PRODUCTIVITY

Productivity Definition
Productivity is the ratio between output and input. It is quantitative relationship
between what we produce and what we have spent to produce. Productivity is
nothing but reduction in wastage of resources like men, material, machine, time,
space, capital etc. It can be expressed as human efforts to produce of resources so
that there will be maximum distribution of benefits among maximum number of
people. Productivity denotes relationship between output and one or all associated
inputs.

Productivity may be defined as follows:

Productivity = Output/Input
The term productivity can be used to assess or measure the extent to which a
certain output can be extracted from a given input. The inputs of an enterprise are
land and buildings, materials, plant machines and equipment, energy and human
resources. The outputs are saleable products and services.
Mere increase in production will not contribute to increase in productivity.
Production of any commodity or services is the volume of output irrespective of
the quantity or quality of resources employed to achieve that level of output. Once
we put in it the element of efficiency with which the resources are employed, we
enter the area of productivity.
What is the difference between effectiveness and efficiency?
Effective: Adequate to accomplish a purpose; producing the intended or expected result.
Efficient: Performing or functioning in the best possible manner with the least waste of time
and effort.
Scope of productivity
1. To eliminate the wastes in all forms.
2. To reduce the cost and make items cheaper.
3. To provide better standard of leaving for maximum number of people.
4. To improve working conditions and reduce fatigue.
5. To earn more revenue for the government.
6. To help the workers in earning higher wages.
7. To enable the shareholders to get higher dividends.
8. To enable the management to get more capital.
Benefits of Productivity
Higher productivity benefits all. These direct beneficiaries are the workers of the
company, the company itself and its customers. Productivity growth leads to
lower costs which in turn enable:
(a) Higher wages, larger bonuses and better benefits for workers
(b) Greater competitiveness and higher profitability for companies
(c) Cheaper and better quality goods and services for customers.
Measurement of Productivity (Craig and Harris Productivity Measurement Model)
(Taylor-Davis Model and APC model is self-study)

Total productivity Index

Productivity has been defined as the ratio of output to input. An increase in
productivity means an increase in output that is proportionally greater than
increase in input.
Productivity may be measured either on an aggregate basis or individual basis.
On aggregate basis, output is compared with all inputs taken (added) together.
This is called as total productivity.

This index measures the productivity of the entire organisation with use of all
resources. It is a way of evaluating efficiency of entire plant or firm.
Productivity is difficult to measure and can only be measured indirectly, that is,
by measuring other variables and then calculating productivity from them. This
difficulty in measurement is because, inputs and outputs are not only difficult to
define but are also difficult to quantify.

Partial productivity indices

The ways in which input and output are measured can provide different
productivity measures.
On individual basis, output is compared with any one of the input factor and this
is called as partial productivity.
Partial productivity indices are of following types:
1. Labour productivity:
The important function in any production set-up is that the budgeted quantity
of work must be achieved over a period of time. Labour productivity depends
upon how labours are utilised. Labour 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. Labour productivity can
be measured in terms of hours or money.

The productivity of labour can be increased by increasing efficiency of labour

and reducing labour time.
2. Material productivity:
Production system converts raw material into finished product with the help
of mechanical or chemical processes. Material productivity plays important
role in cost of production. Material productivity depends upon how material
is effectively utilised in its conversion into finished product.
Material productivity depends upon percentage of rejection, creation of scrap,
level of spoilage, obsolescence, work wastage etc. Material productivity is
expressed as:

Material productivity can be increased by using skilled workers, adequate

machine tools, good design of product etc.
3. Machine Productivity:
Production system converts raw material into finished product by processing
with the help of machines and equipment. Machine productivity depends upon
availability of raw material, power, skill of workers, machine layout etc.

