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Effective Utilization of Resources

dornfeld, david, u of california berkeleyHow about resource productivity?

As part of thinking about mechanisms and metrics, for driving green manufacturing, it came to mind that there is always a lot of talk, specially in the US, about the tremendous advances in labor productivity that have occurred over the last several decades. The Bureau of Labor Statistics (or BLS) is the official keeper and generator of this statistic about the performance of the US economy.

The BLS website defines labor productivity as the relationship of “output to the labor hours used in the production of that output.” It measures these in terms of two  productivity metrics – major sector and industry productivity. BLS states that “The Major Sector Productivity program publishes quarterly and annual measures of output per hour and unit labor costs for the US business, non-farm business, and manufacturing sectors. These are the productivity statistics most often cited by the national media. The Industry Productivity program publishes annual measures of output per hour and unit labor costs for US industries.”

The kind of “news” this generates is typical of the following, from the BLS website, reported on June 5, 2013. “Productivity increased 0.5 percent in the non-farm business sector in the first quarter of 2013; unit labor costs decreased 4.3 percent (seasonally adjusted annual rates). In manufacturing, productivity increased 3.5 percent and unit labor costs decreased 10.0 percent.”

This means that, thanks to a number of improvements in industry, manufacturers managed to squeeze out 3.5 percent more output per unit of labor input. This could be due to work organization, automation, simplified production, incentives, etc. This is generally considered to be “good news.”

In fact, the increase of productivity in the US labor market is a driver for business competitiveness. Higher productivity maintains a strong labor-cost advantage (at present, US productivity is 3x Mexico, for example) and has been growing at about 2.5% each year.

So, what does all this have to do with green and sustainable manufacturing!?

Why not measure and track resource productivity too?

Seems obvious when you think about it. Why not consider resource productivity along with labor productivity as a measure of competitiveness for manufacturing (or any industrial sector for that matter)?

Gary Pisano and Willy Shih in their book “Producing Prosperity – Why America Needs a Manufacturing Renaissance,” Harvard Business Review Press, Boston, 2012, discuss productivity as a measure of innovation in manufacturing. They refer to something called “Total Factor Productivity” which combines all inputs – labor, capital, and others – to create a measure of overall efficiency for an economy. This is driven by innovation in products and processes and makes a company, country, region attractive to productive activities. (Note: this is a good read if you are thinking about broader manufacturing issues and not “just” green manufacturing!)

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