Measure productivity in the workplace today. All you need to understand are a few key terms and concepts!
The goal for any organization is to produce products or services that meet the needs of the customer at the lowest possible cost. To meet this goal, you first need to know how to measure productivity in the workplace. But first let’s review a few key terms and concepts.
During the course of work, shown in the figure below, we use resources within the context of a process to create output consistent with the needs of the customer.
Sometimes, the output needs to change to stay competitive. This usually means the output needs to meet a lower price. The only way to meet this is by changing or improving the resources, process of work or both.
Service Center Case Study
Let’s look at a simple example of a service call center where management wants to handle more incoming calls. In this example, one person responses to 50 inquires during their scheduled work shift.
Since management wants to handle more inquires they approve more overtime. This overtime results in a net increase of 5 more inquires.
By increasing the hours worked, not only did the output increase, so did the cost of the resources. So what effect did this increase in resources have on production, productivity and the cost of the output? Let’s look at this further, but to do so we need to define the difference between production and productivity.
What is Production?
Production is the net change in the output and we can express it as a percentage.
What is Productivity?
Productivity is a ratio of output to resources and we can also express this as a percentage.
Let’s Define Output
The output is usually expressed as the number of units in a given time – it’s a measure of production. This could be the number of manufactured widgets per shift. It could be the total number of packages delivered in a day. It could be the volume of a fluid dispensed in a day. It really depends on how your company counts its production.
Let’s Define Resources
Resources are often separated into machinery, materials, and manpower. Machinery is a broad category. It includes all types of machines such as: devices, equipment, vehicles, hardware, and software. These resources are the tools people use to do work to make a product or the delivery of a service. Materials are consumables. They get transformed during the course of work. They include: raw materials, semi-processed material (work in progress), and energy (utilities). Manpower includes labor and salaried people used to do work.
Call Center Case Study
Having defined production and productivity, we can return to our example. As shown in the table below, production increased by 10%. But productivity dropped by 12% and the cost of the output increased by 25%.
An increase in production helps meet an increase in demand, but it added more cost. In this case, more overtime caused productivity to drop. When demand increases, balance an increase to production with a need to keep up productivity. This will assure your costs are better managed.
This example points out a problem Canadian companies face when selling their products to the United States.
When sales and output costs are in US and Canadian dollars, the exchange rate can often result in profit. This is true when the Canadian dollar is below the US dollar. In this case, increases in production are often tolerated even though it results in higher output costs and lower margins. When the exchange rate is the same the exchange rate profit disappears. Without it, companies can only survive on healthy margins. If they continue to use more resources to meet production demand they will inflate the cost of the output and cuts margins further. This leads to poor productivity and makes Canadian exports to the United States uncompetitive. This is what happened post 2004 when the exchange rate difference between Canada and the US began to shrink. When the dollar was at par, Canada experienced significant job losses due to poor productivity.
So What’s the Lesson? Learn How to Measure Productivity!
As the saying goes – You don’t know what you don’t measure! When you know how to measure productivity in the workplace you’ll be able to figure out how to improve productivity, manage costs, and save jobs!