3.4.3- Making operational decisions to improve performance: increasing efficiency and productivity

Question 1

What is capacity?

Answer 1

The maximum output that organisations can produce in a given period

Question 2

What are the drawbacks of having 100% capacity levels?

Answer 2

• Considering operational objectives, it may not be possible to operate at 100% with high quality.
• Theres no downtime: machines are on all the time, if they break down, it can cause delays
• Theres no margin of error, mistakes could shy customers away as the quality may not be up to their standards.
• Businesses cannot temporarily increase output for seasonal demands
• If trends change, it will be hard for businesses to change and cater towards them trends

Question 3

How can firms with high capacity utilisation increase their capacity?

Answer 3

• By using more facilities for more of the working week
• Can buy more machines
• Can increase their staff levels. In the long-term: recruit permanent staff. Short-term: part time employees
• Increasing productivity

Question 4

Why is under-utilisation inefficient and how does it increase unit costs?

Answer 4

• Its inefficient as a business is not getting use out of all machines and facilities they have paid for.
• This will increase unit costs because FC are spread over fewer units of outputs.
• Higher capacity utilisation means an increase in nb of units output without increasing FC.

Question 5

How can firms deal with under-utilisation?

Answer 5

• They can increase demand: This can be done by changing the marketing mix
• They can reduce capacity: This can be done by closing part of their facilities.
  -Short-term: Reducing the length of working weeks.
  -Long-term: By not replacing staff, staff redundant.

Question 6

How can businesses maintain change of capacity over time?

Answer 6

• Long-term: Planning capacity changes to match changes in demand. This can be done by market research. This also reducers units costs however it is risky.
• Short-term: Firms should be flexible and temporarily increase to be able to meet the changing demands.

Question 7

What’s the difference between productivity and efficiency?

Answer 7

Productivity is measured as the output per worker in a given time period, whereas efficiency is getting more output from a given amount of inputs

Question 8

How can businesses increase labour productivity?

Answer 8

• Improving worker motivation
• Training can make workers more productive
• New technology can increase speed workers can do their job

Question 9

What are the difficulties with increasing productivity?

Answer 9

• Encouraging workers to produce more by offering bonuses could mean that the quality suffers or more waste is produced.
• If not increasing capacity, training staff can result in redundancies and job losses, lowering moral of staff.
• New technology can be expensive
• More waste on raw materials which could reduce added value, and have a negative impact on the environment.

Question 10

What are lean production methods? Give examples.

Answer 10

Lean production is efficient form of productions that keeps waste at a minimum
* These methods include just-in-time and kaizen

Question 11

What are the main factors of just-in-time (JIT)?

Answer 11

• JIT aims to reduce waste by having as little stock as possible
• It is based on an efficient stock control. the supply of components are linked directly to the demand of components
• Toyota uses JIT

Question 12

What are some advantages of JIT?

Answer 12

• Storage costs are reduces and cash flow is improved as money isnt tied into the stock.
• Theres less waste, because theres less out-of-date or damaged stock lying around.
• The business is more flexible, therefore can cope with changes in demand and easily adapt to its products.

Question 13

What are some disadvantages of JIT?

Answer 13

• No stock means that customers cant be supplied during production strikes.
• Supplies have to be reliable because their isnt left over stock of raw materials to keep production going.
• If theirs any delays in supply being shipped, can cause disruption in business service.

Question 14

What are the main factors of Just in case (JIC)?

Answer 14

• JIC is an inventory strategy where companies keep large inventories on hand
• this minimizes the probability that a product will sell out of stock
• A company that uses this has difficulty predicting consumers demand or changes in demand at unpredictable times.
• Hospitals use JIC

Question 15

What are the advantages of JIC?

Answer 15

• The ability to use the additional stock to meet any unexpected demand surges or mitigate supply chain disruptions, such as increase delivery time
• Could be profitable in the long run, generating more sales and gain a competitive advantage to competitors
• Reduces the chances of running out of stock
• Better supply rates, as buying in large quantitates is offered with discounts and can reduce shipping costs.

Question 16

What are the disadvantages of JIC?

Answer 16

• It requires extra storage, more stock on hand requires warehouse space, which can lead to logistic challenges and higher storage costs.
• Cash flow challenges: When cash flow is tied up in inventory, you can be left with nothing to pay staff and bills, making it difficult to sustain smaller operators.
• Higher risk of shrinkage: Theres a risk of goods expiring before selling them, making JIC less desirable for those stocking and selling perishable items.

Question 17

What are the advantages of using technology?

Answer 17

• Increased productivity and quality: machines are quicker and more accurate
• Reduced waste: more effective production methods
• More effective and efficient delivery goods and service to the customers
• Reduced administrative and financial costs.

Question 18

What are the disadvantages of technology?

Answer 18

• Initial costs may be high
• Technology requires maintenance and updating which can be expensive
• New IT may increase need of staff training
• Some technologies may replace employees, leading to staff redundancies.

Question 19

What is a capital intensive firm?

Answer 19

• Uses more machines and few workers
• Larger firms are usually more capital-intensive. E.g. BMW use robots and machinery
• A rise in costs of labour can cause companies to switch to a capital intensive method.

Question 20

What are the advantages of capital intensive production?

Answer 20

• Cheaper that manual labour in the long term
• Machinery is more precise, high levels of quality
• Machinery is able to work 24/7
• Machines are easier to manage

Question 21

What are the disadvantages of capital intensive production?

Answer 21

• High set-up costs
• Machines are inflexible
• If machinery breaks down, it can lead to delays
• Fear of being replaced by a machine can cause workers motivation to decrease.

Question 22

What is a labour intensive firm?

Answer 22

• Uses more workers and less machines. E.g. NHS
• Labour intensive methods are common in areas where labour is cheap (China).

Question 23

What are the advantages of labour intensive production?

Answer 23

• People ae flexible and can be retrained
• Cheaper for small-scale production
• Labour intensive methods are cheaper where low costs labour is available
• Workers can solve any problems that arise during production, can suggest ways to improve quality

Question 24

What are the disadvantages of labour intensive production?

Answer 24

• Harder to manage people
• People can be unreliable
• People cannot work without breaks/holidays
• Wage increase means that the cost of labour can increase overtime
• Labour costs as a % of turnover are high

Question 25

Why should businesses have the right mix of people, machines and materials?

Answer 25

To meet objectives more easily