MODIFIED MULTIFACTOR PRODUCTIVITY APPROACH TO
MEASURE PRODUCTIVITY OF OPERATIONS
by Balbinder S. Deo (2004)
Shivani M. Gupta(082)
Motto of an Organization: How can the desired quality product be produced for the least cost?
This fundamental question tightly links the productivity of operations to cost of operations which is “Productivity is the inverse of cost”, if the relationship is described in a formal logic
Managers and other engineering professionals involved with the actual work, generally work on physical resources and most often, they use physical units to measure productivity and to measure the effect of improvements made, with the assumption that the improvements shown in physical productivity measures means improvement in overall productivity of the system and that assumed to mean reduction in the cost of production
The type of productivity measures that involve physical units of output and physical units of resource inputs, such as quantity of materials as inputs and quantity of units as output, are partial productivity measures and improvements shown in terms of partial productivity measures may not translate in terms of reduction in the cost of production
The possible reason for not using cost as a unit of measure by engineering professionals for measuring productivity may be
– lack of training in cost measurement methods
– lack of appropriate costing methodology designed specifically to meet the information needs of shop floor management
– The available existing methodologies are more appropriate to meet the information needs of higher levels of management as most often they are interested to get the cost information at a plant level and /or at a corporate level
Managerial professionals tend to measure productivity in terms of units of output per unit $ input basis and multifactor productivity measure is one of the common measures that help provide productivity information in $ terms to management
of productivity =
Units of output/
(Labor + Capital + Material)
– Labor includes both skilled and unskilled labor.
– Capital includes machinery, equipment, and other fixtures that are used to produce goods and services, sometimes also includes land and buildings
– Material includes any kind of raw materials that go as an input and or as a part of input that gets converted to outputs.
Labor, capital and materials model creates some problems for common users of multifactor measure of productivity.
Labor, capital and materials as input categories are defined in a general sense. It requires an analyst to have a background in the field of economics to understand and use these concepts to measure productivity. b)
Labor, capital and materials as inputs in general sense can
measured more logically at the firm level as compared
to the operation
level, because at the firm level total cost
of labor (Skilled and unskilled),
capital (All type), and material (All type) can be easily measurable than at the operation level.
MULTIFACTOR PRODUCTIVITY MODEL MODIFIED
• Deo & Strong (2003) [proposed 8-factor input model to measure the cost of any operation in a system of operations
• The 8-factor model is not only based on the structural components of an operation (Such as building, capital equipment, and labor) but also on the content (Primary input material on which operation is performed) and context related components (Such as supplies, utilities and other services required to maintain and operate the working environment of a system of production)
ppliers to deliver the quality material as and when required (Just-in-time
Cost information generated using 8-factors, shown in 8 equations, will help bring in the hidden expenses into cost equations which are not directly and explicitly represented in traditional labor, capital and...
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