4. 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. As huge
capital is locked in assets, their effective utilization is absolutely necessary.
Capital productivity depends on how effectively assets are utilized. Therefore,
decision is necessary to take about replacement of fixed assets. Early
replacement of fixed assets brings down maintenance cost but requires capital
expenses. On the other hand, late replacement of fixed assets improves ratio
of production to capital expenditure, but it increases maintenance cost.
Therefore, proper balance is necessary. Organization spent large amount
 (direct expenditure) for assets like direct material, direct wages, land, building,
equipment etc. But a production system incurs a lot of direct expenditure like
salaries of manpower employed in planning, store keeping, record keeping,
inspection etc. Indirect labour is also used for material movement, good
housekeeping, cleaning etc. Indirect expenditure is incurred on indirect
material like tools, oils, lubricant etc.

5. Energy Productivity:
It is defined as the ratio of output divided by energy consumption, is a useful
indicator for understanding the energy efficiency of an industry.

Total Factor Productivity (TFP) or Multi Factor Productivity

It is the ratio of net output to the labour and capital (factor) input.
𝑁𝐸𝑇 𝑂𝑈𝑇𝑃𝑈𝑇
𝑇𝐹𝑃 =
𝐿𝐴𝐵𝑂𝑈𝑅 + 𝐶𝐴𝑃𝐼𝑇𝐴𝐿 𝐼𝑁𝑃𝑈𝑇𝑆
Wastivity: Gross and Net Wastivity
Most of the productivity measures compare the total output to individual inputs,
viz. materials, energy, manpower, capital etc. while they usually fail to directly
compare the fraction of a particular input that goes into output. Further, it is
difficult to measure the output of various individual inputs invested in various
finished products, whereas it is comparatively easier to assess the waste of various
inputs.
Hence a new concept of “wastivity” has been propounded, that can serve as an
adequate measure of performance of any system, and is rather easy to measure.
Wastivity of a system is defined as the ratio of waste to input.
Wastivity = Waste (W)/ Input (I)
Depending upon the level of waste under consideration the wastivity can be
categorized into Gross wastivity and Net wastivity.
Factors influencing productivity
Factors influencing productivity can be classified broadly into two categories:
(A) controllable (or internal) factors
(B) un-controllable (or external) factors.
(A) Controllable (or internal) factors
1. Product factor: In terms of productivity it 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 utilisation, age, modernisation, cost,
investments etc.

3. 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:
 Size and capacity of the plant,
 Timely supply and quality of inputs,
 Production planning and control,
 Repairs and maintenance,
 Waste reduction, and
 Efficient material handling system.
4. Material and energy: Efforts to reduce materials and energy consumption
brings about considerable improvement in productivity.
 Selection of quality material and right material.
 Control of wastage and scrap.
 Effective stock control.
 Development of sources of supply.
 Optimum energy utilisation and energy savings.
5. 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.

6. 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 enhances
the productivity.

7. 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.

(B) Uncontrollable (or external) factors

1. Structural adjustments: Structural adjustments include both economic and
social changes. Economic changes that influence significantly are:
 Shift in employment from agriculture to manufacturing industry,
 Import of technology, and
 Industrial competitiveness.

Social changes such as women’s participation in the labour 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 programmes are

significant to productivity practices of government agencies, transport and
communication power, fiscal policies (interest rates, taxes) influence
productivity to the greater extent.
Advantages and Limitations of Productivity Measures
Advantages Disadvantages
A. PARTIAL PRODUCTIVITY MEASURES
1. Easy to understand and calculate 1. Misleading if used alone
2. A tool to pinpoint improvement 2. No consideration of overall impact
B. TOTAL PRODUCTIVITY MEASURES
1. Easy and more accurate representation of 1. Difficulty in obtaining the data.
the total picture of the company. 2. Requirement of special data collection
2. Easily related to total costs. system.
3. Considers all quantifiable outputs and
inputs.
C. TOTAL FACTOR PRODUCTIVITY
1. Data from company records is relatively 1. No consideration for material and
easy to obtain. energy input.
2. Value added approach 2. Difficult to relate value added
approach to production efficiency.

