A-Level Business - Theme 2.4

Productivity

The rate of production from each input (human worker or machine), output per input per hour

Types of Production (4)

• Job Production

• Batch Production

• Flow Production

• Cell Production

Job Production

Products are made individually & finished at high quality before the next is started, made/tailored for a specific customer (e.g: Tailoring, Wedding Cakes)

Advantages of Job Production (4)

Directly appeals… High Q… Highly M… F…

• Directly appeal to target audience - USP

• High quality products = adds value = charge higher prices

• Highly motivated workers - more productive

• Flexible to customer needs

Disadvantages of Job Production (4)

Skilled workers… Wide range… Hard to… Labour…

• Skilled workers are expensive (higher wages)

• Wide range of equipment needed

• Hard to keep up with high demands (time consuming)

• Labour intensive

Batch Production

Goods are made in batched & can be switched over to make something different on the same production line, semi-automated (machine & workers) -> e.g: Bakeries/breads

Advantages of Batch Production (4)

Cost… Can produce… Production can be… Less…

• Cost Effective (EOS)

• Can produce multiple products at one time (more efficient) - Production can be changed to meet demand fluctuations

• Less labour involved

Disadvantages of Batch Production (4)

Broken m… Less m… Idle… High…

• Broken machinery can affect production

• Less motivated workers with repetitive work

• Idle time between batches (time wastage)

• High upfront costs

Flow Production

Uses production lines with continuous movements of items through the process, often mass-products (e.g: toothpaste, Coca-Cola) -> FMCG

Advantages of Flow Production (3)

Very… Bulk… Produce…

• Very efficient/quick process

• Bulk buy raw materials (EoS) = lower costs = lower prices

• Produce large quantities at a time

Disadvantages of Flow Production (4)

Damaged… High… Low… Very i…

• Damaged machinery can halt all production

• High machinery/maintenance costs

• Low moltivation of staff = repetitve

• Very inflexible - hard to change machinery if in constant use

Cell Production

Dividing up a production line into separate areas that are responsible with a specific set of tasks, completed by a work group/cell

Advantages of Cell Production (3)

Less… Workers take… F…

• Less repetitive = increase productivity with worker commitment and motivation

• Workers take more pride in work with more responsibility = higher quality products

• Flexible - easier to respond to customer needs

Disadvantages of Cell Production (3)

Less… High… Exp…

• Less productivity than flow - product removed at each cell

• High training costs for staff

• Expanding is hard/limited space

How to increase productivity - Machines (2)

Machines are… Regular…

• Machines are usually faster than humans and can work more hours a day

• Regular investment in machinery to boost productivity (e.g: upgrade/replace old machinery, take over human tasks)

Drawbacks of relying on machinery to increase productivity (2)

High m… - may lead to… -> more t… Altering pr… = production…

• High maintenance costs/levels - may lead to production stoppages -> more time to produce products

• Altering production may mean reprogramming machinery/install new softwares = production slows down

How to increase productivity - Human Workforce (3)

T, P, H

• Training staff - motivation (feel more valued & contribute more)

• Piecework - workers paid only for the units they produce - motivated to work faster

• Hiring key workers (e.g: production line supervisores - motivate & monitor workforce)

Drawbacks of using human workforce to increase productivity (3)

High… Some initial… Demo… & red…

• High training/hiring costs

• Some initial productivity can be lost through training

• Demotivation & reduced quality through ambitious targets

Factors affecting productivity (3)

Q, L… (number of…), M

• Quality of inputs in production

• Labour shift organisation of workers (number of staff in peak times)

• Motivation of staff

Efficiency

When production happens at an overall minimum average cost (getting more output from a given amount of inputs & reducing waste of all inputs)

Average Cost/Efficiency Formula

Average Cost = Total Costs / Total Output

How to improve efficiency (4)

Cutting… Reconsider… Adopt… Invest in…

• Cutting costs involved in production (e.g: VC - wages, materials or FC - rent)

• Reconsider a product's design mix to become cheaper & easier to make

• Adopt lean production (minimises waste & reduces costs)

• Invest in better technology/training staff

Labour-Intensive Production

Production using more workers than machines (e.g: NHS), common in countries where labour is cheap

Advantages of labour-intensive production (3)

More… Humans are… Humans can…

• More cost-effective for small scale production

• Humans are more flexible - retrained if needed to carry out a new task

• Humans can solve any problems that arise during production and suggest ways to improve quality

Disadvantages of labour-intensive production (3)

Harder to… Less… Wage inc…

• Harder to manage people than machines

• Less reliable (can get sick) & cannot work without breaks & holidays

• Wage increases means the cost of production can increase overtime

Capital-Intensive Production

Production using more machinery than workers (e.g: BMW), more commonly used by large firms

Advantages of capital-intensive production (3)

