2.4.1 Production, productivity, and efficiency Flashcards
Production
The transformation of resources into goods or services.
Job production
Firms producing items that meet the specific requirements of the customer.
Benefits of job production
- Associated with higher quality Higher price.
- Employees more motivated – job satisfaction.
- Customer requirements and changes can be handled.
Drawbacks of job production
- Individual cost per unit is high.
- Labour intensive High labour costs.
- Usually reliant on high skills.
- Requires close consultation with client.
Batch production
Products are made in groups with a series of tasks performed on each group.
Benefits of batch production
- Cost savings achieved by buying in bulk.
- Still allows customer some choice.
- Products can be worked on by specialist staff at each stage.
- Allows a firm to handle unexpected orders.
Drawbacks of batch production
- Takes time to switch production from one batch to an other.
- Requires business to maintain higher stocks of raw materials and work in progress.
- Tasks may become boring (repetitive) – impacting on staff motivation.
Flow production
Producing as many as possible of an identical product continuously on an assembly line.
Benefits of flow production
- Costs per unit reduced – economies of scale.
- Suitable for manufacture of large quantities quickly.
- Less need for training.
- Capital intensive so can work constantly.
Drawbacks of flow production
- Goods are mass produced – less differentiation for customer.
- Long and expensive set up time.
- Production is shut down if flow is stopped.
- Worker motivation can be low – repetitive tasks.
Specialisation
Where work is divided into separate tasks that allow workers to become skilled at one of them.
Cell production
The production line is split into a series of self contained cells where teams in these cells work together to create one unit of output.
Benefits of cell production
- Improved productivity due to greater motivation.
- Quality improvements as each cell has ownership for quality on its area.
- Workers become more multi skilled.
Drawbacks of cell production
- Recruitment and training of staff must support this approach.
- May not allow firm to use machinery as intensively as in traditional flow production.
- Product is removed from the flow so productivity can be lower.
Lean production
A Japanese approach to production focused on eliminating all forms of waste.
Capital intensive production
Requires more equipment and machinery to produce goods.
Labour intensive production
Requires high level of labour input to produce goods.
Efficiency
Production at the lowest unit cost.
Average cost per unit formula
Total production costs in period/Total output in period
Economies of scale
Factors that cause average cost per unit to fall as output increases.
Minimum efficient scale
When the unit cost is at its lowest possible point while the company is producing its goods effectively. Point at which all economies of scale have been exploited.
Diseconomies of scale
Factors that cause average unit cost to increase as output increases.
Types of diseconomies of scale
1) Communication problems.
2) Co-ordination and control problems.
3) Motivation problems.
How can a business avoid diseconomies of scale?
- Have a mission statement.
- Objectives.
- Appraisals to review progress and increase individual involvement.
- Communicate regularly.
- Invest in systems to aid motivation.
Ways to increase efficiency?
- Introduce standardisation of the production process – minimises training, bulk buying.
- Relocating or downsizing.
- Investing in capital equipment/technology.
- Delayering.
- Outsourcing – tasks given to other specialist businesses able to complete at a lower cost.
- Lean production.
