Page 127 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Production and Operations Management

Notes Another limitation of this definition is that ‘productivity’ defined in this manner does not
identify whether the change is due to new machinery or more skilled labour force. Both
technological and market elements interact to determine economic productivity.
However, mainly because of the difficulties involved in quantifying various intangible inputs
to total factor productivity, labour productivity is far more widely used. It is important to bear
in mind that labour productivity is affected not only by capital input but also by other factors
which affect the efficient use of both capital and hours of work.
Practical Example:
ABC private ltd. which manufactures steel plates has a plant located at Orissa. It gets the output
of 200000 units in 2007 and 270000 units in 2008. The expenses of the company in 2007 is ` 80000
and in 2008 ` 90000. However the company incurs additional expense of ` 10000 for training
programme of employees in 2008. Calculate the total factor productivity for the firm and check
out whether it is moving satisfactorily in right direction or not?

Solution:
200000
Total factor productivity in year 2007 is = = 2.5
80000

270000
Total factor productivity in year 2008 is = = 2.7
90000  10000

The total factor productivity for the company is moving in positive direction.
Practical Example:

WLC private ltd. which manufactures iron pipes has a plant located at Rourkela. It gets the
output of 1000000 units in 2009 and 1500000 units in 2010. The expenses of the company in 2009
is ` 200000 and in 2010 ` 220000. In 2010, the company incurs additional expense of ` 80000 for in
order to solve the dispute among the employee union and management with regard to the
creation of employee welfare fund . Calculate the total factor productivity for the firm for both
years?
Solution:

10,00,000
Total factor productivity in year 2009 is = = 5
2,00,000

15,00,000
Total factor productivity in year 2010 is = = 5
2,20,000  80,000

Self Assessment

Fill in the blanks:
6. The measures that are of relevance from the point of view of the operations manager are
labour productivity, multiple factor productivity and ……………… productivity.

7. Economic productivity will depend on pricing and……………… .
8. Average economic productivity is computed by dividing output ……………… by units of
input.

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