2.4.1 Production, productivity and efficiency Flashcards
Production
turning inputs into outputs/ products and services
Productivity
Output per unit of input over a time period
Labour productivity
Output per unit of labour over a time period or output per worker hour - it is a measure of efficiency
Efficiency
the extent to which production resources generate output without wastage, resulting in producing at the lowest per unit cost
Labour intensive production
When production mainly uses labour, rather than machines or automation
Capital intensive production
when production mainly uses machines, rather than labour
Capacity
The maximum possible output of a business
Capacity utilisation
The proportion of the maximum possible output being used by a business
Job production
- one off, small number of items produced
- Normally made to customers specifications
- often undertaken by small specialist businesses
- often associated with high quality
- labour intensive
Examples of job production industries
Architects
Plumbers
Ship builders
Road builders
Pros of job production
- customer requirements and changes can be handled which enables greater specialisation
- Associated with higher quality meaning they can charge higher prices
- employees may be better motivated and have more job satisfaction due to labour intensive work
- flexible production methods
Cons of job production
- individual cost of one unit may be high
- often labour intensive = high labour costs
- Requires close consultation with the client
- Usually reliant on high skills
Batch production
Makes a group of products to one specification at a time
- similar items are produced together
- each batch goes through one stage of production process before moving onto the next stage
What is the aim of batch production?
- concentrate skills
- achieve better use of equipment so produce better quality products more economically than manufacturing them individually
- often offers standard products with some options
pros of batch production
- cost savings can be achieved by bulk buying
- allows customers some choice
- products can be worked on by specialists staff or equipment at each stage
- allows a firm to handle unexpected orders
Cons of batch production
- takes time to switch production of one batch to another
- requires the business to maintain higher stocks of raw materials and work-in-progress
- tasks may become repetitive and boring reducing motivation of employees
- size of batch dependant on capacity allowed
Flow production
continuous production of a single standardised product
- product moves continuously through production processes
- when one task is finished next task must start immediately
- time taken on each must be the same
- associated with making high volumes of the same product
pros of flow production
- costs per unit of production reduced through improved work and material flow
- suitable for manufacturers of large quantities
- capital intensive which means it can work constantly
- less need for training and skills
Cons of flow production
- very long set up time and reliant on high quality machinery - significant cost if production is delayed
- high raw materials and finished stocks unless lean production used
- goods are mass produced therefore less differentiation for the customer
- production is shut down if flow is stopped - if production is stopped at any stage, all stages stop which is opposite to batch
Process production
involves a series of processes which raw materials go through
-end result is a large quantity of finished products
Pros of process production
- can normally be automated which reduces unit costs
- large quantities can be produced
- ideal fro products which have to be of a consistent quality
Cons of process production
- heavy investment required in process design and production equipment and facilities
- difficult and disruptive if the production process has to be stopped
- little opportunity to make different versions of the product
Cell production
- organising workers into small groups or cell, that can produce a range of different products more quickly than job production allows
- assembly lines are broken down into group related activities
- teams are given responsibility of doing a part of production process as product moves through assembly line
- every member of the team is skilled at a number of roles - providing an opportunity for job rotation
Why does cell production often lead to improved productivity?
- increased motivation - team spirit and added responsibility
- specialisation
Pros of cell production
- stability of the team improves communication between cell members
- processes, defects, scheduling and maintenance can be managed more efficiently and cost effectively
- workers become multi-skilled and are consequently more adaptable and flexible to the changes in the business
- improves customer response time
Cons of cell production
- may not allow firms to use their machinery as intensively as in flow and output will be lower than mass pro
- greater investment is required in new management and control processes, such as stock ordering
- may be tensions between cells and conflicts may arise if one cells is left to wait for output from another
Which method of production is best for a growing firm?
-depends on factors such as:
- target market - does the customer demand product options?
- technology - can production be automated
- resources - does the firm have finance and people to be able to use flow?
- standards - what quality is required?
