PAN AFRICAN INSTITUTE FOR DEVELOPMENT – WEST AFRICA

P.O. BOX 133, BUEA, CAMEROON

DEPARTMENT OF BUSINESS AND MANAGEMENT STUDIES

LECTURE NOTE

PRODUCTION IMPROVEMENT PROGRAM

S.D.C: HUMAN RESOURCE MANAGEMENT

By:
NGANG PEREZ MORFAW
670-204-480

BUEA MARCH 2017
INTRODUCTION

The concept of production or manufacturing is more important than ever today, and so will its
importance ever keeps increasing as the days go by. The word ‘manufacturing’ was originally
derived from two Latin words ‘manus’ (hand) and ‘factus’(make), so that the combination
means ‘make by hand’.
In this way manufacturing was accomplished when the word first appeared in English around
1567. Commercial goods of those times were made by hand. The methods were handicraft,
accomplished in small shops and the goods were relatively simple. As many years passed, the
products become more complex along with processes. Thus factories were developed with
many workers at a single site; the work was organized using machines
Modern manufacturing enterprises that manage these production systems must cope with the
economic realities of the modern world. These realities include the following: Globalization,
Trend toward the service sector, International outsourcing, Quality expectations, Local
outsourcing, Operational efficiency, Contract manufacturing and the uncertainty of
customers’ change of taste
The Production function or department is that part of an organization, which is concerned
with the transformation of a range of inputs into the required outputs (products) having the
requisite quality level. Production is defined as “the step-by-step conversion of one form of
material into another form through chemical or mechanical process to create or enhance the
utility of the product to the user.” Thus production is a value addition process. At each stage
of processing, there will be value addition. Edwood Buffa defines production as ‘a process by
which goods and services are created’.
It is said from preliminary studies that production is not yet complete till the goods reaches
the final consumers. Therefore, production function enables the required goods or services to
reach the final consumers. The factors that influence this production has never changed over
time (land, labour, capital and the entrepreneur) but their degree of usage and complexity
coupled with the advent of technology has greatly influenced the pace of manufacturing in the
twenty first century business environment. Thus their rewards remain the same as rent is
being considered the reward for land, wages for labour, interest for capital and profits goes to
the entrepreneur. It is important to note that economic production is based on the concept of
wants and not needs. This is because in contemporary business, exchange is principally done
on the foundation of wants and not needs. So, production is not just a function of your
capacity to produce as much as you can, but it is also a reflection of whether you are
producing wants or needs for the consumers.
From basic economics, we are made to know that needs are the basic necessities for human
survival. This simply means that it does not follow the normal laws of demand and supply in
the market, neither does it respect the individual desires of consumers. Thus once a need
arises, the only remedy for it, is an unconditional satisfaction. For example, when the need for
food arises as a result of true hunger, its satisfaction is not influence by preference for a
particular meal. Other examples of needs are shelter, clothing, transport and even
communication. You cannot say under normal circumstances that you need a means of
communication but want a blackberry phone. That is no longer a need but an expression of
your desire. Need is not a function of desire, rather it is a function of necessity. Thus, we
often hear the famous saying “a beggar has no choice”. Choice is that decision that originates
from the bed rock of desire which influences human behavior to any extend. On the other
hand, production should be based on the platform of wants. This is because wants have the
option of choice imbedded in it. Preliminary studies of economics makes us understand that
wants are considered as the expressions of a choice desire by the consumer of a product. This
means that man by nature has an infinite pool of desires but when he succeeds to make a
decision over a particular desire, it becomes a want, generally considered as his chosen
desire. At this level his decision is not influence by price of the good which he wants.
The above explanations justify the reason why the production function is a very important
aspect in the business of any organization whether for profit or nonprofit. What you produce
has a great role to play in this perspective. This becomes a reason why many African
businesses do not grow fast and may be justified with a high rate of mortality in the new
ventures created in the countries. It is good to copy successful business lines and in fact you
should be smart to that, but mere copying is not sufficient enough to guaranty success in an
environment characterized with fierce competition from both the multinationals and domestic
companies.
So, when we talk of production improvement program, the first question that should come to
our mind is “what are we producing?” it is on the basis of what we produce, that we can find
measures to improve on it. Therefore the focus of this course is centered on two dimensions;
firstly we shall discuss what production is all about and secondly we shall consider measures
of improving on the production.
CHAPTER ONE
THE CONCEPT OF PRODUCTION
Put simple, production is the process of combining units of inputs (natural, man-made and
human resources) to create output (goods and services) capable of satisfying human needs
and wants. It is important to note that, this definition is not limited to the traditional methods
of production characterized by the manufacturing of semi-finished and finished goods from
raw materials. Many people often limit the concept of production to the transformation of
Cocoa from Cameroon to Chocolate in France or the transformation of Banners from
Cameroon to Biscuits from America or the transportation of Timber from Cameroon for
transformation in to chairs, cupboards and tables. This is good, but there exist production in
contemporary society that challenges the traditional style and happens to be the new trend of
global production. From this perspective, production will include works of musicians, the
talents of people, the development of certain places, the organization of events, business
ideas, new style of leadership and many more conventional things which happen on daily
basis, that before now could not considered marketable. In this sense, development becomes
an integral part of production whether personal development or community development.
Over time with research people created new products that beat the imagination of others for
example the self-driving car “Tesla and Google Car” created in America. Production could
equally be seen at the level of consistent training people under go become super stars in their
respective fields of professionalization. For example Eto’o in Football, Michael Jackson in
pop music, Lucky Dube in reggae music, Nelson Mandela in Leadership and the example
continues with most recently the Obama style of leadership copied as the model all over the
world. People pay extremely high prices to consume the products of these super stars,
especially at the level of the entertainment industry. The entertainment industry has risen to
become one of the most dynamic sectors in emerging as well as transition economies. It is
characterized by modern and sophisticated services offered by theses countries ranging from
football, wrestling, and home videos to cultural festivals. Furthermore, production could also
be seen at the level of community development in specific areas of the World with super
impose gigantic technological structures which attracts a high percentages of visitors as
tourist. For example Dubai down town City, Las Vegas, Beijin and many more.
From this perspective, production will involve the tangible as well as intangible goods.
Tangible goods are the ones which can be touched or seen whereas the intangible are those
which cannot be seen, for example services. In the transformation process, the inputs change
the form into an output, by adding value to the entity. The output may be a product or service.
If it is a product centric output, it is known as production. If it is a service centric output then
it is known as operation.