Technology Based:

Employee Based: 2,3,6,7,10

Material Based: 8,9

Process Based: 11,12

Product Based: 1

Management based: 4,5

Techniques for improving productivity
Twelve productivity improvement techniques or methods:

1. Value engineering
Value engineering has for its purpose the efficient identification of
unnecessary cost, i.e., cost which provides neither quality nor use nor life nor
appearance nor customer features. It focuses the attention of engineering,
manufacturing, and purchasing on one objective – equivalent performance for
lower cost.
2. Quality Circles (QC)
Quality Circles (QC) was introduced in 1960 in Japan. QC is a small group of
employees who meet regularly to identify, analyse, and solve problems in their
department. The QC members advise the management to implement new
methods to solve work-related problems. QC increases the productivity.
3. Incentives
Financial and non-financial incentives: The organization must motivate the
employees by providing financial and non-financial incentives.
a. Financial incentives include better wages and salaries, bonus, etc.
b. Nonfinancial incentives include better working conditions, welfare
facilities, worker's participation in management, etc.
4. Operations research (OR)
Productivity gain is virtually the sole purpose of OR. In operations research,
problems are broken down into basic components and then solved in defined
steps by mathematical analysis.
5. Training
Training is a process of increasing the knowledge and skills of the employees.
Training is a must, for new employees and experienced employees. It
increases the efficiency of the employee. Thus, it results in higher
productivity.
6. Job Enlargement
Job Enlargement is a horizontal expansion of a job. It is done to make jobs
more interesting and satisfying. It involves increasing the variety of duties.
For e.g. a typist may be given the job of accounts writing in addition to the
typing work. This technique is used for lower level jobs.
7. Job Enrichment
Job Enrichment is a vertical expansion of a job. It makes routine jobs more
meaningful and satisfying. It involves providing more challenging tasks, and
responsibilities. For e.g. A manager who prepares performance reports is
asked to make plans for his department. The Job Enrichment technique is used
for higher-level jobs.
8. Inventory Control
There must be a proper level of inventory. Overstocking and under stocking
of inventories must be avoided:
a. Overstocking of inventories will result in blocking of funds and there
are chances of spoilage or misuse of materials.
b. Under stocking of inventories will result in shortages. This will block
the smooth flow of production, and so the delivery schedules will be
affected.
9. Materials management
Materials management deals with optimum utilization of materials in the
manufacturing process. It involves scientific purchasing, systematic store
keeping, proper inventory control, etc. The main objective of materials
management is to purchase the right quantity and quality materials, at the right
prices, at the right time, to maintain favourable relations with suppliers, to
reduce the cost of production, etc.
10.Statistical quality control
SQC is brought into industrial engineering practice as an efficiency
improvement technique. quality control is a system for verification and
maintenance of a desired level of quality in a product or process by careful
planning, the use of proper equipment, continuing inspection, and corrective
action where required.
11.Job Evaluation
Job Evaluation is a process of fixing the value of each job in the organization.
It is done to fix the wage rate for each job. A proper job evaluation increases
the moral of the employees. This increases the productivity.
12.Human factor engineering
Human factor engineering refers to the man-machine relationship. It is
designed to match the technology to a human requirement. The term
Ergonomics has originated from the Greek word Ergos meaning work and
Nomikos implies law. So, it means ‘Law of Work’. It tells us how to fit a job
to a man's psychological and physiological characteristics to increase human
efficiency and well-being.
Levels of Productivity Measurement
1. International Level
2. National Level
3. Industry (Sector) Level
4. Company Level
5. Individual Resource Level
Development of indexes to compare the growth
and competitive position of competing countries.
Developing economic indicators to enable the
country plan its resources on a rational basis.
Developing measures to compare each other
performance to plan its manpower requirements,
to compare performance of companies which
comprise the industry in a sector.
Measures to enable them compare themselves in
terms of performance experience. To measure
trends of productivity improvements to plan
effectively company resources.
To develop measures to compare performance of
each resources amongst one another. To plan the
future requirement of these resources.