Productivity refers to the physical relationship between the quantity produced (output) and the quantity of resources used in the course of production (input).
“It is the ratio between the output of goods and services and the input of resources consumed in the process of production.”
Productivity is the ratio between output of wealth and input of resources used in production processes.
Output means the quantity of products produced and the inputs are the various resources used in the production. The resources used may be land, building, equipment, machinery, materials, labour etc.
Productivity means an economic measure of output per unit of input. Output refers to the total production in terms of units or in terms of revenues while input refers to all the factors of production used like capital, labour, equipment, etc.
1. Meaning of Productivity 2. Concept of Productivity 3. Factors 4. Importance 5. Ways to Improve Productivity 6. Formulas 7. Techniques for Improving 8. Measurement 9. Constraints in Measurement 10. Advantages.
Productivity: Meaning, Concept, Factors, Importance, Formulas, Techniques, Measurement and Other Details
Productivity – Meaning
Productivity refers to the physical relationship between the quantity produced (output) and the quantity of resources used in the course of production (input). “It is the ratio between the output of goods and services and the input of resources consumed in the process of production.”
Output implies total production while input means land, labour, capital, management, etc. Productivity measures the efficiency of the production system. The efficiency with which resources are utilized is called productive efficiency. Higher productivity means producing more from a given amount of inputs or producing a given amount with lesser inputs.
At the level of a plant or an industry productivity is an output-input ratio. But at the macro level, productivity is a measure of performance of an economy or country. From a nation’s viewpoint productivity is the ratio of available goods and services to the potential resources of the country.
Productivity means an economic measure of output per unit of input. Output refers to the total production in terms of units or in terms of revenues while input refers to all the factors of production used like capital, labour, equipment, etc. Productivity is a good indicator of the efficiency with which a factory is operating. If a firm has higher productivity, i.e. it produces more with a given amount of inputs, it means it is utilising the resources properly.
Similarly, a lower productivity indicates wastage of resources and time. It is vital to have a high productivity rate because resources like capital and time are scarce and should be exploited in the best possible way. Productivity can be calculated as the ratio of the volume of output to the volume of inputs.
Productivity = Output/Input
Productivity can be increased by:
i. Generating more outputs from same level of inputs.
ii. Producing same level of outputs with reduced level of inputs.
iii. A combination of both.
For the long term growth of the firm and the economy as a whole, it is impertinent that a high level of productivity is maintained. A high productivity means that the resources are utilised to the optimum, while minimizing wastage. This leads to reduction in cost of production, and subsequently availability of quality products to customers at lower price. Profitability of the firm is also related to its productivity. More profits mean that more retained earnings which would ultimately increase shareholders’ wealth.
Productivity – Concept (With Formula)
The concept of productivity can be applicable to any economy, small, medium and large business, government and individuals. Productivity aims at the maximum utilization of resources for yielding as many goods and services as possible, desired by consumers at lowest possible cost. Productivity is the ratio of output in a period of time to the input in the same period time.
Productivity can measured with the help of following formula:
In simple terms Productivity is the ratio of output to some or all of the resources used to produce the output.
Productivity can thus be measured as:
“Productivity is the quantitative relation between; what a firm produces and what a firm uses as a resource to produce output, i.e. arithmetic ratio of amount produced (output) to the amount of resources (input)”.
“Productivity is an aggregate measure of the efficiency of production; it is the ratio of output to inputs i.e. capital, labor, land, energy and materials”.
“Productivity refers to the efficiency of the production system and an indicator to; how well the factors of production (land, capital, labor and energy) are utilized”.
Productivity is the ratio between output of wealth and input of resources used in production processes. Output means the quantity of products produced and the inputs are the various resources used in the production. The resources used may be land, building, equipment, machinery, materials, labour etc.
Productivity can be increased by the following ways:
1. Increasing the output using the same input.
2. Reducing the input by maintaining the output as constant.
3. Increasing the output to a maximum extent with a smaller increase in input.
Productivity – Factors Affecting Productivity
Productivity is the outcome of several factors. These factors are so interrelated that it is difficult to identify the effect of any one factor on productivity.
These factors may broadly be divided as follows:
Human nature and human behaviour are the most significant determinants of productivity.
Human factors may further be classified into two categories as given below:
(a) Ability to work – Productivity of an organization depends upon the competence and calibre of its people—both workers and managers. Ability to work is governed by education, training, experience, aptitude, etc. of the employees.
(b) Willingness to work – Motivation and morale of people is the second important group of human factors that determine productivity. Wage incentive schemes, labour participation in management, communication system, informal group relations, promotion policy, union management relations, quality of leadership, etc., are the main factors governing employees’ willingness to work. Working conditions like working hours, sanitation, ventilation, schools, clubs, libraries, subsidized canteen, company transport, etc., also influence the motivation and morale of employees.
Technological factors exercise significant influence on the level of productivity.
