4.3 - Increasing efficiency and productivity

• Productivity


  The output per worker in a given time period
• Efficiency


  Getting more output from a given amount of inputs, reducing the waste of all the inputs (e.g. time and materials)
• Increasing productivity


  Can increase efficiency, but this isn't necessarily the case
• Example of less productive but more efficient


  • A farmer shearing 8 sheep per hour and getting all the wool
  • A farmer shearing 20 sheep per hour but wasting half the wool
• Labour Productivity


  Measures how much each employee produces
• Companies need to know how productive their workforce is, because changes in labour productivity can have a massive impact on the business, especially in labour-intensive firms where labour costs are a high proportion of total costs
• The higher the labour productivity


  The better the workforce is performing, and the lower the labour costs per unit
• If labour productivity is low

  Managers will try to increase it
• Increasing productivity


  Can improve the efficiency of a business, as the same number of workers are producing more units of output in the same amount of time, lowering unit costs
• Ways to increase labour productivity


  1. Improving worker motivation

  2. Training to make workers more productive

  3. New technology to increase the speed at which workers can do their job
• Increasing productivity is not always a good thing for the business or for the workers
• Encouraging workers to produce more by offering bonuses and incentives for increased output

  Could mean that the quality suffers or that more waste is produced
• If the business is not planning to increase its capacity, then training workers to be more productive

  Could result in redundancies and job losses, lowering morale amongst staff
• New technology can be very expensive and businesses need to decide whether it's worth investing in new machines and software
• Businesses will base their decisions about labour productivity on the value added and efficiency
• If labour costs only make up a small percentage of the production costs


  It may not be worth investing lots of time and effort into increasing labour productivity
• Increasing productivity


  Could lead to more waste of raw materials, reducing value added and having a negative impact on the environment
• Lean production


  An efficient form of production that keeps waste (of time and resources) to a minimum
• Inefficient production methods increase costs, so lean production can save businesses a lot of money
• Businesses can use lean production to help them meet some of their operational objectives, e.g. reducing waste will have a positive impact on costs, value added and the environment
• Lean production methods


  • Just-in-time
  • Time-based management
  • Kaizen
• Just-In-Time (JIT) Production


  Keeps stock levels Very Low
• Just-in-time production


  1. Reduce waste of materials and products

  2. Have as little stock as possible

  3. Raw materials come in one door, made into products and go straight out another door - all just in time for delivery to customers
• Kanban


  The JIT system of triggering repeat orders
• Kanban system


  1. Staff reach coloured kanban cards towards the end of a batch of components

  2. Order more straight away

  3. Supply of components is linked directly to the demand for components

  4. No need for lots of stock
• Advantages of JIT


  • Storage costs are reduced
  • Cash flow is improved as money isn't tied up in stock
  • Less waste because there's less out-of-date or damaged stock lying around
  • Business is more flexible so it can cope with changes in demand and easily adapt its products to suit changing customer requirements
• Disadvantages of JIT


  • No stock means customers can't be supplied during production strikes
  • Suppliers have to be reliable because there isn't much stock of raw materials to keep production going
• Time-Based Management


  Companies have to be Flexible
• Time-based management approach


  1. Reduce wasted time in the production process

  2. Compete on time by trying to be the fastest to get their product on the market

  3. Often used to produce technological items and high fashion clothes-areas where consumer needs change fast
• Time-based management


  • Depends on flexible production facilities
  • Effective communication between managers and production staff is essential
  • Staff also need to be multi-skilled so training is important
• Advantages of Time-Based Management


  • Reduces lead times--the time between a customer placing an order and taking delivery
  • Cost of holding stock falls
  • Reduced lead times also mean that customer needs can be satisfied quicker, giving the company a competitive advantage
  • Machinery with more than one function makes it possible to offer a more varied product range
  • Can help to drive innovation by decreasing research and development time
• Some people have criticised time-based management for placing speed above quality - customers get a product sooner, but it might be faulty or not last as long
• Main technologies companies use in day-to-day operations


  • Robotic Engineering - using robots as part of the manufacturing process
  • Computer Technology - computers are used by businesses in lots of different ways
• Robotic Engineering


  • Using robots as part of the manufacturing process
• Computer Technology


  • Computers are used by businesses in lots of different ways, including product development, business communications and finance departments
• Using Robots


  Can Reduce Staffing Costs
• Robots


  • Mostly used to replace human staff for tasks which are dangerous, repetitive or boring
  • Factories and production plants often use automated pickers to take goods from the production line and pack them into boxes, it's usually cheaper and faster for robots to do this job instead of humans
  • Companies that are planning to replace human workers with robots need to weigh up the advantages of using robots against the demotivating effect that it is likely to have on staff
• Developments in IT


  Can make Companies more Efficient
• Computer-aided design (CAD)


  1. Uses computers to design new products, or make alterations to existing products

  2. Produces 3D mock-ups on screen, which can also be useful for marketing
• Computer-aided manufacturing (CAM)


  1. Uses computers to produce a product, usually involving robots or 'computer-numerically controlled (CNC) machines

  2. Often combined with the CAD process - products are digitally designed, and the design data fed straight into the production machine