3.4.3 Flashcards
increasing productivity and efficiency
what do operational decisions to improve performance link with?
- efficiency
- technology
- capacity
- labour productivity
- lean production
- optimal mix
what does capacity mean?
a measure of how much output it can achieve in a given period
what does capacity utilisation mean?
the proportion (percentage) of a business’ capacity that is actually being used over a specific period
how do you calculate capacity utilisation?
actual level of output/maximum possible output x100
what is the importance of capacity utilisation?
- useful measures of productive efficiency
- average production costs tend to fall as output rises - higher utilisation can reduce unit costs making a business more competitive
- businesses aim to produce as close to full capacity as possible to minimise unit costs
- high level of capacity utilisation = high break-even output
why do businesses operate below 100%?
- lower than expected market demand
- a loss of market share
- seasonal variations in demand
- recent increase in capacity
- maintenance and repair programmes
what are the dangers of low utilisation?
- high unit costs - impact on competitiveness
- less likely to reach breakeven output
- capital tied up in under-utilisation assets
what are the dangers on high utilisation?
- possibly a negative effect on quality as: production is rushed, less time for quality control
- employees suffer as: added work load and stress which demotivates them
- loss of sales: less able to meet sudden or unexpected increases in demand
what does productivity mean?
measures the relationship between inputs into the production process and the resultant of outputs
how can productivity be measured?
- output per worker or hour of labour
- output per hour/day/week
- output per machine
- unit costs (total costs/total output)
how can productivity be increased?
- training staff
- improved motivation of employees
- more or better capital equipment
- better quality raw materials
- improved organisation of production
what are the problems of increasing labour productivity?
- potential employee resistance
- employees may demand higher pay for improved productivity
what does lean production mean?
focuses on cutting out waste, while ensuring quality
how to have effective lean production?
- good relations with suppliers
- committed, skilled and motivated employees
- culture of quality assurance - continuous improvement and willingness to embrace change
- trust between management and employees
what are the pros of lean production?
- increased productivity
- motivated employees
- reduced waste and stockholding costs - improves a firms cash-flow position
what are the cons of lean production?
- unexpected demand is not always dealt with efficiently
- many firms choose traditional methods
what is JIT (just in time)?
ensures that inputs into the production process only arrive when they are needed
how does JIT work?
- based on a “pull” system of production - customer orders determine what’s produced
- requires complex production only when needed
- requires close cooperation with high-quality suppliers
what are the pros of JIT?
- lower stock holding means a reduction in storage space - saves rent and insurance costs
- as stock is only obtained when needed, working capital is tied up in stock
- less time spent on checking and re-working production
what are the cons of JIT?
- little room for mistakes as minimal stock is kept for re-working faulty products
- production is highly reliant on suppliers - if supply is not delivered on time, the whole production schedule can be delayed
- a need for complex, specialist stock systems
what is JIC (just in case)?
the business holds buffer stocks of raw materials/finished goods just in case there is a problem with deliveries or unexpected surge in demand
what are the pros of JIC?
- stock is available for re-working faulty products or a sudden increase in demand
- production is less reliant on suppliers and if stock is not delivered on time, whole production schedule wont be delayed
- spare finished products are available to meet unexpected orders - can increase the level of customer service
- economies of scale are possible from bulk purchasing stock
what are the cons of JIC?
- higher stock means a need for more storage space - increases rent and insurance costs
- money is tied up in stock and therefore is unavailable for other purposes
- build up of unsold finished products leading to higher stockholding costs
what does labour intensive mean?
production relies on using labour resources
