Productivity Measurement Methods

The equations of various productivity measurement methods are given below:-

A. Physical Productivity Measurement Method:-

Labor Productivity = (volume of output) / (Volume of labor input)

Material Productivity = (volume of output) / (Volume of material input)

Machine Productivity = (Volume of output) / (Volume of machine input)

Energy Productivity = (Volume of output) / (Volume of energy input)

Total Physical Productivity = ( Total volume of outputs) / (Total volume of all inputs)


B. Value Productivity Measurement Methods

This method uses the value of outputs and inputs as data for calculating productivity. Value productivity can be measured in following ways:

Labor productivity = (Value of output) / (Labor input (value))

Material productivity = (Value of output) / (Value of material input)

Capital productivity = ( Value of outputs) / (Capital inputs)

Machine productivity = (Value of output) / (Value of machine input)

Energy productivity = (Value of output) / (Value of energy input)

Total productivity = (Total value of all outputs) / (Total value of all inputs)


C. Value-added Productivity Measurement Method

This method uses value-added (expressed in monetary units) as data for calculations where

Value-added = current income (before tax) + personal expense + financial loss + rent + tax + depreciation cost

Value added productivity measurement method is used in organizations that have highly diverse outputs or have very expensive raw material. It is suggested to use in garment industry as the raw material contributes more than 70% of cost of manufacturing of a garment. Data for value added computation are taken from the financial statement, small garment enterprise could use physical and value productivity measurement methods.

Labor productivity = (value-added) / (Labor input)

Capital productivity = (Value-added) / (Capital)

Interpretation of Productivity Data

Many a times productivity communication can lead to wrong interpretations or conclusions. When productivity is calculated using partial measures like labor or machine, it does not mean that the productivity index reflects the productiveness of that particular product only. Contribution of each of these inputs to a substandard productivity performance is difficult to ascertain. To avoid misinterpretations, while using partial productivity measures, productivity is calculated in relation to different inputs like operator, total labor, machine, energy and material in terms of physical as well as value productivity.

Productivity data if not fully analyzed, may lead to costly mistakes. It is also possible that people may wrongly use the productivity data for their personal or departmental gain. These problem arise when the productivity measurement is not an organization wide activity. Such as by using highly skilledĀ  (high wage) sewing operator for a particular job, labor productivity measured in physical units produced per shift may go up. But when the input of labor is measured in relation to the cost of labor in place of time of labor inputs, the story may be completely different.

How managers can be short sighted and not be careful enough to think of overall productivity or the profitability of the organization is well illustrated in the best seller ‘Re-engineering the Corporation’ (Hammer and Champy, 2001). The author says

Often efficiency of a company’s parts comes at the expense of the efficiency of its whole. A plane belonging to a major US airline was grounded one afternoon for repairs at airport A, but the nearest mechanic qualified to perform repairs worked at airport B. The manager at airport B refusedĀ  to send the mechanicĀ  to airport A that afternoon, because after completing the repairs, the mechanic would would have had to stay overnight at a hotel and the hotel bill would come out of manager B’s budget. Instead, the mechanic was dispatched to airport A early the next morning; this enabled him to fix the plane and return home the same day. A multinational dollar aircraft sat idle, and the airline lost hundreds of thousand of dollar in revenue, but manager B’s budget wasn’t hit for $100 hotel bill.”

Similar situations can very well be experienced in apparel factories. the organizations have to make sure that such costly mistakes are not committed under the name of productivity improvement.