Productivity in the manufacturing context refers to utilizing resources or input to get the desired output. Comparing the number of units produced to the number of labor hours spent by every employee helps determine the level of productivity in manufacturing.
Some of the substantial inputs that affect productivity in manufacturing include human and physical capital, natural resources, and technology expertise. SAP Business One is a powerful software to consider for enhancing the productivity levels of your company.
Integrate SAP Business One with your company operations today for increased manufacturing productivity. Here are some things you need to understand about manufacturing productivity.
Let us begin,
What does productivity in manufacturing entail?
Productivity refers to the ratio of output to input in the manufacturing process. Manufacturers measure productivity by comparing their net sales to the number of labor units produced by their employees.
Labor hours are substitutes for inputs during manufacturing and are not the only metric that companies can use. There are other factors or units you can consider determining the productivity level of an organization. However, since labor applies to almost all manufacturing processes, it is an ideal criterion.
It is also important to note that productivity can serve as a measure of efficiency. The efficiency of applying production inputs like capital, labor, entrepreneurship, land, e.t.c., determines how well inputs get utilized to realize the desired outcome.
There are two ways of measuring productivity in a company. You can use either the Labour productivity method or the multifactor productivity method. Typically, most companies use the Labour productivity method, which measures output based on hours of labor and units produced.
The multifactor productivity method combines inputs such as capital, energy, labor, materials, services, and many more and compares them to the output realized. Experts also called it the total factor productivity (TFP) or the Solow residual method.
Most companies that employ the method want to determine how productivity has changed over some time. The Productivity Method gives a more accurate productivity ratio than the Labour method.
When factors such as material and capital change, they may cause labor costs to increase or decrease. Therefore, using labor as the only factor can lead to an inaccurate estimate of productivity.
The challenges of measuring productivity
Measuring productivity has some inherent flaws that may make the process inaccurate. Time, number of industries, the inputs and outputs measured e.t.c. may affect measuring productivity.
1. Estimates change over time
Experts do productivity measuring for the long-term period since short-term estimates are volatile. Therefore, the long-run estimates can span through multiple economic cycles. The estimates changing over a while during the economic cycles can be a disadvantage while looking for reliable data on the productivity level for decision-making processes.
2. There are not all inputs and outputs measured
Some natural resources acting as inputs are not measurable since they are intangible or hard to measure. For instance, it is almost impossible to quantify work-in-progress, byproducts, and others. Therefore, avoiding measuring some inputs and outputs could lead to inaccurate productivity estimates.
3. It does not include some industries
When measuring the productivity level of the entire economy, some industries may get omitted or exempted. As a result, the productivity levels of a nation may get misrepresented, which is a significant disadvantage.
Achieving efficiency and productivity in manufacturing
To reap high returns, a company has to strike the right balance between productivity and efficiency. Productivity aims to increase the number of products manufactured, whereas efficiency attempts to improve the effectiveness and quality of the work performed.
Experts often express efficiency as a percentage, 100% being the ideal target. Most companies have an efficiency percentage of around 60-89%. When you maximize efficiency, you can increase outputs at a considerable margin.
Why is productivity important?
Productivity drives competitiveness and economic growth for countries. The productivity growth model is essential for economists in determining the production capacity of the economies of nations. The productivity data estimates collected also help forecast business economic cycles for countries and predict factors such as the growth of GDP, demand assessment, and the pressure of inflation.
Factors affecting productivity levels
Companies have to consider certain factors that affect productivity levels to ensure high returns. SAP Business One smoothly integrates your business functions to increase the productivity level of your company.
1. A technical understanding
Location, size and layout of the plant, design of machine and equipment, automation, development, research, and others are examples of technical factors that influence the productivity level of a company.
How you implement these technical factors can influence the level of your productivity. For instance, you must ensure you purchase the correct design of machinery and equipment for maximum productivity of the manufacturing plant.
2. The production process
Production inputs such as using the proper quantity of raw materials and maintaining inventory stock can affect overall productivity. Companies should ensure that the level of production remains strategically planned, coordinated, and monitored.
3. Business-related factors
Businesses should clearly define the responsibilities of each employee to ensure high levels of productivity by eliminating time wastage or overlap between tasks. Specialization and division of labor can help improve the productivity level and other business-related functions.
4. Factors related to staff
The right people can help improve the productivity levels of your business by providing them with the qualifications needed.
5. Factors related to management and finance
Companies should ensure that there is proper management that oversees maximum output at the lowest production costs. Effective management allows companies to scale up productivity levels.
Adequate management also ensures that companies strategically allocate the finances to increase productivity levels. Management maintains efficient control of working and fixed capital, controlling the expenditure, and many others.
Manufacturing productivity should be at high levels for companies to realize high returns. SAP Business One is an ideal software to optimize manufacturing productivity for your organization.
It also ensures manufacturing productivity efficiency that prevents wastage of materials, time, and energy. Call us now to integrate SAP Business One in your company operations for high manufacturing productivity levels.