Increasing efficiency Flashcards
What is efficiency
Efficiency: Refers to maximising the amount of output generated from inputs to the production process (getting the most out of the capital)
What does capital mean in operations
In operations, there is a different meaning to capital. The meaning for capital in operations is “machinery used” not relating to an organisation’s finances available.
What are some factors of production
Capital - Man made goods used to produce an output - machinery used
Enterprise - The organising factors - The management that brings all of the factors of production together.
Land - The natural resources put into the production process (not just the land the building is built on, it does include that, but it also includes natural resources used in the production process).
Labour - Human input (workers)
Remember the factors of production as CELL (its an acronym)
Efficiency would maximise the amount of output of the factors above - E.G. the Labour would have been maximised, so that employees can become more efficient.
You want as much output from these inputs as possible
Not a test or question - Just and example
Coffee shop example:
Capital - Coffee machine
Enterprise - Would be the manager that manages all the factors.
Land - The coffee beans, and the store where the coffee is sold
Labour - The barista that makes the coffee
All of this to get the output of a coffee
School example:
Capital - The school good such as text books, pencils etc (to give the output of education)
Enterprise - Headteacher
Land - Where the school is situated
Labour - Teachers
The desired outcome is education
What is the formula for labour productivity
Labour Productivity: Output divided by number of workers
What is the formula for capital productivity
Capital Productivity: Total revenue divided by total amount invested into fixed assets
Why is efficiency important
Determines unit cost - The more effective people use resources, the cheaper you can produce each unit for, therefore you can either reduce the price for customers (becoming more competitive) Or you can maintain the sale cost, cut the price of production, and increase the profit margins, and reinvest in the business.
Impact on competitiveness
Affects reputation - People could see that workers are sitting around doing nothing, and that may put them off from purchasing or from getting new employees.
What are some methods of of increasing efficiency and labour productivity
Fewer inputs:
Lower the inputs but keep the output the same: Reducing waste, including any raw materials that are lost in the production process. Reduce electricity bills etc.
Increase outputs:
(keeping inputs the same but increasing output) Training, replacing labour with capital, raises the motivation of the workforce.
