Study of total factor productivity at railway wheel factory, Yelahanka, Indian railways

Abstract

Performance of majority of companies evaluated primarily on the basis of annual revenues and overall profits. Though this gives a fair picture of the financial health of the company, these measures fail to highlight the change in productivity with respect to different inputs to production. This may hinder the identification of potential areas of improvement in productivity and possibly the bottom line of the company. Hence, use of macro-economic tools such as Total factor Productivity may give us a clearer picture Here in this case, we are considering the measure of Total Factor Productivity in Railway Wheel Factory (RWF), Yelahanka, Bangalore. RWF has been witnessing an impressive growth in net output and revenue over last few years with a net increase of 164% in output in 2003-2008. This compares well with the manufacturing industry in general and growth in India GDP over the similar period. Thus we wanted to analyze how the productivity of manufacturing has changed in RWF over this period. For this, we chose to measure the productivity in terms of Total Factor Productivity as a variable which accounts for effects in total output not caused by inputs. We used the Cobb Douglas equation of calculation for the same For analysis, we identified various input parameters such as Steel, Direct labor, Indirect Labor, Capital (Plant and Machinery), Power, Diesel/fuel, Other High value raw materials, Land assets and Building assets for production of the final output in form on Box n’ Wheels units. We assigned weightages to each of these inputs on basis of their value vis-à-vis the output value. DEA and Tornqvist Index based analysis has been also done for the comparison. Through the analysis we formed number of conclusions as mentioned below: • RWF has shown impressive increase in output with 164% net increase • Lower levels of Output in the 4th quarter (barring 2007-08) contrary to industry. • Good improvement in productivity (2.34% per annum) which is comparable industry. • Main contributors to the increase in productivity are better capital utilization, power conservation and productivity improvement with Indirect Labor. • Main laggards in terms of productivity improvement are steel consumption and other high value raw material consumption. Based on these conclusions, we have come up with set of action items which RWF management can look into so as to sustain its current growth in output and revenues with appreciable increase in net profits and overall manufacturing productivity