THE PRODUCTION SYSTEM
The production system of an organization describes the process by which goods and services
are being made available to the customer either in the semi-finished form or in the finished
form. It brings out the procedure of activities whereby resources, flowing within a defined
system, are combined and transformed in a controlled manner to add value in accordance
with the policies communicated by management. A simplified production system is shown
below
Inputs Transformation Process Outputs
Men Product design Products
Material Process Planning Services
Machine Production Control
Information Maintenance
Capital

Continuous
Inventory
Quality
Cost
Environment
Feedback Information
Fig. 1. Schematic production system

The production system has the following characteristics:
1. Production is an organized activity, so every production system has an objective.
2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization system.
4. There exists a feedback about the activities, which is essential to control and improve
system performance.
CLASSIFICATION OF PRODUCTION SYSTEMS
Production systems can be classified as Job Shop, Batch, Mass and Continuous Production
systems
A. Job Shop Production
Jobbing production may also be called unique production or job production. With jobbing
production, products are produced according to customer‘s specifications or requirements.
Most of the products are produced to forward to a particular customer or to a particular order.
This system of production requires high level of skilled labour, modern production planning
system, and needs to be very flexible since the demand of customers keeps on changing.
Examples of industries that use job production include ship building industries, and bridge
construction industries.
A job shop comprises of general purpose machines arranged into different departments. Each
job demands unique technological requirements, demands processing on machines in a
certain sequence.
Characteristics
The Job-shop production system is followed when there is:
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each product, capacities
for each work centre and order priorities.
Advantages
Following are the advantages of job shop production:
1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning
opportunities.
3. Full potential of operators can be utilised.
4. Opportunity exists for creative methods and innovative ideas.
Limitations
Following are the limitations of job shop production:
1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Larger space requirements.
B. Batch Production
Batch production is defined by American Production and Inventory Control Society (APICS)
“as a form of manufacturing in which the job passes through the functional departments in
lots or batches and each lot may have a different routing.” It is characterised by the
manufacture of limited number of products produced at regular intervals and stocked awaiting
sales.
Characteristics
Batch production system is used under the following circumstances:
1. When there is shorter production runs.
2. When plant and machinery are flexible.
3. When plant and machinery set up is used for the production of item in a batch and change
of set up is required for processing the next batch.
4. When manufacturing lead time and cost are lower as compared to job order production.
Advantages
Following are the advantages of batch production:
1. Better utilisation of plant and machinery.
2. Promotes functional specialisation.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.
Limitations
Following are the limitations of batch production:
1. Material handling is complex because of irregular and longer flows.
2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous production.
4. Higher set up costs due to frequent changes in set up
C. Flow, Line, Mass Production
This is a production method in which production is carried out in large quantity or in
large scale to meet continues supply. Flow production is the most efficient way of producing
large quantities of articles or items. Manufacture of discrete parts or assemblies using a
continuous process could still be called mass production. This production system is justified
by very large volume of production. The machines are arranged in a line or product layout.
Product and process standardisation exists and all outputs follow the same path.
Characteristics
Mass production is used under the following circumstances:
1. Standardisation of product and process sequence.
2. Dedicated special purpose machines having higher production capacities and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.
Advantages
Following are the advantages of mass production:
1. Higher rate of production with reduced cycle time.
2. Higher capacity utilisation due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.
Limitations
Following are the limitations of mass production:
1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.
D. Continuous Production
Production facilities are arranged as per the sequence of production operations from the first
operations to the finished product. The items are made to flow through the sequence of
operations through material handling devices such as conveyors, transfer devices, etc.
Characteristics
Continuous production is used under the following circumstances:
1. Dedicated plant and equipment with zero flexibility.
2. Material handling is fully automated.
3. Process follows a predetermined sequence of operations.
4. Component materials cannot be readily identified with final product.
5. Planning and scheduling is a routine action.
Advantages
Following are the advantages of continuous production:
1. Standardisation of product and process sequence.
2. Higher rate of production with reduced cycle time.
3. Higher capacity utilisation due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
5. Person with limited skills can be used on the production line.
6. Unit cost is lower due to high volume of production.
Limitations
Following are the limitations of continuous production:
1. Flexibility to accommodate and process number of products does not exist.
2. Very high investment for setting flow lines.
3. Product differentiation is limited.

The classification of the different types of production systems can be seen below on the
diagram

Figure 2: Product Flexibility vs Product Variety
CHAPTER TWO
PRODUCTION MANAGEMENT
Production management is a process of planning, organizing, directing and controlling the
activities of the production function. It combines and transforms various resources used in the
production subsystem of the organization into value added product in a controlled manner as
per the policies of the organization.
E.S. Buffa defines production management as, “Production management deals with decision
making related to production processes so that the resulting goods or services are produced
according to specifications, in the amount and by the schedule demanded and out of
minimum cost.”
OBJECTIVES OF PRODUCTION MANAGEMENT
The objective of the production management is ‘to produce goods services of right quality
and quantity at the right time and right manufacturing cost’.
1. Right Quality
The quality of product is established based upon the customers’ needs. The right quality is not
necessarily best quality. It is determined by the cost of the product and the technical
characteristics as suited to the specific requirements.
2. Right Quantity
The manufacturing organization should produce the products in right number. If they are
produced in excess of demand the capital will block up in the form of inventory and if the
quantity is produced in short of demand, leads to shortage of products.
3. Right Time
Timeliness of delivery is one of the important parameter to judge the effectiveness of
production department. So, the production department has to make the optimal utilization of
input resources to achieve its objective.
4. Right Manufacturing Cost
Manufacturing costs are established before the product is actually manufactured. Hence, all
attempts should be made to produce the products at pre-established cost, so as to reduce the
variation between actual and the standard (pre-established) cost.
PRODUCTION POLICY
The production policy clearly spells out the road map or guideline on how the activities of the
production department are supposed to be carried out. The following must be taken into
consideration when designing a production policy.
• The volume of the product: The quantity of products to be produced at any given
point in time must be clearly stated in the production policy.
• The design of the product: The product design in terms of package, colour, shape etc.
must be stated in the production policy.
• Labour requirement: The amount of skilled, semi-skilled and unskilled labour needed
for production must be stated in the production policy.
• Production control: The methods, in which the firm will control the efficiency of
labour and quality control, must be specified when designing a production policy.
• Production planning: The following must be taken in to consideration under
production planning;
• Machine. The type of machine needed for production must be clearly stated in the
production policy.
• Material: The type of material needed to produce a particular product must be stated
in the policy
STAGES OF PRODUCT DEVELOPMENT
The phases of product development are progressions. These are activities carried out in the
product development phase with regard to the different departments in the organization is
explained.
Phase 0: Planning
Planning phase is referred as phase zero; precedes the project approval and launch of actual
product development process. The output of this phase is the project mission statement which
specifies the target market for the product, business goals, key assumptions and constraints.
Phase 1: Concept Development
In Concept development, needs of the target market is identified, alternative product concepts
are generated and evaluated, and one or more concepts are selected for further development
and testing.