Characteristics of job
- the complete task is handled by a single worker or group of them
- jobs can be low and high technology and small and complex scale
Characteristics of job
-low tech jobs
- organisation of production is very simple
- required skills and equipment easily obtainable
Characteristics of job
-high tech jobs
- much greater complexity which is a greater management challenge
- project management is important here
Features of good project control
-clear definitions of objectives - how should the job progress
-decision making process
-
Aims for flow production
- improved work and material flow
- reduced needs for labour skills
- added value - completed work faster
What are the requirements for flow production to work?
-demand
- there must be a substantial constant demand
- if demand is unpredictable, it can lead to a build up of stock and storage difficulties
What are the requirements for flow production to work?
-standardised
the product and the production must be standardised
-flow methods are inflexible so there are no variations in product
What are the requirements for flow production to work?
-specification and delivery
materials must be to specification and delivered on time
- continuous work - using materials that vary in style, form or quality is not a good idea
- if materials are not available the whole production line will have to stop
What are the requirements for flow production to work?
-operations
each operation in the production flow must be carefully defined and recorded in detail
What are the requirements for flow production to work?
-quality standards
the output from each stage of the flow must conform to quality standards
- product moves to each stage continuously so there’s no time for sub-standard output to be re-worked
- opposite for job and batch
what is each cell responsible for?
- responsible for the quality of the product they pass on
- responsible for a complete unit of work which Herzberg defined as job enrichment
- improves motivation and morale which means they are less likely to become bored of repetitive work
What is the objective of cell production?
-to enable greater flexibility to produce a variety of low demand products while maintaining the higher productivity of larger scale production
Lean production
A collective term for a range of techniques designed to eliminate waste, such as JIT, Kaizen, TQM and cell production
What are the purposes of lean production?
- improve quality and lower rejection rates
- increase productivity
- reduce the costs of production by cutting waste
Why is labour productivity important?
- labour costs are usually as significant part of total costs
- business efficiency and profitability link to productive use of labour
- in order to remain competitive, a business needs to keep its unit costs down
Output per employee equation
output/ number of employees
labour costs per unit equation
labour costs/ output
What does higher output per employee lead to?
higher output per employee = higher labour productivity=lower labour costs per unit
What does productivity help with?
- planning
- scheduling
- monitoring
- budgeting
- running the business
What creates efficiency?
if a business can increase their productivity while keeping costs to a minimum, efficiency will increase
Ways to improve productivity
- productivity bonus
- productivity deal
- staff training
- investment in new machinery and equipment
Ways to improve productivity
-productivity bonus
A business may offer their employees this to boost productivity
- this will increase costs to the business so may not maximise efficiency
- measure performance add set targets
- streamline production processes
Ways to improve productivity
-productivity deal
the union in a business may negotiate a productivity deal for all staff
- should motivate to work harder and efficiently
- this is a financial method = high costs
Ways to improve productivity
-staff training
Better trained staff will be more productive - fully trained = hard working
- training can be expensive-means that at least 2 people are away from their job whilst someone is being trained
- lost productivity
Ways to improve productivity
-investment in new machinery and equipment
may invest to make more efficient and produce more goods per hour - boost productivity
-machinery is expensive and may take years to recoup the costs - long term strategy to improve productivity
What are the factors influencing productivity?
-quality of inputs
- Quality of inputs in the production process (equipment, IT systems)
- faulty parts in an assembly line can stop the line
What are the factors influencing productivity?
-labour
labour shift organisation workers
-having the right number of staff at peak times will increase productivity overall, as stretched staff are demotivated by being overloaded
What are the factors influencing productivity?
-technology
Investment in new technology
-robots can work 24/7 without rest breaks which increases productivity
What are the factors influencing productivity?
-workforce
skills and motivation of workforce - extent to which workforce is trained and supported (the working environment)
What are the factors influencing productivity?
