CONCEPT OF PRODUCTIVITY

MODES OF CALCULATING
PRODUCTIVITY
INTRODUCTION
 The ratio between “Output of Work” and “Input of resources”
used in the process of creating wealth. – ILO
 Productivity = Output (within a defined time and good quality)
Input

Input Output
Process

Waste
(Muda)

 It is the ratio between the amount produced and amount of

resources used in production
 This definition applies to an industry or an economy as a
whole.
 Units of Input means resources utilised
 Units of output means anything generated from production

 Land – Hectares
 Material - Metric ton
 Plant and Machinery – machine hours
 People – Man Hours
 Capital – Rupees
Eg: a worker producing 100 pieces is now able to produce 130 pieces
after undergoing a training session. Productivity of worker has
increased by 30%
FACTORS AFFECTING PRODUCTIVITY
 Controllable or internal factors
 Product – extent to which it meets requirements
 Plant and equipment – availability and reduction of idle time
 Technology – automation
 Material and energy – reduce material and energy consumption
 Human factors – motivation and training
 Work methods – improvement in the way of doing things
 Management style – communication, policy and proceedure

 Uncontrollable or external factors

 Natural resources – manpower land and raw materials
 Government and infrastructure – government norms. Transport,
power, etc.
DIFFERENCE BETWEEN PRODUCTIVITY AND PERFORMANCE

Productivity Performance

 Output in relation to input  Considers output alone

 Productivity = Output  Performance Index

Input = Actual work done

expected or standard work

Eg:
It takes 3mts. Of cloth to make a coat. In a day Prashant is
expected to make 50 coats. He makes 40 coats from 111mts. of
cloth
Performance Index is = 80%
Prashant’s productivity is = 108%
Cloth Productivity = 0.36 coats/mt.
 Performance Index = 40/50 * 100 = 80%
 Prashant’s productivity = 120/111*100 =108%

 Cloth productivity = 40/111=0.36 coats/mt.

BENEFITS OF INCREASED PRODUCTIVITY
 To workers:
 Yields more wages
 Better standard of living
 Improved morale
 Satisfied worker
 Resulting into goodwill
 To the organisation:
 Higher production of goods and services.
 Reduction in costs
 High turnover, More profits and dividends
 Cheaper goods to customers
 Revenue to government
 Wide spread markets and overall prosperity
 To the nation
 High employment opportunities
 Increased Gross National Produce
 Improved utilisation of resources
 Expansion in international markets

 To Consumers and Society in General

 Increase in supply of quality goods and services
 Reasonable cost of goods and services
 Greater customer satisfaction
 WAYS AND MODELS OF CALCULATING PRODUCTIVITY
1. Partial productivity
 Ratio of output to one particular class of input.

 Partial Productivity = Output

A particular class of input
 Often there is a factor which plays an important role.

 There is one factor which is an appropriate factor for

comparison, this is called an “apple to apple” comparison
 Such ratios are used for selection of a particular area of
improvement.
 Organistions can use this formula to determine performance
of labour, machines, energy, capital, department,
organisation, etc.
 EXAMPLES
 Bajaj Auto produces 5000 scooters in a shift employing
200 workers, whereas Hero motors manufactures 9000
scooters employing 300 workers. The productivity in
relation to manpower of Hero motors is higher compared to
Bajaj Autos.
 R. petroleum sells its petrol at Rs.30000 with the help of
three pumps in an area of 1000sq ft. whereas Y petroleum
sells its petrol worth Rs.40000 with the same parameters.
Partial Productivity space Y petroleum is better than R
because of better layout and an appropriate entry and exit
system.
 Advantages Limitations

 Easy to understand.  Profit control through partial

 Easy to obtain the data. can be a hit-
and-miss approach.
 Easy to compute the
productivity indices  Tend to shift the blame to
the wrong areas of
 Easy to sell to management
management control.
because of the above three
advantages.  Do not have the ability to
explain overall cost
 Some partial productivity
increases
indicator data is available
industry wide.  If used alone, can be very
misleading and may lead to
 Good diagnostic tools to
costly mistakes.
pinpoint areas for productivity
improvement, if used along
with total productivity
indicators
2. Total Productivity
 is the ratio of Total Output and Total Input

 Total Productivity = Total Output (Value of Produce)

Total Input (Value of Input)

3. Total Factor Productivity

 Labour and capital are always considered important
contributors to the process of production.
 In TFP model was developed by John W. Kendrick

 He has taken labour and capital as only two input factors

for calculating TFP
 Data is easy to obtain in TFP

 It does not consider the impact of material and energy

input, even though materials constitute 60% of the cost
 Example: production worth Rs.80 lakhs was
manufactured and sold in a month. It consumed
labour hours worth Rs.12 lakhs and capital worth
Rs.48 lakhs
 TFP = Output
Inputs of (Labour + Capital)
= 80 = 1.33
(12+48)
4. Multi Factor Productivity
 Scott D. Sink further developed the total factor
productivity model
 MFP model considers labour, material and energy as
major inputs
 Capital was left out since it is very difficult to estimate
how much capital is being consumed in a unit of time.
 MFP = Output
Inputs (labour + energy + material)
5. V. Sumanth’s Total Productivity Model
 It is the ratio of tangible output to tangible input
 Total Productivity (Pt) = Total Tangible Output (Ot)
Total Tangible Input (It)
 Pt = 01 + 02 + 03 + 04 + 05
H + M + FC + WC + E + X
Where,
Total tangible Output (Ot) Total tangible Input (It)
01 – finished goods produced H - human inputs
02 – partial units produced M – material purchased
03 – dividends from securities FC – fixed capital
04 – interest from bonds WC – working capital
05 – other incomes E – energy inputs
X – other expenses (taxes,
transport, office cost, etc.)
 Disadvantages
 Data is difficult to compute
 Does not consider intangible inputs and outputs
 Advantages:

 All quantifiable inputs are considered

 Provides firm level and operational unit level productivity
6. APC Model
 American Productivity Center (APC) has been advocating
a productivity measure that relates profitability with
productivity and price recovery factor.
 The price recovery factor takes care of inflation

 Over a period of time changes in this factor indicate:

 Whether the firm has been able to absorb the changes

in the cost inputs
 Has passed on or has over compensated the same
price of the company’s output
Profitability = Sales = Quantities of Output * Price
Costs Quantities of Input * Price
= Productivity * Price Factor
Price Recovery Factor:
 Captures the effect of inflation.

 Inclusion of this factor will show whether gains or losses

of a firm are due to changes in productivity or it merely
indicates the fluctuations in the prices of the material
consumed and sold
 WAYS TO IMPROVE PRODUCTIVITY
 Technology based
 CAD, CAM, integrated CAM, Robotics, laser beam
technology, energy technology, group technology,
computer graphics, simulation, maintenance
management, rebuilding old machinery, energy
conservation
 Employee Based

 Financial incentives, group incentives, fringe benefits,

promtions, job enrichment, job enlargement, job rotation,
worker participation, MBO, Skill enhancement, learning
curve, working condition improvement, communication,
zero defects, punishment, recognition, quality circle,
training, education, role perception, supervision quality.
 Material Based
 Material planning and control, purchasing, logistics,
material storage and retrieval, source selection and
procurement of quality material, waste elimination
 Process based

 Methods engineering and work simplification, job design

evaluation, job safety, human factors engineering
 Product based

 Value analysis and value engineering, product

diversification, standardisation and simplification,
reliability engineering, product mix and promotion
 Task based

 Management style, work culture, communication in the

organisation, motivation, promotion group activity