4.3 Increasing efficiency and productivity Flashcards
What does efficiency mean?
- Efficiency = making the best possible use of resources.
- Efficient firms maximise outputs from given inputs, and so minimise their costs.
- By improving efficiency a business can reduce its costs and improve its competitiveness.
Why is efficiency so important?
Lower units costs- so they can lower prices or increase profit margins.
How can efficiency be improved?
- Using capacity more effectively- the amount of quality of its employees, capital and land- the maximum produced at that given time.
- Choosing the optimal mix of resources.
- Increasing labour productivity.
- Introducing lean production.
- Using technology.
What would a business do if their capacity utilisation is too low?
- Try to improve their marketing to boost sales.
- Reduce its capacity- rationalising/ down sizing.
What would a business do if capacity utilisation is too high?
- Outsource to other producers.
- Find a way to reduce demand in the short term, increase price, waiting list etc.
Define labour productivity?
LP= output (per period) / number of employees (per period)
How can labour productivity be improved?
Training
New technology
New ways of working
Better management
New reward systems
What problems are there with improved labour productivity?
Rushing leads to quality issues.
Employees wanting higher pay.
Waste through excess stock-supply >demand
What will impact on the best (optimal) combination of resources?
- The production process- repetitive or creative.
- What is affordable & achievable.
What is lean production and how does it reduce waste?
When managers reduce waste and therefore operations become more efficient.
How can lean production reduce waste?
- Improving quality- reducing the number of items needed to be reworked, fixed or thrown away.
- Reducing the amount of inventory held.
- Reducing the time items are waiting for something to happen to them.
- Reducing the time items are moving from one stage to another.
How can a business become leaner?
Kiazen- continuous improvement.
Andon- Andon cord- represents system where any worker can invoke attention in case of a problem-reduce waste & boost progress.
Changes to the layout of a store or factory.
Change to the process.
What are the issues with lean production?
More vulnerable as holds little/ no stock.
Issues in the production process will halt operations- deliveries, absences.
Risk from external facotors, e.g. weather.
Employees are checking their own work- engaged, skills & training.
Need excellent links to suppliers.
Need excellent communications & technology = expensive.
How can technology improve operational efficiency?
Flexible to customer needs- tracking customer service behaviour etc.
Reduce costs by being more efficient with less errors.
Innovative
What do managers have to do to improve operational efficency.
- Have the finance to invest.
- Have the training to use it effectively.
- Understand and manage the impact upon other functions.
- Be able to judge which technology would be useful.
