improving efficiency and productivity

• Efficiency review

  The business looking at all aspects of business operations used to produce or deliver what it sells
• Efficiency improvement

  1. Understand operations

  2. Look for ways to deliver the same output for less input
• Efficiency improvement in manufacturing

  • Sourcing cheaper materials
  • Leasing equipment
• Efficiency improvement

  Making more items in the same amount of time
• Efficiency in service industry

  Reducing number of employees or introducing short-term contracts
• Identifying information to improve productivity

  1. Examine how efficient the operation is

  2. Make changes to improve productivity
• Labour productivity

  • Directly affects cost of producing a product/service
  • If a business can increase its productivity rate it can pass the saving onto its customer by lowering the price or make a bigger profit margin on each unit sold
• Importance of labour productivity

  • Drives growth and improves living standards
• Investment in technology

  Allows products and services to be delivered or made more efficiently
• Investment in technology

  • ATMs replacing bank clerks
  • Letter-sorting machines
  • Self check-outs
  • Click and collect
• Gain from investment has to be cost-effective
• Business also needs to be sure there is a market for the increased number of goods being produced by a faster production process
• Investment in technology

  Improves quality and reliability of a product and results in greater output from a fewer number of employees
• Training and skills

  • Equip employees with greater skills so they can get more done
  • Important that the skills of workforce are regularly updated
  • Good recruitment and selection process
• CBI report says there is a 10-15% gap in productivity between US and UK that can be put down to management quality
• Job redesign

  Changing the content of a job in terms of duties, and responsibilities in a way that improves overall performance
• Difficulties in increasing labour productivity are always an issue in the service industry, such as the NHS
• Increasing productivity outputs in the NHS by seeing more patients in a given time may affect patient satisfaction and quality of care
• Research by McKinsey and Company has shown a close link between good management and increased productivity, with a 25% increase in labour productivity
• Costs of increasing labour productivity

  • Rewards and motivation mechanisms
  • Training reducing working time
  • Financial incentives
  • Investment in new tech
• Employee resistance to increasing labour productivity

  • Employees not directly benefiting monetarily
  • Introduction of technology often brings job losses
  • Resistance to change
• Quality may suffer when workers are encouraged to produce more through financial incentives, leading to cutting corners and defects
• Capital intensive

  More capital equipment used compared to other factors of production
• Advantages of capital intensive

  • Production running 24/7
  • Consistent and reliable
  • Cost effective
• Disadvantages of capital intensive

  • High cost and size of capital
  • Machinery is inflexible and can only perform one process
• Situations where capital intensive makes sense

  • Labour wages are high
  • Business has finance available
  • Product is standardised
• Labour intensive


  More labour used compared to other factors of production
• Advantages of labour intensive


  • Cheaper on a smaller production scale
  • Processes that equipment can't do
  • Supports kaizen culture
• Disadvantages of labour intensive


  • Employees require holiday, breaks, management etc
  • High turnover leads to recruitment costs
• Situations where labour intensive makes sense


  • Smaller scale production
  • Producing in a country with lower wages
  • Cost of capital is increasing
  • Bespoke products
• Robust resource management system


  Highlights non-productive time, under-utilised staff and resources, need for better scheduling, ways of retaining talent, processes needing streamlining
• Lean production


  Management approach that focuses on cutting out waste, whilst ensuring quality
• Waste in lean production


  • Over-production
  • Waiting time
  • Defects
• Requirements for effective lean production


  • Good relations with suppliers
  • Committed, skilled employees
  • Culture of quality assurance, continuous improvement, willingness to embrace change
  • Trust between managers and employees
• Time based management


  General approach that recognises the importance of time and seeks to reduce the level of wasted time in the production process
• Requirements for time based management


  • Flexible production methods
  • Trained, multi-skilled employees
  • Trust between workers and managers
• Just-in-time (JIT)


  Inventory strategy that companies employ to ensure that inputs into the production process only arrive when needed
• How JIT works

  1. Customer orders determine what's produced

  2. Supplies delivered only when needed

  3. Close cooperation with reliable suppliers

  4. Complex production scheduling
• Advantages of JIT

  • Lower stock holding and storage costs
  • Less working capital tied up in stock
  • Less likelihood of stock perishing
  • Improved motivation
• Disadvantages of JIT

  • Minimal room for mistakes as minimal stock is kept
  • Production highly reliant on suppliers
  • No capacity to deal with unexpected orders