1

2
Single-factor measures
Output / (Single Input)
All-factors measure
Output / (Total Inputs)
Productivity =
Outputs
Inputs
Productivity
3

Single-factor Output Output Output Output
measures Labor Machine Capital Energy


All-factors Output
measure All inputs
Measures of Productivity
4

Single-factor Output Output Output Output
measures Labor Machine Capital Energy

If we produce only one product, the numerator can be either
the total units of the product or the total $ value of the
product. If we produce several products, the numerator is
the total $ value of all products.

The denominator can be the units of input or the total $
value of input.
Single Factor
5
10,000 Units Produced

Sold for $10/unit

500 labor hours

Labor rate: $9/hr



What is the
labor productivity?
Example: Single Factor Productivity
6
10,000 units / 500hrs = 20 units/hr

(10,000 units * $10/unit) / 500hrs = $200/hr

10,000 units / (500hrs * $9/hr) = 2.2 unit/$

(10,000 units * $10/unit) / (500hrs * $9/hr) = 22.22

The last one is unit-less

Example: Labor Productivity
7
Labor Productivity
Quantity (or value) of output / labor hrs
Quantity (or value) of output / shift
Machine Productivity
Quantity (or value) of output / machine hrs
Energy Productivity
Quantity (or value of output) / kwh
Capital Productivity
Quantity (or value) of output / value of input
Some Single Factor Measurements
8
All-factors Goods or Services produced
measure All inputs used to produce them


If we produce only one product, the numerator can be either
the total units of product or total $ value of the product.

If we produce several products, the numerator is the total
$ value of all products.

Usually, the numerator is the total $ value of all outputs.

The denominator is total $ value of all inputs.
All Factors
9
10,000 Units Produced

Sold for $10/unit

500 labor hours

Labor rate: $9/hr

Cost of raw material: $30,000

Overhead: $15,500
Example
10
Output
Labor + Materials + Overhead
(10,000 units) * ($10)
(500)*($9) + ($30,000) + ($15,500)

AFP = 2.0
Example : All-Factor Productivity
AFP =
AFP =
11
Training Methods
Technology Management

What are the factors that affect productivity?
12
1. A company that makes shopping carts for supermarkets recently purchased
new equipment, which reduced the labor content needed to produce the
carts. Information concerning the old system (before adding the new
equipment) and the new system (after adding the new machines) includes:

Old System New System
Output/hr 80 84
Workers 5 4
Wage $/hr 10 10
Machine $/hr 40 50

a) Compute labor productivity for both the Old System and the New System.
b) Compute AFP productivity for both the Old System and the New System.
c) Suppose production with old equipment was 30 units of cart A at a price of
$100 per cart, and 50 units of cart B at a price of $120. Also suppose that
production with new equipment is 50 units of cart A, at a price of $100 per
cart, and 30 units of cart B at a price of $120. Compare all-factor productivity
for the old and the new systems.
Assignment 1.1.. Due at the beginning of the next class
13
Assignment 1.2.. Due at the beginning of the next class
2. A company has introduced a process improvement that reduces the
processing time for each unit and increases output by 25% with less
material but one additional worker.
Under the old process, five workers could produce 60 units per hour.
Labor costs are $12/hour, and material input was $16/unit.
For the new process, material input is now $10/unit and overhead is
charged at 1.6 times direct labor cost. Finished units sell for $31 each.

a) Compute single factor productivity of labor in the old system.
(Compute it in four possible ways.)
b) Compute all factor productivity for both old and new systems.

Factor Old System New System
Output 60 60(1.25) = 75
# of workers 5 6
Worker cost $12/hr $12/hr
Material $16/unit $10/unit
Overhead 1.6(labor cost) 1.6(labor cost)
Price 31 31
14
Assignment 1.3 For your own practice
3. A milk factory seeks advice from an external consulting company concerning its
business and production processes. The final consulting report describes
several steps to increase productivity including implementation of cutting-edge
processing techniques through more powerful filtering systems.









a) Calculate the labor productivity for the existing as well as the proposed system.
b) Find the All-Factor Productivity for both systems.
c) Assume that current processing includes 700 gallons of Grade-A milk sold at
$2.40/gallon and 300 gallons of Grade-B milk at $1.90/gallon. Furthermore,
assume that under the proposed system, processing will include 600 gallons of
Grade-A milk at $2.40/gallon and 400 gallons of Grade-B milk at $1.90/gallon.
Compare all-factor productivity for both the existing and the new system.
Existing System Proposed System
Workers 12 9
Milk Output/hour 1,000 gallons 1,400 gallons
Wage Rate/hour $12 $12
Filtration Cost/hour $120 $170