Techniques for measurement of productivity

TECHNIQUES FOR MEASUREMENT OF PRODUCTIVITY:

ANSHUL AHUJA(MM-662-2K15)Er. SAHIL SHARMA(MM-670-2K15)

Productivity Productivity is the ratio between output and input. It is

quantitative relationship between what we produce and what we have spent to produce.

• Hence, Productivity is , above all, a state of mind-set. It is an

attitude that seeks the continuous improvement of what exist. It is a conviction that one can do better today than yesterday, and that tomorrow will be better than today.

It is the driving force or dynamism behind developing and upgrading the quality of industrial activities.

Productivity=

Productivity

A relation between output generated and input used

A critical determinant of cost efficiency

A method to determine the capacity utilization

A key source of economic growth and

competiveness

Definition

• Productivity increases output.• High productivity results in lower cost per unit of output

resulting in higher levels of profit for a business.• Higher profits for the firm will mean more funds available

for its expansion, new business ventures and community support.

• It may also wish to pass on the benefits of lower costs to consumers in the form of lower prices.

Importance of Productivity

Diff. between Production and ProductivityProduction Productivity

Definition It is defined as the act of manufacturing goods for their use or sale.

it is defined as the rate at which goods are produced.

Use It is the actual process of conversion.

It is the utilization of resources to form goods.

Work done It is the amount of work done or manufactured that is the output.

It is the amount of work one gets for a certain spending cost.

Measurement It is the measure of produced goods.

It is the measure of efficiency.

Important Note!Production is a measure of output only and not a

measure of efficiency

Measurement in Productivity and why ????

•Set overall productivity goals for organization•Raise awareness among employees

Establish productivity management function

•Access your company current performance•Identify the gaps and areas of improvementDiagnose•Set targets and formulate strategy•Implement specificationDevelop road map

Implement measurement system

Implement performance management system

Techniques for Measurement of Productivity:

PRODUCTIVITY

AGGREGATE BASIS

TOTAL PRODUCTIVITY

INDIVIDUAL BASIS

PARTIAL PRODUCTIVITY

OR FACTOR PRODUCTIVITY

Aggregate Basis• On aggregate basis, output is compared with all inputs taken

(added) together. This is called as Total Productivity. Hence,

• Where Total Output=Total production of goods and services and Total Input= Labor + Material + Capital + Energy.

• 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.

Total Productivity Index =

9

10,000 Units Produced

Sold for $10/unit

500 labor hours

Labor rate: $9/hr

Cost of raw material: $30,000

Overhead: $15,500

Example

10

OutputLabor + Materials + Overhead

(10,000 units) * ($10)(500)*($9) + ($30,000) + ($15,500)

TP = 2.0

Example : Total Productivity

TP =

TP =

Individual Basis• On individual basis, output is compared with any one of

the input factor and this is called as Partial Productivity or Factor Productivity.

• Factor productivity or partial productivity indices are of following types:

I. Labor productivityII. Material productivityIII. Machine ProductivityIV. Capital productivity

Labor Productivity

• Labor productivity is simply defined as the ratio of Total output to the Labour input i.e.

• 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 =

Example• 10,000 Units Produced

• Sold for $10/unit

• 500 labor hours

• Labor rate: $9/hr

What is the 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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Example: Labor Productivity

Material productivity 

Machine Productivity• Production system converts raw material into finished

product through mechanical or chemical process with the help of machines and equipment's.

• Machine productivity= or • M.P= • Machine productivity depends upon availability of raw

material, power, skill of workers, machine layout etc.

Capital Productivity• For any production set-up, facilities of machines, tools, land

etc. are required which are assets of organization. Capital is needed for such assets.

• Capital productivity= or• Capital productivity= • Capital productivity depends on how effectively assets are

utilized.

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Training Methods

Technology Management

What are the factors that affect productivity?

Employ Based Technique1. Financial incentives2. Fringe benefits3. Employ promotion4. Job rotation5. Education6. Zero defects7. Quality circle8. Communication9. Working environment10. Punishment 11. Zero defect

Method Of Productivity Improvement

Material Based Technique1. Inventory control2. Material handling system3. Quality control4. MRP5. Material management

Task Based1. Method engineering2. Job evolution3. Human factor engineering4. Job design5. Work measurement

Method Of Productivity Improvement (contd.)

Product Based Technique1. Product diversification2. Product simplification3. Product4. Value analysis5. Research and development

Technology Based1. Computer engineering2. CAD3. CAM4. Electronics data processing5. Robotics6. Group technology

Method Of Productivity Improvement (contd.)

© 2011 Pearson Education, Inc. publishing as Prentice Hall

Improving Productivity at Starbucks

A team of 10 analysts continually look for ways to shave time. Some improvements:Stop requiring signatures on credit card purchases under $25

Saved 8 seconds per transaction

Change the size of the ice scoop

Saved 14 seconds per drink

New espresso machines Saved 12 seconds per shot

© 2011 Pearson Education, Inc. publishing as Prentice Hall

Improving Productivity at Starbucks

A team of 10 analysts continually look for ways to shave time. Some improvements:Stop requiring signatures on credit card purchases under $25

Saved 8 seconds per transaction

Change the size of the ice scoop

Saved 14 seconds per drink

New espresso machines Saved 12 seconds per shot

Operations improvements have helped Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years.Productivity has improved by 27%, or about 4.5% per year.

• To procure raw material at low cost.

• To maintain consistent quality.

• To ensure continuous supply of raw material.

• To minimize the carrying costs and ordering costs.

• To maintain good relationship with supplier.

• Efficient record-keeping and prompt reporting.

• To develop new sources and new materials.

• Training and development of personnel.

Role Of Material Management

• It emphasizes the efficient utilization of all the factors of production which are scarce universally.

• It attempts to eliminate wastage.• It facilitates the comparison of the performance of a company to

its competitors or related firms, in terms of aggregate results and of major components of performance.

• It enables the management to control the performance of the company by identifying the comparative benefits rising out of the use of different inputs.

Advantages of Productivity :

References• Imad Alsyouf, The role of maintenance in improving companies

Productivity & profitability, international journal of production economics 2007; 105; 70-78.

• Flynn B.B., sakakibara, relationship between JIT & TQM: practices and performance. Academy of management journal 1995;38(5) 1325-1360.

• TH Willis, CR Huston, F Pohlkamp, (1993), “Evaluation measure of just-in time supplier performance,” Production and Inventory Management Journal, Vol. 34, No. 2, pp. 1–5.

• Harekrushna Dalai, “Case Studies On Productivity Improvement And Supplier Selection”, B.Tech Thesis, NIT ROURKELA