2.3 Productive Efficiency

Question 1

What 2 ways can productivity be calculated

Answer 1

Output generated by capital (machinery)

Output generated by people (labour productivity)

Question 2

Define productivity

Answer 2

Measures the efficiency with which resources are used

Basically, how well the resources are used.

Question 3

What’s the formula for labour productivity

Answer 3

Output per time period / number of employees

Question 4

What factors influence productivity

Answer 4

Physical capital - value of machinery

Human capital - value of people

Question 5

How does productivity link to competiveness, wages and economic growth

Answer 5

Competitiveness - Costs fall if the business is more productive, which means they could lower price and be more competitive

Wages - Higher wages or piece rate may encourage workers to work more productively

Eco Growth - More supply of goods, more ouput, lower costs/prices, better standards of living and income

Question 6

What’s the difference between capital intensive and labour intensive

Answer 6

Capital is the majority use of machinery, whereas labour is predominantly more people

Question 7

How can firing people increase sales?

Answer 7

More capital 
Less people needed
Better labour productivity (higher wages)
Costs are cut (less workers)
Prices cut
Sales increase

Question 8

What is capacity utilisation

Answer 8

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

Question 9

Why is spare capacity worse than full capacity

Answer 9

Spare means there is a loss of potential output and resources are being wasted some point along the line. Full means everything is always being used

Question 10

How is capacity utilisation calculated

Answer 10

Current output / maximum possible output (x100)

Question 11

Why are under and over utilised capacity bad

Answer 11

Under - Resources are laying idle for some time. Productivity is lower than it could be. Wasteful, average costs are higher as fixed costs are spread over a lower level of output.

Over - Resources are being pushed beyond their limits. Average costs are higher due to inefficiency (breakages, breakdowns, waste)

Question 12

Ways to reduce under and over utilisation

Answer 12

Under - Extend product range, increase marketing, rent excess capacity (unused premises) to other businesses, sell what you don’t need.

Over - Recruit more employees to improve morale, sub-contract some of the work elsewhere, better training, increase capacity (buy more machinery, premises)

Question 13

Define efficiency

Answer 13

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

Question 14

What’s lean production

Answer 14

General term given to any system of production that improves efficiency and productivity

Question 15

Describe 4 examples of lean production

Answer 15

JIT - Just in time - Stock arrives in time for production, reduces warehouse costs and stops food perishing
Kaizen - Much like continuous improvement.
TQM - total quality management - all employees are involved in quality control, better morale, less waste.
Continuous improvement - every employee at every stage must seek out better ways of ensuring efficiency and improving products

Question 16

What is quality control and why is it important

Answer 16

Refers to the traditional methods of checking that products are of an acceptable standard
Important because quality can give a competitive advantage or charge a higher price, reliable

Question 17

Why is quality assurance an improved version of quality control

Answer 17

Quality assurance checks the product at all stages of production, not just at the end, which helps see quicker where the defects are (less waste/costs) and gets everyone involved

Question 18

What are the benefits and drawbacks of lean production

Answer 18

B: Better quality, reduced costs, customer satisfaction, loyalty, competitive advantage, motivated workforce, shorter lead times
D: Expensive, takes time, retraining, pressure, not everyone might want to be involved.

Question 19

Benefits and drawbacks of JIT

Answer 19

B: Reduced costs (warehouse, waste), less storage means less employees needed, flexible in responding to changes in the market
D: No purchasing economies of scale benefits, risky - if there’s a problem with the supplier, production is halted.

Question 20

Give 2 statistics about the positive results of lean production

Answer 20

Stocks reduced by 33%

Waste reduced by 26%

Question 21

What’s time-based management

Answer 21

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

Question 22

What’s the lead time

Answer 22

The time it takes to get from the idea to the finished product

Question 23

What are the benefits of having a short lead time

Answer 23

Reduces costs (more efficient)
Reduces the time it takes to develop (less costs)
Improves cash flow
Flexible in responding to market changes
competitive advantage