Measuring Productivity

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Wastage analysis is another productivity indicator that is often used in quantitative value chain analysis. Wastage can be measured as the value of a resource that never makes it to the final consumer. Some examples of wastage can be the second milking of cows that is never consumed, ICT employees sitting on “The Bench” and not working, or scrap metal from an automotive value chain. Analysis of wastage can help to build the case for upgrading -- for example, through investment in more efficient technology.

For example, in the granite and marble sector in Pakistan, quarry owners were mostly using indiscriminate blasting techniques to extract the rocks from the quarries. Because of this and other inferior practices, 85 percent of the volume of the granite and marble was being destroyed by the blasting. Wastage analysis (see figure on right) was used to create a strategy to reshape the industry through investing in technology to reduce wastage, improving the business environment, upgrading workers' skills, and strengthening industry organizations. Based on these strategies it is estimated that the volume wasted can be reduced to 57 percent.

Well-managed lead firms in a value chain should be measuring productivity and using the information to improve their business operations. Sometimes an industry association will collect productivity data in order to establish industry norms, against which managers can benchmark their firms. In addition, acceptable levels of wastage are often determined by industry stakeholders through a participatory process. If this aggregated data is not available when conducting a value chain analysis, individual firms will need to be interviewed to obtain sales information and other indicators like employment numbers and wastage.

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