BUSINESS - 2.4.1/2.4.2 - production , productivity and effiency

what is productivity

output per unit of input

eg output per worker

what are some factors influencing productivity

productivity is all about increasing output

- specialisation of labour (workers focus of specific task in production process)

- increasing staff education and training

- motivation

- introduction of new tech

- working practices

what is operational efficiency

a measure of how well a business maximises output whilst minimising waste and costs

what is economies of scale

when the unit cost falls as output increases

eg buying in bulk

what is productive efficiency

productive effiency occurs when a businesses produces its goods at the lowest possible cost

why is productive efficiency important

- A more efficient business will produce lower cost goods than competitors

- May generate more profit possibly at lower prices

- Investing in production assets (e.g. equipment, factory buildings) is expensive - a business needs to maximise the return it makes on these assets

what is meant by a labour intensive production process

what is meant by a labour intensive production process

what is meant by a capital intensive production process

relies more on machinary, automation and technology

- car manufacturing

- oil refining

what is meant by capacity

a measure of how much output a business can achieve in a given period

- seats on a plane

- amount of cars made a year

why is capacity dynamic

- can change other time due to internal and external factors

- eg when a machine is having maintanence , capacity is reduced

- during seasonal periods or periods of high demand businesses may take on more staff in order to increase capacity

what is capacity utilisation

the proportion of a businesses capacity that is being used

usually expressed as a %

how does capacity utilisation relate to cost per unit

in high capacity utilisation the fixed costs are spread over m ore units

in low capacity utilisation the fixed costs can be too high to stay in business

eg if it costs 10k to fly a plane, the per unit cost is cheaper if the company sells 100 seats than 10

how can capacity utilisation % be calculated

actual output / capacity

why is capacity utilisation useful

provides a good measure of a businesses productive efficiency as it highlights whether there are idle resources in the business

Ways to improve capacity utilisation

-Reduce capacity (sell assets,reduce staff)

-Increase sales

-Increase usage

-Outsourcing