productivity and investment

job production

Job production involves the production of a single product at a time. Each product is unique and tailor made.

• extremely flexible

• able to charge a premium price

• Workers are likely to be highly motivated

• Labour costs will be high

• business will need a wide range of tools, machinery and equipment and it may be unable to achieve economies of scale.

• Lead-time may be lengthy.

• Selling costs may be high,

Batch Production

Batch production can be used when demand for a firm’s product or service is regular rather than a ‘one-off.’

• flexibility as each batch can be altered.

• Employees specialise, reducing the need for highly skilled workers.

• Partly finished goods can be stored for

  urgent orders and quickly passed through the final stages of production.

• Careful planning and co-ordination are needed to ensure machines and workers are productive at all times.

• Expensive complex machinery compensates for lower labour skills.

• Unit costs may remain high, and money may be tied up in work-in-progress.

Flow Production

Production is organised so that different operations can be carried out, one after the other, in a continuous sequence. Products move from one operation to the next, often on a conveyor belt.

• economies of scale (technical economies of scale exist, along with bulk buying, managerial and so on).

• The production process is automated and capital intensive; reducing the need for labour.

• Finished goods do not need to be stockpiled – the line can be shut down for a time if demand falls.

• Set-up costs are high - demand must be sufficient and long term

• Flexibility may be lost

• Products are standardised.

• Worker motivation may be a serious

  problem.

• Break downs or problems with one area of the production system can halt the entire production process

lean production

The aim of lean production is to reduce the quantity of resources used up in production. Lean producers use less of everything, including factory space, materials, for eg. As a result, lean production raises productivity and reduces costs.

• Increased overall productivity

• Reduced manufacturing lead time

• Improved quality

• Increased efficiency

• Difficulty involved with changing processes to implement lean principals

• Long term commitment required

• Very risky process – expect supply chain issues while changing over to lean

just in time

JIT aims to minimise the costs of holding unnecessary stocks of raw materials, components, work in progress and finished goods. Production should be for specific customer orders, so that the production cycle only starts once a customer has placed an order with the producer.

• reduction in storage space which saves rent and insurance costs

• As stock is only obtained when it is needed less working capital is tied up in stock

• Less likelihood of stock perishing, becoming obsolete or out of date

• Less time spent on checking and reworking production as the emphasis is on getting the work right first time

• little room for mistakes as minimal stock is kept

• Production is highly reliant on suppliers and if stock is not delivered in time, the whole production schedule can be delayed

• no spare finished product available to meet unexpected orders,

• A need for complex, specialist stock systems

methods to achieve lean production

One way to achieve lean production is total quality management (TQM). This attempts to achieve a culture of quality throughout the organisation so that the primary objective of all employees is to achieve quality the first time around, without the need for any reworking.

Lean People Management. Lean producers reject the waste of human talent involved in narrow, repetitive jobs. They believe in empowerment, teamworking and job enrichment.

Cell Production

In cell production, workers are organised into multi-skilled teams. Each team is responsible for a particular part of the production process including quality control and health and safety.

• Closeness of cell members should improve communication, avoiding confusion arising from misunderstood or non-received messages

• Workers become multi-skilled and more adaptable to the future needs of a business

• Greater worker motivation, arising from variety of work, team working and more responsibility

• Quality improvements as each cell has ‘ownership’ for quality on its area

• has to be efficient so that they have enough work, but not so much that they are unable to cope

• Recruitment and training of staff must support this approach to production

• Workers can feel that they are being constantly pushed for more output with no respite

what is productivity

productivity refers to how efficiently a business operates. It measures the relationship between inputs into the production process and the resultant outputs.

How can a business improve its productivity?

Training – e.g. on-the-job training that allows an employee to improve skills required

 Improved motivation

 More or better capital equipment (automation)

 Better quality raw materials (reduces amount of time wasted on rejected products)

 Improved organisation of production – e.g. job, batch or flow

 Maintenance of machinery to ensure it does not break down and halt or interrupt production.

