Progress measured by productivity

The effectiveness of a sector of the economy is commonly measured by its productivity – outputs relative to some measure of inputs and the most common basis is labor productivity. The record of labor productivity measured in terms of output per worker hour in the US and key labor productivity figures are listed next to the date line in the historical perspective in Table.

Rationale for Productivity Improvements:

The effects of the progress of the development of production and operations management through the decades can be read in the productivity curve. For example, the productivity progress during the fifty year period from 1870 to 1920 reflects growing markets and the substitution of machine power for human power; external power sources multiplied human inputs and resulted in increased labor productivity.

The slope of the curve increases at an increasing arte from 1920 until about 1970. Several factors combined to produce the excellent performance during this period. First, there was the continued substitution of machine power for muscle power, but after about 1950, the character of machines changed and began to include computation and control as well as power. These technological effects were combined with better information systems and better decision making and control technology. Scientific management based on Frederick Taylor’s principles probably had its effects, but these were later augmented by management science applications. Better management of all kinds must be credited with part of the excellent productivity record during the fifty year period.

The Productivity Crisis:

Beginning somewhere around 1970, increases in US productivity began to lag behind the increase in other countries, causing great concern for global competitiveness. For example, in the 1973 – 1980 period the average percentage change in manufacturing productivity for six countries shows the United States with the lowest increase:

US = 1.7
Canada =2.2
Japan = 6.8
France = 4.9
West Germany = 4.8
United Kingdom = 1.9

In fact, US productivity changes were actually 2.4 percent in 1974, and 0.3 percent in 1980. This leveling off of productivity improvement came at a time when the product process technologies of NC, robotics, CAD / CAM, and FMS were all available. The failure of US industry to install these and other advanced technologies aggressively (as compared to Japanese manufacturers, for example) may have contributed to the poor performance. The advanced technologies of all types – product, process, information, and decision making and control are at the core of the vision and hope for operations systems of the future.

Another issue to be considered is the basis for measuring productivity, which is focused on the profitable substitution of capital for labor, however, labor costs have been reduced to only 15 percent, on the average. But what is the productivity of capital as well of other major resource inputs of material, energy, and so forth? Thus, a broader, measure of productivity seems to be called for since labor has become a much smaller proportion of costs and may be eliminated in many future systems.

For example, a figure drawn provides a 12 year graph of labor, capital, and total factor productivity for US private businesses, emphasizing the low productivity values during the recession periods of 1973 – 1976 and 1981 – 1982, and the substantial recovery through 1984. Total factor productivity is somewhat lower than labor productivity because capital productivity has been so low since 1980. Although all three measures have increased substantially since their lows in 1982, capital productivity remains a problem.

Operations Systems of the future:

Predicting the future is always risky, but it is nonetheless a fascinating endeavor. We need to think in terms of both manufacturing and non-manufacturing systems. The directions for manufacturing systems may be somewhat clearer than for non-manufacturing systems, in part because non-manufacturing systems are so diverse.