PRODUCTIVITY * Introduction, concept and definitions Production and productivity Expectations from productivity, Benefits * Dynamics of productivity change # Measures of productivity © Productivity measurement models * Levels of productivity + Factors influencing productivity « Measures (Methods) to improve productivity. 2.1, INTRODUCTION Productivity has now become an everyday watchword. It is crucial to the welfare of the industrial firm as well as for the economic progress of the country. High productivity refers to doing the work in a shortest possible time with least expenditure on inputs without sacrificing quality and with minimum wastage of resources. Today the term productivity has aquired a wider meaning. Originally, it was used only to rate the workers according to their skills. The person who produced more either faster or harder were said to have higher productivity. Subsequently emphasis was laid to improve the hourly output by analysing and improving upon the techniques applied by different workers. A system of measurement was then evolved to compare the improvement made in relation to the rate of output and inorder to improve productivity further, machines were introduced. Manufacturers of machines started incorporating new features with the help of latest technological developments. Today we have machines that are completely controlled by computers. Computers have now become powerful tools towards improving productivity. 2.2. CONCEPT Productivity is the quantitative relation between what we produce and what we use as a resource to produce them, i.e., arithmetic ratio of amount produced (output) to the amount of resources (input). Productivity can be expressed as: Productivity = Quiput input Productivity refers to the efficiency of the production system. It is the concept that guides the management of production system. It is an indicator of how well the factors of production (Land, Capital, labour and energy) are utilised. European Productivity Agency (EPA) has defined productivity as, “Productivity is an attitude of mind. It is the mentality of progress, of the constant improvements of that which exists, It is the certainty of being able to do better today than yesterday and continuously. It is the constant adaptation of economic and social life to changing conditions. It is the continual effort to apply new techniques and methods. It is the faith in human progress.” A major problem with productivity is that it means many things to many people. Economists 13determin al \d speed up, from Gross National Product (GNP), Managers view it as onus a ine guhek ee engineers think of it in terms of more output per hour. But generally ane employed in their the relationship between goods and services produced and the reso Production. Table 2.1: Productivity as Viewed by Different Peop! ECONOMISTS Ratio of output to input (partial productivity Measure and ‘Total Productivity Measure) | ACCOUNTANTS Financial Ratios, Budgetary Variances BEHAVIOURAL SCIENTISTS | Labour Utilisation (Man days) ENGINEERS Capacity Utilisation, Production per Man hour, Manpower efficiency 2.3. DEFINITIONS OF PRODUCTIVITY 1. Productivity is a function of providing more and more of everything to more and more People with less and less consumption of resources, 2. The volume of output attained in a and indirect efforts expended in its produc 3. Productivity is the measure Organisation and utilised for accompli 4. Productivity is concerned with Societal aspirations through input- 5. Productivity is the multipli given period of time in relation to the sum of the direct tion. of how well the resource: ishing a set of objectives. establishing con; Output relationship. ler effect of efficiency and effectiveness, 2.4. PRODUCTION AND PRODUCTIVITY Production is defined as a desired utility and quality. Production S are brought together in an ’ 's ©Xpressed i rr of : in terms of n ineeaa n pro Productivity. Ifthe ea " Productivity + When production is increased without increase in inputsi 2, The same production with decrease in inputs, 3. The rate of increase in output is more compared to rate of increase in input. Ilustration 1: A company produces 160 kg of plastic moulded parts of acceptable quality by consuming 200 kg of raw materials for a particular period. For the next period, the output is doubled (320 kg) by consuming 420 kg of raw material and for the third period, the output is increased to 400 kg by consuming 400 kg of raw material. During the first year, production is 160 kg. Productivity = ore a = 0.8 or 80%. For the second year, production is increased by 100%. Productivity = cae = 3B = 0.16 or 76% 4 For third period, production is increased by 150%. Productivity = an a “ = 1.0, ie., 100% T Comments: From the above illustration it is clear that, for second period, though production has doubled, productivity has decreased from 80%. to 76%, for period third, production is increased by 150% and correspondingly productivity increased from 80% to 100%. 