2.4.1 Production, Productivity & Efficiency

What is production?

Production is the total number of units of goods produced in a given period of time

What are the 4 main methods of production?

• Job production

• Flow production

• Batch production

• Cell production

What is job production?

Job production is producing one item at a time, as ordered by the customer

Advantages of job production

• High-quality product

• Motivated and highly skilled workers

• Customised products can be produced

Disadvantages of job production

• Production is slow

• Labour costs are high

What is batch production?

Batch production is when groups of the same product are produced before moving in to a group of different products

Advantages of batch production

• Workers can specialise

• Cost saving can be achieved by buying in bulk

• Production can take place as the previous batch starts running out

Disadvantages of batch production

• Requires careful coordination to avoid shortages

• There is less flexibility for customers, compared with job production, as they can only select from a range of standardised output

• Money is tied up in stock, as completed products need to be stored

What is flow (mass) production

Flow production is continuous manufacturing if standardised products usually on a production line

Advantages of flow (mass) production

• Low shiny costs due to economies of scale

• Rapid production

• Usually highly automated (capital intensive)

• Consistent quality

Disadvantages of flow (mass) production

• Customisation is difficult

• Capital equipment can be expensive to purchase

• Mistakes or problems can shut down the whole process

• Staff can become easily demotivated as the tasks they perform are not challenging, unexciting and repetitive

What is cell production?

Cell production involves workers being organised into multi-skilled teams, with each team responsible for a particular part of the production process

Advantages of cell production

• Often more efficient than other methods, as workers share their skills and expertise

• Motivation is usually high, as employees work as a team

Disadvantages of cell production

• Requires extensive reorganisation of production processes

• Teams’ efficiency may be reduced by weaker workers

• Company may need to invest in new materials for handling and ordering new systems and technology

What is productivity?

Productivity is a measure of a firm’s efficiency level in terms of how well things are done within the organisation

Calculation of productivity

Outputs / inputs per time period

Calculation of labour productivity

Outputs / number of employees

Calculation of capital productivity

Outputs / number of machines

What are the factors that influence productivity

• Employee motivation (motivated workers tend to be more productive, financial incentives lined to output may increase worker productivity, non-financial incentives like including workers in decision making)

• Skills, eduction and training staff (well-trained and educated workers are likely to be able to make useful contributions to decisions that improve productivity)

• Business organisation and working practices (flexible and adaptable workplaces can improve the commitment of workers and allow a business to respond to changes in demand, hours and locations of work can be adapted to better meet the needs of workers and the demand)

• Investment in capital equipment (increased automation can improve levels of output and quality, well-chosen machinery is less likely to make mistakes than humans, machinery and technology can operate for long periods without a break, as long as they are properly maintained)

What is the link between productivity and competitiveness?

• Competitiveness refers to the ability of a business to maintain or grow its sales and market share, given the presence and actions of rivals

• Businesses that increase their level of productivity are likely to be more competitive

What is efficiency?

Efficiency involves maximising the output achieved from given inputs including machinery, materials and people.

Calculation of average cost per unit

Total costs / Number of units

What is maximum efficiency?

When the cost per unit is at its lowest

What is the diagram showing maximum efficiency

• The most efficient level of production is achieved when:

  • Economies of scale are maximised

  • Total costs are spread across an optimum level of output

  • Diseconomies of scale are minimised

What are the factors that can influence efficiency?

• Standardisation of the production process (occurs when all staff use the same components and techniques in the production process, training of workers is minimised, bulk buying of components reduces variable costs, production lead time is reduced)

• Relocation or downsizing (moving production to a cheaper or smaller location can reduce fixed costs, labour intensive businesses may look for lower-wage locations, having capital-intensive locations may mean looking for lower rents or land costs, however relocation is very disruptive and will incur significant short-term costs)

• Investment in capital equipment (purchasing or upgrading machinery and technology can increase the rate of output, lower costs and improve quality)

• Organisational restructuring (reducing the level of staff or reorganising staff can better match labour to output needs, delayering reduces labour costs as levels of management are removed, redeployment can motivate workers by providing opportunities for staff to take on a new role, which will develop their skills and experience)

• Outsourcing (tasks may be given to other specialist businesses that can complete them at a lower cost, outsourcing allows businesses to focus on improving the efficiency of its core competencies)

• Adoption of lean production techniques (an approach to production that involves the reduction of all types of wastage, Kaizen means that improvements are made continuously, Just-in-time involves holding little or no stick, which minimises storage costs)

What is labour intensive production?

Labour-intensive production is when an organisation relies on physical labour in the production of goods/services, rather than machinery or capital equipment.

• The delivery of services is usually more labour intensive than manufacturing

• in countries where labour costs are low (e.g Bangladesh), labour-intensive production is common

• Small-scale production is likely to be labour-intensive

What is capital-intensive production?

Capital-intensive production relies more on machinery and technology in the production of goods and services, rather than labour.

• Large-scale production of standardised products is likely to be capital-intensive

• Manufacturing in developed countries where labour costs are relatively high, is likely to be capital-intensive

Advantages of capital intensive production

• Low-cost production, where output is high

• Machines are usually consistent and precise

• Machine can run without breaks

Disadvantages of capital-intensive labour

• Significant set-up and maintenance costs

• Breakdowns can severely delay production

• May not provide flexibility in production

Advantages of labour-intensive production

• Low-cost production where labour costs are low

• Provides opportunities for workers to be creative

• Workers are flexible, they can be retrained

Disadvantages of labour-intensive production

• Workers may be unreliable and need regular breaks

• Incentives may be needed to motivate staff

• Training costs can be significant