TECHNIQUES FOR

MEASUREMENT OF
PRODUCTIVITY:

ANSHUL AHUJA
(MM-662-2K15)
Er. SAHIL SHARMA
(MM-670-2K15)
Productivity
 Productivity is the ratio between output and input. It is
quantitative relationship between what we produce and
what we have spent to produce.
𝑜𝑢𝑡𝑝𝑢𝑡
• Hence, Productivity= 𝑖𝑛𝑝𝑢𝑡

 Productivity is , above all, a state of mind-set. It is an

attitude that seeks the continuous improvement of what
exist. It is a conviction that one can do better today than
yesterday, and that tomorrow will be better than
today.
 It is the driving force or dynamism behind developing and
upgrading the quality of industrial activities.
Definition

A relation between output

generated and input used

A critical
A key source determinant of
of economic
growth and
Productivity cost efficiency
competiveness

A method to determine the

capacity utilization
Importance of Productivity
• Productivity increases output.
• High productivity results in lower cost per unit of output
resulting in higher levels of profit for a business.
• Higher profits for the firm will mean more funds available
for its expansion, new business ventures and community
support.
• It may also wish to pass on the benefits of lower costs to
consumers in the form of lower prices.
 Diff. between Production and Productivity
Production Productivity

Definition It is defined as the act of it is defined as the rate at

manufacturing goods for which goods are produced.
their use or sale.

Use It is the actual process of It is the utilization of

conversion. resources to form goods.

Work done It is the amount of work It is the amount of work one

done or manufactured that gets for a certain spending
is the output. cost.
Measurement It is the measure of It is the measure of
produced goods. efficiency.

Important Note!
Production is a measure of output only and not a
measure of efficiency
Measurement in Productivity and
why ????
Establish productivity • Set overall productivity goals for organization
management function • Raise awareness among employees

• Access your company current performance

Diagnose
• Identify the gaps and areas of improvement

• Set targets and formulate strategy

Develop road map
• Implement specification

Implement
measurement system

Implement performance • Link effort and reward to employees

management system • Monitor the review parts
Techniques for Measurement of Productivity:

PRODUCTIVITY

INDIVIDUAL
AGGREGATE BASIS
BASIS

PARTIAL
TOTAL PRODUCTIVITY
PRODUCTIVITY OR FACTOR
PRODUCTIVITY
Aggregate Basis
• On aggregate basis, output is compared with all inputs taken
(added) together. This is called as Total Productivity.
Hence, Total output
Total Productivity Index =
Total input

• Where Total Output=Total production of goods and services and

Total Input= Labor + Material + Capital + Energy.
• This index measures the productivity of the entire
organization with use of all resources. It is a way of
evaluating efficiency of entire plant or firm.
 9

Example

10,000 Units Produced

Sold for $10/unit

500 labor hours

Labor rate: $9/hr

Cost of raw material: $30,000

Overhead: $15,500
 10

Example : Total Productivity

Output
TP = Labor + Materials + Overhead

(10,000 units) * ($10)

TP =
(500)*($9) + ($30,000) + ($15,500)

TP = 2.0
Individual Basis
• On individual basis, output is compared with any one of
the input factor and this is called as Partial Productivity or
Factor Productivity.
• Factor productivity or partial productivity indices are of
following types:
I. Labor productivity
II. Material productivity
III. Machine Productivity
IV. Capital productivity
Labor Productivity

• Labor productivity is simply defined as the ratio of Total output to the

Labour input i.e.

𝑻𝑶𝑻𝑨𝑳 𝑶𝑼𝑻𝑷𝑼𝑻
Labor Productivity = 𝑳𝑨𝑩𝑶𝑼𝑹 𝑰𝑵𝑷𝑼𝑻

• Labor productivity depends upon how labors are utilized.