2.5. EXPECTATIONS FROM PRODUCTIVITY Expectations differ amongst the various stakeholders, some of the expe :tations are quite contrast, i.e, the workers expect more leisure time in contrast to managers expectation of hard work. Table 2.2 shows the expectations of various groups interested in productivity. * Table 2.2: Expectations from Productivity MANAGEMENT AND High Retum on Investment (ROI), Higher market share and ENTREPRENEURS corporate. image. MANAGERS Maximum utilisation of resources, lower unit cost, higher quality. WORKERS Higher wages, safer work environment, increased quality of work life (QWL). ‘SUPPLIERS Prompt payment, continuous order: | CUSTOMERS Lower cost, quality, reliability, safety and timeliness of delivery. GOVERNMENT Economic development, employment generation, more exports, SHARE HOLDERS Higher dividends 2.6. BENEFITS FROM PRODUCTIVITY Always there is a misunderstanding about productivity in the minds of the workforce. To the workers, higher productivity means higher work load, higher efforts, more profits to owners and unemployment and threat to job security, These are not the correct observations, Productivity integrates the objectives of owners and workers. Productivity contributes towards increase in production through efficient utilisation of resources and inputs rather than making workers to work hard. Productivity strives to minimise human hazards and human efforts with a view to utilise them to those areas where they can contribute maximum to the output,Total Productivity Measure (TPM) Itis based on all the inputs. This model can be applied to any manufacturing organisation or service company. 1 ‘Total tangible output Total Productivity = “Tyrol tangible input ‘Total tangible output = Value of finished goods produced + value of partial units produced + dividends ince ftom securities + interest + other income ‘Total tangible edfput = Value of (human + material + capital + energy + other inputs) used ‘The word tangible here refers to measurable. The output of the firm as well as the inputs must be expressed in a common measurement unit. ‘The best way is to express them in rupee value. To compare productivity, indices are be adjusted to the base year, and must be stated in terms of base year rupee value. This is referred to as deflating the input and output factors. Deflators are used to nullify the effect of changing price from one year ta another. Deflator = Curent year price Base year price Features of Total Productivity Measures 1. Gives both firm level and detailed unit level index. 2. Helps to find out the performance and productivity of the operational unit. 3. Helps to plan, evaluate and control. . 4. An important information to strategic planners regarding expansion or phasing out decisions. Total Factor Productivity Measure (TFP) It is the ratio of net output to the labour and capital (factor) input. ei Net ou ‘Total Factor Productivity = ——Net output al Factor Productivity = =e 2.9. ADVANTAGES AND LIMITATIONS OF PRODUCTIVITY MEASURES ‘Advantages Limitations ‘A. PARTIAL PRODUCTIVITY MEASURE 1. Easy to understand and calculate. 1. Misleading if used alone. 2. A tool to pinpoint improvement. 2, No consideration-of overall impact. B. TOTAL PRODUCTIVITY MEASURE 1. Easy and more accurate representation of | 1. Difficulty in obtaining the data. the total picture of the company, 2. Easily related to total costs. 2. Requirement of special data collection system. 3, Considers all quantifiable outputs and inputs. C. TOTAL FACTOR PRODUCTIVITY MEASURE 1, Data from company records is relatively easy | 1. No consideration for material and energy to obtain, input. 2, Value added approach. 2. Difficult to relate value added approach to production efficiency. Illustration 2: The following information regarding the output produced and inputs consumed for a particular time period for a particular company given below: Output = 10,000 Rs.Human input = 3,000Rs. Material input = QQOORs. Capital input = S000Rs. Rnengy input = [QO00Rs. Other mise. input = — 460 Rs. . ivity i Yhe values are in terms of base year rupee value, Compute various productivity Solution: Partial Productivity ait Output 10,000 1. Labour Productivity “Tame itn = hoo 733 ai Output 10,000 2 Capital Productivity * Gpntinnt = "3000 73:33 Output 10,000 indices. 