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Topic—2. Productivity and System Performance. What is Productivity ?. Definition: Productivity--- is the relationship between the output generated and input provided to create this amount of output during the measurement period. (Sink, 1985)

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topic 2


Productivity and System Performance

what is productivity
What is Productivity ?
  • Definition:

Productivity---is the relationship between the output generated and input provided to create this amount of output during the measurement period. (Sink, 1985)

Productivity---is the linkage between resources and results: how efficiently organizational resources are managed in achieving performance objectives. (Groff,1986)

what is productivity1
What is Productivity ?

Productivity---is a measure of efficiency and computed as the ratio of output divided by input.

Productivity = output/input

(e.g. 100 units/machine-hour, in


20 customers/teller-hour, in service)

measurement of productivity
Measurement of productivity
  • Productivity measurement: important but difficult.
  • Measurement of output:

1. aggregate unit

2. dollar sales

3. production volume

  • Measurement of input:

1. labor 2. capital

3. raw material 4. energy

5. information

measurement of productivity1
Measurement of productivity
  • Partial productivity index: (output/single input)

labor productivity: output/labor hour

capital productivity: output/capital

  • Total factor productivity (TFP) index:

TFP=output/all inputs (labor + capita l+

materials +……)

major issues in productivity measurement
Major issues in productivity measurement
  • Validity: Dose it Measure what it is supposed

to Measure?

  • Reliability: Is the Measure Consistent over Time?
why total factor productivity
Why total factor productivity?
  • Market competition: A need for a valid, reliable, accurate, complete, comprehensive and cost effective productivity measurement.
  • Market changing trends:

1. cost structure change

2. method of allocating fixed cost change

3. product life cycle length change (shorter)

4. new product innovation rate change (higher)

5. production more dynamic oriented

why total factor productivity1
Why total factor productivity?

How to calculate TFP?

  • More complicated than single partial productivity index.
  • There are several formulae suggested in the literature.
productivity and system performance
Productivity and System Performance
  • Productivity is a secondary measure of the overall performance for an organization.
  • “Effectiveness” vs “Efficiency”:

Effectiveness—Do the “Right” things

among alternatives.

Efficiency---Do things in the “Right” way.

  • Productivity is a measure of “Efficiency” for

a Production Facility.

productivity and system performance1
Productivity and System Performance
  • “High Productivity” may not Necessarily Provide Competitive Advantages for a Firm in the Marketplace.
  • A firm may compete based primarily on some other criteria (e.g. quality) than “price”.
ford motor company example
1. From 1910-1925, through technology development/labor specialization/……, Ford improved the productivity of their Auto-Assembly Line significantly. Their average production cost was reduced from $4,000 to $1,000. Ford was the most Efficient Car-Maker in the world at that time.Ford Motor Company Example
ford motor company example1
Ford Motor Company Example
  • 2. In 1930, Ford had to shut down their production line. Ford was still the most Efficient Car-Maker in the world, but they lost the Competitive Advantages in the Marketplace.
seven major system performance measures
Seven major system performance measures
  • 1. Effectiveness
  • 2. Efficiency
  • 3. Profitability
  • 4. Quality
  • 5. Productivity
  • 6. Quality of work life
  • 7. Innovation
alternative order wining criteria in the marketplace
Alternative Order-Wining Criteria in the Marketplace
  • 1.Cost leader (e.g. McDonald in the fast food)
  • 2.Unique feature of products/services
  • 3.Variety of products/services (e.g. IBM in computer)
  • 4.High quality (e.g. HP in Electronics)
  • 5.New product introduction leader (e.g. Poloroid)
alternative order wining criteria in the marketplace1
Alternative Order-Wining Criteria in the Marketplace
  • 6.Flexibility to Market changes
  • 7. product customization (e.g. Wendy in

Fast Food)

  • 8.Delivery Speed
  • reliability ( e.g. Federal Express

Overnight Mail)

  • 10. ……………………