2.4.1 Production, productivity and efficiency

• Ways of improving efficiency:

  •increase capacity utilisation

  •increase labour productivity

  •lean production

  •tech

  •deciding on labour / capital intensive
• Factors of production:


  •Capital

  •Enterprise

  •Land

  •Labour
• Capital intensive - high proportion of capital (machinery) in the production of a good / service
• Advantages of capital intensive:

  •increased productivity (24/7)

  •improved quality and speed (consistent)

  •lower labour costs

  •greater benefit from economies of scale
• Disadvantages of capital intensive

  •high investment (may require external finance)

  •no human initiative / problem solving

  •greater resistance to change by workforce (greater redundancies, increasing short term costs)
• Labour intensive - uses a high proportion of labour in the production of a good / service
• Advantages of labour intensive

  •often cheaper especially in developing economies (lower labour wage)

  •workforce can adapt to change better than capital

  •continuous improvement and innovative ideas

  •govt funding (subsidies) can protect jobs
• Disadvantages of labour intensive

  •strikes can be problematic

  •lack of skilled workers in some industries

  •high HRM costs (recruitment, training)

  •lower production due to absences
• Job production - the production of a single unit at a time to meet specific needs.
• Advantages of job production

  •easier to meet customer needs

  •charge a higher price for a specialist good / service

  •increased job satisfaction since work is different

  •high quality work

  •low start up costs (labour intensive)
• Disadvantages of job production

  •high unit costs (no benefit from EOS)

  •labour intensive - high labour costs as staff are skilled

  •more time consuming - opportunity cost

  •hard to recruit staff (highly skilled)
• Batch production - where groups of identical items are made together
• Advantages of batch production:

  • Cost savings due to EOS
  • Flexible so customers will still have choice
  • Lower unit costs since larger production than job production
  • Capital intensive - higher quality and more consistent.
  • Workers are able to specialise in one area of production
• Disadvantages of batch production:

  • Can take time to switch between batches - opportunity cost
  • Repetitive work causing lower staff motivation and productivity
  • May require complex machinery - expensive and requires skill
  • Small batches may not have lower cost per unit (in comparison to flow production)
• Flow production - where identical products are produced on an assembly line.
• Advantages of flow production:

  • Low unit costs due to greater benefit from EOS
  • Quicker than job and batch production - more efficient
  • Very capital intensive - increased productivity and more consistent
  • Continuous output means there is less need to hold stock - lower costs associated with stock
  • Produce in large volumes - likely to be able to meet surges in demand
• Disadvantages of flow production:

  • Goods are mass produced so no customer personalisation
  • Expensive to set up - technology and machinery
  • Low flexibility as one mistake can cause the whole production line to stop
  • Repetitive work - reduced motivation and productivity
• Cell production - the production line is split into small teams where each cell develops its own responsibility for a part of the product.
• Advantages of cell production

  • Workers in the cells become multi skilled - more adaptable to future needs
  • Improved motivation as workers have more responsibility and varied work
  • Quality improvements as each cell can ensure quality on each part of the product - reduces waste
• Disadvantages of cell production

  • Company culture must support cell production and encourage workers
  • Increased costs on materials and systems
• Batch production - a manufacturing process in which components or goods are produced in batches.
• Capital intensive - where output of the firm is made primarily using machinery / capital goods relative to the use of labour.
• Cell production - a method of manufacturing where employees are organised into multi-skilled teams, with each team responsible for a particular past of the production process.
• Efficiency - the ability to minimise waste and reduce cost of production.
• Flow production - the manufacture of a product in a continuous process.
• Job production - when the production of a singular good or service is carried out one at a time that involves producing the good or service to the customers requirements, e.g. custom cakes, tailor made clothes.
• Labour-intensive production - a production method that requires more labour than capital.
• Productivity - output per person / machine over time.
• Standardisation - using uniform resources and activities or producing a uniform product.