Applications of Modern Production Theory: Efficiency and Productivity

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They deduced that Hampton Roads and Baltimore were consistently operating inefficiently during the period — and attributed this to poor management as the root cause. Suykens 18 points out that the measurement of productivity and subsequent comparison between ports is extremely difficult. Quite often, this is due simply to differences in the geophysical characteristics of the ports to be compared. For instance, there will be fundamental constraints on the productivity of ports where locks are needed, or which are located up river estuaries or in the middle of a port town as opposed to at a greenfield location.

Difficulties also arise where the type of cargo handled at the comparison ports differ or when one port is primarily serving its own hinterland and another is primarily a transhipment port. Under all these scenarios, it would be fundamentally unfair and possibly misleading to make productivity comparisons on a straightforward basis.

It may be argued, therefore, that in order to properly evaluate the performance of a port, it is important and necessary to place it within a proper perspective by drawing comparisons with other ports that operate in a similar environment. Tongzon and Ganesalingam 19 applied cluster analysis to compare the port performance and efficiency of ASEAN ports with counterparts overseas. The rationale for this analysis lay primarily with a purported requirement for such a comparison to be conducted only amongst ports that are similar in terms of their management or operational environment.

The results suggested that the ASEAN ports, especially Singapore, were more technically efficient in terms of the utilisation of cranes, berths and storage areas, but that they were generally less efficient in terms of timeliness, labour and tug utilisation. In addition, it was deduced that port charges in ASEAN ports were significantly higher than those of their overseas counterparts falling within the same cluster i. Tongzon 20 elaborated upon this benchmarking concept by utilising an approach based on principal components analysis for the identification of suitable benchmark ports.

Ashar 21 is critical of this approach. Sanchez et al. These efficiency estimates are then incorporated as one of the explanatory variables in the estimation of a model of waterborne transport costs. Braeutigam, Daughety and Turnquist 24 note that ports come in different sizes and face a variety of traffic mix. They attest, therefore, that it is crucial to estimate econometrically the structure of production in ports at the level of the single port or terminal, using appropriate data such as the panel data for a terminal. This view and suggested alternative approach also receives support elsewhere.

Since the primary role of ports is to facilitate the movement of cargoes, the authors recognise that it is vital to evaluate port performance in relation to how efficient are their services from the perspective of the port user: the shipowners, shippers importers and exporters and the land transport owners.

It is obvious, therefore, that port performance assessment cannot be based on a single measure. As is clear from the list of productivity measures employed, whilst it does contain certain operational productivity measures, it also recognises that this is only meaningful to port users when it translates into lower costs to them.

Frankel 29 is highly critical of the productivity measures that are applied in ports when he suggests that most port performance standards are narrowly defined operational measures that are useful only for comparison with ports that have similar operations or against proposed supplier standards. He asserts that port user interest in port productivity and the service quality that it relates to is much more wide-ranging and it is vitally important that ports attempt to address this disparity in outlook. Port users, he asserts, are concerned with issues such as the total time and cost of ship turnarounds and increasingly of cargo throughput.

The realignment of what a port considers to be valid performance measures is required because the commercial environment of port operations is becoming increasingly competitive as hinterlands overlap.

In such a context, port users have a real choice in the selection of the ports that they want to use. Chapon 30 specifically states that the overall cost of cargo-handling in a port comprises two separate components: the cost price of the actual handling and the cost price of immobilizing the seagoing vessel for the period of its stay in port. In other words, this second cost is, in economic terms, the opportunity cost associated with the revenue lost or, in the terminology of logistics, the cost of lost sales. This second component has risen to even greater prominence as ships have become increasingly expensive i.

Several studies of productivity have adopted this perspective in undertaking productivity measurement and comparisons. All this points to the fact that productivity levels in ports have implications for the real cost of loading and discharging a ship. Both of these influences on higher port productivity will be mirrored in the port tariff that is charged. Thus, there is a need for a balanced and joint view of both port pricing and productivity. Other commentators have pointed to the need to assess the range of prices payable for different levels of port productivity within the context of the effectiveness of service provision.

Ports have an interaction with other parts of the logistical chain. In relation to the issue of technical efficiency rather than productivity measurement and comparison, it can be deduced that by the very nature of investments in cargo handling technology and the expansion of space in ports, additions to capacity have to be large compared to the existing facilities. In other words, when investments are made, they are made primarily on an ad hoc basis and with a view to future expectations of expanded demand.