Phase 2: System-Level design
System level design includes product architecture and decomposition of products into sub-
systems and components.
- Final assembly of the product is decided
- Geometric layout of the product
- Functional specification of each of the layout sub-system
- Preliminary process flow diagram for final assembly process
Phase 3: Design Detail
Complete specification of the geometry, materials, and tolerances of all the unique parts in the
product.
- Identification of standard parts
- Tooling is designed
Phase 4: Testing and Refinement
Construction and evaluation of multiple pre-production versions of the product
- Will product work?
- Whether product satisfies customer needs
Phase 5: Production Ramp-up
- Train the work force
- Work out remaining problems
- Products supplied to preferred customers and evaluated.

PRODUCTION PLANNING AND CONTROL
Production planning and control can be defined as the process of planning the production in
advance, setting the exact route of each item, fixing the starting and finishing dates for each
item, to give production orders to shops and to follow up the progress of products according
to orders.
The principle of production planning and control lies in the statement ‘First Plan Your Work
and then Work on Your Plan’. Main functions of production planning and control includes
planning, routing, scheduling, dispatching and follow-up.
Planning is deciding in advance what to do, how to do it, when to do it and who is to do it.
Planning bridges the gap from where we are, to where we want to go. It makes it possible for
things to occur which would not otherwise happen.
Routing may be defined as the selection of path which each part of the product will follow,
which being transformed from raw material to finished products. Routing determines the
most advantageous path to be followed from department to department and machine to
machine till raw material gets its final shape.
Scheduling determines the programme for the operations. Scheduling may be defined as ‘the
fixation of time and date for each operation’ as well as it determines the sequence of
operations to be followed.
Dispatching is concerned with the starting the processes. It gives necessary authority so as to
start a particular work, which has already been planned under ‘Routing’ and ‘Scheduling’.
Therefore, dispatching is ‘release of orders and instruction for the starting of production for
any item in acceptance with the route sheet and schedule charts’.
The function of follow-up is to report daily the progress of work in each shop in a prescribed
proforma and to investigate the causes of deviations from the planned performance.
QUALITY CONTROL
Quality Control (QC) may be defined as ‘a system that is used to maintain a desired level of
quality in a product or service’. It is a systematic control of various factors that affect the
quality of the product. Quality control aims at prevention of defects at the source, relies on
effective feedback system and corrective action procedure.
Quality control can also be defined as ‘that industrial management technique by means of
which product of uniform acceptable quality is manufactured’. It is the entire collection of
activities which ensures that the operation will produce the optimum quality products at
minimum cost.
The main objectives of quality control are:
 To improve the companies income by making the production more acceptable to the
customers i.e., by providing long life, greater usefulness, maintainability, etc.
 To reduce companies cost through reduction of losses due to defects.
 To achieve interchangeability of manufacture in large scale production.
 To produce optimal quality at reduced price.
 To ensure satisfaction of customers with productions or services or high quality level,
to build customer goodwill, confidence and reputation of manufacturer.
 To make inspection prompt to ensure quality control.
 To check the variation during manufacturing.
MATERIALS MANAGEMENT
Materials management is that aspect of management function which is primarily concerned
with the acquisition, control and use of materials needed and flow of goods and services
connected with the production process having some predetermined objectives in view.
The main objectives of materials management are:
 To minimise material cost.
 To purchase, receive, transport and store materials efficiently and to reduce the related
cost.
 To cut down costs through simplification, standardisation, value analysis, import
substitution, etc.
 To trace new sources of supply and to develop cordial relations with them in order to
ensure continuous supply at reasonable rates.
 To reduce investment tied in the inventories for use in other productive purposes and
to develop high inventory turnover ratios.
MAINTENANCE MANAGEMENT
In modern industry, equipment and machinery are a very important part of the total
productive effort. Therefore, their idleness or downtime becomes are very expensive. Hence,
it is very important that the plant machinery should be properly maintained.
The main objectives of maintenance management are:
1. To achieve minimum breakdown and to keep the plant in good working condition at the
lowest possible cost.
2. To keep the machines and other facilities in such a condition that permits them to be used
at their optimal capacity without interruption.
3. To ensure the availability of the machines, buildings and services required by other
sections of the factory for the performance of their functions at optimal return on investment.
CHAPTER THREE
THE PRODUCT CONCEPT

Production starts with the idea of the product. It recognizes that in a consumer democracy
society, money is considered as votes and they are cast daily. However, to win those votes
you need to offer either a better product at the same price or the same product at a lower price
than your competitors. Price is objective and tangible but what is ‘a better product’? Only one
person can tell you – the consumer. It follows, therefore, that a product development starts
and ends with consumers and requires one to make what one can sell rather than struggle to
sell what one can make. But production is not a philanthropic exercise in which producers
give away their goods. Producers are entitled to profits and the more value they add and the
greater the satisfaction they deliver, the more the customer will be prepared to pay for this
greater satisfaction. Production therefore is all about mutually satisfying exchange
relationships for which the catalyst is the producer’s attempt to define and satisfy the
customer’s need better.

