2.3 Productive efficiency

Question 1

Productivity

Answer 1

Measures the efficiency with which resources are used.
Most common measure of labour productivity is output per person per hour

Question 2

Labour productivity equation

Answer 2

Output per time period / Number of employees

Question 3

Production vs Productivity

Answer 3

An increase in productivity will mean an increase in output but an increase in production may not always mean an increase in productivity

Question 4

Physical capital

Answer 4

Tools and machines
Make labour more effective
Investment in new technologies is important; most modern production and distribution systems need sophisticated computer systems
Improvements in technology yield improvements in productivity

Question 5

Human capital

Answer 5

Skills of the workforce
Education provides general skills, then improved and refined by specialist training
Increases with relevant experience

Question 6

Organising resources more efficiently

Answer 6

Delays cause employees’ time to be wastes - improving way they are organised = increased productivity

Question 7

Linking productivity and competitiveness

Answer 7

When successful businesses increase productivity, more can be produced using same amount of resources
Average costs fall - competitive advantage
Opens up opportunities to reduce prices, make quality improvements or simply increase profitability
Effective R&D projects can enhance productivity
Important for international competition

Question 8

Productivity and wages

Answer 8

Improving productivity = can raise wages
Each employee can add more value
Bonuses
Productive employees = higher wages in new positions

Question 9

Productivity and economic growth

Answer 9

Businesses become more productive, supply of consumer good increases, costs and prices may fall, standards of living rise and real incomes increase

Question 10

Capital intensive production

Answer 10

Uses large amounts of capital and relatively little labour
More advanced an economy is = more capital intensive
eg: power stations - massive investment in plant and equipment and only a few people needed to operate plant

Question 11

Labour intensive production

Answer 11

Uses large amounts of labour and relatively little capital
Developing economies with cheap labour + service sector
eg: healthcare

Question 12

Capital and dynamic market

Answer 12

Tools and machinery may become obsolete
Failure to upgrade may mean losing competitive advantage
New investment in capital needed

Question 13

Labour and dynamic market

Answer 13

Skills may no longer be needed
Retraining is often necessary
In general, new investment in human capital is needed

Question 14

Capacity

Answer 14

The output a firm can produce with a given amount of resources

Question 15

Full capacity

Answer 15

All the resources available to the firm are being used to the fullest extent all of the time

Question 16

Spare capacity

Answer 16

Some of the time some resources are not being used and therefore there is a loss of potential output

Question 17

Capacity utilisation

Answer 17

Measures what proportion or percentage of the theoretical maximum possible output is actually produced

Question 18

Capacity utilisation calculation

Answer 18

(Current output / Maximum possible output) * 100

Question 19

Under-utilisation of capacity

Answer 19

Capital equipment is lying idle some of the time = wasteful + productivity lower than it could be
Business producing less rhan it actually could: average costs rise because fixed costs are spread across a lower level of output
Business not as competitive as it could be

Question 20

Over-utilisation of capacity

Answer 20

Business is trying to produce more than its capital equipment was designed for
Average costs higher than necessary - breakdowns + overcorwding etc reduces efficiency
Business not as competitive as it could be

Question 21

Ways to reduce under-utilisation of capacity

Answer 21

Extend product range and promote new products vigorously
Focus on marketing effort to generate increased demand
Rent excess capacity to other businesses
LR close excess capacity - sell some machines + redundancy

Question 22

Ways to reduce over-utilisation of capacity

Answer 22

Recruit more employees
Identify shortages
Sub-contract some production to other businesses
Training schemes to increase labour productivity
LR invest in increased capacity

Question 23

Efficiency

Answer 23

Organising production so that waste is minimised and costs are the lowest possible

Question 24

Lean production

Answer 24

General term given to any system of production that tries to minimise waste and cut costs at every stage of production and distribution

Question 25

Components of lean production

Answer 25

Just in time - a way of managing stocks Kaizen - continuous improvement TQM - total quality management Cell production - setting up teams that work flexibly Job enrichment and empowerment - giving everyone more responsibility Time based management - careful sequencing of tasks to reduce delays

Question 26

Principle lean production works on

Answer 26

Continuous improvement

Question 27

Quality

Answer 27

Can be an important source of competitive advantage Business may be able to charge a higher price and gain increased profits Improved quality = less wastage and reduced costs, improved profitability

Question 28

Quality control

Answer 28

The traditional method of checking that products are of an adequate standard.

