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PRODUCTIVITY. Inputs. Process. Outputs. Land, Labor, Capital, Management. The economic system transforms inputs to outputs at about an annual 2.5% increase in productivity (capital 38% of 2.5%), labor (10% of 2.5%), management (52% of 2.5%). Goods and Services. Feedback loop.

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slide2

Inputs

Process

Outputs

Land, Labor, Capital, Management

The economic system transforms inputs to outputs at about an annual 2.5% increase in productivity (capital 38% of 2.5%), labor (10% of 2.5%), management (52% of 2.5%)

Goods and Services

Feedback loop

The Economic System Transforms Inputs to Outputs

slide3

Measures of Competitiveness

  • Productivity
  • GDP (Gross domestic product) growth
  • Market capitalization
  • Technological infrastructure
  • Quality of education
  • Efficiency of government
what is productivity

Output

Input

Productivity =

What is Productivity?

Productivity is a common measure of how well resources are being used or a measure of the effective use of resources usually expressed as the ratio of output to input

slide5

Productivity measures are useful for

  • Tracking an operating unit’s performance over time
  • Judging the performance of an entire industry or country
slide6

Why Productivity Matters

  • High productivity is linked to higher standards of living
    • As an economy replaces manufacturing jobs with lower productivity service jobs, it is more difficult to maintain high standards of living
  • Higher productivity relative to the competition leads to competitive advantage in the marketplace
    • Pricing and profit effects
  • For an industry, high relative productivity makes it less likely it will be supplanted by foreign industry
slide7

Cost per unit decreased

Parts per man hour

Average worker\'s annual cash compensation increased

$2.25

115

110

27000

$2.00

105

26000

$1.75

25000

100

24000

95

$1.50

Year A

Year B

Year C

Year A

Year B

Year C

Year A

Year B

Year C

Typical Impacts of Productivity Improvement

As productivity improved Costs were decreased Wages increased

slide8

Measures of Productivity

Partial Output Output Output Outputmeasures Labor Machine Capital Energy

MultifactorOutput Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them

slide9

Labor Productivity

Units of output per labor hour

Units of output per shift

Value-added per labor hour

Machine Productivity

Units of output per machine hour

Value-added per machine hour

Capital Productivity

Units of output per dollar input

Dollar value of output per dollar input

Energy Productivity

Units of output per kilowatt-hour

Dollar value of output per kilowatt-hour

Examples of Partial Productivity Measures

slide11

Example 1

7040 Units Produced

Sold for $1.10/unit

Cost of labor: $1,000

Cost of materials: $520

Cost of overhead: $2000

Which productivity

measures can be

calculated?

What is the

multifactorproductivity?

slide12

Solution 1

MFP = Output

Labor + Materials + Overhead

MFP = (7040 units)*($1.10)

$1000 + $520 + $2000

MFP = 2.20

slide13

Example 2

5,500 Units Produced

Sold for $35/unit

500 labor hours are used

Cost of labor: $25/hr

Cost of raw material: $5,000

Cost of overhead: 2 x labor cost

What is the labor productivity?

What is the multifactor productivity?

slide14

Solution 2: Labor Productivity

  • 5,500 units/500 hours = 11 units/hour

Or we can arrive at a unitless figure:

  • (5,500 units*$35/unit)/(500 hours * $25/hr) =15.4
slide15

Solution 2: Multifactor Productivity

MFP = Output

Labor + Materials + Overhead

MFP = (5,500 units)*($35)

(500hrs.)*$25/hr. + ($5000) + 2*(500hrs.)*$25/hr.

MFP = 4.52

slide16

Example 3

  • You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms.
  • Which productivity measure should be used?
    • Answer: Could be classified as a Partial Measure.
  • Is productivity increasing or decreasing?
    • Answer: Last week’s productivity = 480/2000 = 0.24, and this week’s productivity is = 560/2400 = 0.23. So, productivity has decreased slightly.
slide18

Productivity Growth

Productivity Growth is a key factor in a contry’s rate of inflation and the standard of living of its people

example 4
Example 4

Labor productivity on the ABC assembly line was 25 units per hour in 2006. In 2007, labor productivity was 23 units per hour. What was the productivity growth from 2006 to 2007?

slide22

Measurement Problems

  • Quality differences may distort productivity measurements
  • External elements may cause an increase or decrease in productivity
  • Precise units of measure may be lacking
  • Technological differencesmay lead to misleading results.
slide23

Productivity improves when firms:

  • Become more efficient
  • Downsize
  • Expand
  • Retrench
  • Achieve breakthroughs
slide24

Factors Affecting Productivity (1 of 3)

  • Standardization
  • Technology
  • Use of Internet, fax machines, e-mail, computerized billing, software
  • Searching for lost or misplaced items
  • Scrap rates
  • Labor turnover, layoffs, new workers
  • Safety
  • Bottlenecks
slide25

Methods

Quality

Technology

Management

Factors Affecting Productivity(2 of 3)

  • Methods
  • Design of the workspace
  • Incentive plans that reward productivity
  • Capacity utilization
  • Location
  • Layout
  • Inventory
  • Scheduling
factors affecting productivity 3 of 3
Factors Affecting Productivity(3 of 3)
  • Shortage of IT workers and other technical workers
  • Equipment breakdowns
  • Part and material shortages
  • Inadequate investment in training & education of the employees
slide27

Key Steps for Improving Productivity

  • Develop productivity measures for all operations
  • Determine critical (bottleneck) operations
  • Develop methods for productivity improvements
  • Establish reasonable goals
  • Get management support (make it clear that management supports and encourages productivity improvements.)
  • Measure and publicize improvements
  • Invest on labor force by training and education

(Don’t confuse productivity with efficiency)

slide28

10/hr

Machine #1

10/hr

Bottleneck

Operation

30/hr

Machine #3

10/hr

Machine #4

10/hr

Bottleneck Operation

Machine #2

service productivity
Service Productivity
  • Typically labor-intensive as in teaching
  • Frequently individually processed (doctors)
  • Often an intellectual task is performed by professionals (medical diagnosis)
  • Often difficult to mechanize or automate (haircut)
slide30

Service Sector Productivity

  • Service sector productivity is difficult to measure and manage because
    • It involves intellectual activities
    • It has a high degree of variability
  • A useful measure related to productivity is process yield
slide31

7 –

6 –

5 –

4 –

3 –

2 –

1 –

0 –

-1 –

-2 –

-3 –

US

Germany

Japan

| | | | | | | | | | | |

‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 2001

Productivity in the ‘90s

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