Page 126 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Unit 6: Productivity

Solution: Notes
10000 200 2000000

Multiple factor productivity value of Ludhiana unit (in `) =  = ` 50

(100 200)  20000 40000
8000 300 2400000

Multiple Factor productivity value of Varanasi unit (in `) =  = ` 80
(70 250)  12500 30000


Example: The Partial Productivity Index of labour is measured by dividing the market
value of goods and services produced during the year in the economy as a whole or a particular
industry or a firm and dividing it by the number of man-hours taken to produce the goods and
services.
Outputs are sometimes difficult to define and measure.

Example: The productivity of a fast-food restaurant could be measured in terms of
customers served per hour or by the number of items sold. Both the measures can be misleading
because customers may order more than one item and restaurants sell various items (such as
drinks, sandwiches, and ice cream) that have different values.
Another issue is that even within the firm, customers of many processes are internal customers,
making it difficult to assign a rupee value to the value of process output. This raises three
important issues that can complicate how productivity is measured.
 How can you assign rupee values to different outputs within and external to the firm?

 How can multiple inputs with different economic values be included in the measurements?
 How can multiple outputs with different economic values be included in the measurements?

6.2.3 Total Factor Productivity

Total Factor productivity is the year-by-year change in the output where a number of factors are
taken into consideration. It is the attempt to construct a productivity measure for an aggregation
of factors. Such an aggregation requires additional hypothesis to make it meaningful. These
other factors consist not only of investment for education, training, research and development,
but also of non quantifiable factors such as the labour relations, climate and worker and
management attitudes towards productive efficiency and competitiveness.

Did u know? Total factor productivity is a more accurate indicator of the economic efficiency
of a firm, industry or nation than labour productivity.

There are some other limitations to the definition of “Total factor productivity”.

Example: It might be the investment made in human beings to raise the quality of
labour, or that made to improve productive knowledge through research and development or
by the introduction of organizational, managerial and social innovations.

Economic productivity will depend also on pricing and demand. If consumers require fewer
products than can be produced, plants will not work at full productive capacity. Thus, economic
productivity can well fall with decreasing demand and prices.

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