Partial Measures and Measuring Changes in Productive Efficiency
The labor Productivity ratio of three chandeliers per hour measures the 2007 productivity experience of Ladd Lighting. By itself, the ratio conveys little information about productive efficiency or whether the company’s productivity has improved or declined. It is possible, however, to make a statement about increasing or decreasing productivity efficiency by measuring changes in productivity. To do so, the actual current productivity measure is compared with the productivity measure of a prior period. This prior period is referred to as the base period and sets the benchmark, or standard, for measuring changes in productive efficiency. The prior period can be any period desired. It could, for example, be the preceding year, the preceding week, or even the period during which the last batch of products was produced. For strategic evaluations, the base period usually chosen is an earlier year. For operational control, the base period tends to be close to the current period-such as the preceding batch of products or the preceding week.
To illustrate, assume that 2007 is the base period and the labor productivity standard, therefore, is three chandeliers per hour. Further assume that late in 2007, Ladd decided to try a new procedure for producing and assembling the motors with the expectation that the new procedure would use less labor. In 2008, there were 150,000 chandeliers produced, using
37,500 hours of labor. The labor productivity ratio for 2008 is four units per hour (150,000/37,500). The change in productivity is a one-unit per hour increase in productivity (from three units per hour in 2007 to four unit per hour in 2008). The change is a significant improvement in labor productivity and provides evidence supporting the efficacy of the new process.