3. Material Productivity = 55ers omar = 2000" 75:00 4. Bnergy Productivity =m = 10.000 - 10.00 s Otner mise. expenses = Germ = 10000 =20.00 6 Total Productivity ee - Total Output (Human + Material + Capital + Energy + Other misc. expenses) = 10,000 10,000 _ | 953 3000 + 2000 + 3000 + 1000+ 500 9,500 aw Net output q. ‘actor (TFP) = ———“toutput_ Total Factor Productivity (TFP) = (eo Capital input _ Total output — Material and services purchased (Labour + Capital) input Assume that the company purchases all its material and services including ene: equipment (leasing). Then "By, m/c and «i _ 10,000 - (2000 + 3000 + 1000+ 500) _ 3500 Total Factor Productivity 3000 + 3000 = Fo00 = 0.5832.10. PRODUCTIVITY MEASUREMENT MODELS 1. Craig and Harris model: This model points out the inadequacy of partial productivity measure. It is also called as “Service flow model” because physical inputs are converted into rupees that are payments for services provided by inputs. Productivity is viewed as efficiency of conversion process. Total productivity is expressed as, P=TTC4R+ Q where P =Total productivity L = Labour input factor C = Capital input factor R = Raw materials and purchased parts Q = Other misc, goods and services.2, Taylor-Davis model: Contrary to Craig and Hariss total productivity model, they defined a total factor productivity (TFP) Model Total Factor Productivity (TFP) = S+C+MI (W4+B) + [(KW+KF) Food) where S_ = Net sales adjusted (ie., deflated to base year) CC. =Inventory change (Raw materials, finished goods and WIP) ‘MP = Manufacturing plant (Unsaleable products like jigs and fixture, SPM) E._ = Exclusions (Materials and services purchased from outside + depreciation of buildings + plant + equipment + rentals) W_ = Wages and salary B= Benefits KW = Working capital KF = Fixed capital Fb restors contribution (expressed as %) df =price deflator. In this model, raw material was not considered as input on the basis that raw material is the result of some other labour and effort. 3. APC model: American productivity centre (APC) has developed a comprehensive measure which distinguishes among profitability, price recovery and productivity. It can be utilised to measure productivity changes in labour, materials, energy and capital. It also measures the corresponding effect each one has on profitability. APC model is based on the premise that profitability is a function of productivity and price recovery. Productivity relates to quantities of output and quantities of inputs, while price recovery relates to price of output and costs of inputs. Price recovery can be thought of as the degree to which input cost increases are passed on to the customers in the form of higher output price. Relationship between productivity, profitability and price recovery are represented as, Revenue Profitability =" Gor Output Quantities x Sales Price Input Quantities x Unit Cost = Output Quantities . Sales Price Input Quantities ~ Unit Cost Profitability |= Productivity x Price recovery The model compares data from one period (base period) with the data from the current period, 2.11. FACTORS INFLUENCING PRODUCTIVITY Factors influencing productivity can be classified broadly into two categories: (a) Controllable or internal factors and (b) Non-controllable or external factors. S.No Controllable (Internal Factors) Uncontrollable (External Factors) 1 Product ‘Structural Adjustments (economic and social) z Plant and Equipment, Natural Resources 3 ‘Technology Government Policy 4 Materials Infrastructure 5 Human Factors 6. Work Methods 1 Management Style 8 Financial Factors L3. Sociological FactorsA. Controllable Factors (Internal Factors) Product factors In terms of productivity means the extent to which the product meets output Fequirements. Product is judged by its usefulness. The cost benefit factor of a product can be enhanced by increasing the benefit at the same cost or by reducing cost for the same benefit. Plant and equipment: These play a prominent role in enhancing the productivity. The increased availability of the plant through proper maintenance and reduction of idle time increases the productivity. Productivity can be increased by paying proper attention to utilisation, age, modernisation, cost, investments, etc. Technology: Innovative and latest technology improves productivity to a greater extent, Automation and information technology helps to achieve improvements in material handling, storage, communication system and quality control. The various aspects of technological factors to be considered are () Size and capacity of the plant. (@) Timely supply and quality of inputs. (ii) Production planning and control. (iv) Repairs and maintenance. () Waste reduction. (vi) Efficient material handling systems. Material and energy: Efforts to reduce materials and energy consumption brings about considerable improvement in productivity, ‘The factors that are to be