Simplifying Productivity Measurement

by John Gross

How productive is your workforce? Is productivity getting better or worse? How do you know? Do you even know how to calculate productivity? Do you have labor standards? Are the labor improvements you’ve made helping? What is the impact of ‘indirect labor’? AARGH….

With all these questions floating around, no wonder most leaders determine productivity by seeing if their employees ‘look busy.’ This measurement raises the question: So, are they ‘busy’ or ‘productive’?

Take heart — there is a simple way to measure productivity and observe trends. Measure your productivity by either calculating Sales $/Labor Hour, or Pieces/Labor Hour. These two ratios are a straightforward mechanism to calculate and to factor in the indirect folks (i.e., the office people).

Improving this productivity ratio is uncomplicated. Increase sales or units or reduce labor hours.

While simplistic, these measures allow you to see if process improvement or a new piece of equipment really did improve productivity by increasing sales, reducing overtime, etc.

This measurement can also help diagnose where your labor improvement opportunities exist. For example, in a plant I ran, we used Sales/Manhours to identify that our overhead was too high because we did not value our engineering staff’s time. (We were selling products with a 75-80% gross margin, making all kinds of operating improvements and still having low profits because we did not realize the engineering cost of the products we quoted.)

Does productivity measurement apply to professional organizations? Yes! Think of professional service organizations as ‘information factories.’ They are creating and delivering information and getting paid for it just like the widget factory.
If you are unsure of your organization’s productivity, use these ratios and start improving your results.

John Gross is an EOS Implementer who helps businesses achieve Vision, Traction, and Healthy. You can contact John at John@ DrivingChangeInc.com or call 636.667.0579.