The Total Product Concept
To survive and thrive, a business must consistently provide products that provide value and it
must be the requirements of its customers. Products must also be attractive to customers. This
means that in the modern business environment, it is wrong to think of products only as
physical objects.
People buy products because of what they can do. “When people buy drills, they want holes”.
When people buy air tickets, its because they want to travel. When people buy Tangui,
because they want to quench their thirst. So therefore, the product itself is useless if it does
not satisfy the reason for which it was bought.
In this sense, it is important to think of a product in terms of its attributes which can be
tangible and intangible
Tangible Attributes of Products
 Availability and delivery
 Performance
 Price
 Design, (the size, the shape and the colour)

Intangible Attributes of Products
 Image
 Perceived Value (quality)
The Nature of a Product
When we talk of the nature of a product, we are looking at the totality of a product from its
conception to its final consumption and what constitute the different aspect of the product.
There are a number of layers to the concept of a total product. The diagram below shows that
a product is made of three dimensions of different specifications. You have what they called
the core product, the actual product and the extended product.

Extended Product: After sales service,
guarantee,

Actual Product Features, ingredients,
design, packaging, color, etc

Core Product, Functionality
Key Benefits

Product Augmentation: Building on
the benefits of the core product to
increase attractiveness and customer
satisfaction

Fig: 3 Demonstrates the Nature of a Product
The core describes what the product was designed to produce. Therefore, a coffee making
machine, will make coffee, an ice cream machine will make ice cream and an oven will bake.
In this sense, a phone will make a call, a car will facilitate transport and a watch will tell the
time.
However, the actual product demonstrates a more complicated nature of a product. It does not
only layout the basic nature of the product, but it goes to introduce advance features to the
core features of a product giving it a sense of worth and social status. Therefore the actual
features or product will be augmenting the core product with additional elements aimed at
building the reputation and trust associated with it. So, a basic coffee maker may come in
various shapes, designs and colours. It may not only be limited in the making of coffee but
more complex ones may extend to its preservation with a chronometer to show you the time
and date as well.
Finally, the extended product or extended features, describes the customer’s service
requirements accompanying the product before, during and after purchase is made. For
example the installation of a technical product, door-to-door service for inter-urban transport
agencies, come back offer should the product is not working perfectly well. All these are
called after sale services.
Therefore, a complete product demonstrates the core features, the actual features as well as
the extended features. The actual features or advanced features of products has been
responsible for what is called product improvement or production improvement. This is
because the core product remains the same over time, but what changes now become the
advance features due to consumer’s preferences for different styles, performance, colours and
taste.
Classifying Products
We can classify products according to expected buyers, who fall into two groups: buyers of
consumer products and buyers of organizational products. Similarly, making products to
consumers is vastly different from making products to companies and other organizations.
Classifying Consumer Products: Consumer products are commonly divided into three
categories that reflect buyer behavior: convenience goods and services, shopping goods and
services, and specialty goods and services. These are outlined in the table below
Classifying Organizational Products: Depending on how much they cost and how they will be
used, organizational products can be divided into three categories: production items, expense
items, and capital items. These are explained in the tables below

Categories of Consumer Products
Category Description Examples
Convenience goods • Consumed rapidly
and services and regularly • Milk
• Inexpensive • Newspaper
• Purchased often and • Fast food
with little input of time
and effort
Shopping goods and • Purchased less often • Television set
services • More expensive • Tires
• Consumers may • Car insurance
shop around and compare
products based on style,
performance, color,
price, and other criteria.
Specialty goods and • Purchased • Jewelry
services infrequently • Wedding gown
• Expensive • Catering
• Consumer decides
on a precise product and
will not accept substitutions
and spends a
good deal of time choosing
the “perfect” item

Categories of Organizational Products
Category Description Examples
Production items Goods or services used -Loads of tea processed into
directly in the production tea bags
process -Information processing for
real-time production
Expense items Goods or services that are •Oil and electricity for
consumed within a year by machines
firms producing other goods •Building maintenance
or supplying other services •Legal services
Capital items • Permanent (expensive and • Buildings (offices,
long lasting) goods and factories)
services •Fixed equipment (water
• Life expectancy of more towers, baking ovens)
than a year •Accessory equipment
•Purchased infrequently so (computers, airplanes)
transactions often involve
decisions by high-level
managers

The Product Mix
The group of products that a company makes available for sale, whether consumer, industrial,
or both, is its product mix. Brasseries, for example, makes Exports, Tuborg, Manyang, and a
variety of beers. Source du Pays makes everything concerning soft drinks.
Product Lines: Many companies begin with a single product. Over time, they find that the
initial product fails to suit every customer shopping for the product type. To meet market
demand, they introduce similar products—such as flavored coffees and various roasts—
designed to reach more customers. For example, Starbucks stores expanded the line of
coffees by adding various Italian-style espresso beverages that include mochas, cappucinos,
and lattes—hot and iced—and flavored blended cremes.
A group of products that are closely related because they function in a similar manner (e.g.,
flavored coffees) or are sold to the same customer group (e.g., stop-in coffee drinkers) who
will use them in similar ways is a product line. Companies may extend their horizons and
identify opportunities outside existing product lines. The result—multiple (or diversified)
product lines—is evident at Starbucks. Beyond just serving beverages to customers at coffee
bars, Starbucks has lines of home-brewing equipment, supermarket products, music products,
and industry services. Multiple product lines allow a company to grow rapidly and can help
offset the consequences of slow sales in any one product line.
The Product Mix
The group of products that a company makes available for sale, whether consumer, industrial,
or both, is its product mix. Brasseries, for example, makes Exports, Tuborg, Manyang, and a
variety of beers. Source du Pays makes everything concerning soft drinks.
Product Lines: Many companies begin with a single product. Over time, they find that the
initial product fails to suit every customer shopping for the product type. To meet market
demand, they introduce similar products—such as flavored coffees and various roasts—
designed to reach more customers. For example, Starbucks stores expanded the line of
coffees by adding various Italian-style espresso beverages that include mochas, cappucinos,
and lattes—hot and iced—and flavored blended cremes.
A group of products that are closely related because they function in a similar manner (e.g.,
flavored coffees) or are sold to the same customer group (e.g., stop-in coffee drinkers) who
will use them in similar ways is a product line. Companies may extend their horizons and
identify opportunities outside existing product lines. The result—multiple (or diversified)
product lines—is evident at Starbucks. Beyond just serving beverages to customers at coffee
bars, Starbucks has lines of home-brewing equipment, supermarket products, music products,
and industry services. Multiple product lines allow a company to grow rapidly and can help
offset the consequences of slow sales in any one product line.
CHAPTER FOUR
THE PRODUCT LIFE CYCLE AND BREAK EVEN ANALYSIS
THE PRODUCT LIFE CYCLE
A product is introduced among consumers, and if consumers perceive it as
meeting their needs and want, it experiences a period of growth. Subsequently,
it reaches the stage of maturity and when it loses its appeal, its decline starts and
eventually is may be taken off the market (demise). The classical product life
cycle curves are depicted as “S” shaped and generally divided in four stages:
Introduction, growth, maturity, and decline.

