Productivity

What is Productivity?

The least controversial definition of productivity is

that it is a quantitative relationship between output
and input

(Iyaniwura and Osoba, 1983, Antle and Capalbo, 1988).

• One, the definition suggests what productivity
is thought of to be in the context of an
enterprise, an industry or an economy as a
whole.

• Two, regardless of the type of production,

economic or political system, this definition of
productivity remains the same as long as the
basic concept is the relationship between the
quantity and quality of goods and services
produced and the quantity of resources used to
produce them (Prokopenko, 1987).
• Eatwell and Newman (1991) defined
productivity as a ratio of some measure of
output to some index of input use. Put
differently, productivity is nothing more
than the arithmetic ratio between the
amount produced and the amount of any
resources used in the course of production.
This conception of productivity goes to
imply that it can indeed be perceived as the
output per unit input or the efficiency with
which resources are utilized (Samuelson and
Nordhaus, 1995).
• Olaoye (1985) observed that productivity as a
concept can assume two dimensions: namely
total factor productivity (TFP) and partial
productivity. The former relates to productivity
that is defined as the relationship between
output produced and an index of composite
inputs; meaning the sum of all the inputs of
basic resources notably labour, capital goods
and natural resources.
 Some common misunderstandings exist about
productivity.
• First, productivity is not only labour efficiency
or labour productivity even though; labour
productivity statistics are essentially useful
policy-making data. Productivity is much more
than just labour productivity and needs to take
into account other inputs involved in the
production process.
• Two, productivity is not the same as increase in
output or performance.
• The third misconception about productivity is the confusion
between productivity and profitability.
• Profitability is a function of the extent of price recovery,
even when productivity has gone down.
• High productivity may not always go with high profit if
goods and services produced efficiently and effectively are
not in demand.
• Confusing productivity with efficiency or effectiveness can
equally cloud the meaning of productivity. Efficiency means
producing high-quality goods in the shortest possible time. It
is important to ask if goods produced efficiently are actually
needed. Also, effectiveness refers more to the production of
results.
• The concept of productivity is also
increasingly linked with quality.
• The importance of social side of
productivity has increased considerably.
• In a nutshell, productivity is concerned with
efficiency and effectiveness simultaneously.

• Lawlor (l985) sums up productivity as

comprehensive measures of how efficient and
effective an organization or economy satisfies
five aims: objectives, efficiency, effectiveness,
comparability and progressive trends. No
matter how it is perceived, productivity implies
that there is an incremental gain in what is
produced as compared with the expenditure on
measures utilized.
 The Significance of Productivity

• The importance of productivity to economic

growth and development can hardly be over-
emphasized. It remains the basic problem of
economic progress, as it is required at both the
early stages of development as well as in the
permanent process of re-equipping the
production apparatus of any nation.
• At the level of an individual, it is rational to
argue that, the standard of living of any man is
the extent to which he is able to provide himself
and his family with the things that are necessary
for sustaining and enjoying life. The greater the
amount of goods and services produced in any
economy or imported into such economy, the
higher its average standard of living will be.
• At the national level, steady growth in
productivity guarantees non-inflationary
increases in wages as well as solves pressing
problems of unemployment, increased trade
deficit and an unstable currency (exchange rate).
• In business, productivity improvements can lead
to more responsive customer service, increased
cash flow, and improved return on assets and
greater profits.
 MODEL FOR A LOW-
PRODUCTIVITY TRAP
Low productivity
Growth

Lagging Capital
Rising Prises
Formation

Lower Utilization of Rising unit(labour

domestic plant and energy cost)
capacity

Sluggish Sales
 Productivity in industry
• Many factors affecting productivity of each
organization; also, they are dependent.
• Depending on the individual environments, decisions
are to be made.
• Industries where labor and capital costs are low
compared to the material costs, better use of material
and plant gives the greatest scope of cost reduction.
• In countries where capital and skilled labor are in
shortage compared to unskilled labor, one should look
to increase the output per machine or per skilled
worker. Increasing the number of unskilled workers
may be beneficial if by doing so an expensive machine
or skilled craftsmen are enabled to increase production.
 Government’s responsibility
• Government can create conditions favorable to
raise productivity. It can:
1. Have a balanced programs of economic
development
2. Take steps necessary to maintain employment
3. Make opportunities for employment.
 Management’s responsibility
• The main responsibility for raising productivity in an
individual organization lies with the management.
• It can implement productivity programs.
• It can create a positive environment and obtain co-
operation of the employees.
• Trade unions should encourage its members to provide
such co-operation when the productivity program is
beneficial to workers, as well as the organization on the
whole.
 Productivity of material
At the design stage:
• Ensure least consumption of material,
• Purchase equipments and plants such that consumption of
material is economical.