considered are: 1. Selection of quality material and right material, 2. Control of wastage and scrap, 3. Effective stock control, 4. Development of sources of supply, 5. Optimum energy utilisation and energy savings. Human factors: Productivity is basically dependent u Ability to work effectively is governed by various factors such as education, training, experience aptitude, etc., of the employees. Motivation of employees will influence productivity. Work methods: Improving the ways in which the work is done (methods) improves Productivity. Work study and industrial engineering techniques and training are the areas which improve the work methods which in term enhances the Productivity, Management style: This influence the organisational design, communic: policy and procedures. A flexible and dynamic management higher productivity, 8. External Factors Structural adjustment includes both econoi influence significantly are: J. Shift in employment from agriculture to manufacturing industry, 2, Import of technology, 3, Industrial competitiveness, Social changes such a» women's Participation in the labour force, education, cultural attitudes are some of the factors that play a significant role in the improvement of produc Natural resources: Manpower, land and raw materials are vital to the productivity improvement. Government and Infrastructure: Government policies and programmes are significant to Productivity practices of government agencies, transport and communication power, fiscal Policies (interest rates, taxes) influence productivity to the greater extent pon human competence and skill. ation in organisation, style is a better approach to achieve mic and social changes. Economic changes that2.12. PRODUCTIVITY IMPROVEMENT TECHNIQUES. The basic productivity improvement techniques are represented in the Fig. 2.3. Technology Based 1. Computer Aided Design (CAD), Computer Aided Manufacturing (CAM), and Com- puter Integrated Manufacturing System(CIMS): CAD refers to desigh of products, processes or systems with the help of computers. The impact of CAD on human produc- tivity is significant for the advantages of CAD are: © Speed of evaluation of alternative designs © Minimisation of risk of functioning ¢ Error reduction. TECHNOLOGY BASED MATERIAL BASED ES ees PRODUCT | __,| PRODUCTIVITY IMPROVEMENT EMPLOYEE} BASED TECHNIK [~_|__BASED TASK BASED Fig. 2.3: Productivity improvement techniques. CAM is very much useful to design and control the manufacturing system, It helps to achieve the effectiveness in production system by Line Balancing. Production planning and control © Capacity Requirements Planning (CRP) Manufacturing Resource Planning (MRP II) and Materials Requirement Planning (MRP) Automated inspection. Computer integrated manufacturing (CIM) is characterised by automatic line balancing, machine loading/scheduling and sequencing, automatic inventory control and inspection. 2. Robotics. 3. Laser technology. 4. Modern maintenance techniques. 5. Energy technology. 6. Flexible manufacturing system (FMS). Employee Based 1. Financial and non-financial incentives at individual and group level. 2. Employee promotion. 3, Job design, job enlargement, job enrichment and job rotation. 4. Worker participation in decision-making. 5. Quality circles (QC), Small Group Activities (SGA). 6. Personal Development. Material Based 1. Material planning and control. 2. Purchasing, logistics. 3. Material storage and retrieval. 4. Source selection and procurement of quality material. ‘Waste.6. Material recycling and reuse. Process Based Methods engineering and work simplification. 2. Job design, job evaluation, job safety. 3. Human factors engineering. Product Based 1, Value analysis and value engineering. 2. Product diversification. 3. Standardisation and simplification. 4. Reliability engineering. 5. Product mix and promotion. Management Based 1. Management style. 2. Communication in the organisation. 3. Work culture. 4. Motivation. 5. Promoting group activity. 2.13. LEVELS OF PRODUCTIVITY MEASUREMENTS 1. International Level Development of indexes to compare the growth and competitive position of competing countries. 2. National Level Developing economic indicators to enable the country to plan its Tesources on a rational basis. 3. Industry (Sector) Level Developing measures to compare each others performance to plan its manpower requirements, to compare performarice of companies which comprise the industry in’a sector. Measures to enable them compare themselves ii + Comme ee performance experience. To measure trends of “productivieg improvements to plan effectively. company resources, ve measures to compare performanc 5. Individual Resource Level ee ee rete pla detninee Sane ah sees fesources.