In consequence, since available capacity cannot be fully utilised in the years immediately following the time that such investments in additional capacity come on stream, then technical inefficiency is inevitable. Because of this characteristic i. This is because any such analysis has to be based on the complementary assumptions that all observations are efficient but that any deviation of an observation from the production function is due to random effects. Without explicitly acknowledging the fact, this assertion points to the need for the adoption of contemporary approaches to the measurement of efficiency.

In simple terms, the performance of an economic unit can be determined by calculating the ratio of its outputs to its inputs; with larger values of this ratio associated with better performance or higher productivity. Because performance is a concept that is only meaningful when judged relatively, there are many bases upon which it may be assessed. For instance, a car manufacturer uses materials, labour and capital inputs to produce cars outputs. Its performance in could be measured relative to its performance or could be measured relative to the performance of another producer in , or could be measured relative to the average performance of the car industry, and so on.

Economic efficiency relates specifically to a production possibility frontier ; an economic concept which is useful in explaining two distinctive concepts of efficiency : productive or technical efficiency and allocative efficiency.

Agricultural Investment and Productivity un Developing Countries

In economic theory, costs can exceed their minimum feasible level for one of two reasons. One is that inputs are being used in the wrong proportions, given their prices and marginal productivity. This phenomenon is known as allocative inefficiency. The other reason is that there is a failure to produce the maximum amount of output from a set of given inputs.

This is known as productive or technical inefficiency. Both sources of inefficiency can exist simultaneously or in isolation. As implied above, these sources of inefficiency can be easily explained by using the concept of a production frontier. An economic unit operating within an industry is considered productively technically efficient if it operates on the frontier, whilst the unit is regarded as productively inefficient if it operates beneath the frontier. When information on prices is available and a behavioural assumption such as profit maximisation or cost minimisation is properly established, we can then consider allocative efficiency.

This is present when a selected set of inputs e. An economic unit is judged allocatively inefficient if inputs are being used in the wrong proportions, given their prices and marginal productivity. Fundamentally, however, the technical efficiency of an entity is a comparative measure of how well it processes inputs to achieve its output s , as compared to its maximum potential for doing so — as represented by its production possibility frontier, which is widely used to define the relationship between inputs and outputs by depicting graphically the maximum output obtainable from the given inputs consumed.

In so doing, the production frontier reflects the current status of technology available to the industry. By implication, therefore, the production possibility frontier of an entity may change over time due to changes in the underlying technology deployed. In the container port sector, an example might be the greater reach of contemporary gantry cranes over their historic counterparts.

Over the past decade in particular, this innovation in technology has facilitated a very significant improvement in partial productivity measures such as container moves per hour. Depending upon the relationship between the cost of investing in such cranes and the reduction in operating cost per container moved, it could also mean greater output for the same level of input at all scales of production i. If it could be established that this innovation has led directly to an improvement in the overall total factor productivity of the port even where this compares favourably to that of other suitable benchmark ports , but that the new cranes like the old ones were still being optimally employed at full capacity, then a situation would exist where technical efficiency has remained the same i.

The beans are then transported to developed countries, where other workers process, package and market the product. Skip to content. Why is the division of labour more efficient? Workers need less training as they only have to master a small number of tasks It is faster to use one particular tool and do one job.

No time is wasted with a worker dropping a tool and then picking up another. Workers can gain loyalty and a sense of achievement from their branch of the production. There is no need to move around the factory; the half-finished good comes to him. Workers can concentrate on those jobs which best suit their skills and temperament. Potential problems of division of labour If workers are highly specialised, then the job can become very boring and repetitive. This can lead to low labour morale.

If workers lose the motivation to concentrate and do a good job, mistakes may creep in as they get bored. An assembly line could grind to a halt if there is a blockage in one particular area. Examples of division of labour Ford motor factories. Globalisation and division of labour Globalisation has enabled a division of labour by country.

Ahearn, M. Agricultural productivity in the United States. Department of Agriculture. Agriculture Information Bulletin no.

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Applications of Modern Production Theory: Efficiency and Productivity

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Production Efficiency in Economics

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