The main technological factors are as follows:
(a) Size and capacity of plant
(b) Product design and standardization
(c) Timely supply of materials and fuel
(d) Rationalization and automation measures
(e) Repairs and maintenance
(f) Production planning and control
(g) Plant layout and location
(h) Materials handling system
(i) Inspection and quality control
(j) Machinery and equipment used
(k) Research and development
(l) Inventory control
(m) Reduction and utilization of waste and scrap, etc.
The competence and attitudes of managers have an important bearing on productivity. In many organizations, productivity is low despite latest technology and trained manpower. This is due to inefficient and indifferent management. Competent and dedicated managers can obtain extraordinary results from ordinary people.
Job performance of employees depends on their ability and willingness to work. Management is the catalyst to create both. Advanced technology requires knowledge workers who in turn work productively under professionally qualified managers. No ideology can win a greater output with less effort. It is only through sound management that optimum utilization of human and technical resources can be secured.
Natural factors such as physical, geological, geographical and climatic conditions exert considerable influence on productivity, particularly in extractive industries. For example, productivity of labour in extreme climates (too cold or too hot) tends to be comparatively low. Natural resources like water, fuel and minerals influence productivity.
Social customs, traditions and institutions influence attitudes towards work and job. For instance, bias on the basis of caste, religion, etc., inhibited the growth of modern industry in some countries. The joint family system affected incentive to work hard in India. Close ties with land and native place hampered stability and discipline among industrial labour.
Law and order, stability of Government, harmony between States, etc. are essential for high productivity in industries. Taxation policies of the Government influence willingness to work, capital formation, modernization and expansion of plants, etc. Industrial policy affects the size, and capacity of plants. Tariff policies influence competition. Elimination of sick and inefficient units helps to improve productivity.
Size of the market, banking and credit facilities, transport and communication systems, etc. are important factors influencing productivity.
Productivity is an economics term which refers to the ratio of product to what is required to produce the product. Productivity is outcome of several interrelated factors. All the factors which are related to input and output components of a production process are likely to affect productivity.
So, there are many factors which can influence productivity; such as internal and external. Knowing the internal and external factors that affect productivity of an Industrial organization; give industrial engineers; the intelligence, they needs to sort out the low performance of resources and make strategic plans for the future.
The best thing about internal factors is that you can control many of them. External factors are all those things that are beyond your control. To deal with all these factors we need different people and variety of techniques and methods.
Some of the Other Factors
The factors influencing productivity can be classified broadly into two categories:
(A) Controllable Factors.
(B) Uncontrollable Factor.
(A) Controllable Factors:
Controllable Factors are considered as internal factors. These are the factors which are in control of industrial organization.
Controllable factors are:
1. Material and Power:
Improved quality of raw materials and increased use of power have a favorable effect on productivity. An effort to reduce materials and energy consumption brings about considerable improvement in productivity.
i. Selection of quality material and right material.
ii. Control of wastage and scrap.
iii. Effective stock control.
iv. Development of sources of supply.
v. Optimum energy utilization and energy savings.
2. Machinery and Plant Layout:
The size of the plant and the capacity utilization has direct bearing on productivity. Production below or above the optimum level will be uneconomical and will tend towards lower level of productivity. The arrangement of machines and position in the plant and the setup of the wore-bench of an individual worked will determine how economically and efficiently production will be ferried out.
3. Human Factors:
Human nature and human behavior are the most significant determinants of productivity. Human factors include both their ability as well as their willingness.
i. Ability to Work:
Ability to work is governed by education, training, experience and aptitude of the employees. Productivity of an organization depends upon the competence and caliber of its people (both workers and managers).
ii. Willingness to Work:
Motivation and morale of people are very important factors that determine productivity. These are affected by wage incentive schemes, labour participation in management, communication systems, informal group relations, promotion policy, union Management relations, quality of leadership, working hours, sanitation, ventilation, subsidized canteen and company transport etc.
4. Organization and Managerial Factors:
Organization factor include various steps taken by the organization towards maintaining better industrial relations such as delegation and decentralization of authority. These factors also influence motivation likewise the existence of group, with higher productivity as their goal is likely to contribute to the organization objectives.
The competence and attitudes of managers have an important bearing on productivity. Competent and dedicated managers can obtain extraordinary results from ordinary people. Job performance of employees depends on their ability and willingness to work.
5. Technological Factors:
Technological factors exert significant influence on the level of productivity.
These include the following:
i. Size and capacity of plant
ii. Product design and standardization
iii. Production planning and control
iv. Plant layout and location
v. Materials handling system
vi. Inspection and quality control
vii. Machinery and equipment used
viii. Research and development
Uncontrollable factors are known as external factors and these factors are beyond the control of the individual industrial organization.
