Increasing efficiency and labour productivity

Question 1

Labour productivity

Answer 1

Measures how much each worker (on average) contributes to the business operational output. It is measured as output per worker.

Question 2

Efficiency

Answer 2

Takes into account all factors of production (resources) and is measured through the unit cost.

Question 3

How a business can improve efficiency

Answer 3

• Improving the fertility of the land (eg: farming)
• Using renewable or recyclable materials
• Increased education and training
• Increased investment in capital equipment
• Using an optimal mix of resources
• Increasing scale of production

Question 4

Lean production

Answer 4

An approach to management that focuses on cutting out waste, whilst ensuring quality. It can be applied to all aspects of the business.

Question 5

What is lean production about?

Answer 5

• Doing the simple things well
• Doing things better
• Involving employees in the continuous process of improvement (Kaizen)
• And a result avoiding waste
  Cutting out waste&raquo_space;»> reducing costs

Question 6

Overproduction

Answer 6

Making more than needed - leads to excess stocks and storage issues/increase in variable costs (costs of sales) lowering gross profit per unit.

Question 7

Waste - Waiting time

Answer 7

Equipment and people standing idle waiting for a production process to be completed or resources to arrive increasing the ‘Work in progress costs’

Question 8

Waste - transport

Answer 8

Moving resources (people, materials) around unnecessarily increasing the fixed costs per unit and increasing break even

Question 9

Stocks

Answer 9

Often held as an acceptable buffer, but should not be excessive otherwise otherwise cash flow is tied up

Question 10

Motion

Answer 10

A worker who appears busy but is not actually adding any value, lowering productivity and efficiency - higher unit costs

Question 11

Defects

Answer 11

Output that does not reach the required standard - often a significant direct cost to an uncompetitive business

Question 12

Key parts of lean production:

Answer 12

• Time based management
• Simultaneous engineering
• Just in time production (JIT)
• Cell production
• Kaizen
• Quality improvement and management
• Critical path analysis

Question 13

Time-based management

Answer 13

A general approach that recognises the importance of time and seeks to reduce the level of wasted time in the production processes of a business.
Benefits of this:
- Quicker response times (reduced lead times) to meet changing market and customer needs
- Faster new product development
- Reduction in waste, therefore greater efficiency
Requirements:
- Flexible production methods (able to change products quickly, can changes production volume/runs)
- Trained employees (multi-skilled staff, trust between workers and managers)

Question 14

Simultaneous engineering

Answer 14

An approach to project management that helps firms develop and launch new products more quickly. Everything is considered (together, in parallel) rather than separately (in series)

Question 15

Cell production

Answer 15

A form of team working where production processes are split into cells. Each cell is responsible for a complete unit of work.

Question 16

Just in time production

Answer 16

Aims to ensure that inputs into the production process only arrive when they are needed.
How it works:
- Based on a ‘pull’ system of production - customers orders determine what is produced
- Requires complex production scheduling - achieved using specialist software to connect production department with suppliers
- Supplies delivered to production line only when needed
- Requires close cooperation with high-quality suppliers

Question 17

Benefits of JIT

Answer 17

• Lower stock holding means a reduction in storage which saves rent and insurance costs
• As stock is only obtained when needed, less working capital is tied up in stock
• Less likelihood of stock perishing, becoming obsolete or out of date
• Less time spent on checking and reworking production as the emphasis is on getting the work right the first time

Question 18

Kaizen

Answer 18

‘Continuous improvement’ - an approach of constantly introducing small incremental changes in a business in order to improve quality or efficiency.

Question 19

How Kaizen works

Answer 19

• Leaner production is based on making many small changes
• Ideas come from employees
• Small improvements are cheaper
• The culture - all employees should continually look for ways to improve their own performance
• Encourages employees to take ownership for their work, can help reinforce team working and improve motivation