PRODUCTIVITY - Production and Operations Management

Define Productivity in Production and Operation Management

Productivity is the quantitative relation between what we produce and 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 =Output&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 to how well the factors of production (land, capital, labor and energy) are utilized.

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 progress.”

A major problem with productivity is that it means many things to many people. Economists determine it from Gross National Product (GNP), managers view it as cost cutting and speed up, engineers think of it in terms of more output per hour. But generally accepted meaning is that it is the relationship between goods and services produced and the resources employed in their production.

Factors Influencing Productivity
Factors influencing productivity can be classified broadly into two categories:

  1. controllable (or internal) factors and
  2. un-controllable (or external) factors.
    1. Product factor: In terms of productivity means the extent to which the product meets output requirements 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.
    2. 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 utilization, age, modernization, cost, investments etc.
    3. Factors influencing productivity

      Factors influencing productivity

    4. 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 technology factors to be considered are:
      1. Size and capacity of the plant,
      2. Timely supply and quality of inputs,
      3. Production planning and control,
      4. Repairs and maintenance,
      5. Waste reduction, and
      6. Efficient material handling system.
    5. Material and energy:
      Efforts to reduce materials and energy consumption brings about considerable improvement in productivity.
      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 utilization and energy savings.
      6. Human factors:
        Productivity is basically dependent upon human competence and skill. 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.
      7. 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 enhance the productivity.
      8. Management style: This influence the organizational design, communication in organization, policy and procedures. A flexible and dynamic management style is a better approach to achieve higher productivity.
    1. Structural adjustments: Structural adjustments include both economic and social changes. Economic changes that influence significantly are:
      1. Shift in employment from agriculture to manufacturing industry,
      2. Import of technology, and
      3. Industrial competitiveness.

      Social changes such as women’s participation in the labor force, education, cultural values, attitudes are some of the factors that play a significant role in the improvement of productivity.

    2. Natural resources: Manpower, land and raw materials are vital to the productivity improvement.
    3. Government and infrastructure: Government policies and program are significant to productivity practices of government agencies, transport and communication power, fiscal policies (interest rates, taxes) influence productivity to the greater extent.

Total Productivity Measure (TPM)
It is based on all the inputs. The model can be applied to any manufacturing organization or service company.

Total productivity =Total tangible output +Total trangible input

Total tangible output = Value of finished goods produced + Value of partialunits produced + Dividents from securities + Interest+ Other income

Total tangible input = 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.

Partial Productivity Measures (PPM)
Depending upon the individual input partial productivity measures are expressed as:

Partial productivity =Total output%Individual input

Labor productivity =Total output%Labour input(in terms of man hours)

Capital productivity =Total output%Capital input

Material productivity =Total output%Material input

Energy productivity =Total output%Energy input

One of the major disadvantages of partial productivity measures is that there is an over emphasis on one input factor to the extent that other input are underestimated or even ignored.

Productivity Improvement Techniques

    1. Computer Aided Design (CAD), Computer Aided Manufacturing (CAM), and Computer Integrated Manufacturing Systems (CIMS): CAD refers to design of products, processes or systems with the help of computers. The impact of CAD on human productivity is significant for the advantages of CAD are:
      1. Speed of evaluation of alternative designs,
      2. Minimization of risk of functioning, and
      3. Error reduction.

      Productivity Improvement Techniques

      CAM is very much useful to design and control the manufacturing. It helps to achieve the effectiveness in production system by line balancing.

      1. Production Planning and Control
      2. Capacity Requirements Planning (CRP), Manufacturing Resources Planning (MRP II) and Materials Requirement Planning (MRP)
      3. Automated Inspection.
    2. Computer integrated manufacturing:
      Computer integrated manufacturing is characterized by automatic line balancing, machine loading (scheduling and sequencing), automatic inventory control and inspection.
      1. Robotics
      2. Laser technology
      3. Modern maintenance techniques
      4. Energy technology
      5. Flexible Manufacturing System (FMS)
    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.
    1. Material planning and control
    2. Purchasing, logistics
    3. Material storage and retrieval
    4. Source selection and procurement of quality material
    5. Waste elimination.
    1. Methods engineering and work simplification
    2. Job design evaluation, job safety
    3. Human factors engineering.
    1. Value analysis and value engineering
    2. Product diversification
    3. Standardization and simplification
    4. Reliability engineering
    5. Product mix and promotion.
    1. Management style
    2. Communication in the organization
    3. Work culture
    4. Motivation
    5. Promotion group activity.

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 a 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 =Output%Input=160%200=0.8 0r 80%

For the second year, production is increased by 100%

Productivity =Output%Input=320%420=0.76 or 76%

For the third period, production is increased by 150%

Productivity =Output%Input=400%400=1.0 i.e., 100%↑

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%.

The following information regarding the output produced and inputs consumed for a particular time period for a particular company is given below:


The values are in terms of base year rupee value. Compute various productivity indices.

Partial productivity

Labor productivity =output%Human input=10,000%3,000=3.33

Capital productivity =output%Capital input=10,000%3,000=3.33

Material productivity =output%Material input=10,000%2,000=5.00

Energy productivity =output%Energy input=10,000%1,000=10.00

Other misc. expenses =output%Other misc. input=10,000%500=20.00

Total productivity =Total output%Total input=Total output(Human + Material + Capital + Energy + Other misc. input)=10,000%3, 000 + 2, 000 + 3, 000 + 1,000 +500=10,000%9,500=1.053

Total factor productivity (TFP) =Net output%( Labor +Capital) Input=Total output - Material and services purchased%(Labor + Capital) Input

Assume that the company purchases all its material and services including energy, misc. and equipment (leasing). Then,

Total factor productivity =10,000 - (2000+3000+1000+500)%3000+3000=3500%6000=0.583

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