Increasing Efficiency Flashcards
Define efficiency
This looks at the inputs are used to generate outputs. A business is more efficient if it uses less inputs to reduce the output the result of being more efficient is that unit cost full thus allowing price cut.
Benefits of high efficiency
Maximise production and thus satisfy the needs of more consumers
few inputs and needed to produce a given level of output – reduces unit cost
lower unit cost enable a competitive advantage. Businesses can lower prices and still maintain profit margin on its products
cost savings from greater efficiency can be used to improve quality of the products.
How can you increase efficiency?
Increase the demand by: extra promotions, cutting price, launching new products
Cut capacity by: making redundancies, move to smaller premises (only if sure demand won’t increase again
What is rationalisation?
Reorganising to boost efficiency
What are the options of rationalisation?
Cut working hours, make redundancies, close the factory, lease out factory space, sell off machinery, redeployed staff to other jobs
Why is having a higher capacity utilisation vital?
Lower unit cost
Assets are used more fully increasing
Fixed cost per unit or lower
Higher level of capacity utilisation is required if a business has a heartbreak even output due to significant fixed cost of production
Case studies on capacity
January 2023: hospitality industries responding to a wide range of external threats, including rising energy costs and staff shortage
Capacity is cut by restriction open hours, closing for more days of the week
Apple: one year major products larger higher demand next year refinement could mean lower demand and capacity utilisation for suppliers
What happens when you increase labour productivity?
If labour productivity increases then the result is lower unit costs due to the costs of labour staying the same but are spread over a greater output as each worker is producing more which lowers unit costs.
What are ways to increase labour productivity?
-involve/engage workers i.e. increase motivation
-Improve training
-use more technology to help employee work faster -change reward system to provide incentives
-change organisation of jobs for the flow is improved unless time wasted
-better management (they must fit and organise flow of the job)
What are the problems with increasing labour productivity?
-if work is rushed– quality may suffer (could be the quality of products or quality of the service given to customers)
-if demand doesn’t increase then less workers will be needed and employees may resist methods to increase productivity if they think they’ll lose their job
-less workers needed if the method being used to improve productivity is the introduction of technology – lead to redundancies – workers resist attempt to increase productivity
-employees may demand higher pay
-training technology etc to improve productivity can be costly
Define capital intensive
The weight of resources used in operations is biased towards capital equipment rather than labour
Where is capital intensive often found ?
It is often found in manufacturing where automation and robotics allow mass production with minimal staff. However, the service sector is becoming more capital intensive for example online banking.
Advantages of capital intensive?
-Large volumes – lower unit cost
-Faster production with higher productivity
-Uniform product with less chance of defects (no human error)
Disadvantages of capital intensive
– Costly to repair and there’s a high initial cost
– Workers may resist implementation (fear of job losses)
– Less flexibility if demand (can’t get rid of machines like you can staff)
Define labour intensive
The weight of resources used in operations is biased towards labour rather than capital equipment
When is labour intensive often found ?
Is often found in the service sector where interaction with customers is important. However, due to e-commerce there is some sway towards capital intensity.
Advantages of labour intensive
-if the demand falls it is easier to get rid of staff
– Staff are multiskilled
– Unit cost may still be low in low wage locations
– Workers can make suggestions for improvement
Disadvantages of labour intensive
-customer, some motivation incentives, wages, recruitment
– Human error could be issues of quality
– May not provide as high a volume
– Possibility of human error
– Greater risk of problems with employee/employer relationships
-potentially high costs of labour turnover
-need to continue with investment in training
What does the best / optimal combination depend on ?
-The process for example high value, repetitive task can be done by machines -What firms can afford
Why can labour intensive manufacturing help add value?
Flexibility
Customisation
Willing to pay premium pricing – adding value
This is not true for capital – makes same products
What is lean production?
Lean production describes the range of waste saving measures used mainly by the Japanese. Lean producers need less labour stock and time than mass producers of the same size
What is waste?
Waste is anything that doesn’t add value to the final product eg storing stock, repairing faulty products, wasting time through unnecessary movement of people / products
What is JIT?
This involves producing products only when a customer places an order, rather than producing as much as possible, building up stocks and hoping they will sell. With Jit, no stock of any type is held. Raw materials arrive just in time to go into production, work in progress (partly finished goods) arrives at the next stage just in time to be used and finished goods are completed just in time to go to the customer. Careful planning is therefore essential.
Therefore, the firm only produces an item that they know they can sell ie a customer has placed an order for the item.
When does a JIT firm produce an item?
the firm only produces an item that they know they can sell ie a customer has placed an order for the item.
What is the principle that underpins JIT?
The principle that underpins JIT: Production is pulled through rather than pushed through.
What does pulled through mean in terms of JIT?
Pulled through: the customer places an order which triggers off production. The firm then orders supplies from the suppliers and arranges for these to be delivered in the correct quantity and to the correct loading bay (near where they are needed on the production line).
When is stock ordered /needed?
The stock is therefore pulled through, only when it is needed. Stock is therefore only ordered from suppliers when an order is received from the customer. Firms are likely to order enough supplies for just a day or a few hours. This results in daily, if not hourly deliveries.
Describe JIC
The opposite of JIT - Just in Case (JIC)This is when the business holds buffer stocks of raw materials/finished goods just in case there is a problem with deliveries or there is an unexpected surge in demand. This means production is ‘pushed through’.
Describe pushed through goods in terms of JIC
Pushed through: goods are made regardless of whether the next stage needs these quantities. It causes stocks of all types. These types of producers have been termed just in case’ as they hold stock for unexpected events.