Introduction Stage
The introductory stage is viewed as fairly risky and quite expensive because
large amounts of money is spent on advertising and other tools of marketing
communications to create consumer awareness in sufficiently large numbers,
and encourage trial.
3D Televisions: 3D may have been around for a few decades, but only after
considerable investment from broadcasters and technology companies are 3D
TVs available for the home, providing a good example of a product that is in the
Introduction Stage.
Growth Stage
The growth stage of life cycle is characterised by a sharp rise in sales. Only a
small percentage of new products introduced survive to reach the growth stage.
Tablet PCs: There are a growing number of tablet PCs for consumers to choose
from, as this product passes through the Growth stage of the cycle and more
competitors start to come into a market that really developed after the launch of
Apple’s iPad. Another example is NANO car.

Maturity Stage
Most products after surviving competitive battles, winning customer confidence
and successful through growth phase enter their maturity stage. The sales
plateau, and this flattening of sales usually lasts for some time because most
products in the category have reached their maturity stage, and there is stability
in terms of demand, technology, and competition.
Laptops: Laptop computers have been around for a number of years, but more
advanced components, as well as diverse features that appeal to different
segments of the market, will help to sustain this product as it passes through the
Decline Stage
Decline stage sets in when customer preferences change due to the
availability of technologically superior products and consumers’ shift in
values, beliefs, and tastes to products offering more value.
Implications and Limitations of Product Life Cycle Concept
Product life cycle concept shows a framework to spot the occurrence of
opportunities and threats in a product market and the industry. This can help
firms to reassess their objectives, strategies, and different elements of marketing
programme.

DEFINITION
“Breakeven point (BEP) is the point at which cost or expenses and revenue are
equal”. There is no net loss or gain. All cost that need to be paid by the firm are
paid but the profit remains “zero”
Break Even Point (IN UNIT)= Fixed Cost /S. Price- Variable Unit Cost
Break Even Point (in Rs)=Fixed Cost/ S. Price-Variable unit Cost*Units
Example:
XYZ co. ltd
1000 tables ( break even)
More than 1000 tables( profit )
Less than 1000 tables(loss)
Alternate option
Try to reduce the fixed costs (by renegotiating rent for example, or keeping
better control of telephone bills or other costs)
Try to reduce variable costs (the price it pays for the tables by finding a
new supplier)

Increase the selling price of their tables

PURPOSE
The purpose of break-even analysis is to provide a rough indicator of the
earnings impact of a marketing activity.
The break-even point is one of the simplest yet least used analytical tools in
management.
It helps to provide a dynamic view of the relationships between sales, costs, and
profits
The break-even point is a special case of Target Income Sales where Target
Income is 0 (breaking even).
This is very important for financial analysis.
CHAPTER FIVE
THE CONCEPT OF PRODUCTIVITY

Before we make some progress into the concept of productivity, it is important to establish
the distinction that exist between production and productivity. Many people often, are
confused between what is production? And what is productivity? In this context, we shall
differentiate both to some extent.

The Notion of Production and Productivity
Put simple, when we talk of production, we are referring to the actual process of
manufacturing or creating goods and services from raw materials in to finished or semi-
finished goods for the satisfaction human wants. Whereas productivity looks at an increase of
output from each unit in the production process. Therefore for simple understanding,
production is all about the manufacturing of goods and services while productivity, is all
about improving on what has been produced or improving on the production process for
higher out. In this perspective, we can improve on the quantity of what has to be produced,
the quality of what has to be produced, the price of what has to be produced and many other
aspects. Productivity becomes vast because it extends to even the people who produce the
goods and services. It evaluates the nature of work apportioned to each employee, the
proportion of work load to each employee, the work environment of employees and even the
motivation for work towards employees. So the concept of production improvement is based
on the foundations of not only increasing output but also taking into consideration the quality
of the increased output.
For example high productivity results in low cost per unit of output leading to higher levels of
profit for a business. With this notion in mind, if in a factory all things being equal a worker
can produce 10 items in an hour and he subsequently produces 20 units in the same hour
after some training. His productivity has doubled and the business will benefit from a fall in
unit cost as more units are being produces at the same costs of production. But take note that,
his productivity doubled after training all things being equal. The training aspect
demonstrates the notion of the price paid for increase in output. This simply means
productivity comes with a price. It is not just sufficient to say I want to increase the output of
my company for 10,000 units to 20,000 units. It requires you to evaluate the cost involved,
the risk involved and the benefits as well.
As we are going to see further in the lectures, there are different ways to go about improving
your actual level of production personally or collectively or on behalf of the employees as
manager or human resource manager. Diverse techniques for this process exist, but what
ought to be the interest of the Human Resource manager? His focus should be on what is best
method of improving on the production level of his employees and secondly what is the price
required for this improvement. The reason is; Not because company ’A’ used a certain type of
improvement strategy and it worked for the employees then that should becomes a reason for
company ‘B’ to adopt the same improvement strategy. Even if the companies are in the same
industry, producing similar goods or substitute goods, it is not sufficient enough to copy an
improvement strategy taken by another company without making a good analysis. Secondly,
the analysis will inform the manager or the human resource manager on the cost or the price
to get that improvement strategy operational in his/her company.