At the operation stage:

• Use of correct process
• Right use of the process
• Operator training
• Proper handling and storage of products at all stages
• Proper packaging to reduce damage in transit
 Productivity of land, machines and
manpower
• Effective utilization and maximum productivity is an
important source of cost reduction.
• Reduction in the original specification, before the land is
purchased saves capital outlay (as well as interest
expenses)
• A savings in material which has to be imported saves
import duty and excise.
Productivity of manpower and machines is typically
measured in terms of time (man-hours; machine-hours).
 Factors tending to reduce productivity
Work content added due to the product for a
manufacturing firm:
• The product or its components are designed such that it
is impossible to use most economical manufacturing
processes.
• Excessive variety or lack of standardization.
• Incorrect quality standards.
• Excessive amount of material removal required.
Factors tending to reduce productivity

Work content added due to process

• Incorrect production process (and/or machine)
used
• Process not operated properly
• Non-optimal layout with wasted movements.
• Working methods of operation causing wasted
movements, time and efforts.
 Factors tending to reduce productivity
Ineffective time due to management
• Marketing policy which demands unnecessarily large
number of products.
• No standardization of components between as well as
within products.
• Failing to meet customer’s requirement from the
beginning.
• No plan for flow of work.
• Improper supply of material, equipment.
• Improper maintenance of plant and machines.
• Insufficient safety measures.
• Improper working conditions resulting in interrupted
work.
 Factors tending to reduce productivity

Ineffective time within the control of worker

• Taking time off without good cause: by
lateness, by idling at work etc.
• Careless workmanship causing scrap or
rework.
• Failing to observe safety standards.
 Productivity Improvement Factors

• Productivity improvement is not just doing

things better : more importantly ,it is doing
the right things better.
 Productivity Factor Groups
• Job-related
• Resource –related
• Environment-related
Categories of Productivity Factor
• External (Non controllable)
• Internal(Controllable)
 Internal Factors of Enterprise
Productivity
• Hard Factors(not easily changed)
• Soft Factors(easily changed)
 Hard Factors
• Product
– Product factor productivity means the extent to
which the product meets output requirements.
• Use value
• Place value
• Time value
• Price value
 Hard Factors
• Plant and equipment
– Good Maintenance
– Operating the plant and equipment in optimum
process condition
– Increasing plant capacity by eliminating bottle-
necks and by corrective measures
– Reducing idle time and making more effective
use of available machines and plant capacities.
 Hard Factors
• Technology
• Materials and Energy
– Material Yield
– Use and control of wastage and scrapping
– Upgrading of materials by initial processing to improve
utilization in the main process
– Use of Lower grade and cheaper materials
– Import Substitution
– Improving inventory turnover ratio
– Inventory management
– Developing sources of supply
 Soft Factors
• People
– Each role has two factors
• Application
– Application is the degree to which people apply
themselves to their work.
• Effectiveness
– Effectiveness is the extent to which the application of
human effort brings the desired results in output and
quality.
 Soft factors
• Organisation and Systems
– Rigidity
– Compartementation
• Work Methods
– Management Styles
External factors affecting Enterprise
Productivity
• Structural Adjustments
– Economic Changes
• Employment shifts from agiruclture to
manufacturing
• Move from manufacturing to service
• Variations in the composition of capital
• Impact of R&D and technology
• Economies of Scale
External factors affecting Enterprise
Productivity
• Manpower
• Land
• Energy
• Raw Materials
• Government and Infrastructure
– Practices of government agencies, reulations,
transport and communications, power, fiscal
measure and incentives
 Sales Output

Total No of Employees+ Capital+External Expenses

Average Earnings per annum