Notes Chapter 3 Productivity Analysis - Novella

1 NotesProductivity Analysis39 Self-Learning MaterialL E A R N I N G O U T C O M E SAfter reading this Chapter , you will be able to:LO Understand the concept of measuring Productivity levelsLO Analyse the different approaches for Productivity analysisLO Evaluate the challenges of Productivity analysisintroDuctionWithout Analysis nothing can be improved. Similar is with Productivity . The Productivity Analysis is very important factor for decision making and effectiveness of the organisation. If the Analysis is correct, unbiased and fair then it helps to make decisions and efforts in the right direction.

2 So that the performance can be evaluated and measures can be taken a r n i n g Ou t c O m e 3 .1 MeAsurinG Productivity levelsProductivity is a scientific concept logically defined, empirically observed, and measured in quantitative terms. It is useful as a relative measure of actual output of production compared to the actual input resources measured across time or against common entities. It can be interpreted as a measure of effectiveness that is outcome oriented rather than input oriented. We can use various measurements for measuring MeasuresLabour ProductivityThe resources inputs are aggregated in terms of labour hours.

3 Hence ration is relatively free of changes caused by wages and labour Productivity = Total OutputLabour InputLabour Productivity is the amount of goods and services that a worker produces in a given amount of time. Labour Productivity is the ratio of the real value of output to the input of h a p t e r 3 Productivity 3912/30/2015 10:54:30 AMProductivity ManagementNotes40 Self-Learning MaterialLabour Productivity : It can be defined as the ratio of the output produced by the number of hours put in by the workforce:Labour Productivity = Output in Units Produced Input Labour in Time WorkedFactors influencing labour Productivity are: The type and effectiveness of machines and equipment available.

4 The number of machines and equipment s available. The upgradation and adoptions of new technologies The management practices The human capital availableCapital ProductivityThe resources inputs are the book value of capital investments. Only fixed value is considered. The working capital is excluded because under the inflationary business conditions the components of working capital ( inventories, receivables, etc.) are naturally determined by the supply and market Productivity = Total OutputCapital InputMaterials ProductivityThe resources inputs are a combined value of materials consumed.

5 Many a times in this formulation, the numerators are usually weight of product and the denominators the weight of raw materials consumed. It is many time referred as raw materials Productivity or input Productivity . Then it would be the ratio of gross ex-factory value of output to the combined value of inputs (raw materials, fuel, electricity, consumables, etc.).Materials Productivity = Total OutputMaterials InputEnergy ProductivityThe resource input considered is the amount of energy Productivity = Total OutputEnergy InputDirect Cost ProductivityThe resources inputs are the aggregation of direct cost associated with all items of resources used.

6 It is on monetary value Cost Productivity = Total OutputDirect Cost InputDirect Labour Cost ProductivityThe resources inputs are combined in terms of direct labour cost. In this type of Productivity changes in wage rate as well as changes in labour mix is Labour Cost Productivity = Total OutputDirect Labour Cost InputTotal Factor ProductivityIt is the ratio of net output to the labour and capital (factor) Factor Productivity = Net OutputLabour Input + Capital 4012/30/2015 10:54:31 AMNotesProductivity Analysis41 Self-Learning MaterialMulti-factor ProductivityTotal Productivity is a Productivity measure that incorporates all the inputs required to make a product or provide a service.

7 The inputs could be grouped in various categories as long as they determine the total inputs required to produce an Productivity is the ratio of the real value of output to the combined input of labour and Productivity = (Output in units produced)/KLEMS where K-Capital, L-Labour, E-Energy, M-Materials, S-ServicesThe units of the KLEMS factors must be currency; for example, labour is given as the total cost of labour to produce the output. Services are any additional overheads required or involved in production, such as maintenance costs. Multi-factor Productivity reflects changes in output dependent on a wide variety of influencing factor Productivity are: 1.

8 The Nature and Type of product 2. The Nature and Type of manufacturing process. 3. The Nature and Type of labour available. 4. The capital investments 5. The management practices 6. The external influencing factors 7. The Quality of productsNumerical on Productivity MeasuresExample a tooth brush manufacturing industry standard time per piece is minutes. The output is 250 pieces per shift of 8 hours. Calculate the Standard Time per piece = minutes Standard Inputs = = 320 pieces Actual Production = 250 pieces Productivity = 250320 = data is collected from a bearing manufacturing company:Output per shift of 8 hrs is 1000 prices of each item is `10 per hours charges are `250 per hourA material required is 50 kg at the rate `100 per inputs are of ` inputs are of ` various Productivity Output = 1000 pcs `10/pcs = `10,000 Labour Input = 8 hrs `250/hr = `2000 Materials Input = 50 kg `100/Kg = `5000 Capital inputs are of ` inputs are of `2000.

9 Net Output = Total Output Materials and Services Purchased = 10000 (5000 + 2000) = 4112/30/2015 10:54:31 AMProductivity ManagementNotes42 Self-Learning Material Labour Productivity = ==Total Output100005 Labour Input2000 Capital Productivity = ==Total Output1000010 Capital Input1000 Materials Productivity = ==Total Output100002 Materials Input5000 Energy Productivity = ==Total Output100005 Energy Input2000 Total Factor Productivity = ==+Net Output30001 Labour Input + Capital Input( 2000 1000 ) Total Productivity Total Output(Labour + Materials + Capital + Energy) Input100001( 20005000 10002000 )

10 ===+++Example crank shaft manufacturing company is operating with full efficiency. Calculate various Productivity ,000 LabourHrs20,000 Raw MaterialsRs20,000 Capital EquipmentHrs60000 Solution Labour Productivity = ==Total Output1000005 Labour Input20000 Capital Productivity = ==Total Input60000 Materials Productivity = ==Total Output1000005 Materials Input20000 Total Productivity = ==++Total Output1000001(Labour + Materials + Capital) Input( 200006000020000 )Le a r n i n g Ou t cO m e 3 . 2 Different ApproAches for Productivity AnAlysisThe different approaches are used for Productivity Analysis .