• Labor productivity can be higher or lower depending on factors
like availability of work load, material, working tools,
availability of power, work efficiency, level of motivation, level
of training, level of working condition (comfortable or poor)
etc.
Example
• 10,000 Units Produced

• Sold for $10/unit

• 500 labor hours

What is the
labor productivity?
• Labor rate: $9/hr
 14

Example: Labor Productivity

• 10,000 units / 500hrs = 20 units/hr

• (10,000 units * $10/unit) / 500hrs = $200/hr

• 10,000 units / (500hrs * $9/hr) = 2.2 unit/$

• (10,000 units * $10/unit) / (500hrs * $9/hr) = 22.22

•The last one is unit-less

Material productivity
Machine Productivity
• Production system converts raw material into finished
product through mechanical or chemical process with the
help of machines and equipment's.
Total output
• Machine productivity= or
Machine input
Output in standard hours
• M.P=
Actual machine hours
• Machine productivity depends upon availability of raw material,
power, skill of workers, machine layout etc.
Capital Productivity
• For any production set-up, facilities of machines, tools, land etc.
are required which are assets of organization. Capital is needed
for such assets.
Total output
• Capital productivity= or
Capital input
Total output
• Capital productivity=
Capital employed
• Capital productivity depends on how effectively assets are
utilized.
 18

What are the factors that affect productivity?

Training Methods

Technology Management
Method Of Productivity Improvement

Employ Based Technique

1. Financial incentives
2. Fringe benefits
3. Employ promotion
4. Job rotation
5. Education
6. Zero defects
7. Quality circle
8. Communication
9. Working environment
10. Punishment
11. Zero defect
Method Of Productivity Improvement
(contd.)
Material Based Technique
1. Inventory control
2. Material handling system
3. Quality control
4. MRP
5. Material management

 Task Based
1. Method engineering
2. Job evolution
3. Human factor engineering
4. Job design
5. Work measurement
Method Of Productivity Improvement
(contd.)
Product Based Technique
1. Product diversification
2. Product simplification
3. Product
4. Value analysis
5. Research and development

 Technology Based
1. Computer engineering
2. CAD
3. CAM
4. Electronics data processing
5. Robotics
6. Group technology
© 2011 Pearson Education, Inc. publishing as
Prentice Hall

Improving Productivity at Starbucks

A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14 seconds
scoop per drink
New espresso machines Saved 12 seconds
per shot
© 2011 Pearson Education, Inc. publishing as
Prentice Hall

Improving Productivity at Starbucks

A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have helped
Starbucks increase yearly revenue per outlet by
Stop requiring signatures
$200,000 to $940,000 Saved 8 seconds
in six years.
on credit card purchases per transaction
Productivity has improved by 27%, or about
under $25 4.5% per year.

Change the size of the ice Saved 14 seconds

scoop per drink
New espresso machines Saved 12 seconds
per shot
Role Of Material Management
• To procure raw material at low cost.

• To maintain consistent quality.

• To ensure continuous supply of raw material.

• To minimize the carrying costs and ordering costs.

• To maintain good relationship with supplier.

• Efficient record-keeping and prompt reporting.

• To develop new sources and new materials.

• Training and development of personnel.

Advantages of Productivity :
• It emphasizes the efficient utilization of all the factors of
production which are scarce universally.
• It attempts to eliminate wastage.
• It facilitates the comparison of the performance of a company to
its competitors or related firms, in terms of aggregate results
and of major components of performance.
• It enables the management to control the performance of the
company by identifying the comparative benefits rising out of
the use of different inputs.
References
• Imad Alsyouf, The role of maintenance in improving companies
Productivity & profitability, international journal of production
economics 2007; 105; 70-78.
• Flynn B.B., sakakibara, relationship between JIT & TQM: practices
and performance. Academy of management journal 1995;38(5) 1325-
1360.
• TH Willis, CR Huston, F Pohlkamp, (1993), “Evaluation measure of
just-in time supplier performance,” Production and Inventory
Management Journal, Vol. 34, No. 2, pp. 1–5.
• Harekrushna Dalai, “Case Studies On Productivity Improvement And
Supplier Selection”, B.Tech Thesis, NIT ROURKELA