Uncontrollable factors are:
1. Economic Political and Social Changes:
There are economic, social and political factor that affects the productivity.
i. Economic Factors like Size of the market, banking and credit facilities, transport and communication systems, etc. is important factors influencing productivity.
ii. Political Factors like Law and order, stability of government, harmony between states etc. are essential for high productivity in industries Taxation policies of the government influence willingness to work, capital formation, modernization and expansion of plants etc. Industrial policy affects the size, and capacity of plants. Elimination of sick and inefficient units also helps to improve productivity.
iii. Social Factors like Social customs, traditions and institutions influence attitudes towards work and job. For instance, bias on the basis of caste, religion, etc., inhibited the growth of modern industry in some countries. The joint family system affected incentive to work hard in India. Close ties with land and native place hampered stability and discipline among industrial labour.
2. Natural Resources:
Natural factors such as physical, geographical and climate conditions exert considerable influence on productivity, particularly in extreme climates (too cold or too hot) tends to be comparatively low. Natural resources like water, fuel and minerals influence productivity.
3. Government Factor:
Government policies and programs are significant to productivity practices of government agencies, transport and communication power, and fiscal policies (interest rates, taxes) influence productivity to the greater extent.
Productivity – Importance
Productivity has become almost synonymous for progress. The resources of a country are generally limited. Therefore, higher productivity is essential for improving living standards and for the prosperity of a nation. Higher productivity requires elimination of waste in all forms. Higher productivity leads to economic growth and social progress.
It is only by improving productivity that employees can get better wages and working conditions and more employment opportunities. Higher productivity brings lower prices for consumers and higher dividend for shareholders. It improves the exports and foreign exchange reserves of a country. Thus, productivity is the key to prosperity.
Higher productivity is of special significance in an underdeveloped country like India. Mass poverty and unemployment cannot be eliminated without increasing productivity in agriculture, industry and all other areas of human activity. According to John W. Kendrick, “the chief means where by human kind can raise itself out of poverty to a condition of relative material influence is by increasing productivity”.
In brief, higher productivity provides the following importance:
(i) It helps to reduce the cost of production per unit through more economical or efficient use of resources.
(ii) Reduction in costs helps to improve the profits of a business. The enterprise can more successfully compete in the market.
(iii) The gains of higher productivity can be passed on to consumers in the form of lower prices and/or better quality of products.
(iv) Similarly, gains of higher productivity can be shared with workers in the form of higher wages or salaries and better working conditions.
(v) Availability of quality goods at reasonably low prices helps to improve the standard of living in the country.
(vi) Due to higher productivity, a firm can survive and grow better. This helps to generate more employment opportunities.
(vii) A more productive enterprise can better export goods and earn valuable foreign exchange for the country.
(viii) Higher productivity means better utilization of the country’s resources, which helps to control inflation in the country.
Productivity – 4 Ways to Improve Productivity and Quality of Products
It is vital to develop a high rate of productivity because it is the foundation of the business’s future growth.
There are many ways by which productivity can be increased:
i. Adoption of up to date technology in machines and equipment.
ii. Implementing a proper system of managerial planning and control.
iii. Effective time management.
iv. Maintenance of work facilities in factories.
v. Standardisation and automation for mass production.
vi. Empower employees by providing training and an environment conducive for personal is well as organisational growth.
vii. Let workers participate in management.
viii. Provide a flexible work schedule instead of rigid working hours.
ix. Clear communication should be there between management and workers.
The following are the ways for improving productivity and quality of products:
Managers attempt to utilize the resources just described in a manner that achieves production at a low cost. They combine the various resources with the use of work stations and assembly lines. A work station is an area in which one or more employees are assigned a specific task. A work station may require machinery and equipment as well as employees.
An assembly line consists of a sequence of work stations in which each work station is designed to cover specific phases of the production process. The production of a single product may require several work stations, with each station using employees, machinery, and materials.
Since the cost of all these resources along with the building can be substantial, efficient management of the production process can reduce expenses, which can convert into higher profits.
Employees use buildings, machinery, and equipment to convert materials into a product or service. For example, employees of printing firms use machines for typesetting, printing, and binding to produce books. Employees of General Nutrition Centers (GNC) use its manufacturing plant (which is the size of four football fields) to produce more than 150,000 bottles of vitamins per day.
A critical decision in production management is the selection of a site (location) for the factory or office. Location can significantly affect the cost of production and therefore the firm’s ability to compete against other firms. This is especially true for industrial firms such as Bethlehem Steel and DaimlerChrysler, which require a large investment in plant and equipment.
Several factors must be considered when determining the optimal site.
The most relevant factors are identified below:
i. Cost of Workplace Space:
The cost of purchasing or renting workplace space (such as buildings or offices) can vary significantly among locations. Costs are likely to be high near the center of any business district where land costs are high.