Question 29

Drawbacks of traditional quality control

Answer 29

Does not identify the cause of the defect or find every faulty product Expensive in terms of implementation and wastage of stock Does not add value

Question 30

Quality assurance

Answer 30

Ensuring that quality standards are agreed and met throughout the organisation

Question 31

Reasons for quality assurance success

Answer 31

Putting in place systems that require high standards at each stage of production Organising employees in teams that can collaborate and take responsibility for quality issues Changing the corporate culture of the business, so that all employees see quality as a high priority Focussing on preventing defects Developing Kaizen and total quality management

Question 32

Total Quality Management

Answer 32

Employees are all involved in quality control and take responsibility for the quality of their and their team's work Helps reduce costly wastage and reinforce employee motivation

Question 33

Components for TQM

Answer 33

Committed leadership - management must be wholeheartedly behind the scheme Employee empowerment - everyone must be involved and responsible for maintaining quality Increased training - it takes time and effort to make employees aware of TQM Kaizen and quality circles are important elements in TQM Closer relationships with customers - determination to meet their needs Closer relationships withs upplier -raising the quality of inputs

Question 34

Benefits of TQM

Answer 34

Improved products and services Reduced costs Increased customer satisfaction Brand loyalty + repeat purchases Improved profitability Competitive advantage Motivated workforce

Question 35

Drawbacks of TQM

Answer 35

Implementation costs Takes time to set up Retraining of employees Increased pressure on managers Does not suit all businesses May be difficult to involve staff

Question 36

Kaizen

Answer 36

Continuous improvement Summarises whole company approach to quality and cost control Everyone involved in search for improvements to product and production Requires good teamwork

Question 37

Kaizen means?

Answer 37

Everyone in business takes it upon themselves to monitor and improve qualit wherever possible Improvements are small but spread throughout business add up to continually improving product or service Customers benefit from better quality product

Question 38

Kaizen trade off

Answer 38

Trade-off between price and quality However, quality assurance, TQM and continuous improvement all may help to give business competitive advantage and add value

Question 39

JIT

Answer 39

A stock control system that does away with the need to hold large quantities of stocks or raw materials

Question 40

JIT in practice

Answer 40

Frequent deliveries of small quantities of supplies are made to the producer as and when they are needed Involves building close relationships between suppliers and producer to ensure supplies do arrive on time and quality of components is reliable No longer necessary to hold large reserve stocks which are experience to store and require finance AC reduced = increased competitiveness

Question 41

Advantages of JIT

Answer 41

Reduced costs in terms of buffer stocks and handling Less need for storage space, can be converted to production Greater flexibility in responding to changes in demand

Question 42

Disadvantages of JIT

Answer 42

Will not benefit from reduced unit costs for bulk purchases Break in supply = production will be lost Heavy reliance on reliability of supplier

Question 43

Competitive advantage from lean production

Answer 43

Improved quality = more satisfied consumers + reduced costs of production leads to possibility of reduced prices or increased profit margins Producing only to order = reduces cost of storing unsold goods + cuts costs and waste by ensuring that the business is not left with unwanted stock

Question 44

Advantages of lean production

Answer 44

Reduces wastage + related costs Reduce costs of storage + handling Improves quality Fewer reject costs Customers more satisfied with quality Greater flexibility Shorter lead times More motivated staff, less staff turnover No waste caused by unsold output

Question 45

Disadvantages of lean production

Answer 45

Does not suit all production processes Failure by one small supplier may halt entire production process Some employees may not want more responsibility Managers may not be flexible enough May not be able to meet unexpected orders

Question 46

Time based management

Answer 46

Aims to save time wherever possible, ensuring that no one is delayed by having to wait for other employees to finish their work

Question 47

Product development lead time

Answer 47

Starts from the first idea about the product, through the design and development period, to being ready to start selling the final product

Question 48

Benefits of short product development lead times

Answer 48

Reduces development time in product life cycle Reduces costs Improves cash flow Can respond rapidly to changes in consumer tastes and demand Can enter market before competitors do GIVES BUSINESS COMPETITIVE ADVANTAGE

Question 49

Drawbacks of short product development lead times

Answer 49

Requires that capital equipment, labour and management are flexible enough to do this