Defining Productivity
Productivity represents the relationships between inputs and outputs in the production
process. As a practical concept, productivity helps define both the scope for raising living
standards and the competitiveness of an individual worker, company or economy.
Productivity has, therefore, an increasing role in formulating and assessing government
policy.
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. Productivity denotes relationship between output and one or all
associated inputs. European Productivity Council states that „Productivity is an attitude of
mind. It is a mentality of progress of the constant improvement of that which exists. It is
certainty of being able to do better than yesterday and continuously. It is constant adoption of
economic and social life to changing conditions. It is continual effort to apply new techniques
and methods. It is faith in human progress‟. In the words of Peter Drucker productivity means
a balance between all factors of production that will give the maximum output with the
smallest effort. On the other hand, according to International Labour Organisation
productivity is the ratio between the volume of output as measured by production indicates
and the corresponding volume of labour input' as measured by production indices and the
corresponding volume of labour input as measured by employment indices. This definition
applies to an enterprise, industry or an economy as a whole.
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 (labour), 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 labour, alternatively, it means same amount is produced at less cost in terms of land,
materials, machine time or labour that is utilized.

In countries where capital and skill are short, while unskilled labour is plentiful and poorly
paid, it is especially important that higher productivity (improved) should be looked for by
increasing the output per machine or piece of plant or per skilled worker. Improving
productivity means increasing or raising productivity with the help of using same amount of
materials, machine time, land, labour or technology. The following examples of each type of
productivity may make improved or higher productivity meaning clearer.
1. Improved productivity of land:

If by using better seed, better methods of cultivation and more fertilizer, the yield of corn
from a particular hectare of land can be increased from 4 quintals to 6 quintals, the
productivity of that land, in the agricultural sense is increased (improved) by 50 percent. The
productivity of land used for industrial purposes is said to have been increased if the output of
goods or services within that area of land is increased by whatever means.

2. Improved productivity of materials:

A skilled tailor is able to cut 12 suits from a bale of cloth where an unskilled labour is able to
cut only 10 suits from a bale of cloth, then the productivity of the bale used by skilled worker
is 16.6 percent greater than unskilled labour.

3. Improved productivity of machines:

A machine tool is producing 90 pieces per working day (i.e. 8 hours). Considering that
through the use of improved cutting tools, the output is increased to 120 pieces, then the
productivity of that machine will be increased by 33.33 percent.

4. Improved productivity of Men (Labour):

The worker is producing 32 plates per hour. Considering that with the improved methods of
work, he will be able to produce 42 plates per hour, then productivity of worker will be
improved by 31.25 percent.
Thus it can be said that more output results into higher productivity or improvement from
same amount of resources which means lower money costs and higher net money returns per
unit of output.

Another productivity concept known as Japanese Holistic View of Productivity explains
productivity as a comprehensive holistic phenomenon encompassing all elements required to
improve products/ services (output). Productivity in the future must be concern itself with
seeking affluence of a kind which will provide people with material wealth as well as
spiritual satisfaction. Also the outputs particularly in the form of physical pollution must be
controlled in the context of increasing concern of society for clean environment and
sustainable development. To improve productivity products must be designed to satisfy
customer need with optimum consumption of resources without generation of waste in the
manufacturing process. The following Figure 4.1 represents clearly Japanese Holistic View of
Productivity.

Japanese Holistic View of Productivity Concept

Physical
goods and Customer Q
services Satisfaction U
produced A
L
Output I
T
Resource Processed Impact Y
Pollutants on
Generated
Reflected By L
Quality I
Employee of F
Satisfaction Work Life e

Source: Shivalingaiah B.K., ‘Labour Productivity through Method study’, IIT
Bombay, 1995.

HOW TO MEASURE

Productivity is the relationship between the quantity of output and the quantity of input used
to generate that output. It is basically a measure of the effectiveness and efficiency of your
organization in generating output with the resources available.
Productivity is defined as a ratio of output to input:
OUTPUT
PRODUCTIVITY =
INPUT

Essentially, productivity measurement is the identification and estimation of the appropriate
output and input measures.
Measures of Output: Output could be in the form of goods produced or services rendered.
Output may be expressed in:
Physical quantity or financial value:
Physical Quantity: At the operational level, where products or services are homogeneous,
output can be measured in physical units (e.g. number of customers served, number of books
printed). Such measures reflect the physical effectiveness and efficiency of a process, and are
not affected by price fluctuations.
Financial Value: At the organization level, output is seldom uniform. It is usually measured in
financial value, such as the following: Sales, Production value (i.e. sales minus change in
inventory level), Value added
Measures of Input
Input comprises the resources used to produce output. The most common forms of input are
labour and capital. Labour refers to all categories of employees in an organisation. It includes
working directors, proprietors, partners, unpaid family workers and part-time workers.
Labour can be measured in three ways:
1) Number of hours worked: This measure reflects the actual amount of input used. It
excludes hours paid but not worked (e.g. holidays, paid leave).
2) Number of workers engaged: This measure is more commonly used, as data on hours
worked may not be readily available. Part-timers are converted into their full-time equivalent.
An average figure for a period is used, as the number of workers may fluctuate over time.
3) Cost of labour: Labour costs include salaries, bonuses, allowances and benefits paid to
employees.
Capital
Capital refers to physical assets such as machinery and equipment, land and buildings, and
inventories that are used by the organisation in the production of goods or provision of
services. Capital can be measured in physical quantity (e.g. number of machine hours) or in
financial value, net of depreciation to account for the reduced efficiency of older assets.
Intermediate Input: Major categories of intermediate input include materials, energy and
business services. Such input can be measured in physical units (e.g. kilogrammes, kilowatt
per hour) or financial units (e.g. cost of energy and materials purchased).
Productivity Indicators: Productivity indicators measure the effectiveness and efficiency of
a given input in the generation of output. Labour productivity and capital productivity are
examples of productivity indicators.
Labour Productivity: Labour productivity, defined as value added per worker, is the most
common measure of productivity. It reflects the effectiveness and efficiency of labour in the
production and sale of the output.
Capital Productivity: Capital productivity measures the effectiveness and efficiency of
capital in the generation of output. It is defined as value added per dollar of capital. Capital
productivity results from improvements in the machinery and equipment used, as well as the
skills of the labour using the capital, processes, etc.
Techniques for Measurement of Productivity:
Productivity has been defined as the ratio of output to input. An increase in productivity
means an increase in output that is proportionally greater than increase in input.
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
is called as partial productivity or factor productivity.