Long term… Often more… Able to…

• Long term - machines can be cheaper than using lots of manual labour

• Often more precise than humans, leading to consistency

• Able to work 24/7, easier to manage than people

Disadvantages of capital-intensive production (4)

Can be very… Usually only… If machinery… Fear of…

• Can be very expensive and hard to maintain (hard for small start ups)

• Usually only suited to one task (inflexible)

• If machinery breaks down, can cause delays in production = misses out on sales

• Fear of replacement can cause demotivation of workers = less productivity

Success factors of inrceasing efficiency (4) Balance… C/D… S/A… Ability to…

• Balance between using machinery and workers

• Complexity / Design of the product

• Shortages/amount of equipment/skilled workers

• Ability to afford new tech (limited finance)

Capacity

The maximum output a business can produce in a given period without buying anymore fixed assets (machinery/space etc)

Capacity Utilisation

The percentage of a business' capacity that is being used, measures what proportion/percentage of the maximum possible output is actually produced

Capacity Utilisation Formula

Capacity Utilisation = [Actual (Current) Output / Maximum Possible Output] x 100

Disadvantages of over-utilisation (100% capacity util) (6)

Cannot… No… (3) If output is… P/M…

• Cannot take on extra orders/potentia customers

• No room for extra demand

• No capacity for downtime

• No margin for error

• Output greater than demand = surplus/idle stock

• Pressure on worker = stess/motivation falls = more mistakes

How to increase capacity (for those with over-utilisation (4)

Using f…

Buy more…

Increase s…

Increase p… - re../re…, out…

• Using facilities for more than the working week - staff working more shifts in a day/bank holidays/weekends

• Buy more machinery (if they can afford it)

• Increase staff levels (long run = permanent staff, short run = part time/temprorary staff)

• Increase productivity - reorganise/reallocate staff, outsource

Advantages of under-utilisation (<60%) (2)

Allows for f…

Allows for p… for… m/s

• Allows for flexibility and ability to take on lucrative business opportunity

• Allows for potential delays/downtime for machine maintenance/staff training

Disadvantages of under-utilisation (4)

Unused…

FC are… = increase u… = increase p…

Negative b…

Reduces e… - long p… = less n…/less p…

• Unused resources sit idle

• FC are shared over a lower rate of output = increase unit costs = increase prices /lower profit margins

• Negative brand image from consumers (not using all shelf space it has -> appearance of empty shelves leaves -ve impression)

• Reduces employee motivation - long periods of lack of work = less need for supervisory work, less promotion

How to improve capacity utilisation (5)

Increase… (2)

O…

Reduce…

Re…

• Increase sales/demand

• Increase usage

• Outsourcing (increase levels of output)

• Reduce capacity (sell fixed assets/staffing levels)

• Redeployment (move underused resources to other areas)

Advantages of working at high capacity (3)

Unit costs…

Can b…

Can p…

• Unit costs will be lower = competitive advantage

• Can balance optimised capacity utilisation w/ flexibility

• Can plan downtime & maintenance

Disadvantages of working at high capacity (4)

Production…

Strain…: M…/S…

• Production may be rushed

• Strain on resources:

• -> Machinery could break down = loss of units

• -> Stress & tiredness = less motivation & mistakes

Stock

The store of raw materials, WIPs or finished goods

Stock Control

Making sure that the optimum level of stock is held so demand can be met whilst also managing costs

What does a Stock Control Diagram look like?

Key labels: - Buffer stock - Max stock - Lead time - Re-order level

Purpose of stock control diagrams

Allows managers to analyse and control stock over a period of time

Lead Time

The time it takes for goods to arrive after ordering them from the supplier

Buffer Stock

The minimum level of stock a business needs so that it won't run out of raw materials/finished goods

Advantages of Buffer Stock (JIC) (3)

Avoids… Able to… - fulfil o… Businesses can be…

• Avoids running out of stock

• Able to meet high surges in demand - fulfil orders without waiting for delivery to arrive (flexible)

• Businesses can be offered a discount for bulk-buying stock (EoS) -> offer lower prices -> competitive advantage

Disadvantages of Buffer Stock (JIC) (4)

Higher c…

Extra stock can…

In dynamic market…

Capital…

• Higher costs to store the stock (storage costs)

• Extra stock can be wastage stock (thrown away due to being damaged/perishable)

• In a dynamic market there could be high wastage as things tastes/demand changes very quickly - goods no longer needed

• Capital tied up in stock is unproductive - opportunity costs

Just-In-Time Stock Control (JIT)

Aims to reduce waste of materials and products by having little stock as possible - products available just in time for when customers need them, as well as when raw materials are delivered just when they are needed

Advantages of JIT (5)

Storage c…

Cash…

Less…

Business is more…

Less s/w…

• Storage costs are lowered

• CF is improved as money isn't tied up in stock

• Less waste

• Business is more flexible - can cope with demand changes & can easily adapt its products to meet demands

