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Multifactor productivity (MFP) is a type of assessment that is used to gauge the level of productivity as it relates to the changes in product output relative to the total inputs involved. This type of measurement is stated in terms of output per unit, allowing for the identification of every form of input that is involved with the operation. A number of different industries make use of this measurement as a means of understanding the relationship between the number of units produced and the resources that must be consumed in order to produce each finished unit.
As the name implies, multifactor productivity seeks to explain the impact that any type of changes in the inputs associated with a production process will have on the total number of units produced by that process. In many cases, the measurement will involve consideration of changes other than simply the removal or addition of a given factor from the set of inputs, and will allow for other factors that may exert some influence that cannot be readily accounted for due to some sort of adjustment to that core class of inputs. For example, assessing multifactor productivity will usually involve attempting to assess what type of impact changes in management, shifts or changes in the production process, or the introduction of a new type of technology would have on the output, even if the core group of inputs remained the same.
While somewhat similar to the concept of labor productivity, both measurements provide different types of information that business owners and managers find helpful. With labor productivity, the focus is on the labor input necessary to produce a single unit of output. By contrast, multifactor productivity has a much broader focus, taking into account a number of different factors that go into the production of each unit of output. For this reason, this multifactor approach is sometimes referred to as total factor productivity.
Industries of all types can make use of the basic concept of multifactor productivity. Manufacturing companies, utilities, and even various types of transportation can all benefit from using this type of measurement to understand the relationship between the units produced and the resources consumed to create those units. When calculated accurately, this productivity measurement can make it possible to identify waste in the production process, project the impact of new factors on the outcome, and generally aid a business in making sound decisions that ultimately impact the ability to produce the highest volume of units for the least amount of resource consumption.