Total productivity index  Total output  Total production of goods and services
Total inputs Labour + 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.
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.
Any productivity measurement system should produce some sort of overall index of
productivity. A smart measurement program combines productivity measurements into an
overall rating of performance. This type of system should be flexible in order to
accommodate changes in goals and policies over time. It should also have the ability to
aggregate the measurement systems of different units into a single system and be able to
compare productivity across different units.
The ways in which input and output are measured can provide different productivity
measures. Disadvantages of productivity measures have been the distortion of the measure by
fixed expenses and also the inability of productivity measures to consider quality changes
(e.g., output per hour might increase, but it may cause the defect rate to rise). It is easier to
conceive of outputs as tangible units such as number of items produced, but other factors
such as quality should be considered.
Experts have cited a need for a measurement program that gives an equal weight to quality as
well as productivity. If quality is included in the ratio, output may have to be defined as
something like the number of defect-free units of production or the number of units which
meet customer expectations or requirements. Therefore, it is very much essential to
understand different techniques of measuring the productivity and its improvement. In
practice, there are multiple productivity improvement techniques. Section 3.5 explains some
of the important techniques for measurement of productivity. They are discussed briefly as
follows:
Productivity Improvement Indices:

Factor productivity or partial productivity indices are of following types:

i) Labour productivity: The important function in any production set-up is that
the budgeted quantity of work must be achieved over a period of time. Labour
productivity depends upon how labours are utilised. Labour 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. Labour
productivity can be measured in terms of hours or money.
Total output
Labour productivity 
Labour input

Total quantity produced
Labour productivity (in terms of hours)  Actual man hours required to produce that quatity

Labour productivity (in terms of money)  Total cost (or sales value) of output
produced Amount in terms of rupees spent on workers

The productivity of labour can be increased by increasing efficiency of labour and reducing
labour time.

ii) Material productivity: Production system converts raw material into finished
product with the help of mechanical or chemical processes. Material
productivity plays important role in cost of production. Material productivity
depends upon how material is effectively utilised in its conversion into finished
product. Material productivity depends upon percentage of rejection, creation of
scrap, level of spoilage, obsolescence, work wastage etc. Material productivity
is expressed as:

Total output
Material productivity  or
M aterial input

Number of units produced
M aterial productivity 
Total material cost

Material productivity can be increased by using skilled workers, adequate machine tools,
good design of product etc.

iii) Machine Productivity: Production system converts raw material into finished
product through mechanical or chemical process with the help of machines and
equipments. Machine productivity depends upon availability of raw material,
power, skill of workers, machine layout etc.

M aterial productivity  Total output or
M aterial input

Outputin standard hours
M aterial productivity 
Actual machine hours

iv) Capital productivity: For any production set-up, facilities of machines, tools,
land etc. are required which are assets of organisation. Capital is needed for such
assets. As huge capital is locked in assets, their effective utilization is absolutely
necessary. Capital productivity depends on how effectively assets are utilised.
Therefore decision is necessary to take about replacement of fixed assets. Early
replacement of fixed assets brings down maintenance cost but requires capital
expenses. On the other hand, late replacement of fixed assets improves ratio of
production to capital expenditure, but it increases maintenance cost. Therefore
proper balance is necessary. Organaisation spent large amount (direct expenditure)
for assets like direct material, direct wages, land, building, equipment etc. But a
production system incurs a lot of direct expenditure like salaries of manpower
employed in planning, store keeping, record keeping, inspection etc. Indirect
labour is also used for material movement, good housekeeping, cleaning etc.
Indirect expenditure is incurred on indirect material like tools, oils, lubricant etc.
Capital productivity  Total output or Capital productivity  Total output
Capital input Capital employed

JAPANESE PRODUCTIVITY IMPROVEMENT TECHNIQUES:

Productivity improvement techniques can be applied effectively in enterprises of any size,
from one-person companies to corporations with thousands of staff. Japan developed number
of productivity improvement techniques after World War II .The TPS comprises the following
productivity improvements components. Toyota, a giant Japanese automobile company was
pioneer in development and application of various productivity improvement techniques
under Toyota Production System (TPS). Taiichi Ohno developed the Toyota Production
System (TPS) after World War II. Some of the selected Japanese Productivity Improvement
5
techniques are presented in this section as below :

A) JIDOKA:

Jidoka is a Toyota concept aimed at describing the man-machine interface such that people
remain free to exercise judgment while machines serve their purpose. The jidoka system
shows faith in the worker as a thinker and allows all workers the right to stop the line on
which they are working. Jidoka is often referred to as „automation with a human mind‟. The
jidoka way of working consists of following three principles- Do not make defects, Do not
pass on defects, Do not accept defects.

B) HEIJUNKA

Heijunka focuses on achieving consistent levels of production. It is defined as „distributing
the production of different [body types] evenly over the course of a day‟ It incorporates the
principles of line balancing by attempting to equate workloads, leveling demand out by
creating an inventory buffer and replenishing that buffer. It believes in providing even work
load for all employees. Heijunka has the capability of reducing lead times by minimizing time
losses due to frequent process changeovers.
C) KAIZEN Techniques:

Kaizen (Continuous improvement) is a management supported employee driven process
where, employees make a great number of continuous improvement efforts.

i) Five Ss of Housekeeping:

A structured approach to achieve clean and orderly work place by fixing place for everything.
Five Ss is an abbreviation for the Japanese words: Seiri, Seiton, Seiso, Seiketsu and Shitsuke.
It means:

Seiri- getting rid of unnecessary items

Seiton- Arranging items (materials, tools, gauges) systematically for easy retrievability.

