increasing efficiency and labour productivity

• what is capacity?


  the total output a firm can produce while fully utilising their resources.
• what is capacity utilisation?

  the proportion of total possible output that is actually being produced
• whats the formula for capacity utilisation?


  ACTUAL OUTPUT / MAXIMUM POSSIBLE OUTPUT X 100
• what are the advantages of high capacity utilisation?

  -more efficient use of resources means lower costs.

  -higher profitability ( assuming all units are sold)

  -motivational for the workforce.
• what are the disadvantages of high capacity utilisation:

  -difficult to respond to unexpected changes in demand

  -lack of time for maintenance and repair

  -stressful for workforce

  -could impact on quality.
• what is the importance of capacity?

  -capacity determines the limits for a company's ability to match demand.

  -capacity can affect brand image

  -can affect worker motivation

  -impacts on corporate objectives.
• how can a business utilise capacity effectively?

  UNDER CAPACITY:

  -increase demand through marketing efforts

  -sell off unused assets, this capital could be used to invest in marketing

  -let out underused space to make profits

  
  

  OVER CAPACITY:

  -reduce demand through e.g. raising prices to target possibly a more specific target market

  -invest in new assets for example, employ more workers, expand to another factory etc

  -outsourcing to a third party to meet high demand.
• what is efficiency?


  refers to maximising the amount of output generated from inputs to the production process
• what are some examples of inputs?

  -capital e.g. machinery used

  -land e.g. natural resources

  -labour e.g. human input
• why is efficiency important?

  -determines unit costs as the more effectively resources are used the cheaper each unit is produced

  -impact on competitiveness as there may be ability to charge low prices

  -affects reputation
• what is labour productivity?


  a measure of the output per worker.
• why is labour productivity important?

  -a higher output employee means better profit margins or lower unit costs

  -can lead to competitive advantage .
• what are some methods of increasing efficiency and labour productivity?

  -TRAINING: invest in training to improve workers skills and motivation

  -NEW TECHNOLOGY: replacing labour with capital speeds up processes and reduced human error which in turn reduces costs

  -INTRODUCE NEW REWARD SYSTEMS: in order to create an incentive to work harder ( incentives linked to output)
• what are the difficulties of increasing efficiency and labour productivity?

  -high levels of output can cause stress among workers and so quality may be impacted

  -workforce may be resistant to change, will impact on motivation.

  -the set up and running costs of capital machinery can be expensive.

  -brand image can also be damaged due to the utilisation of machinery.
• what is lean production?

  -an approach to management that has the main aim of reducing wasted time and resources in the production process whilst maintaining quality.
• what are some examples of waste in a business?

  -inventory i.e. too much stock

  -defects

  -overproduction

  -transport
• what are some lean production methods?

  >Just-in-time

  >Kaizen
• what is just-in-time production?

  - a stock management system that is focused on minimising the level of raw materials and finished goods held by a business
• what does just-in-time involve?

  -supply for products and raw materials are triggered by demand from customers.

  -supplies are ordered only to fulfil customer orders that have already been placed.

  -JIT relies on effective communication with suppliers

  -finished goods need to be of the highest quality as there is no extra stock on hand to remake the finished good.
• what are the advantages of just-in-time?

  -reduced storage costs which also means reduced security costs

  -no risk of stock become obsolete or out of date

  -having a strong relationship with suppliers means they may be more flexible with payment terms
• what are the disadvantages of just-in-time?

  -reduces ability of business to meet unexpected increases in demand.

  -little time to correct mistakes

  -relies strongly on suppliers so the business needs to maintain a good relationship
• what is kaizen?


  -a production philosophy that concerns making incremental changes on a consistent basis to continuously improve performance.
• what does kaizen involve?

  -many small changes are made to production process

  -all employees should continuously look for ways to improve their own performance.

  -workers contribute ideas
• what are the advantages of kaizen?

  -shop and factory floor workers usually first to identify problem which can be resolved quickly.

  -improves motivation of employees

  -reduces waste and production cost

  -less need for heavy investment in capital machinery
• what are the disadvantages of kaizen?

  -can be time consuming and reduce labour productivity

  -managers may resist change and not implement improvements

  -
• what is the optimal resource mix?

  the combination of production resources that best enables a business to achieve their corporate objectives
• what are the two types of production a business can chose from?

  -labour intensive vs capital intensive
• what is labour intensive production?

  -occurs when the majority of a firms production costs are spent on human inputs to the production process

  e.g. hairdressing
• what are the advantages of labour intensive production?

  -each product can be adjusted to suit the needs of the customer

  -work tends to be varied so motivation improves

  -customer satisfaction levels will be high

  -workers ideas can be used towards to the production process
• what are the disadvantages of labour intensive production?

  -incentives may be needed to improve worker motivation

  -highly skilled workers may demand higher pay

  -training costs may be significant
• what is capital intensive production?

  occurs when the majority of a firms production costs are spent on capital inputs to the production process

  e.g. cars
• what are the advantages of capital intensive production?

  -products are standardise and made to the same specification

  -higher outputs mean economies of scale

  -useful for mass production
• what are the disadvantages of capital intensive production?

  -high set up and maintenance costs

  -if breakdowns occur, production can be severely delayed

  -lack of innovation
• what are some examples of production technology?

  -robotics

  -stock control and management

  -communication technology.
• what are the pros of using technology?

  -reduced unit costs

  -increased productivity

  -ability to match supply to demand

  -better meet customer needs
• what are the cons of using technology?

  -high set up and maintenance costs

  -training requirements

  -pace of change in technology.
• what does the use of technology in a business depend on?

  -corporate objectives

  -finance

  -competitor actions

  -skills of workforce