What Is Productivity?ByRaymond D. Matkowsky
It is essential to measure productivity properly and completely. All too often productivity is considered to be a labor cost problem. Productivity is not solely about labor costs. It is expressed by the unit labor cost to produce a unit of goods. However, productivity calculations should be based on all factors, direct and indirect. However, it is also clear that many industries continue to assume that productivity improvement is solely the result of direct labor costs.
The Bureau of Labor Statistics defines productivity as follows: “The measure describes the relationship between real output and the labor time involved in its production. They reflect the joint effects of many influences, including changes in technology; capital investment; level of output; utilization of capacity, energy, and materials; the organization of production; managerial skill; and the characteristics and effort of the work force.” This is a too restrictive definition. To this I would add savings and sales methods among many other factors that influence the value of your output. The value of your output is what you really are measuring even though it is expressed in terms of labor input.
Throughout most of the world the percentage of the population that is in the workforce has been going down as more baby boomers retire. In order to keep productivity going up, you have to concentrate more effort on non-labor factors that increase the value of your product.
Labor Accounts For Only A Portion Of Productivity
In many industries, labor only accounts for as little as 10% of a product’s final cost. Even in industries where labor accounts for the majority of costs, it seldom, if ever, accounts for 100% of the costs. If you concentrate solely on labor, you will be ignoring potential improvements in other places. As the saying goes, “you will be leaving money on the table.”
One consequence of a post-recession economy is that productivity goes down. It goes down because remaining workers cannot produce more goods. They are at their productive maximum. The only way you can increase production is by hiring more people. But here is the rub, these new hires will not be as productive initially as your existing employees. They need time to develop productive work practices. To avoid having your productivity go down further, after a recession, you will need to raise the effects on productivity of non-labor factors. Raising those factors not only bridge the gap, but will also allow you to be more productive in the future as your new hires learn their jobs.
Non-labor Factors
Most people who have taken economics 101 have been introduced to the following equation:
Savings = Investment = Productivity
One of the easiest ways to raise productivity is to look for savings. Savings are all around us, we just have to look for them. Let me give you several real life examples of productivity enhancing savings. Remember, every penny saved goes right to your bottom line. It is pure profit with no costs associated with it! It also makes the productivity of your individual product greater because its value has increased.
A receptionist would observe a service picking up the day’s receipts and taking them to the bank. These people showed up daily around the time the bank would close-out its day. Therefore, deposits received by the bank would be credited the next day. She reasoned that if they would come in a little earlier, the deposit could be made before close-out and the company would gain one more day of interest. Over time this would add up to quite a bit.
During the production of batches, samples would be taken to the lab in small mason jars for quality control testing. These jars would subsequently be thrown out. This would occur several times a day and result in a large glassware cost. Instead, it was found to be cheaper to wash out the jars and reuse them thus cutting glassware outlays more than 75%.
A very interesting situation occurred with sales. This happened when a new employee was hired within the sales department of a company that sold communications equipment to both other businesses and consumers.
People would call inquiring about satellite receiving/transmission dishes. The new person would ask the calling party whether they were interested in the company’s “large” dish or the “smaller” version. This caused customer confusion and a precipitous drop in the sales (and a drop in productivity) of the company’s large dishes. It wasn’t until the previous employee was questioned that management discovered the need for immediate customer education to support sales. How things are phrased is important!
Productivity Is A Multifactor Component
Managers need to determine and list the effect of what factors in their particular situation that has the greatest impact on their shop’s productivity. Then, they could tackle each factor from highest to lowest. It is also important that everyone understands how these factors relate to each other. Changing one factor may result a change of effect in another for good or bad.
Increasing Productivity Increases Economic Growth
Increased productivity will drive economic growth, improving the economy. As the saying goes, “An increasing tide raises all boats.” If you wish to express productivity in terms of labor hours, that is fine. But, remember productivity is more than just direct labor.
If you have any further suggestions, do not keep it to yourself. Help your fellow readers!
If you have any questions, comments or suggestions drop me a line at rdm@datastats.com.
|