Costs also tend to be higher in certain regions. For example, office rental rates are generally higher in the northeastern states than in other areas. This is one major reason why companies located in northern cities have relocated to the South during the last 10 years.
ii. Cost of Labor:
The cost of hiring employees varies significantly among locations. Salaries within a city tend to be higher than salaries outside the city for a given occupation. Salaries are also generally higher in the North than the South for a given occupation. This is another reason why many companies have relocated to the South.
iii. Tax Incentives:
Some local governments may be willing to grant tax credits to attract companies to their area. The governments offer this incentive to increase the employment level and improve economic conditions in the area.
iv. Source of Demand:
If a firm plans to sell its product in a specific location, it may establish its plant there. The costs of transporting and servicing the product can be minimized by producing at a site near the source of demand.
v. Access to Transportation:
When companies sell products across the nation, they may choose a site near their main source of transportation. They also need to be accessible so that materials can be delivered to them. Some factories and offices are established near interstate highways, rivers, or airports for this reason.
vi. Supply of Labor:
Firms that plan to hire specialized workers must be able to attract the labor needed. They may choose a location where a large supply of workers with that particular specialization exists. For instance, high-tech companies tend to locate near universities where there is an abundance of educated labor.
Once a site for a manufacturing plant or office is chosen, the design and layout must be determined. The design indicates the size and structure of the plant or office. The layout is the arrangement of the machinery and equipment within the factory or office.
The design and layout decisions directly affect operating expenses because they determine the costs of rent, machinery, and equipment. They may even affect the firm’s interest expenses because they influence the amount of money that must be borrowed to purchase property or machinery.
Once the plant and design have been selected, the firm can engage in production control, which involves the following:
(i) Purchasing materials
(ii) Inventory control
Managers perform the following tasks when purchasing supplies. First, they must select a supplier. Second, they attempt to obtain volume discounts. Third, they determine whether to delegate some production tasks to suppliers.
Inventory control is the process of managing inventory at a level that minimizes costs. It requires the management of materials inventories, work-in-process inventories, and finished goods inventories.
Routing is the sequence (or route) of tasks necessary to complete the production of a product. Raw materials are commonly sent to various work stations so that they can be used as specified in the production process. A specific part of the production process is completed at each work station.
For example, the production of a bicycle may require (1) using materials to produce a bike frame at one work station, (2) assembling wheels at a second work station, and (3) packaging the frames and wheels that have been assembled at a third work station.
The routing process is periodically evaluated to determine whether it can be improved to allow a faster or less expensive production process. General Motors, DaimlerChrysler, and United Parcel Service have streamlined their routing process to improve production efficiency.
Scheduling is the act of setting time periods for each task in the production process. A production schedule is a plan for the timing and volume of production tasks. For example, the production schedule for a bicycle may set a time of two hours for each frame to be assembled and one hour for each wheel to be assembled.
Scheduling is useful because it establishes the expected amount of production that should be achieved at each work station over a given day or week. Therefore, each employee understands what is expected.
Furthermore, scheduling allows managers to forecast how much will be produced by the end of the day, week, or month. If a firm does not meet its production schedule, it will not be able to accommodate customer orders in a timely fashion and will lose some of its customers.
Quality can be defined as the degree to which a product or service satisfies a customer’s requirements or expectations Quality relates to customer satisfaction, which can have an effect on future sales and therefore on the future performance of the firm. Customers are more likely to purchase additional products from the same firm if they are satisfied with the quality.
Firms now realize that it is easier to retain existing customers than it is to attract new customers who are unfamiliar with their products or services. Thus, firms are increasingly recognizing the impact that the quality of their products or services can have on their overall performance.
Quality control is a process of determining whether the quality of a product or a service meets the desired quality level and identifying improvements (if any) that need to be made in the production process. Quality can be measured by assessing the various characteristics (such as how long the product lasts) that enhance customer satisfaction.
The quality of a computer may be defined by how well it works and how long it lasts. Quality may also be measured by how easy the computer is to use or by how quickly the manufacturer repairs a computer that experiences problems. All of these characteristics can affect customer satisfaction and therefore should be considered as indicators of quality.
The quality of services sold to customers must also be assessed. For example, Amazon(dot)com produces a service of fulfilling orders of books, CDs, and other products ordered over the Internet by customers. Its customers assess the quality of the service in terms of the ease with which they can send an order over the Internet whether they receive the proper order, and how quickly the products are delivered.
The act of monitoring and improving the quality of products and services produced is commonly referred to as total quality management (TQM), which was developed by W. Edwards Deming.
Among TQM’s key guidelines for improving quality are the following- (1) provide managers and other employees with the education and training they need to excel in their jobs, (2) encourage employees to take responsibility and to provide leadership, and (3) encourage all employees to search for ways to improve the production process.
Production quotas are discouraged so that employees can allocate more of their time to leadership and the improvement of the production process. Many firms use teams of employees to assess quality and offer suggestions for continuous improvement.
To ensure that quality is maintained, firms periodically evaluate the methods used to measure product or service quality.
Productivity – Formulas of Productivity Index (With Examples)
In order to have a value for comparison purposes, organizations compute their productivity index. By tracking productivity indexes over time, managers can evaluate the success, or lack thereof, of projects and decisions. “A productivity index is the ratio of productivity measured in some time period Current Period) to the productivity measured in a base period”
If the base period’s productivity is calculated to be 1.75 and the following period’s (Current Period) productivity is calculated to 1.93, Then-
This would indicate that the firm’s productivity had increased 10% of the productivity of the base period.
