3.4.2 Analysing Operational Performance. Flashcards
What do operations management use to measure operational performance (the efficieny in which an overall aim has been achieved).
Labour productivity.
Unit costs (average costs).
Capacity.
Capacity utilisation.
Define labour productivity.
A measure of the output per worker in a given time period.
What is the labour productivity formula?
Number of employees per period.
What are the benefits of an increase in labour productivity to a business?
Increase output without affecting costs.
Reduce costs without affecting output/
Outline some examples of how an increase in labour productivity may be achieved.
Introducing new technology that speeds up the production process.
Modifying the production system so that it operates more efficiently.
Recruiting new workers with better qualifications and skills.
What are two issues with improving labour productivity?
The costs of improving labour productivity - only implement them if the improved LP generates enough additional revenue to pay for the changes.
May conflict with other objectives - focus on improving LP - may lose sight of other operational issues such as flexibility and dependability etc.
What is the formula for unit costs?
Unit costs =
Total costs / units of output.
How does labour productivity effect unit costs?
The higher the LP, the lower the wage costs per unit (assuming each firm pays the same wage level).
Define capacity.
The maximum total level of output or production that a business can produce in a given time period. A company producing at this level is said to be producing at full capacity.
What are the factor that the ideal capacity will depend on?
Level of demand for a product.
Flexibility of production lines.
Seasonality of output.
Seasonality of demand.
Implications of failure to meet demand.
Opportunities for sub-contracted or outsourced production.
Define capacity utilisation.
The percentage of a firm’s total possible production level that is being reached. If a company is large enough to produce 100 units a weak, but is actually producing 92 units, its capacity utilisation is 92 per cent.
What is the capacity utilisation formula?
annual output per annum (month) / maximum possible output per annum (month) x 100.
What is spare capacity?
When a business is operating at less than 100% capacity, it is said to have “spare capacity”.
Why is 100% capacity utilisation not an ideal target?
No scope for maintenance and repair - all resources, including manpower and machinery, are being fully used to produce at maximum capacity.
Unable to respond to a sudden increase or change in demand.
However, every percentage point below 100 represents ‘unused’ resources and higher fixed costs per unit produced.
What is the link between capacity utilisation (cu) and labour productivity (lp)?
Capacity is often determined by the level of machinery or equipment in the factory - low cu means large portions of the machinery standing idle - not being used productively.
May lead to less work completed by individual workers as the amount being produces is much lower than the firms capacity to produce - output per worker & lp will fall.
More likely to arise if full-time, permanent employees are used.
