Production, productivity and efficiency

Question 1

Define productivity.

Answer 1

Productivity is the output per input (person or machine) per hour.

Question 2

Define production.

Answer 2

The total amount of output that is produced in a time period.

Question 3

What is production and factors of production?

Answer 3

Production is when resources, such as raw materials or components, are changed into ‘products’.

Land, labour, capital and enterprise are the factors of production and these are used in the production process.

Question 4

What are some examples of primary, secondary and tertiary industry?

Answer 4

Primary- the use of land and a tractor to grow cabbages

Secondary- the use of wood and tools to manufacture furniture

Tertiary- services such as. a bank

Question 5

List the different methods of production.

Answer 5

Job
Batch
Flow
Cell

Question 6

Explain job production.

Answer 6

Job production is where one single product is made at a time

Products are made for a specific client or customer
Products made are high quality, which means higher prices can be charged

However, the production process can be slow and labour intensive

A key feature of job production: goods are made by skilled craftspeople who will be well motivated

Question 7

When should job production be chosen?

Answer 7

Correct production process to choose when one product needs to be produced at a time:

Building a ship
Hand knitting a jumper
Building a bridge over a river
Writing a book

Question 8

What are the advantages of job production?

Answer 8

Bespoke, unique, one off, to customers measurements or specifications e.g. a kitchen

Very motivated workers as work is varied and they can see one item made from start to finish

Motivated workers are normally more productive and have lower rates of absenteeism

Higher prices can be charged to the customers as quality is high
Production is easy to organise

Question 9

What are the disadvantages of job production.

Answer 9

Skilled labour and craftsmen are expensive

Wide range of tools may be required

Workers may be productive in terms of effort/quality but this often means it’s slow, so long lead times

Difficult to increase supply if demand increases

Question 10

Explain batch production.

Answer 10

This is the production method used when a business wants to make more than one item at a time

Goods are made in batches, and can be switched over to make something different on the same production line- e.g. Bread factory also makes crumpets and tortillas

Question 11

What are the advantages of batch production?

Answer 11

Production can be changed to meet customer needs or fluctuations in demand

Standard production of items means it can be mechanised, so less labour involved than job production

Employees specialise so become good at their one job

Workforce is cheaper as they only focus on one skill

Unit costs are lower because output is higher

Question 12

What are the disadvantages of batch production?

Answer 12

Small batches carry higher average unit costs (EOS)

Workers may be less motivated with repetitive work

Idle time between batches needs to be managed as this is wastage

More complex machinery needed

Careful planning/coordination needed

Question 13

Explain flow production.

Answer 13

Flow production (mass productions) uses production lines with continuous movements of items through the process

Many mass produced products (simplified, standardised products) are made this way such as; cola, cars and toothpaste

The factory would be laid out in assembly lines
This is a very capital intensive process (lots of machines)

Semi-skilled workforce who specialise in one operation

Large stocks of raw materials/components
Continual flow production - products pass continually through a series of processes.

Repetitive flow production - the manufacture of large numbers of the same product

Question 14

When should flow production be chosen?

Answer 14

Correct production process to choose when standardised products need to be mass produced in huge volumes in a continuous process:

e.g. Toothpaste

Question 15

What are the advantages of flow production?

Answer 15

A business can make larger quantities which means they can bulk buy raw materials and save money (economies of scale)

Fast output

Automated and computerised production means improved quality and more complex designs can be made in shorter times and allow flexibility

As production is continuous stocks of parts and raw materials don’t need to be held this means a business can use the JIT (just-in-time) system

Question 16

What are the disadvantages of flow production?

Answer 16

High set-up costs to buy the factory and machinery before production can start

Low motivation of staff due to repetitive tasks

Break downs and lost production can be costly

Very inflexible, hard to change the factory machinery to make different products, the production process will be set up to make just one item e.g. bottled cola

Products may be too standardised (nothing unique/interesting)

Question 17

Explain cell production?

Answer 17

Cell production is dividing up production into separate self contained areas that are each responsible for a section of work

Each cell will have a team leader and a team of multi-skilled workers

Question 18

What are the advantages of cell production?

Answer 18

Wastage through movement of materials is reduced

Time waiting for stock to arrive (lead time) is reduced

Bottlenecks in the production process are reduced (where everything builds up waiting to go to the next stage)

Cell production can mean increased worker commitment and motivation and therefore increased productivity

Cells use less space than a linear production line.