If the following period’s (Current Period) productivity measurement fell to 1.66, Then
It would indicate that the organization’s productivity has fallen to 95%; that means there is 5% drop in current year productivity from the base period productivity.
Some More Formulas:
Productivity may be measured either on aggregate bases or on individual basis, which are called total and single factor productivity respectively.
Various productivity indexes are given below:
This index measures the efficiency in the use of all the resources. Partial productivity Indices depends upon factors used; it measures the efficacy of individual factor of production. Following are productivity indices for individual inputs.
Productivity – Techniques for Improving Productivity
In appraising an organization’s potential for improving productivity, its current operations and management practices should be examined to decide how they should function in the future. A large number of techniques have been developed for improving productivity.
Some of these techniques are described below:
Technique # 1. Work Study:
Scientific analysis and improvement of work in all its aspects is a very useful technique of increasing productivity. Work study results in improvements in plant layout, material handling system, process design and standardization, working conditions, etc. These in turn help to minimize defective works and waste.
Technique # 2. Research and Development:
Continuing research and development (R & D) leads to the discovery of better techniques of production and improvements in existing machinery, equipment, etc. The rate of technological progress is a direct determinant of productivity. That is why companies and countries spend huge sums of money on research and development activities.
Technique # 3. Incentive Schemes:
Wage incentive schemes seek to motivate employees by paying extra remuneration. Profit sharing or bonus, labour welfare measures and good working conditions also help in this objective. All these schemes foster sense of belonging and closer human relationships. As a result, there is reduction in idle time caused by absenteeism, labour turnover, accidents and disputes.
Technique # 4. Production Planning and Control:
Scientific task planning ensures timely supply of inputs, proper maintenance of plant, efficient work scheduling and regulation of day-to-day ‘ activities in the plant. It facilitates full utilization of plant capacity and achievement of production targets.
Technique # 5. Workers’ Participation in Management:
Labour participation in management is considered an effective tool for improving productivity. It helps in developing mutual understanding and cooperation between management and labour. Joint consultation, suggestion schemes, two-way communication, grievance procedure are the main forms of workers’ participation in management.
Technique # 6. Automation:
Mechanization, automation and rationalization are major breakthroughs for increasing productivity. These schemes are effective provided the productivity gains are equitably shared with workers. Such measures increase the speed and accuracy of work.
Technique # 7. Management by Objectives (MBO):
MBO is a process whereby the superior and subordinates jointly identify the specific measurable goals, define results expected of each individual and jointly assess the contribution of every individual. It is an approach for integrating the individuals with the organization. The focus of MBO is on participative goal setting, joint evaluation of performance and results to be achieved.
It is also known as Management by Results. A link is created between the organizational goals and individual’s targets so that an employee can see how his work contributes to the goals of the organization. Subordinate’s participation in setting goals and action plans and in reviewing performance provides a good measure of self-control. As a result there is improvement in the understanding, motivation and morale of the individual. However, MBO requires education and training of subordinates and a democratic leadership style on the part of managers.
Technique # 8. Job Enrichment:
Job enrichment is the process of redesigning a job in order to enlarge its scope and to give the worker more to do. Its purpose is to improve job satisfaction, motivation and morale of workers. When the job is engineered to workers the dehumanization element is reduced so as to improve productivity and to reduce cost. It provides an opportunity for the satisfaction of higher level needs.
The following methods can be adopted for job enrichment:
(a) Give workers new and more varied tasks to perform.
(b) Provide greater freedom and self-control in performing jobs.
(c) Give opportunity to do the whole task rather than an element of it.
(d) Give employees greater responsibility for their own work.
(e) Provide an opportunity to the worker to become an expert on a particular task.
(f) Supply production reports (feedback) directly to workers.
More diverse tasks and responsibilities imply greater flexibility in work assignments. Job enrichment provides an experience that widens the skill, knowledge and confidence of employees. It contributes towards the development of positive attitudes and work environment so as to reduce employee’s absenteeism and turnover.
Technique # 9. Flexitime—an Alternative Work Pattern:
Flexitime is a relatively new work pattern which is a major departure from tradition. It allows the workers to set their own work hours subject to a minimum number of hours per week. During a particular period all workers are required to be present. Such a period is called ‘core hours.’ Subject to these limitations workers are given the freedom to decide when they will work.
Flexitime helps to reduce worker alienation and to raise productivity. It reduces the tyranny of supervisors and provides job opportunity to working mothers, aged persons and students. It has greater motivational value than five days’ work-week. By permitting workers the right of self-determination, flexitime reduces tardiness, overtime and short-term absenteeism.
Technique # 10. Quality of Work Life (QWL):
QWL is a new technique for improving productivity and quality of work.