-external factors
reliability of suppliers
How does productivity effect competitiveness?
more productive - can produce more goods economically efficiently
- therefore business is in a position to charge more competitive prices
- will enjoy economies of scale and can charge a competitive price
Labour productivity formula
Output in period (units)/number of employees at work =units per employee per month
Problems when increasing labour productivity
- potential trade off with quality
- potential for employee resistance - depending on methods used e.g. new technology
- employees may demand higher pay for their improved productivity - negates impact on labour costs per unit
Efficiency
the extent to which production resources generate output without wastage, resulting in producing at the lowest unit cost
when is efficiency maximised?
when goods are produced at the minimum unit or average production cost - production will aim to do this to take advantage of economies of scale
Average cost formula
total costs/ output
When are firms considered more efficient ?
when firms have a higher output per employee
Benefits of efficiency
- leads to a competitive advantage as prices per item made are lower than competition
- can become market leader through low prices
- enjoy high profits due to lower production costs
Drawbacks of efficiency
-quality may suffer as a result of trying to produce items too quickly
What determines the suitability for labour production?
The nature of the product
What does the UK favour labour or capital?
Capital intensive production as labour costs are high which allows the business to produce goods at the minimum average price
Negative of capital intensive production
- machines often break and need to be maintained
- are expensive to buy
- machinery can become obsolete
- may generate resistance from workforce
- may be greater loss if there is a fault
- business may lose competitiveness if they are stuck in the same production technique
Capital intensive production
aims to create a product using as little people as possible, the process could be entirely or partially automated.
- aims to be cheaper than labour in the long run
- aims to make the job simple and quick
Labour intensive production
aims to use a large workforce to complete work by hand, this usually employs a lot of people to create a product.
-some products are seen to have more value if they were made by hand
Benefits of labour intensive production
- business can benefit from premium pricing for hand crafted goods
- generally better quality
- can use flexible workforce to make sure locations are staffed efficiently
- lower break even output
Benefits of Capital intensive production
- machines do not require pay so lower labour costs
- labour is more specialised so individuals are good at their job
- firms can benefit from access to long term financing
How can production be measured?
- output per worker or hour of labour
- output per period of time
- output per machine
- unit costs (total costs/total output)
Why is it important to achieve high productivity?
- a more efficient business will produce lower cost goods than competitors
- they can either make a higher profit per unit sold or offer a lower price than competitors and still make good profit
- investing in production assets is expensive - business needs to maximise the return it makes on these assets - equipment, factory, building
What are the non-financial methods to improve employee performance and motivation?
Delegation Empowerment Consultation Job rotation Job enrichment Job enlargement Team working Flexible working
Delegation
- authority is passed down to employees and staff are given the responsibility to carry out tasks
- democratic leadership style
- Herzberg motivation factors
pros of delegation
-can lead to increased motivation as it can contribute to an employees esteem needs and self-actualisation
Cons of delegation
-it is important that managers don’t over delegate, that employees are capable and willing to take on extra responsibility
Empowerment
provides employees with more responsibility to work on their own behalf
pros of empowerment
-gives them more control over their own work and can lead to growth and advancement
cons of empowerment
employees may take advantage of the increased power
consultation
when managers and leader obtain the view of employees when making decisions
-paternalistic and democratic style
Pros of consultation
-can make employee feel more involved with the business
cons of consultation
-depends on the extent to which workers are consulted and whether workers views are actually considered
Job rotation
involves the movement of employees through a range of jobs in order to increase interest and motivation
-can facilitate multi-tasking
pros of job rotation
-makes it easier to cover for absent colleagues
cons of job rotation
- requires greater training - time lost
- may initially reduce productivity due to employee being unfamiliar with new task
Job enrichment
attempts to give employees greater responsibility by increasing the range and complexity of tasks
pros of job enrichment
- motivates by giving opportunity to use their abilities to the fullest
- gives opportunity for achievement and feedback of performance
Cons of job enrichment
- important that workers have the necessary training and skills
- other wise it could lead to reduced quality, lower productivity and dissatisfaction
Job enlargement
involves the addition of extra tasks to a job
pros of job enlargement
- by widening the range of jobs that need to be performed, hopefully the employee will experience less repetition and monotony
- rarely need to acquire new skills to carry put additional tasks
cons of job enlargement
sometimes viewed by employees as a requirement to carry out more work for the same amount of pay
team working and pros
meets workers social needs and can lead to a more multi-skilled workforce and shared responsibility can improve motivation
cons of team working
tension can rise between workers
Flexible working
involves workers having a degree of choice relation to how and when they work allowing them to balance their work and social life
