Introduction to Productivity

Prepared by: Bhakti JoshiDate: November 22, 2012

Why Study Productivity?

To understand processes of a business

To continuously improve processes

To control the business processes

To assess performance of a business

To determine its ability to sustain in the long-run

Example: Starting a Business

Product /

Service

Idea

Objective

Target Audience

Knowledge and Skills

Sponsors

Strategy to Generate

Sales WHAT IS THE

RESULT?

Britannia Industries

• Industry – Food Processing: Dairy, Fruits & Others

• Year of Incorporation – 1918• Registered Office – Kolkata, West Bengal• Ownership – Joint ownership between Wadia

group (major stake) and Groupe Danone• Product – Bourbon biscuits• Price – Rs 12 for 70 grams and Rs 22 for 167

grams

Basic Requirements

Raw Materials

• Flour• Cocoa • Cream• Sugar/Salt• Water

Machinery

• Oven• Moulder• Mixers

Human Resources

•Workers•Managers•Top

Management

Finance

•Self-financed•Banks•Public•Private

Investors

INPUTS (including water, energy, electricity, infrastructure)

Operational requirement

• Organization• Product mix (Bourbon biscuits packed in

different sizes and price ranges)• Management• Level of technology• Utilization of machines• Plant Utilization

Output

• Units produced for consumption or use (Bourbon biscuits)

• Valued on the market price• Value of inventories also included

DefinitionProductivity is commonly defined as a ratio of a volume measure of output to a volume measure of input use OR

Productivity = Output Input

Generated from

production or service

Provided to create this

output

The concept of productivity can be applicable to any economy, business (small, medium and large), government and individuals

Numerical Example 1

Britannia Industries produces 30000 units of biscuits in October and the number of workers employed during this months was 30. These workers normally work 8 hours a day. Calculate the productivity for the month of October.

30000/30 = 1000 units per

labour

OUTPUT

INPUT• Total Hours worked by

workers = 30 workers * 8 hours = 240

• Total working days = 20 days. 4 weeks in a month * 5 working days.

• 240*20 = 4800

30000/4800 = 6.25 units per

worker

Criticism of Productivity Measurement

• Assumes use of skilled workers• Assumes productivity and profitability to be

synonymous• Confusion with efficiency (how well are the

resources utilized) and effectiveness (how well the targets are set or the results are accomplished)

• Aimless goals setting

Flipkart

• Industry – Online Shopping• Year of Incorporation – 2007• Registered Office – Bangalore Karnataka• Ownership – Private-Partnership between

Sachin Bansal and Binny Bansal• Service – Online Books• Price – Varies across products purchased

Basic Requirements

Raw Materials Service-based Resources

Human Resources

Finance

•Self-financed•Banks•Private

Investors

INPUTS (including water, energy, electricity)

Virtual Resource

• Software• Licenses• Copyrights

• IT Professionals•Top

Management

• Computers• Servers• Network• Warehouses

Operational Requirement

• Organization• Service range (Books, Movies, CDs, etc)• Management• Level of technology• Utilization of machines and human resources• Warehousing• Office Utilization

Output

• Service Volume• Delivery processes• Customer perceived quality

Productivity Measurement - TypesPartial Factor Productivity

Total Factor Productivity

Multi-Factor Productivity

Labour

Capital

Labour Capital

Capital Labour Energy Materials

Partial Factor Productivity• Traces labour requirement per unit or • Reflects change in input coefficient of labourPURPOSE

• Ease in measurement and readable• Mostly easy to obtain relevant dataADVANTAGES

• Partial productivity measure• Misinterpreted as technical change or

efficiency/effectiveness of individuals in the labour force

DISADVANTAGES

Total Factor Productivity• Traces growth in an economy or a business• Includes labour and especially capital that is

representative of mostly infrastructurePURPOSE

• Ease in obtaining data and to understandADVANTAGES

• Other inputs ignored• Net output does not reflect the efficiency of

production system in a proper way• Not representative to technological change

DISADVANTAGES

Multi-Factor Productivity• Overall changes in a firm/industry• Captures technical change, efficiency,

economies of scale, etcPURPOSE

• Role of intermediate inputs are also included• Measures technical change in an industryADVANTAGES

• Difficult to obtain data on all inputs• Inter-industry linkages and aggregation is

difficult to communicateDISADVANTAGES

Email: bhaktij@gmail.comWebsite: www.headscratchingnotes.net