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Productivity

Outputs Productivity = Inputs

Single-factor measures
Output / (Single Input)

All-factors measure
Output / (Total Inputs)
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Measures of Productivity

Single-factor Output measures Labor

Output Machine

Output Capital

Output Energy

All-factors measure

Output All inputs

Single Factor

Single-factor Output measures Labor

Output Machine

Output Capital

Output Energy

If we produce only one product, the numerator can be either the total units of the product or the total $ value of the product. If we produce several products, the numerator is the total $ value of all products. The denominator can be the units of input or the total $ value of input.
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Example: Single Factor Productivity

10,000 Units Produced Sold for $10/unit

500 labor hours

Labor rate: $9/hr

What is the labor productivity?

Example: Labor Productivity

10,000 units / 500hrs = 20 units/hr

(10,000 units * $10/unit) / 500hrs = $200/hr

10,000 units / (500hrs * $9/hr) = 2.2 unit/$ (10,000 units * $10/unit) / (500hrs * $9/hr) = 22.22 The last one is unit-less
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Some Single Factor Measurements Labor Productivity

Quantity (or value) of output / labor hrs Quantity (or value) of output / shift

Machine Productivity
Quantity (or value) of output / machine hrs

Energy Productivity
Quantity (or value of output) / kwh

Capital Productivity Quantity (or value) of output / value of input

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All Factors
All-factors measure Goods or Services produced All inputs used to produce them

If we produce only one product, the numerator can be either the total units of product or total $ value of the product.
If we produce several products, the numerator is the total $ value of all products. Usually, the numerator is the total $ value of all outputs.

The denominator is total $ value of all inputs.

Example
10,000 Units Produced

Sold for $10/unit

500 labor hours Labor rate: $9/hr Cost of raw material: $30,000 Overhead: $15,500
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Example : All-Factor Productivity Output Labor + Materials + Overhead (10,000 units) * ($10) (500)*($9) + ($30,000) + ($15,500)

AFP =

AFP =

AFP = 2.0

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What are the factors that affect productivity?

Training

Methods

Technology

Management

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Assignment 1.1.. Due at the beginning of the next class

1. A company that makes shopping carts for supermarkets recently purchased new equipment, which reduced the labor content needed to produce the carts. Information concerning the old system (before adding the new equipment) and the new system (after adding the new machines) includes: Old System 80 5 10 40 New System 84 4 10 50

Output/hr Workers Wage $/hr Machine $/hr a) b) c)

Compute labor productivity for both the Old System and the New System. Compute AFP productivity for both the Old System and the New System. Suppose production with old equipment was 30 units of cart A at a price of $100 per cart, and 50 units of cart B at a price of $120. Also suppose that production with new equipment is 50 units of cart A, at a price of $100 per cart, and 30 units of cart B at a price of $120. Compare all-factor productivity for the old and the new systems.
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Assignment 1.2.. Due at the beginning of the next class

2. A company has introduced a process improvement that reduces the processing time for each unit and increases output by 25% with less material but one additional worker. Under the old process, five workers could produce 60 units per hour. Labor costs are $12/hour, and material input was $16/unit. For the new process, material input is now $10/unit and overhead is charged at 1.6 times direct labor cost. Finished units sell for $31 each. a) b) Compute single factor productivity of labor in the old system. (Compute it in four possible ways.) Compute all factor productivity for both old and new systems. Factor
Output # of workers Worker cost Material Overhead Price

Old System
60 5 $12/hr $16/unit 1.6(labor cost) 31

New System
60(1.25) = 75 6 $12/hr $10/unit 1.6(labor cost) 31
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Assignment 1.3 For your own practice

3. A milk factory seeks advice from an external consulting company concerning its business and production processes. The final consulting report describes several steps to increase productivity including implementation of cutting-edge processing techniques through more powerful filtering systems. Existing System Workers Milk Output/hour Wage Rate/hour Filtration Cost/hour a) b) c) 12 1,000 gallons $12 $120 Proposed System 9 1,400 gallons $12 $170

Calculate the labor productivity for the existing as well as the proposed system. Find the All-Factor Productivity for both systems. Assume that current processing includes 700 gallons of Grade-A milk sold at $2.40/gallon and 300 gallons of Grade-B milk at $1.90/gallon. Furthermore, assume that under the proposed system, processing will include 600 gallons of Grade-A milk at $2.40/gallon and 400 gallons of Grade-B milk at $1.90/gallon. Compare all-factor productivity for both the existing and the new system.
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