Operations Management: Productivity Measurement Solved Problems: Today we will discuss the productivity, productivity challenges, how to measure productivity for a project/process and how to improve it. Basically, productivity is the ratio of outputs to inputs. Here outputs include goods and services and inputs includes resources such as material, labor, management, and capital. Therefore to improve efficiency, operations manager always focus on improving productivity. In this post, we are sharing solved examples such as productivity Measurement solved problems.
Productivity Measurement / Management
Productivity Management (P. M) = Output / Input
By observing the equation, we can improve the productivity in two ways:
- Reduce the Input and keeping the output constant
- Reduce the Output and keeping the Input constant
Measurement of productivity is an excellent way to predict the efficiency of the plant/process in a company. Here we are going to learn how to measure productivity.
Productivity = Units produced/labor hours used
For example: If the unit produced are 2000 and labor hours are 200 then,
Productivity = Units produced/labor hours used = 2000/200 = 10 units per labor hour
In this example, we used just one input resource but most of the cases we make use of the number of other inputs also such as management, the capital.
Single Factor Productivity: Indicates the ratio of one resource (input) to goods/services produced (output)
P.M = one output / one input
Multi-Factor Productivity: Indicates the ratio of more than one resource (input) to goods/services produced (output)
P.M = output / more than one input = output / (capital + management + labor + material + energy + other)
Productivity Measurement Solved Problem # 1
Collins Title wants to evaluate its labor and multi-factor productivity with a new computerized title search system. The company has a staff of four, each working eight hours per day ( for a payroll cost of $640 / day ) and overhead expenses of $400 per day. Collins processes and closes on 8 titles each day. The new computerized title search system will allow the processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day. Calculate the change in productivity.
First, we will check the labor productivity with the old and new system.
Labor productivity with old system: Output/input
Output with old system = 8 titles per day
Input with old system = no. of labors * labor hour = 32 labor hour
Hence , Labor productivity with old system = 8/ 32 = .25 titles per labor hour
Labor productivity with the new system: Output/input
Output with new system = 14 titles per day
Input with new system = no. of labors * labor hour = 32 labor hour ( staff is kept constant as given )
Now we will calculate multi-factor productivity with both old and new systems.
Multi factor productivity with old system : output / more than one input
Output = 8 title per day
Input = Payroll cost + overhead expenses = $ (640+400)
Hence , Multi factor productivity with old system : 8 title per day / $ (640+400) = 0.0077 titles per dollar
Multi factor productivity with new system : output / more than one input
Output = 14 title per day
Input = Payroll cost + overhead expenses = $ (640+800)
Hence , Multi factor productivity with new system : 14 title per day / $ (640+800) = 0.0097 titles per dollar
With the installation of new system, labor productivity has increased from 0.25 to .4375 is (.4375 -.25) / .25 i.e .75 . The percentage change in labor productivity is 75 %. The Multifactor productivity has also increased from .0077 to .0097 titles per dollar. The change is (0.0097- 0.0077)/0.0077 = .26 or we can say the change is 26% .
In this case, the single factor, as well as multifactor productivity measures, shows an increase in productivity. However, the better picture regarding any changes is shown by multifactor productivity, the reason being that it includes all the factors and costs connected with an increase in output.
This is one the basic example of productivity measurement as it has significant importance when you study operations management and has a lot of practical implementation. To get more assignments solved numerically related to product management and measurement, stay tuned as we are going to upload slide shares and pdf to download.
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