McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

22

Competitiveness, Strategy, and Productivity

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ProductivityProductivity

Productivity A measure of the effective use of resources,

usually expressed as the ratio of output to input

Productivity ratios are used for Planning workforce requirements Scheduling equipment Financial analysis

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ProductivityProductivity

Partial measures output/(single input)

Multi-factor measures output/(multiple inputs)

Total measure output/(total inputs)

Productivity = Outputs

Inputs

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Productivity GrowthProductivity Growth

Current Period Productivity – Previous Period ProductivityPrevious Period Productivity

Productivity Growth =

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Measures of ProductivityMeasures of ProductivityTable 2.4

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them

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Units of output per kilowatt-hourDollar value of output per kilowatt-hour

Energy Productivity

Units of output per dollar inputDollar value of output per dollar input

Capital Productivity

Units of output per machine hourmachine hour

Machine Productivity

Units of output per labor hourUnits of output per shiftValue-added per labor hour

Labor Productivity

Examples of Partial Productivity MeasuresExamples of Partial Productivity MeasuresTable 2.5

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Example 3Example 3

7040 Units Produced

Cost of labor of $1,000

Cost of materials: $520

Cost of overhead: $2000

What is the multifactor productivity?

Ans. 2.0 units per dollar of input

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Example 3 SolutionExample 3 Solution

MFP = OutputLabor + Materials + Overhead

MFP = (7040 units)$1000 + $520 + $2000

MFP = 2.0 units per dollar of input

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Process YieldProcess Yield

Process yield is the ratio of output of good product to input

Defective product is not included in the output

Service example: Ratio of cars rented to cars available to rent

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Factors Affecting ProductivityFactors Affecting Productivity

Capital Quality

Technology Management

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Standardization Quality Use of Internet Computer viruses Searching for lost or misplaced items Scrap rates New workers

Other Factors Affecting ProductivityOther Factors Affecting Productivity

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Safety Shortage of IT workers Layoffs Labor turnover Design of the workspace Incentive plans that reward productivity

Other Factors Affecting ProductivityOther Factors Affecting Productivity

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OutsourcingOutsourcing

Higher productivity in another company is a key reason organizations outsource work

Improving productivity may reduce the need for outsourcing

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Improving ProductivityImproving Productivity

Develop productivity measures Determine critical (bottleneck)

operations Develop methods for productivity

improvements Establish reasonable goals Get management support Measure and publicize improvements Don’t confuse productivity with

efficiency