Productivity, efficiency, capacity utilisation, outsourcing and offshoring (10)

Question 1

SUMMARY

Answer 1

In summary, the following are covered in this topic:
1. Productivity is the given output per worker in a given time period. It ensures
that a business produces more with the same amount of resources.
2. Efficiency is about maximising operations capability to produce with minimum
waste.
3. Productivity and efficiency can be improved by upgrading skills level of workers
through training; leveraging on technology; improving management efficiency
and increasing employee motivation levels.
4. Capacity utilisation measures the existing output level of a business, as a
proportion of its total potential output.
5. Excess capacity exists when the current levels of demand is below the full
capacity output of the business. The implication of excess capacity is high unit
fixed costs.
6. Excess capacity can be overcome by maintaining output and production for
inventory if it is temporary; introducing greater flexibility into the production
process; reviewing current operations and cutting capacity; and carrying out
research and development to create new products.
7. Capacity shortage exists when demand for the product of the business exceeds
production capacity. Failure to expand capacity in a growing market could leave
the business with a shrinking market share or become increasingly dependent
on external contractors.
8. Approaches to overcome capacity shortages include employing more staff on
short-term contracts; renting additional machineries or equipment; expanding
production facilities; and outsourcing.
9. Outsourcing refers to the use of external service providers (third party) to
undertake part of the operation process, instead of carrying it out within the
business using its internal resources.
10. Businesses outsource to reduce and control operating costs; to increase
flexibility; to improve company focus; to gain access to quality services or
resources; and to free up internal resources.
11. Risks of outsourcing includes personnel issues, quality issues and security issues.
12. Offshoring refers to the relocation of a business function, process or
department to another country.
13. Reasons for offshoring include increased access to cheaper labour; avoiding tax;
and avoiding expensive environmental or labour laws.
14. Risks of off-shoring include reputation and distance issues.