Page 125 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Production and Operations Management

Notes production input in a unit of time. Average economic productivity is computed by dividing
output value by (time/physical) units of input. If the production process uses only one factor
(e.g., labour) this procedure gives the productivity of that factor, in this case, labour productivity.
This was explored in the example we attempted earlier.

6.2.2 Multiple Factor Productivity

Labour Productivity is only based on observations of volume product outputs and inputs for
labour. While the example illustrates the method for calculating productivity, it did not consider
that most operations have more than one input and more than one output. In an economic sense,
the inputs are:
1. Labour as managers, workers, and externally purchased services,
2. Capital for land, facilities, and equipment, and

3. Materials, including energy requirements.
The importance of these factors may vary widely for companies producing different products.
Multiple factor productivity accommodates more than one input factor and more than one
output factor when calculating overall productivity. With multiple factor productivity, the
outputs can be measured either in money terms or the number of units produced, provided the
units can be measured in the same units.
Multiple Factor Productivity = Output (units or value of units)/[Labor + capital + materials +
energy + other]
When more than one input is used for each factor, it is called ‘partial’.
Practical Example:
ABC ltd. has two productive units Unit 1 and Unit 2. The Output for Unit 1 is 6000 units and for
Unit 2 is 8000 units per month. In unit 1 there are 50 workers working and in unit 2, there are 80
workers working. Each worker is paid the wage of ` 100 each per month. The capital, material,
energy and other costs for unit 1 and unit 2 is ` 5000 and ` 8000 per month respectively. The value
of 1 unit produce by both the units is ` 20. Calculate and compare the multiple factor productivity
of both the units of ABC Ltd.
Solution:

6000 × 20 120000
Multiple factor productivity value of unit 1 (in `) = = ` 12
(50 × 100) + 5000 10000

8000 20 160000

Multiple Factor productivity value of unit 2 (in `) =  = ` 10
(80 100)  8000 16000

Practical Example:
Unitech textiles ltd. has two productive units located at Ludhiana and Varanasi. The Output for
Ludhiana Unit is 10000 units and for Varanasi Unit is 8000 units per month. In Ludhiana unit
there are 100 workers working and in Varanasi unit, there are 70 workers working. Each worker
is paid the wage of ` 200 per month at Ludhiana unit and ` 250 per month at Varanasi unit. The
capital, material, energy and other costs for Ludhiana unit and Varanasi unit is ` 20000 and
` 12500 per month respectively. The value of 1 unit produce by Ludhiana unit ` 200 and Varanasi
unit is ` 300. Calculate and compare the multiple factor productivity of the Ludhiana and Varanasi
units of Unitech textiles ltd.

120 LOVELY PROFESSIONAL UNIVERSITY