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PRODUCTIVITY

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The Economic System Transforms Inputs to Outputs


Inputs
Land, La or, Capita!, "ana#ement

Process
The economic system transforms inputs to outputs

Outputs
$oods and Ser%ices

&eed ac' !oop


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(hat is Producti%ity)
Producti%ity is a common measure of ho* *e!! resources are ein# used or a measure of the effecti%e use of resources usua!!y e+pressed as the ratio of output to input

Productivity =

Output Input
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Producti%ity measures are usefu! for


Trac'in# an operatin# unit,s performance o%er time -ud#in# the performance of an entire industry or country

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(hy Producti%ity "atters


.i#h producti%ity is !in'ed to hi#her standards of !i%in# .i#her producti%ity re!ati%e to the competition !eads to competiti%e ad%anta#e in the mar'etp!ace

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Typica! Impacts of Producti%ity Impro%ement


/s producti%ity impro%ed
Parts per man hour

Costs *ere decreased


Cost per unit decreased
$2.25 $2.00 $1.75 $1.50

(a#es increased
/%era#e *or'er0s annua! cash compensation increased

115 110 105 100 95 Year A Year B Year C

27000 26000 25000 24000 Year A Year B Year C Year A Year B Year C

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"easures of Producti%ity
Partial measures
Output Labor Output Output Machine Capital Output Energy

Multifactor Output Output measures Labor + Machine Labor + Capital + Energy Total measure
Goods or Services Produced ll inputs used to produce them

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E+amp!es of Partia! Producti%ity "easures


La or Producti%ity
Units of output per labor hour Units of output per shift Value-added per labor hour Units of output per machine hour Value-added per machine hour Units of output per dollar input Dollar value of output per dollar input Units of output per kilowatt-hour Dollar value of output per kilowatt-hour
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"achine Producti%ity Capital Productivity Energy Productivity

Typica! "easures of Producti%ity in Different Or#ani1ations


Restaurant Retai! store Paper mi!! Customers 2mea!s3 per !a or hour Sa!es per s4uare foot Tons of paper per cord of *ood 5i!o*atts per ton of coa!
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Uti!ity p!ant

E+amp!e 6
7898 Units Produced So!d for :6;68<unit Cost of !a or = :6,888 What is the multifactor productivity?

Cost of materia!s= :>?8 Cost of o%erhead= :?888


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So!ution 6
"&P @ Output La or A "ateria!s A O%erhead 27898 units3B2:6;683 :6888 A :>?8 A :?888

"&P @

"&P @ ?;?8
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E+amp!e ?
>,>88 Units Produced So!d for :C><unit >88 !a or hours are used Cost of !a or= :?><hr Cost of ra* materia!= :>,888 Cost of o%erhead= ? + !a or cost What is the labor productivity?
2-12 What is the multifactor productivity?

So!ution ?= La or Producti%ity
>,>88 units<>88 hours @ 66 units<hour Or *e can arri%e at a unit!ess fi#ure= 2>,>88 unitsB:C><unit3<2>88 hours B :?><hr3 @6>;9

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So!ution ?= "u!tifactor Producti%ity


"&P @ Output La or A "ateria!s A O%erhead 2>,>88 units3B2:C>3 2>88hrs;3B:?><hr; A 2:>8883 A ?B2>88hrs;3B:?><hr;

"&P @

"&P @ 9;>?
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E+amp!e C
You ha%e Dust determined that your ser%ice emp!oyees ha%e used a tota! of ?988 hours of !a or this *ee' to process >E8 insurance forms; Last *ee' the same cre* used on!y ?888 hours of !a or to process 9F8 forms; (hich producti%ity measure shou!d e used) /ns*er= Cou!d e c!assified as a Partia! "easure; Is producti%ity increasin# or decreasin#) /ns*er= Last *ee',s producti%ity @ 9F8<?888 @ 8;?9, and this *ee',s producti%ity is @ >E8<?988 @ 8;?C; So, producti%ity has decreased s!i#ht!y;
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Producti%ity $ro*th
Productivity !rowth Current productivity - Previous productivity 100% Previous productivity

Producti%ity $ro*th is a 'ey factor in a contry,s rate of inf!ation and the standard of !i%in# of its peop!e

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E+amp!e 9
La or producti%ity on the /GC assem !y !ine *as ?> units per hour in ?88E; In ?887, !a or producti%ity *as ?C units per hour; (hat *as the producti%ity #ro*th from ?88E to ?887)

Productivity !rowth

#% - #$ 100% = "% #$
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Producti%ity impro%es *hen firms=


Gecome more efficient Do*nsi1e E+pand Retrench /chie%e rea'throu#hs

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&actors /ffectin# Producti%ity


Standardi1ation Techno!o#y Use of Internet, fa+ machines, eHmai!, computeri1ed i!!in#, soft*are Searchin# for !ost or misp!aced items Scrap rates La or turno%er, !ayoffs, ne* *or'ers Safety 2-19 Gott!enec's

&actors /ffectin# Producti%ity


"ethods Desi#n of the *or'space Incenti%e p!ans that re*ard producti%ity Capacity uti!i1ation Location Layout In%entory Schedu!in#
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&actors /ffectin# Producti%ity


Shorta#e of IT *or'ers and other technica! *or'ers E4uipment rea'do*ns Part and materia! shorta#es Inade4uate in%estment in trainin# I education of the emp!oyees

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5ey Steps for Impro%in# Producti%ity


De%e!op producti%ity measures for a!! operations Determine critica! 2 ott!enec'3 operations De%e!op methods for producti%ity impro%ements Esta !ish2set3 reasona !e #oa!s $et mana#ement support 2ma'e it c!ear that mana#ement supports and encoura#es producti%ity impro%ements;3 "easure and pu !ici1e impro%ements In%est on !a or force y trainin# and education
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Gott!enec' Operation
&achine &achine '1 '1 &achine &achine '# '#
10+hr

10+hr

&achine &achine '% '%

(ottleneck (ottleneck )peration )peration


10+hr 10+hr
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%0+hr

&achine &achine '* '*

Ser%ice Producti%ity
Typica!!y !a orHintensi%e as in teachin# &re4uent!y indi%idua!!y processed 2doctors3 Often an inte!!ectua! tas' is performed y professiona!s 2medica! dia#nosis3 Often difficu!t to mechani1e or automate 2haircut3

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Ser%ice Sector Producti%ity


Ser%ice sector producti%ity is difficu!t to measure and mana#e ecause It in%o!%es inte!!ectua! acti%ities It has a hi#h de#ree of %aria i!ity

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