raw materials = 1.16 = 1.12
1
= 8.5 = 14.8
2

= 12.75 = 12.33
3

Hence, we see that the productivities at 1 and 3 by using either material A or B are nearly the same. If labor is the key
factor, use of material B is better as it yields higher productivity 14.8>8.5.
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PURPOSE AND BENEFITS OF INCREASING PRODUCTTVITY
For Management
 To earn good profit because of reduction in costs.
 To sell more, to earn profit.
 To have better utilization of resources.
 To stand better in the market.
 Provide overall prosperity and reputation of the company.
For Workers
 Higher wages.
 Better working conditions, improved morale.
 Higher standard of living.
 Job security and satisfaction
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For Consumers
 Better quality goods at reduced prices which helps to raise their standard of
living.
 More satisfaction
To Government
 Higher profits earned by factories will bring more revenue to the government
by taxation.
 Export trades may develop bringing more foreign exchange to the nation.
 It helps to increase the welfare of the nation and development of national
economy.
 It helps better utilization of resources of the nation.
 It increases per capita income.
 Development of the nation 11
FACTORS AFFECTING PRODUCTIVITY
Productivity is defined as the ratio between output and input. Thus, all factors
which affect output and inputs will also affect the measure of productivity.
Following factors affect the productivity:
1. Technological Development : Technical factors including the degree of
mechanization, technical know-how, raw materials, layout and the methods and
techniques of work determine the level of technological development in any
industry.
2. Individual factors: Individual factors such as knowledge, skill and attitude also
affect the productivity of industry.
3. Organization Factors. Organization factors include various steps taken by the
organization towards maintaining better industrial relations such as delegation
and decentralization of authority, participative management, workers' participation
in management, organizational efficiency, proper personnel policies relating to
selection, placement, promotion, wage salary levels, incentives, merit rating, job
evaluation, training and provision for two-way communication, supervision, etc.
These factors also influence motivation. 12
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4. Work Environment : The importance of proper work environment and physical conditions on the
job has been emphasized by industrial psychologists and human engineers. Better work environment
ensures the greatest ease at work through better ventilation and light arrangement, improved safety
devices, reduction in noise, introducing suitable rest-pause, etc.
5. Other Factor: such as (Natural factor, managerial factor, government policy).
PROCEDURE FOR INCREASING PRODUCTIVITY
1. Improving the Existing Method of Plant Operation
2. Purpose of Operation
3. Design of Part
4. Tolerance and Specifications
5. Effective Utilization of Materials
6. Process of Manufacture
7. Set-up and tools
8. Working Conditions
9. Material Handling
10. plant layout By: Dereje B. 13