What are conditions are needed for JIT to work successfully?
- very reliable suppliers and good communication with them
- high quality with suppliers and staff
- production planning
- full cooperation of workplace
- flexible workers
- training
- management commitment
- good communication
- reliable machines and workers
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Advantages of JIT
- reduced stockholding costs
- avoids opportunity costs of money tied up in stock helping cash flow
- more factory space available for productive use
- less chance of goods becoming damaged or obsolete
Disadvantages of JIT
- reliant on suppliers
- lack of economies of scale- small quantities and no bulk buying discount
- vulnerability
- zero defects are essential as no spare stock held
- involves complex planning to ensure no lack of or build up of stock
Case study on JIT
Japanese Tsunami 2011-suppliers make high tech components and they were affected
* Toyota and Honda in the UK and the US used JIT and this halted production
* shutdown cost millions of dollars a day
What have in recent times , firms used as a competitive advantage?
Firms are now using time as a competitive weapon
What does time based management involve?
Designing products more quickly
Producing products more quickly
Delivering products more quickly
How do firms speed up development ?
Firms have adopted simultaneous engineering
What is simultaneous engineering?
Organising product development so that all the engineers and designers work on it at the same time rather than one after the other
It has become easier with IT as communication has become easier.
What does TBM require.
Flexible production.
Describe flexible machines and flexible workers in production
Must be capable of making more than one model ie they can be changed quickly if consumers want a change
Employees must be flexible so that new products can be made as demand changes
Why is TBM important?
It is a way of competing when markets are becoming more competitive.
Product life cycles are shorter so firms need to develop products more quickly to replace them. Also less revenue is coming in if life cycles are shorter so costs must be reduced (less
time = less costs).
Pros of TBM
- Firms respond more quickly to changing demands.
- Firms deliver more quickly, increasing customer satisfaction.
- By reducing production times, productivity increases (more is produced in a given time) so unit costs fall.
- May get product to market quicker than competitors.
Cons of TBM
- Costs of creating flexible machines.
- Training costs to gain flexible workers.
- Higher cash outflows at any one time with simultaneous engineering.
What is total quality management?
It is Everyone’s responsibility to ensure quality.
It is about building in quality rather than inspecting ie the focus is on prevention,not inspection or prevention
What is the focus for TQM.
There is a focus on the customer - particularly internal customer (colleague). They are treated just as an external customer is treated ie don’t knowingly pass on faulty work to a colleague - or it will be returned!
What is TQM simplified?
TQM is a culture / a way of life. It is about everybody improving quality in the production process. It can go beyond operations, for example, does HR train staff well so that quality improves? Does the finance function support quality?
Benefits of TQM
Drawbacks of TQM
How can electronic point of sale(EPOS) increase efficiency by using technology?
- Electronic Point of Sale (EPOS)
Laser scanning system to gather data from bar codes. Exact stock can be stored in the computer along with the price charged
How can electronic data interchange (EDI) increase efficiency by using technology?
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2. Electronic Data Interchange (EDI)
A permanent link between computers on different sites eg between branches, from branch to headoffice, from headoffice to distribution depot to the supplier. The latest information can be received and it makes JIT easier.
How can databases increase efficiency by using technology?
A store of information eg stock levels, list of suppliers or customers. It can be quickly accessed, added to or interrogated eg find customers in North East of England.
Uses in operations:
Stock Control: the exact stock level is kept in a database. EPOS and EDI aid this as EPOS can update the stock level in the database as a barcode is scanned. When stock falls to a certain stock level, more can be ordered from the supplier via the EDI link. It therefore reduces the need for stock counts and ordering by humans.
How can you use databases in operations?
Uses in operations:
Control: the exact stock level is kept in a database. EPOS and EDI aid this as EPOS can update the stock level in the database as a barcode is scanned. When stock falls to a certain stock level, more can be ordered from the supplier via the EDI link. It therefore reduces the need for stock counts and ordering by humans.
How can computer aided design improve efficiency using technology L
Designers can store and modify work using 3D images. They don’t need to start again from scratch and can rotate the image. Productivity of designers therefore increases and it encourages them to become more ambitious.
How can robotics improve efficiency by using technology?
They are used widely in manufacturing
Advanced of robotics
Advantages:
• Speed and accuracy, meaning increased productivity and therefore efficiency.
Reliable quality and less waste.
They handle boring, repetitive or hazardous tasks.
Disadvantages of robotics
Disadvantages:
• Initial cost
• Displaced staff (affects motivation).
• They aren’t as flexible as people.
How does automated production improve efficiency using technology!
- Automated production
This is when production processes and procedures are performed by machines. This is not just confined to manufacturing; many business processes can be automated eg call handling, filling in forms. This removes the need for workers and speeds up the task, increasing efficiency.
How does artificial intelligence improve efficiency by using technology?
Factories are increasingly adopting Al tools like sensors and computer vision to boost efficiency and reduce waste.
Sensors powered by Al can monitor equipment for signs of failure by analysing audio data and vibrations. This enables factories to schedule maintenance and avoid costly downtime.
PepsiCo is one business using this technology.
Al can process and analyse massive amounts of data. This helps factories foresee and get ready for possible disruptions in the production process. Even short downtimes can be very costly and lead to missing critical sales windows.
Computer vision Al can be trained to recognise product defects, spotting issues human eyes would miss as items move quickly along production.
How does communications improve efficiency with technology?
- Communications
Technology has revolutionised communication. This has significant implications for customer service and working more closely with suppliers. It also allows remote teams to communicate effectively, improving business efficiency.