Product flexibility is improved.

Teamworking is encouraged, can be motivating.

There may be a safer working environment and more efficient maintenance.

Question 19

What are the disadvantages of cell production?

Answer 19

Any breakdown of machinery will stop the production

Needs more staff to supervise than a continuous flow

Somewhat reliant on the cell before finishing their stage of the production process.

Question 20

Explain productivity.

Answer 20

Productivity is how a business can measure how hard a person or a machine is working

Labour productivity – this is output per worker per period of time.

Capital productivity ratio - calculated by dividing output by the amount of capital employed in a given period. This helps in planning, scheduling, monitoring, budgeting and running the business

We talk about productivity in terms of “efficiency” if it is good or “inefficiency” if it is bad.

Question 21

List the different ways to improve productivity.

Answer 21

If a business can increase their productivity while keeping costs to a minimum then will increase their efficiency

Productivity bonus
Productivity deal
Staff training
Investment in new machinery and equipment

Question 22

Explain productivity bonus as a way to improve productivity.

Answer 22

A business may decide to boost their productivity levels by offering their employees a productivity bonus

So for example, the employees if they increase production by 5% may be entitled to with a lump sum bonus e.g. £500 or a percentage on their wages

This will increase the costs of the business so may not maximise efficiency

Question 23

Explain a productivity deal as a way to improve productivity.

Answer 23

The union in a business may negotiate a productivity deal for all staff

This should motivate everyone in the organisation to work harder and more efficiently

Again this is a financial method of motivation and as such there is a cost

Question 24

Explain staff training as a way to improve productivity.

Answer 24

If staff are better trained they can be more productive

Once you are fully trained you will be able to work hard at your job

Training can be expensive because it means that two people (at least) are away from their job while the employee is being trained, so there is also lost productivity while that happens

Question 25

Explain investment in new machinery and equipment as a way to improve productivity.

Answer 25

The business may decide to invest in new machinery to make it more efficient and produce more goods per hour – which will boost productivity

Machinery / capital investment is expensive and may take years to recoup the costs so is a very long-term strategy to improve productivity

Question 26

Explain factors influencing productivity.

Answer 26

Quality of inputs in the production process – faulty parts in an assembly line can stop the line

Motivation of workers - financial and non-financial incentives.

Working practices - Labour shift organisation of workers, having the right number of staff on at peak times will increase productivity overall, plus stretched staff are demotivated by being overloaded

Labour flexibility - Labour can be more flexible if workers are trained to do different jobs and can switch from one to the other at short notice.

Capital productivity - investment in new technology, robots can work 24/7 without rest breaks and so will increase productivity levels

Specialisation and the division of labour - departments specialise in different activities, such as marketing, production, finance, personnel and purchasing. Workers will also specialise in certain tasks and skills. This is called the division of labour.

Education and training - the government can improve the quality of labour by investing in education. Firms can also improve the productivity of their workers by investing in training.

Question 27

Explain the link between productivity and competitiveness.

Answer 27

In essence if a business is more productive then it can produce goods more economically efficient and therefore is in a position to charge more competitive prices
For example a business that introduces new machine perhaps to bottle beer or wrap crisps and can now produce double the amount in half the time
The business will enjoy economies of scale and can therefore charge a competitive price

Question 28

Explain production at minimum average cost.

Answer 28

Efficiency is maximised when goods are produced at the minimum unit or average production cost

Production will aim to operate at the minimum average cost per unit so that they can take advantage of economies of scale

Average cost formula:
TC / output

Question 29

Explain productivity and efficiency.

Answer 29

Firms that have a higher output per employee are more efficient

This can lead to competitive advantage as prices per item made are lower than competition

-can become market leader through low prices or enjoy high profits due to lower production costs

Quality may suffer as a result of trying to produce items too quickly

Question 30

Explain factors affecting efficiency.

Answer 30

Standardisation - involves using uniform resources and activities or producing a uniform product. Bulk purchases can be made, the same tools and procedures could be used for fitting, and training time could be reduced. In general, efficiency will improve if there are standard components

Outsourcing - work currently done by a business is given to specialists outside the business that can do the same work at a lower cost or more flexibly.

