Smart manufacturing workshop.Introduction to productivity definition,measurement and explanation

Christopher Moir WMG

Productivity: definition

Output/input

Output: value added; or turnover( £,$,€)

Input: total cost of labour, total cost ofcapital, cost of bought in goods andservices ( £,$,€)

Applies to a firm, a sector, an economy

Productivity: measurement (1)

Labour productivity;

Average value added/worker.

Average value added per worker hour.

Productivity: measurement (2)

Total Factor Productivity (TFP)

Amount by which the value of outputexceeds the value of inputs.

Productivity measurement (3)

International comparisons: Levels orgrowth rates.

Levels in national currency convertedinto a common currency e.g US$

Growth rates in national currencyalone

Relative labour productivity 2014.whole economy. (GDP/worker hour.)UK =100United States 133

France 129

Germany 128

Italy 101

Japan 85

EU 27 100

The Conference Board Total Economy Database™, May 2015,http://www.conference-board.org/data/economydatabase/

Growth in labour Productivity (Value

added/worker hour). Whole economy1999-2006 2007-2012 2014 2015 proj.

UK 2.4 0.1 0.1 0.3

US 2.4 1.3 0.5 0.4

Germany 1.6 0.7 0.1 1.0

France 1.9 0.3 0.2 -0.1

Italy 0.5 -0.1 -0.6 0.2

Eurozone 1.5 0.6 0.2 0.5

Source: The Conference Board Total Economy Database™, May 2015,http://www.conference-board.org/data/economydatabase/

Growth in Total Factor Productivitywhole economy

1999-2006 2007-2012 2013 2014

US 1.0 0.2 0.6 0.1

UK 0.7 -0.8 -0.4 -0.1

Germany 1.0 0.1 -0.5 -0.3

France 0.6 -0.5 -0.4 -0.6

Italy -0.3 -0.7 -0.4 -0.6

Source; Conference Board. http://www.conference-board.org/data/economydatabase/

Productivity Growth:Explanations

Growth of output is a function ofIncreased investment in:

• capital equipment.

• Skills and management competence

• Software, R and D , new knowledge

Contributions to economic growth

UK Germany US

2006 2014 2006 2014 2006 2014

GDP growth 3.0 2.8 3.6 1.6 2.6 2.4

labour 0.4 1.9 1.1 1.0 1.1 1.1

skills 0.1 0.1 0.1 0.1 0.1 0.1

Cap invest IT 0.3 0.3 0.4 0.6 0.5 0.6

Cap invest non IT 0.7 0.6 0.2 0.2 0.8 0.6

TFP 1.4 -0.1 1.8 -0.3 0.2 0.1

https://www.conference-board.org/data/economydatabase/index.cfm?id=27762

Productivity in Manufacturing

Levels

Growth rates

Manufacturing productivity levelsUK =100

Value added/workerhour

Capitalintensity(cap/worker hr.)

Capital sharein VA %

UK 100 100 20

Germany 132 222 34

France 110 162 30

US 108 226 42

Source: http://www.euklems.net/ note. Latest data are for 2007

Growth in labour productivity:manufacturing. (Value added/worker hour)

1999-2006 2007-2012 2013 2014

UK 5.0 1.5 -1.0 2.1

US 6.3 2.3 0.7 1.4

Germany 4.1 1.0 -0.3 0.6

France 4.6 2.0 0.6 1.8

Italy 1.5 1.1 1.0 -1.5

Japan 3.8 3.3 3.2 1.9

Source: Conference Board

So what?

Productivity growth matters

Main source of increasing livingstandards. Wages for workers, profitsfor businesses.

Recent growth rates well below longrun trends.

Productivity of individual firms

Aim; good profits, contented andefficient workforce, little shouting

How? Superior product, avoid thecompetition, specific firm attributenot easily copied.

Decision making and culture

Decision making

Efficiency of knowledge acquisition,exploitation and sharing within the business.

Speed and process of decision making

Resources needed for successfulimplementation.

Relationships with suppliers and customers

Culture

Firm values and beliefs

Inward or Outward looking

Promotes learning or stifles it

Harmonious in firm interaction or conflict

removes barriers to knowledge sharing orcreates them.

Two examples

Toyota/ GM JV at Nummi plant

Caterpillar investment in Laserwelding

Concluding observations

Increasing firm productivity is a bigchallenge

It almost certainly requires investment inall its forms

A lot can be learnt from others the trickas Dickens said was to look about you.