• Less storage/wastage costs = offer lower prices = competitive advantage

Disadvantages of JIT (3)

Little s… = lots of… -> hard to…

R… - production may…

Can't b…

• Little stock = lots of frequent deliveries of suppliers -> hard to organise and can be stressful

• Reliance of suppliers - production may halt if not delivered on time

• Can't benefit from EoS (using smaller deliveries -> no bulk-buying)

Lean Production

An efficient form of production that focuses on waste minimisation, usually to reduce costs and gain a competitive advantage

Methods of Lean Production (5) J, K, Q, T, Q

• JIT

• Kaizen

• Quality Assurance

• Total Quality Management (TQM)

• Quality Circles

Advantages of Lean Production (8)

Reduces… (2)

Can imp…

Fewer…

Customers…

Greater…

Shorter…

Increased…

• Reduces wastage & related costs

• Reduces storage costs & handling
  Can improve quality

• Fewer rejects

• Customers more satisfied

• Greater flexibility (respond to market changes)

• Shorter lead times = quicker arrival of supplues

• Increased motivation = less staff turnover

Disadvantages of Lean Production (4)

Doesn't…

Failure by…

Workers may…

Managers…

• Doesn't suit all production methods (Job production)

• Failure by 1 small supplier can halt all production

• Workers may dislike greater responsibility

• Managers & staff may not be flexible enough

Lean Supply

Refers to the idea of eliminating waste in the supply chain by a process of collaboration & cooperation

Areas where waste can be minimised (8)

T/L, S, M, W, O, D, T, R

• Transportation/Logistics

• Stock

• Motion

• Waiting (Bottle-necking)

• Over-production

• Defects

• Talent

• Resources

Quality

Meeting or exceeding consumer expectations of what a product should do

Quality Control

Checking goods after the production process to see if there a=is anything wrong with them

Quality Assurance

Introducing measures into each stage of the production process to prevent any errors made, rather than eliminating faulty goods once they've been made

Advantages of Quality Control (3)

Can help…

Not dis…

Benefit from…

• Can help prevent faulty goods/services being sold

• Not disruptive to production workers continuing production - specialist inspectors do the checking

• Benefit from an improved quality - may increase sales

Disadvantages from Quality Control (4)

Too… - could lead to…

Doesn't p…

Process of…

Lacks a…

• Too late to correct any errors - could lead to delays in shipping

• Doesn't prevent waste of resources when products are faulty

• Process of inspection costs money (wages/pay of inspectors)

• Lacks a quality management system

Advantages of Quality Assurance (4)

Leads to…

Fewer…

Customers are…

Improves…

• Leads to minimal/zero defects

• Fewer wasted resources

• Customers are assured of quality = customer satisfaction

• Improves collective responsibility and teamwork of the company - motivation increases

Disadvantages of Quality Assurance (3)

E, T, Employees…

• Expensive - training all staff (inexperienced & experienced)

• Time-consuming -

• Employees may not welcome extra responsibiity

Importance of quality for a business (4)

To…, Builds…, Can… (2)

• To satisfy customers

• Builds brand image of having high quality products

• Can charge premium prices

• Can give a USP / a competitive advantage

Quality Circles

A small group of employees that meet regularly to discuss quality control issues/ways to improve quality

Advantages of Quality Circles (5)

Improves…

Involves…

Employees…

M…

C…

• Improves quality culture within the business

• Involves & motivates employees

• Employees feel more valued

• Multiple viewpoints

• Cheap, no extra pay

Disadvantages of Quality Circles (3)

T…

Only…

Need to consider… - suggestions may…

• Time consuming

• Only works for volunteer staff

• Need to consider who is volunteering - suggestions may be unrealistic & management may not listen to floor staff

Kaizen (2)

Jap… Sees…

• Japanese business philosophy regarding the processes that continuously improve operations and involve all employees - Sees improvement & productivity as a gradual and methodical process

Advantages of Kaizen (3)

Helps…, C, R

• Helps workers feel involved in quality assurance

• Cheap to introduce

• Reduces waste through constant evaluation of being efficient

Disadvantages of Kaizen (2)

As it makes… - not great for…

Requires…

• As it makes small changes overtime, it's not great for urgently improving quality

• Requires commitment from all workers to the method in the long term

Total Quality Management (TQM)

Where… - a big part in… -> every…

Where quality is at the centre of everything a business does - a big part of the business' culture -> every employee in every department focuses on quality

Advantages of TQM (4)

I, Boosts…, Leads to… = less…, Not…

• Improved bonds as a team - motivation boosted

• Boosts a company's reputation for providing quality services/products

• Leads to fewer faulty products = less waste

• Not paying for inspectors

Disadvantages of TQM (4)

T, May…, E, R

• Time-consuming to introduce - no immediate improvements in quality

• May demotivate staff - lots of effort, may not want extra responsibility

• Usually expensive to introduce (staff training)

• Relies on everyone pulling their weight