Business 2.4.1 Production, Productivity and Efficiency

• What are the 4 methods of production?

  • Job
  • Batch
  • Flow
  • Cell
• Which method of production is best for a growing firm?

  It depends on factors such as:

  • Target market = EG, do customers demand product options?
  • Technology = can production be automated
  • Resources = does firm have finance / people to be able to use flow production?
  • Standards = what quality is required
• What is Job production?

  Producing ( often one - off ) items that meet the specific requirements of the customer.
• What are the advantages of Job production?

  • Customer requirements can be handled more easily
  • Could charge higher price with value added
  • Associated with high quality
  • Increased job satisfaction which can lead to improved motivation
  • Flexible method
• What are the disadvantages of Job Production?

  • High unit costs
  • Labour intensive which can lead to high labour costs
  • Time - consuming
  • Higher skills needed so it is more difficult to recruit staff
• What is batch production?

  Groups of identical or similar items are produced together. Each batch goes through one stage of the production process before moving onto the next stage.
• What are the advantages of Batch production?

  • Cost savings can be achieved via buying in bulk
  • Relatively flexible - allows customers to have choice
  • Lower unit costs - more items produced ( compared to Job )
  • Greater use of machinery
  • Workers can specialise in 1 area of the production process
• What are the disadvantages of Batch production?

  • Can take time to switch production from 1 batch to another
  • Requires higher levels of inventory to be held and work in progress
  • Can be repetitive - reduced motivation
• What is Flow production?

  A continuous movement of similar items through the production process. It involves use of production lines.
• What are the advantages of Flow production?

  • Low unit costs - greater economies of scale ( more produced )
  • Quicker method
  • Less need for skilled employees
  • Capital intensive - work can be done constantly
• What are the disadvantages of Flow production?

  • Goods = mass produced - standardised = less differentiation
  • Expensive to set up
  • Reliant on high quality machinery
  • Lower flexibility
  • Delays in production line - knock-on effect = cause production to slow down or stop
• What is cell production?

  Involves splitting production into several self - contained units or ‘cells’, with each ‘cell’ or team is responsible for a specific part of the production process
• What are the advantages of Cell production?

  • More responsibility, variety of work and team - work = improved motivation
  • Workers become multi - skilled and more adaptable to future business needs
  • Can lead to greater quality - each cell has quality ownership
• What are the disadvantages of Cell production?

  • Emphasis on recruitment and training - higher costs
  • Machinery may not be used as intensively as in flow production
  • Company culture must encourage trust / participation - otherwise workers may feel they are pushed for more constantly
  • Emphasis on work allocation - correct work balance in ‘cells’
• What does Productivity do?

  Measures the relationship between inputs into the production process and the resultant outputs.
• Factors influencing productivity:

  • The production method chosen - how much it produces
  • Motivation = motivated workers - more productive
  • Investment in new technology = more productivity / efficiency
  • Specialisation = when workers become specialised in part of the production process - greater productivity
• Potential drawbacks:

  • Cost of technology/ switching of production methods
  • Specialisation = repetitive work - demotivating
• Links between productivity and competitiveness:

  • When productivity is increased, unit / average costs will be lower
  • Lower labour costs per unit leads to lower unit costs. This causes increased competitiveness which can lead to the business being able to produce lower cost goods than competitors
  • The business can either make a higher profit per unit sold or the business can offer customers a lower price than competitors and still make a good profit
• What is productivity measured by?

  Output per worker, Sales per square meter ( in a shop ), or output per machine
• Lower labour costs = labour productivity

  Calculation for labour productivity = units produced / labour - hours used
• What are ways to improve productivity:

  • Training
  • Improved motivation
  • More / Better capital equipment
  • Better quality raw materials ( reduces time wasted on rejected products )
  • Improved organisation - EG, less wastage
  • One resource input - single - factor productivity
• What is Efficiency?


  When a business makes the best possible use of its resourcess
• Maximum efficiency occurs when the business maximises its output from its inputs, and when the average cost per unit / unit cost, is at its lowest
• Ways to measure Productive Efficiency:

  • Productivity
  • Unit Costs -

  Calculation = Total production costs in period ( £ ) / Total output in period ( units ). A falling ratio would indicate that efficiency is improving.

  • Non productive ( ‘idle’ ) resources. Too many idle resources are a common sign of inefficiency in production
• Productive Efficiency:

  • Lower cost per unit at which production can take place
  • It is important because:
  • A more efficient business will produce lower cost goods than competitors
  • May generate more profit possibly at lower prices
  • Investing in production assets ( EG, equipment, factory buildings ) is expensive - a business needs to maximise the return it makes on these assets
• Factors influencing Efficiency:

  • Training
  • New Technology
  • Relocation of Production Capacity
  • Method of Production
• Training:

  Training employees can lead to greater productivity, which in turn can lead to increased efficiency
• New Technology:

  Investing in new technology and production processes can also lead to greater productivity and subsequently greater efficiency
• Relocation of production capacity:

  A number of manufacturing businesses have moved their production capacity overseas in order to take advantage of lower labour costs and also to reduce their fixed costs. This can lead to greater efficiency
• Method of Production:

  The method of production that a business uses can influence efficiency. Moving from batch production to flow production can increase efficiency.
• Distinction between labour and capital intensive production:

  
  

  Unit Costs / Revenue Intensity: Unit costs are closely linked to the relationship between labour and capital in operations.
• • A labour - intensive business has a relatively high proportion of its costs related to the employment of people.
  • Production relies on using labour resources
  • Costs are mainly variable = lower breakeven output
  • Firms benefit from access to sources of low cost labour
• What are the advantages of labour intensity?

  • Unit costs may still be low in low - wage locations
  • Labour is a flexible resource via multi - skilling and training
  • Labour is at the heart of the production process and can help with continuous improvement
• What are the disadvantages of labour intensity?

  • Greater risk of problems with employee / employer relationship
  • Potentially high costs of labour turnover
  • Absenteeism can impact on productivity and efficiency
  • Need to continually invest in training
• • A capital - intensive business has relatively low labour costs, but high costs arising from the extensive use of equipment ( EG, machinery )
  • Production relies on using capital resources
  • Capital costs are higher than labour costs
  • Costs are mainly fixed = higher break even output
  • Firms benefit from access to low - cost, long term financing
• What are the advantages of Capital intensity?

  • Greater opportunities for economies of scale
  • Potential for significantly higher productivity
  • Better quality
  • Consistency
• What are the disadvantages of Capital intensity?

  • Significant investment initially and continually ( updates and maintenance )
  • Potential for loss competitiveness due to obsolescence
  • May generate resistance to change from the workforce ( labour force )