Labour Productivity

This is concerned with the amount (volume) of output that is obtained from each employee.

• Labour costs are usually a significant part of total costs.

• Business efficiency and profitability closely linked to productive use of labour.

• In order to remain competitive, a business needs to keep its unit costs down.

-Achieving higher labour productivity is not a simple task. Several factors influence how productive the workforce is: e.g.

• Extent and quality of fixed assets (e.g. equipment, IT systems)

• Skills, ability and motivation of the workforce

• Methods of production organisation

• External factors (e.g. reliability of suppliers)

Innovation

is the act or process of inventing or producing something new – be it a process, product or service, to improve the product, service or process/operation of the business.’

Research and Development

refers to a wide range of activities designed to gather knowledge in business or organisation’s to improve processes, products or services, or develop a new one.

Internal factors influencing innovation and research and development

• Culture of a Business: For some businesses-particularly those

  more market driven. they are always looking for new ways to meet customer

  needs and wants.

• As with all the functional areas, corporate objectives are the most important internal influence. The management board may wish to be ahead of similar companies with their products or services

• The financial position of the business (profitability, cash flow, liquidity) directly affects the scope and scale of their ability to innovate or to carry our research and development.

• For a services or manufacturing business, the quality and capacity of the workforce is a key factor.

External factors influencing innovation and research and development

• The Economy - Recession may drive innovation due to poor market conditions, the need for lower cost production/processing for example. Similarly, a buoyant market may encourage more investment in new product design

• R&D activities or innovation may be in response to competitors or to pre-empt competitors

• The key market dynamics are market size, growth and segmentation. An economy whose growth slows is less likely to support an objective of significant revenue growth or R&D Activities and new product development.

• Many Research and Development

  activities involve the investment of a

  company/organisation in developing new software systems for companies to improve processes or provide better information systems.

evaluation of r+d

• Increase customer satisfaction / loyalty Increased market participation and sales. Potential new market opportunities

• Marketing Abilities

Strong marketing campaigns and advertising strategies. Attract customers, creating synergies between Marketing / Production Depts

• Trend Matching

Embracing a market trend e.g., to become more environmentally friendly e.g. a company can use R&D to make products out of natural ingredients, allowing for the release of an eco-friendly version of the product that increases sales. Image – Perception of adaptable / profitabilty

• Expensive / Risky: Potential for firms to copy / therefore more expensive to keep undertaking R&D investment (Sustainability issues)

innovation advantages

• Improved productivity & reduced costs (by improving the production capacity and/or flexibility of the business – to enable it to exploit economies of scale)

• Better quality

  By definition, better quality products and services are more likely to meet customer needs.

• Building a product range

  A broader product range provides an

  opportunity for higher sales and profits

  and also reduces the risk for shareholders

• Innovation might enable the business to reduce it carbon emissions, produce less waste or perhaps comply with changing product legislation. – Enhance corporate image.

• More added value

  Effective innovation can establish a unique selling proposition for a product – something which the customer is prepared to pay more for and which helps a business differentiate itself from competitors – Competitive Advantage (Cost /

  Differentiation)

• Improved staff retention, motivation and easier recruitment

  Potential good quality recruits are often drawn to a business with a reputation for innovation. (Inspiring)

innovation disadvantages

• Competition

  An innovation only confers a competitive advantage if competitors are not able to replicate it in their own businesses.

  One danger is that one research-driven, innovative company makes the initial investment and takes all the risk – only to find it is competing with many competitors riding on the coat-tails of the innovation.

• Uncertain commercial returns

  Much research is speculative and there is no guarantee of future revenues and profits. The longer the development timescale the greater the risk that research is overtaken by competitors too.

• Availability of finance

  Given the risks involved, R&D demands a high required rate of return. That means that for businesses that have limited cash resources, the opportunity cost of investing in R&D can be very high.