4.3 - Increasing Efficiency & Productivity
Understanding productivity and efficiency
Productivity measures how much output is generated per worker over a set period. Efficiency focuses on maximising output from available inputs while minimising waste, such as unused time or materials. This approach helps lower costs per unit and boost profits.
Higher productivity often improves efficiency, but this is not always true. For instance, a factory worker assembling 7 items per hour without wasting parts is more efficient but less productive than one assembling 18 items per hour but discarding faulty components.
Measuring and improving labour productivity
Labour productivity assesses workforce output, helping managers identify areas for improvement. When it is low, steps are taken to raise it, which can reduce costs per unit if the same team produces more in the same timeframe.
Formula for labour productivity
Where:
- Output per period = Total goods or services produced in a given time
- Number of employees = Total workers involved
Higher values show stronger performance, often leading to lower labour costs per unit.
Ways to increase labour productivity
- Improving worker motivation - Using incentives or better working conditions to encourage higher output.
- Providing training - Equipping staff with skills to work faster and more effectively.
- Introducing new technology - Adopting tools that speed up processes without increasing staff numbers.
Potential downsides of increasing productivity
- Reduced quality - Rushing tasks might lead to more errors or lower standards.
- Increased waste - Faster production could result in more discarded materials.
- Staff redundancies - Without expanding capacity, higher output per worker might mean fewer jobs, harming morale.
- High costs - New equipment requires significant upfront investment, which needs careful evaluation.
Businesses weigh these decisions against value added and overall efficiency. If labour forms only a small part of total costs, major investments in productivity may not be cost-effective.
Lean production and time-based management
Lean production is a method that cuts waste in time and resources, making operations more efficient. It contrasts with wasteful approaches that raise costs and helps achieve goals like higher value added and environmental benefits.
Just-in-time (JIT) production
Just-in-time (JIT) keeps inventory minimal, with materials arriving precisely when needed and products leaving immediately after completion. This differs from just-in-case (JIC) methods, which hold extra stock as a buffer. Kanban systems signal when to reorder supplies.
Advantages of JIT:
- Lower storage expenses
- Better cash flow from reduced tied-up funds
- Less material waste
- Greater flexibility to adapt to changes
Disadvantages of JIT:
- Risk of production halts if supplies are delayed
- Dependence on trustworthy suppliers
Time-based management
Time-based management reduces idle time in production to speed up processes. It is vital in fast-paced sectors like tech or fashion, where quick market entry provides an edge. This requires adaptable facilities and versatile, multi-skilled employees.
Advantages of time-based management:
- Shorter lead times between order and delivery
- Faster response to customer needs
- Edge over competitors through speed
- Ability to offer diverse products
- Encouragement of creative ideas
Potential drawbacks of time-based management:
- Focus on speed might compromise product quality or longevity.
The role of technology in production
Technology enhances production through automation and digital tools, divided into robotic engineering for physical tasks and computer systems for various operations. It replaces humans in hazardous, repetitive, or tedious jobs, often proving faster and cheaper in factories. However, it can demotivate remaining staff if not managed well.
IT developments that boost efficiency
- Computer-aided design (CAD) - For creating and testing product blueprints digitally.
- Computer-aided manufacturing (CAM) - Using robots or computer numerical control (CNC) machines for precise production.
- 3D printing - For rapid prototyping of new items.
- Stock control systems - Including electronic point of sale (EPOS) for tracking inventory.
- Electronic data interchange - For automatic ordering between businesses.
- Spreadsheets - For analysing finances and supporting decisions.
- Email - For quick internal and external communication.
- Internet and websites - Enabling round-the-clock global operations.
Advantages and disadvantages of technology in production
Advantages:
- Productivity and quality - Boosts output and consistency.
- Waste and delivery - Minimises errors and speeds up distribution.
- Marketing and costs - Enables precise targeting and cuts admin expenses.
- Communication - Improves connections within and outside the firm.
Disadvantages:
- High setup and maintenance costs and a need for staff training.
- Risk of job losses.
- Potential for technical failures.
Capital-intensive and labour-intensive production
Capital-intensive production relies heavily on machinery with fewer workers, common in large firms. Labour-intensive approaches use more people and less equipment, often seen in smaller operations. Rising wages can push businesses towards capital intensity. The ideal mix balances materials, machines, and staff, depending on product complexity and available resources like skilled workers or funds.
Advantages and disadvantages of capital-intensive production
Advantages:
- Long-term savings through efficiency
- High precision in tasks
- Ability to operate continuously
- Simpler to manage fewer staff
Disadvantages:
- Large initial investments
- Limited flexibility to changes
- Prone to breakdowns halting output
- Potential to lower worker motivation
Advantages and disadvantages of labour-intensive production
Advantages:
- Flexible workforce for varied tasks
- Suited to small batches or custom work
- Cost-effective where labour is inexpensive
- Human ability to solve unexpected issues
Disadvantages:
- Challenges in managing large teams
- Issues with worker absences or inconsistencies
- Need for breaks reducing continuous output
- Increasing costs from wage rises