Technique # 11. Quality Circles (QC):
A quality circle is a small group of workers which regularly meets to discuss problems, investigate causes, recommend solutions and if authorized, to take corrective action. It usually consists of five to fifteen members who collectively identify, analyze and resolve work-related problems and may even implement solutions.
A leader is appointed to direct and guide the circle. A Facilitator makes integration of programme easier at all levels. The Coordinator supervises the facilitators and directs administration of the programme. There is a Steering Committee which oversees and directs the efforts of all quality circles in the organization.
The purpose of a quality circle programme is to improve motivation, productivity and product quality. It is designed to optimize the manpower by capturing the creative and innovative power of the workforce. It provides workers an opportunity to participate in decisions about their work. As a result, they take greater interest in their jobs. It develops a sense of participation and contribution among workers.
A quality circle programme is based on the philosophy that quality and output can be improved through the participation of employees in solving work problems.
The Japanese concept of quality circle has taken firm roots in India. Introduced in India by BHEL in 1981, the movement has now spread to about 250 to 350 establishments. Nearly 7,000 quality circles involving 70,000 workers are in operation. Companies like BHEL, HMT, Modi Rubber, J.K. Synthetics, etc., have successfully implemented this concept.
However, a number of top managers treat this concept as bad and in such cases the quality circle programme fails to click. It cannot thrive without positive commitment and support of top management and without grass-root support.
Some Other Techniques
The following are the productivity techniques:
Management is defined as the organisation and control of different activities involved to achieve higher productivity. The manufacturing time of a job is equal to the total content plus the total ineffective time. The total work content of the job consists of basic work content and excess work content.
The excess work content is due to the inefficient methods of manufacture and the defects in the design of the product. The total ineffective time is due to the poor attitude of the workers and the lack of management interest.
1. Basic Work Content:
It is the time required to produce a product if-
(i) The design and specifications are perfect.
(ii) Manufacturing method is perfect.
(iii) There is no idle time from any cause.
Thus, the basic work content is the minimum time required to manufacture a product and it cannot be reduced.
2. Defects in Design and Specification:
(i) Defects in the design of product.
(ii) Lack of standardisation.
(iii) Poor quality standards.
3. Inefficient Methods of Operation:
(i) Selection of wrong machines.
(ii) Selection of wrong tools.
(iii) Bad layout of plant and equipments.
(iv) Bad working methods of the operator.
4. In Effective Time Due to Management:
(i) Poor production planning.
(ii) Shortage of raw materials.
(iii) Poor maintenance of plant and machinery which leads to an accident.
(iv) Producing variety of products to increase the setup time.
5. In Effective Time Due to Workers:
(i) Poor attitude towards the work.
(ii) Absence, lateness and illness.
Productivity – Measurement (With Formula)
Productivity is a measure of the efficiency of production. The measure of productivity is defined as a total output per one unit of a total input. Productivity measurements must show a linkage with profitability; after all, it is the bottom line that is the ultimate barometer of a company’s success. Inputs in any production process comprises capital, labor, material and energy.
Productivity of each resource can be measured separately. Such measurement gives single factor productivity. The method of calculating productivity considering more than one resource is called multi-factor productivity approach to measuring productivity. Total productivity (total productivity index) refers to the productivity of all resources put together. So productivity of all resources put together gives total productivity.
There are broadly three types of productivity measurements and these are explained below:
1. Single-Factor Productivity Measurement.
2. Multi-Factor Productivity Measurement.
3. Total (Composite) Factor Productivity Measures.
4. Total Productivity Model.
1. Single-Factor Productivity Measurement:
Single-Factor Productivity is a measure of output against specific input. Partial productivity is concerned with efficiency of one class of input. Its significance lies in its focus on utilization of one resource. Labor productivity is a single factor productivity measure. It is the ratio of output to labor input (units of output per labor hour). Material productivity is the ratio of output to materials input.
Machine productivity is the ratio of machine units of output per machine hour, output per unit machine. Capital productivity is the ratio of output to capital input and it is measured in Rupees. Energy Productivity is units of output per kilowatt-hour (Rupee value of output per kilowatt-hour).
i. Ease in obtaining relevant data and easy to comprehend.
ii. Acts as a good diagnostic measure to identify areas of improvement by evaluating inputs separately across the output.
iii. Ease in comparing with other businesses in the industry.
Disadvantages of Single-Factor Productivity:
i. Does not reflect the overall performance of the business.
ii. Misinterpreted as technical change or efficiency/effectiveness of labor.
iii. Management may identify wrong areas of improvements if the focus areas of a business are not examined accurately.
2. Multi-Factor Productivity Measurement:
The concept of multi-factor productivity was developed by Scott D. Sink, multi-factor productivity measurement model considered labour, material and energy as major inputs. Capital was deliberately left out as it is most difficult to estimate how much capital is being consumed per unit/ time.
The concept of depreciation used by accountants make it further difficult to estimate actual capital being consumed. Multi-factor productivity is ratio of output to a group of inputs such as; labor, energy and material. Multi-factor productivity is an index of output obtained from more than one of the resources (inputs) used in production. It is the ratio of net output to the sum of associated labor and other factor inputs.
