The terms ‘production’ and ‘productivity’ are not
inter-changeable and it would be a mistake to assume that higher production
will necessarily result in higher productivity.
In the competitive market of
today, it is important to the success of your business that you increase
productivity levels.
So what is meant by ‘production’? Production is the manufacture of goods or
provision of services with the help of resources such as buildings, machinery
and manpower and transforming raw materials and components or service skills
into the required end products. However,
the emphasis is on quantity rather than on how well or otherwise the input is
utilised.
What is meant by ‘productivity’? Productivity is a measure of
output for some measure of input: maintenance visits per
hour of direct labour; cakes sold per hour of shop assistant labour; boxes
produced per square metre of steel or Helpdesk
calls closed per man-month.
It can apply to a person, a department, a company, an
industry or even a country. For your
business you can choose whatever measures are most useful
Why is productivity important? Productivity
has huge impact on profitability as shown in the table below. The company has 8,000 hours per year of
productive labour. The budget is based
on these hours producing 100 items which results in a 10% profit.
|
|
Budget
|
Productivity higher
|
Productivity lower
|
|
Volume produced
|
100
|
110
|
90
|
|
Sales revenue
|
£100,000
|
£110,000
|
£90,000
|
|
Labour hours used
|
8,000
|
8,000
|
8,000
|
|
Labour cost
|
£80,000
|
£80,000
|
£80,000
|
|
Gross margin
|
£20,000
|
£30,000
|
£10,000
|
|
Overheads
|
£10,000
|
£10,000
|
£10,000
|
|
Profit
|
£10,000
|
£20,000
|
£0
|
|
Productivity
|
80 hours/item
|
73 hours/item
|
88 ours/item
|
So a 10% improvement in productivity (each person on average producing 10% more in a given period) results in a doubling of profit; a 10% deterioration in productivity results in no profit at all.
The same model would apply if the cost were raw material
(the efficiency in this case being yield or, conversely, wastage) or machine
time (utilisation). This approach
applies to services as well as to products.
How can productivity be improved?
-
Decide what it is you produce (the output) –
this may not be obvious in a service business
-
Identify the main costs or resources utilised in
production (the inputs)
-
Define your productivity measure(s) – in the
above table it is labour hours/item
-
Monitor productivity over time and between
different employees or resources
-
If the main productivity factor is labour then
improvements can be made in training, supervision, communication,
standardisation, documentation, tools, systems or support
-
For non-labour measures examine product or
process design
