Productivity Measurement and Improvement Prepared by: Bhakti Joshi Date: November 29, 2012.
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Transcript of Productivity Measurement and Improvement Prepared by: Bhakti Joshi Date: November 29, 2012.
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Productivity Measurement and Improvement
Prepared by: Bhakti JoshiDate: November 29, 2012
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DefinitionProductivity is commonly defined as a ratio of a volume measure of output to a volume measure of input use OR
Productivity = Output Input
Generated from
production or service
Provided to create this
output
The concept of productivity can be applicable to any economy, business (small, medium and large), government and individuals
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Numerical Example 1
Britannia Industries produces 30000 units of biscuits in October and the number of workers employed during this months was 30. These workers normally work 8 hours a day. Calculate the productivity for the month of October.
30000/30 = 1000 units per
labour
OUTPUT
INPUT• Total Hours worked by
workers = 30 workers * 8 hours = 240
• Total working days = 20 days. 4 weeks in a month * 5 working days.
• 240*20 = 4800
30000/4800 = 6.25 units per
worker
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Problem 1: Quarterly Productivity DataParameters Quarter 1 Quarter 2
Unit Selling Price Rs 20 Rs 21
Total Units Sold 10,000 8500
Labor cost/hour Rs 10 Rs 10
Number of employees 15 15
Working hours 10 hour/employee 8 hours/per employee
Labour hours 10*15*20*3 = 9000 hours
8*15*20*3 = 7200 hours
Labour input cost 9000*10=90000 7200*10=72000
Output Value 10000*20 = Rs 200000 8500*21 = 178500
Labour Productivity 200000/90000= 2.22 178500/72000 = 2.48
By what percentage has labour productivity improved or not improved?
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Problem 1: Quarterly Productivity Data (Contd…)
Parameters Quarter 1 Quarter 2
Material Usage 1600 KGs/month 1500 KGs/month
Material Cost Rs 15/KG Rs 15.50/KG
Other Costs Rs 6500/month Rs 5000/month
Materials Input Cost 1600*3*15=72000 1500*3*15.50=69750
Other Inputs Costs 6500*3=19500 5000*3=15000
Total Material and Input Costs
72000+19500= 91500 69750+15000=84750
Material Productivity 200000/91500= 2.18 178500/84750 = 2.11
By what percentage has material productivity improved or not improved?
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Quarterly Productivity Data (Contd…)
• Determine the total productivityParameters Quarter 1 Quarter 2
Output Value 200000 178500
Total Input Cost 90000+91500=181500 72000+84750 =156750
Total Productivity 200000/181500=1.10 178500/156750=1.14
• What about Profit?
By what percentage has material productivity improved or not improved?
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Problem 2
A brewery produces 50,000 bottles of beer each week. The equipment costs are Rs 10000 and will remain productive for 3 years. The annual labour cost is Rs100000. Calculate the total productivity in units of output per rupee of input over a 3 year period
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Problem 2 – SolutionParameters Calculation Result
Total Output Units 50000*52*3 7800000
Machine Input Cost -- Rs 10,000
Labour Input Cost 100,000*3 Rs300000
Total Input Cost 10000+300000 Rs 310000
Total Productivity 7800000/310000 25.2 ORApproximately 25 bottles/Re input
Suppose, the management has an option of Rs 20000 equipment with an operating life of 5 years that reduces labour cost to Rs 40000 per year. Should the management purchase this equipment (using productivity calculation methods)?
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Problem 2 – Solution (Contd…)Parameters Calculation Result
Total Output Units 50000*52*3 7800000
Machine Input Cost -- Rs 20,000
Labour Input Cost 40000*3 Rs 120000
Total Input Cost 20000+120000 Rs 140000
Total Productivity 7800000/140000 55.7 ORApproximately 55 to 56 bottles/Re input
What does this mean?
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Problem 3
WEEK OUTPUT SALES (Rs)
MATERIAL COST (Rs)
LABOUR COST
OVERHEAD COST
TOTAL COST
TOTAL PRODUCTIVITY
1 300 42000 270 2880 4320 7470 5.62
2 338 47320 276 3360 5040 8676 5.45
3 322 45080 276 3360 5040 8676 5.20
4 354 49560 286 3840 5760 9886 5.01
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Productivity Measurement - TypesPartial Factor Productivity
Total Factor Productivity
Multi-Factor Productivity
Labour
Capital
Labour Capital
Capital Labour Energy Materials
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Partial Factor Productivity• Traces labour requirement per unit or • Reflects change in input coefficient of labourPURPOSE
• Ease in measurement and readable• Mostly easy to obtain relevant dataADVANTAGES
• Partial productivity measure• Misinterpreted as technical change or
efficiency/effectiveness of individuals in the labour force
DISADVANTAGES
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Total Factor Productivity• Traces growth in an economy or a business• Includes labour and especially capital that is
representative of mostly infrastructurePURPOSE
• Ease in obtaining data and to understandADVANTAGES
• Other inputs ignored• Net output does not reflect the efficiency of
production system in a proper way• Not representative to technological change
DISADVANTAGES
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Multi-Factor Productivity• Overall changes in a firm/industry• Captures technical change, efficiency,
economies of scale, etcPURPOSE
• Role of intermediate inputs are also included• Measures technical change in an industryADVANTAGES
• Difficult to obtain data on all inputs• Inter-industry linkages and aggregation is
difficult to communicateDISADVANTAGES
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