The definition of Productivity is given as output compared to input.
In the case of a factory, the output can be taken as the number of products manufactured, whilst input is the people, machinery and factory resources required to create those products within a given time frame.
The key to cost-effective improvements in output – in “productivity” – is to ensure that the relationship between input and output is properly balanced. For example, there is little to be gained from an increase in output if it comes only as a result of a major increase in input. Indeed, in an ideal situation, “input” should be controlled and minimised whilst “output” is maximised.
Higher productivity provides more products from the same number of people, in the same time frame. This, in turn, improves “overhead recovery” related to factory costs, such as electricity and fuel, because overheads are fixed within that time frame.
So, the more products produced in a given time frame the less overhead allocation per product, which, in turn, reduces the cost of each individual item and therefore improves competitive edge.
Alternatively, higher productivity will result in the same number of products from the same number of people in less time, thereby reducing the number of working hours required to achieve production requirements.
This too will have a positive effect on overhead recovery and product cost because the factory will run for less time, thereby reducing running costs – savings which can be reflected in the financial aspects of the products produced.
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