Dickeson–Use the Right Efficiency Formula
It is vitally important to the survival of your enterprise to understand productivity. Productivity is the act of “adding value” to materials by performing services. If value is not added to goods by services, productivity is negative.
“Value” is an external perception by the customer, isn’t it? The buyer’s perception, limited by the competition, places a dollar value on the productivity. That’s the “effective productivity”—an external measure.
How efficiently the printer uses resources to produce added-value measures “internal productivity.”
Productivity can be indexed and measured by a combination of market effectiveness and internal efficiency. If a business is producing buggy whips with optimal resource use, it’s “efficient.” But since the value perceived by the market is essentially nil for buggy whips today, the business has negative effectiveness. It cancels out any efficiency and results in zero productivity for the effort.
So what are the basic resources that must be productive for the printer? They are:
- knowledge, and
All four must be achieving full productivity in order for the company to thrive. But, let your inventories and receivables pile up and there goes the capital. Likewise, as material waste rises, productivity of materials declines. Cut short training for new people or hire too many employees, you’ve bought time that’s wasted.
How, then, shall we measure the productivity of a printing company? Don’t suggest dividing chargeable hours by hours available!
Until someone suggests something better, my crude number is sales, less materials (value-added), divided by the number of people on the payroll—annualized.
Productivity needs some ideal number for an index or benchmark for monitoring change. You pick it for your company. Can’t do it? Just take value-added per head for last year as a default. That’s your base point. Say it’s $80K per head. If the next quarter comes in at $60K per head, your productivity has fallen 25 points! If it comes in at $85K, productivity’s up 6.25 percent.