Advantages of Multi-Factor Productivity:
i. Considers intermediate inputs of a business.
ii. Measures technical change in an industry. Disadvantages of Multi-Factor Productivity
iii. Difficulty in obtaining all the inputs.
iv. Difficulty in communicating inter-industry linkages and aggregation.
3. Total (Composite) Factor Productivity Measures:
The Total Factor Productivity model developed by John W. Kendrick in 1951, he has taken only labour and capital as only two input factors. In an effort to improve productivity of labour, company may install more machinery and then productivity of labour will go up bringing down the capital productivity.
Therefore, labour and capital are considered to be the most significant in contribution in the process of production.
Advantages of Total Factor Productivity:
i. Ease in obtaining data and to understand.
ii. Ease in understanding.
iii. Ease of aggregation across industries.
Disadvantages of Total Factor Productivity:
i. Not a good measure for technological change.
ii. Other inputs are ignored.
iii. Net output does not reflect the efficiency of production system in a proper way.
Total Productivity Model was developed by David J. Sumanth in 1979 considered five items as inputs. These are human, material, capital, energy and other expenses. This model can be applied in any manufacturing or service organization.
Total Tangible Output = Value of finished units produced + Partial units produced + Dividends from securities + Interests from bonds + other incomes.
Total Tangible Inputs = Value of human inputs + Capital inputs + Materials purchased + Energy inputs + other expenses (taxes, transport & office expenses etc.).
i. All quantifiable inputs are considered.
ii. Sensitivity analysis can be done.
iii. Provides both firm level and operational unit level productivity.
i. Data is difficult to compute.
ii. Does not consider intangible factors of input and output.
Productivity – Constraints in Measuring Productivity
Productivity is a measure of the efficiency of production. The measure of productivity is defined as a total output per one unit of total input. High productivity can lead to greater profits for businesses and greater income for individuals but there are some constraints are faced by an industrial manager in measuring productivity.
Constraints in measuring productivity are discussed below:
1. Changing Price of Inputs and Outputs:
There is a continuous change in the price of inputs and outputs, quality of raw-materials, machines and tools, quality of labor, etc. All this creates difficulties in measuring productivity.
2. Intangible Output of Service Sector:
It is very difficult to measure the productivity of service sectors e.g. banking, insurance, education, etc. This is because the output of the service sector is intangible.
3. Difficulty in Measuring Output:
The output of an industry may be measured in terms of volume (units) or value (Rupee). It is very difficult to combine both these factors. If the output is homogeneous, then the productivity can be measured in terms of volume. If the output is not homogeneous, then the productivity can be measured in terms of rupee.
4. Difficulty in Measuring Inputs:
Most industries do not have proper records of the inputs of land, labor, capital and machines. Even if such records are available, it is very difficult to calculate the exact number of man hours worked i.e. the input of labor.
5. Factorial Productivity:
Factorial productivity means to calculate the productivity of different factors of production separately. Some management experts say that a single factor of production cannot produce anything by itself. Therefore, it has no productivity. Therefore, according to these management experts, the concept of factorial productivity is meaningless.
6. Difficulty in Measuring Man-Hours:
It is difficult to find out the exact number of productive man-hours. This is because wages paid to the employees also includes the cost of idle time.
Productivity – Some of the Other Productivity Improvement Models
The productivity improvement models are discussed in detail below:
Model # 1. Material Based Measures:
This method includes material planning and control (MPC), purchasing, logistics, material storage and retrieval, source selection and procurement of quality material, waste elimination.
It encompasses the following methods:
i. Material planning and control.
ii. Material storage and retrieval.
iii. Source selection and procurement of quality material.
iv. Waste elimination.
v. Recycling and reuse of waste materials.
vi. Purchasing logistics.
Model # 2. Process or Task Based Measures:
Process based productivity is based on management style, communication in the organization, work culture, motivation, promotion group activities. Process based techniques include improvements in doing work like; process design and human factor engineering, to increase productivity; there are two main techniques (method Study and work measurement) of simplifying any task-
(a) Method Engineering is the systematic recording and critical examination of the present and the proposed way of doing work as a means of developing better economical, easier and efficient way of doing work and implementing it.
(b) Work Measurement is an application of technique designed to establish and time required by qualified worker to carry out specified tasks at defined level of performance. In short, measurement of time to do work.
Model # 3. Technology Based Measures:
This included use of advanced and updated technology to increase productivity. It consist CAD/CAM/CIMS, Robotics, Laser technology, Modern maintenance technology, Energy technology, Flexible manufacturing system (FMS).
(a) Computer Aided Design (CAD):
CAD refers to design of products, processes or systems with the help of computers. The impact of CAD on human productivity is significant. Speed of evaluation of alternative designs, Minimization of risk of functioning, and Error reductions are the advantages of CAD.