Relocating - a drastic measure but can result in much lower rents, lower wages and better transport links

Downsizing - involves reducing capacity e.g. laying off workers and closing unprofitable divisions. The advantages include cost savings and increased profit; a leaner, more competitive operation; removal of unprofitable or inefficient parts of a business; profitable businesses no longer subsidising unprofitable ones. However, downsizing can have drawbacks, as laying off workers means that businesses lose skills, experience and knowledge and have an adverse effect on the morale of workers.

Delayering - involves reducing staff. Cuts are directed at particular levels of a business’ hierarchy. Can lead to better communication and better-motivated staff if they are empowered and allowed to make their own decisions.

Investing in new technology - New machinery may be quicker, more accurate, be capable of more tasks, and carry out work in more extreme conditions than older equipment or labour.

Question 31

Explain lean production.

Answer 31

Lean production is an approach developed by Toyota, the Japanese car manufacturer.

Its aim is to use fewer resources in production. This includes factory space, materials, stocks, suppliers, labour, capital and time.

As a result, lean production:

●● raises productivity
●● reduces costs and cuts lead times
●● reduces the number of defective products
●● improves reliability and speeds up product design.

Lean production involves using a range of practices designed to reduce waste and improve productivity and quality. Examples include Kaizen, just-in-time production, cell production, empowerment and teamworking.

Question 32

Explain what Kaizen means.

Answer 32

There is a strong link between Kaizen and lean production.

Kaizen is a Japanese word that means continuous improvement. This means that workers are always coming up with ideas to improve quality, reduce waste or increase efficiency.

The improvements may be very small, but over a long period of time they can have a huge impact.

Question 33

Explain just in time production.

Answer 33

Just-in-time production (JIT) involves minimising or eliminating the amount of stock held by a business.

It reduces all of the costs associated with stock holding.

Question 34

Explain labour intensive production.

Answer 34

Labour intensive production makes products using mostly human effort (or labour)

China and India both have access to cheap labour so favour these production methods

The nature of the product will determine if it is suitable for labour intensive production e.g. can make cars by hand but to produce in volume requires machines.

Question 35

What are the benefits of labour intensive strategies?

Answer 35

More flexible than capital- staff can be retrained

Cheaper for small-scale production

Cheaper for large-scale production in countries like China and India

People are creative and so can solve problems and make improvements

Question 36

What are the drawbacks of labour intensive strategies?

Answer 36

People are more difficult to manage than machines. They have feelings and react.

People can be unreliable- they can be sick or leave suddenly

People cannot work without breaks or holidays

People sometimes need to be motivated to improve performance.

Question 37

Explain capital intensive production.

Answer 37

In some industries only capital intensive production is possible

In capital intensive production goods are produced using mainly machines and equipment

UK has high labour costs so favours capital intensive production

This allows the business to produce goods at the minimum average price (bottom of the cost curve)

Machines often break, need to be maintained and are expensive to buy

Question 38

What are the benefits of capital intensive strategies?

Answer 38

More cost effective if large quantities are produced

Machinery is often more precise and consistent

Machinery can operate 24/7

Machinery is easier to manage than people

Question 39

What are the drawbacks of capital intensive strategies?

Answer 39

Huge set up costs

Huge delays and costs if machinery breaks down

Can be inflexible- much machinery is highly specialised

Often poses a threat to the workforce and could reduce morale

Question 40

Explain labour/capital combination.

Answer 40

The optimal resource mix between labour and capital depends on a number of factors.

●● The nature of the product - everyday products with high demand, like newspapers, are mass produced in huge plants using large quantities of machinery. However, in modern economies like the UK, an increasing number of the products supplied by businesses are services. Generally, the provision of services is labour intensive.

●● The relative prices of the two factors - if labour costs are rising then it may be worth the company employing more capital instead. In countries like China and India where labour is relatively cheap, labour intensive production methods are preferred. However, in most developed economies like the UK, labour is more expensive and a great deal of manufacturing is capital intensive.

●● The size of the firm - as a firm grows and the scale of production increases, it tends to employ more capital relative to labour. For example, in the UK, Morgan cars, a small sports car manufacturer, uses a labour intensive approach to production. In contrast, Honda, which has a huge car factory in Derby, uses capital intensive production.