Seiso- Keeping work place scrupulously clean.

Seiketsu - Scheduling regular cleaning and clearing out operations.

Shitsuke - Making all the above task meet agreed standards at agreed intervals.

(ii) Muda elimination:

Muda means „Waste‟. Here muda elimination implies an „on going‟ and systematic reduction
or elimination of waste. There are seven kinds of major waste: Overproduction Muda, Stock
Muda, Transport Muda, Defects Muda, Delay Muda, Motion Muda, Over processing Muda. It
helps to eliminate redundant processes or parts of processes, delete non-value added
activities, simplify motions, minimize fatigue, reduce wait time, etc.

(iii) Poka-Yoke:

It is powerful and comprehensive method of „error proofing‟. A work process to eliminate
inadvertent errors to ensure quality products and services. It helps in defect prevention and
defect detection.
(iv) SMED:

Single Minute Exchange of Die (SMED) is a technique of performing a set up operation in lesser
amount of time .It affects a machinery setup for change over from job to another in less than 10
minutes expressed as a single digit. It helps in reduced Work-in-progress, better average daily
production, increased capacity and faster delivery to customers.

(v) Just-In-Time:

JIT is a management philosophy aimed at eliminating waste from every aspect of manufacturing
and its related activities. The term JIT refers to producing only what is needed, when it is needed
and in needed quantity. The aim of JIT in a factory is to reduce lead times, minimise inventory,
reduce the defect rate to zero and accomplish all of the above at minimum cost. There are three
essential ingredients to effective manufacturing excellence through JIT: (i) JIT manufacturing
techniques that aims to promote a rapid response to customer demand while minimising
inventory (ii) a total quality culture to pursue excellence in both the product and every area of the
business, including customer service, purchasing, order taking, accounting, maintenance, design,
etc.; and (iii) people or employee involvement in the development of the organisation through its
culture and its manufacturing and other business processes.

(vi) Kanban:

Kanban is a manual production scheduling technique controlled by a process or machine
operator. Kanban means card in Japanese, ia attached to given number of parts or products in the
production line instructing the delivery of given quantity. The kanban card after all
parts/products have been used up is returned by the operator to its origin. Production is
controlled through demand originating from external customer.

38
WHY DOES PRODUCTIVITY MATTER?
Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to
improve its standard of living over time depends almost entirely on its ability to raise output per
worker (Paul Krugman, OECD, 2006). Defining productivity may be the start, but the key
question is: why does productivity matter? How, as an economic concept, does it relate to people
living their day-to-day lives? In everyday life, people care about their living standards and would
like to see them improved as much as possible for themselves and for others. The main economic
indicator for living standards has traditionally been national income, although it is widely

39
acknowledged as being imperfect. Consequently various alternatives have been considered over
time and productivity is one of such.
Economic theory, economic behaviour and actual consumer spending patterns suggest that the
majority of people want an increase in the quantity and quality of goods and services available.
At the same time, they would like it at as small a cost as possible.
Importance of Higher Productivity:
Any of these scenarios may be realized through improved methods, investment in machinery and
technology, improved quality, and improvement techniques and philosophies such as just-in-
time, total quality management, lean production, supply chain management principles, and
theory of constraints.
A firm or department may undertake a number of key steps toward improving productivity.
3
William J. Stevenson lists these steps to productivity improvement:

 Develop productivity measures for all operations; measurement is the first step in managing
and controlling an organization.

 Look at the system as a whole in deciding which operations are most critical; it is over-all
productivity that is important.

 Develop methods for achieving productivity improvement, such as soliciting ideas from
workers (perhaps organizing teams of workers, engineers, and managers), studying how
other firms have increased productivity, and reexamining the way work is done.

 Establish reasonable goals for improvement.

 Make it clear that management supports and encourages productivity improvement. Consider
incentives to reward workers for contributions.

 Measure improvements and publicize them.

 Don't confuse productivity with efficiency. Efficiency is a narrower concept that pertains to
getting the most out of a given set of resources; productivity is a broader concept that
pertains to use of overall resources. For example, an efficiency perspective on mowing the
lawn given a hand mower would focus on the best way to use the hand mower; a productivity
perspective would include the possibility of using a power mower

40
Therefore it is essential to know the importance of higher / improved productivity in
manufacturing company/ organization. Thus importance of productivity can be summarized as
follows:

i) Productivity is a key to prosperity. Rise in productivity results in higher production
which has direct impact on standard of living. It reduces cost per unit and enables
reduction in sale price. It increases wages for workers and increased profit for
organisation. Higher demand creates more employment opportunities.

ii) Higher productivity leads to economic growth and social progress. Higher
productivity helps to reduce cost per piece which make product available at cheaper rate.
Thus it is beneficial for consumers. Low price increases demand of the product which in
turn increases profit of the organisation. Higher profit enables organisation to offer higher
dividend for shareholders. It increases export and increases foreign exchange reserves of
a country.

iii) Higher productivity requires elimination of waste in all forms. It is necessary to
eliminate wastage in raw material, wastage of time in case of men and machinery,
wastage of space etc. to improve productivity. Several techniques like work study,
statistical quality control, inventory control, operation research, value analysis etc. are
used to minimise wastage of resources.

iv) Improvement in productivity is important for country like ours because it can
minimise level of poverty and unemployment.
Improving productivity results in improved living standards. This is because an increase in
productivity translates into an increase in output (amount and quality) without any increase in
input (labour and materials). In this context, labour can be seen as the amount of effort required
to produce a good or service. The term ‘living standards’ also covers the way the output of these
goods and services is distributed within a population. It is not just overall productivity of an
economy that is important but also how it varies across the economy and across the people living
in it. Therefore the productivity of different geographical areas is important, as is the
productivity of different industries or types of firms and even the individual employees.

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