(b) Computer Added Machining (CAM):
CAM is very much useful to design and control the manufacturing. It helps to achieve the effectiveness in production system by line balancing. CAM helps in production planning and control (PPC), capacity requirements planning (CRP), manufacturing resources planning (MRP-II) and materials requirement planning (MRP) and automated inspection.
(c) Computer Integrated Manufacturing (CIMS):
Computer integrated manufacturing is characterized by automatic line balancing, machine loading (scheduling and sequencing), automatic inventory control and inspection. It includes robotics, modern maintenance techniques, energy technology, Flexible Manufacturing System (FMS).
Model # 4. Product Based Measures:
Productivity can be improved by improving product design, by improving the quality of parts of product.
Productivity can be improved by taking following action regarding product:
i. Value analysis and value engineering.
ii. Product diversification.
iii. Standardization and simplification.
iv. Reliability engineering.
v. Product mix and promotion.
Model # 5. Employee or Labour Based Measure:
Employee based method includes financial and non-financial incentives at individual and group level, employee promotion, job design, job enlargement, job enrichment and job rotation, worker participation in decision-making, Quality Circles (QC), Small Group Activities (SGA), personal development.
i. Financial and non-financial incentives at individual and group level.
ii. Employee promotion.
iii. Job design, job enlargement, job enrichment and job rotation.
iv. Worker participation in decision-making.
v. Quality circles (QC), small group activities (SGA).
vi. Personal development.
Model # 6. Management Based Measures:
Management can increase productivity by taking the actions like; management technique, communication and promoting group activity, work culture and motivation.
(a) Work Culture:
Work culture is a combination of qualities in an organization and its employees that arise from what is generally regarded as appropriate ways to think and act. Work cultures that mix of practices and ideologies arising from the interactions of people with their work environments have been shaped in all by diversity.
To have motivated employees means increased productivity at work. To do this, offer rewards for milestones they achieve. If employees are rewarded, they will see their hard work paying off in tangible way i.e. productivity.
Productivity – Top 3 Advantages of Higher Productivity
Higher productivity provides several benefits to management, employee as well as to customer and other stakeholder related to a firm. At the macroeconomic level, productivity improves a country’s living standards because more goods and services are produced at better prices, inflation and interest rates tend to be stable, and gross domestic product (GDP) tends to be high and at the microeconomic level, high productivity can increase people’s real income and improve their ability to purchase goods and services, enjoy leisure activities, access better housing and education, and contribute to social and environmental programs.
At a firm or industry level, the benefits of productivity growth can be distributed in a number of different ways:
i. To the workforce through better wages and conditions.
ii. To shareholders and superannuation funds through increased profits and dividend distributions.
iii. To customers through lower prices.
iv. To the environment through more stringent environmental protection.
v. To governments through increases in tax payments (which can be used to fund social and environmental programs).
vi. GDP can be determined in three ways, all of which should, in principle, give the same result. They are the product (or output) approach, the income approach, and the expenditure approach.
Advantage # 1. Management:
Highly productive companies can better meet their obligations to suppliers, workers, shareholders, and governments (payment of taxes and compliance with regulations), while maintaining competitiveness or improving their competitiveness in the marketplace. When the productivity of a company improves, the business will gain many benefits.
These can include:
i. Increase in income/profitability.
ii. Lowering running costs/operational costs.
iii. Maximizing the use of all of the company’s resources such as land, equipment’s/machineries, factory, workers, and etc.
iv. Gaining a greater share of the market.
v. More cash flows mean more opportunity for the company to expand and grow.
vi. To clear the debt or loans acquired from different sources.
vii. To stand better in the market.
viii. Contributes to the competitive advantages of firm.
Advantage # 2. Customers:
Most of the highly productive companies all over the world have used it to gain the loyalty of consumers and meet their needs. Satisfaction of customers will result in their loyalty towards the company.
Higher productivity provides customers the following benefits:
i. Productivity helpful in reduced price of the article.
ii. Higher productivity results in better customer satisfaction.
iii. Customers are provided with good quality products at low prices.
Advantage # 3. Employee/Workers:
When a firm is highly productive it becomes successful eventually, and because of this, incentives are bound to be made available to the employees. These include pay raises, bonuses, and medical insurance and so on. This will also motivate employees and gives them more job opportunities as the company grows. The employee gets many benefits.
These can include:
i. Company can pay higher salary and wages.
ii. Better Working Conditions.
iii. Higher standard of living.
iv. Job Security and Satisfaction.
So, Productivity in the workplace is an important aspect of every company and when top Management understands this concept, success is just around the corner.
Some Other Advantages
Advantages of Higher Level of Productivity:
i. Belter wages and working conditions for employees.
ii. Increased profitability as high productivity leads reduces cost of production.
iii. Reduce wastage of precious resources.
iv. More retained earnings as a result of increase in profits which leads to shareholders’ wealth maximisation.
v. Improved quality goods at nominal prices are available to customers.
vi. Greater chances of growth rate for the company.