Question

an us company has two manufacturing plants one in UAE and one in another country. Both produce the same items,eath for sale in their perspectives countries. However their productivity figures are quite different. The analyst thinks this is because the UAE plan uses more automated equipment for processing while the other uses a high percentage for labor.
1-explain how that factor can cause productivity figures to be misleading.
2-Is there another way to compare the two plants that would be more meaningful?

Answer 1

1. There are a variety of factors that might be leading to productivity differences in the two plants:

1. Technological factors: As explained in the case, one of the differences might be the extent of technological adoption in the two plants. A high degree of technological interventions will increase productivity to a good extent.
2. Human resource quality: Skilled human resource, adept at handling the intended jobs would increase the productivity. This might be another reason of differential productivity. The same also depends upon the hiring as well as training and development procedures.
3. Financial soundness: Need for capital is an important factor contributing to productivity. Availability of working capital may lead to a higher efficiency in output.
4. Managerial Ability: The ability of the managers to handle teams is another important parameter defining productivity. The work of a manager is to bring out the best in the teams which in turn translates to a higher efficiency.
5. Policy: Government policy might be leading to one of the plants being more productive than the other. Government policies like subsidies and tax rebates may be responsible for productivity differentials
6. Natural Factors: Raw material costs as well as manufacturing/inventory holding is highly dependent on natural factors. One of the countries may get the same raw material at a lower cost than the other, leading to productivity differences.

1. It would be meaningful to evaluate productivity on internal factor comparison. For example, it would be worthwhile to look at the situation after removing Policy and Natural factors. It would be beneficial to analyze the books after standardization of these variables.

The company may also look at objectively evaluating the plants on the above mentioned factors to understand the cause of the issue. They can solve the issues using focused decision making.