Analysing Operational Performance Flashcards
(24 cards)
Productivity
Measures how productive, in terms of output.
Output refers to number of units produced. Therefore, the more units produced the mure productive the firm is.
The more productive a firm is the more output it has to sell.
The more units to sell will mean more revenue they are capable of achieving
Must be remembered there needsto be demand for their output be turned into revenue.
Why should a firm measure its productivity?
a measure of their performance
Measures how efficient it ‘s workforce are (labour productivity)
Measures how efficient it’s capital (machinery) is at producing output
Can identify if improvements could be made
Labour productivity formula
Output (per time period) / number of employees (per period)
How to improve productivity - reduce absenteeism
If less workers ave absent there will be more workers actually producing goods and so total output increases
This is done by increasing motivation or only pay statutory sick pay
How to improve productivity - increase motivation
Happy workforce = work harder = produce more
(Also reduce labour turnover - may produce more)
Link to motivational theory and financial/non-financial methods
How to improve productivity - multi skilled workforce
The higher & more skilledthe workers, the more capable in their job, able to produce more.
Increase training (on-the-job probably more appropriate). Recruit higher skilled.
How to improve productivity - technological improvements
Better / more use of technology in the production may speed up operations, workers able to produce more.
Replace old equipment purchase more efficient tech.
How to improve labour productivity - cut numbers of workers (but keep output the same).
Less workers but same output will increase the productivity per employee - use with another method to enable less to produce the same output.
Redundancies - employ other method to improve productivity of remaining workers
How to improve labour productivity - change working hours / shift organised
Increase hours / more able to produce. Shifts organised so more productive hours.
Change in working contracts, more flexible workforce.
Capital productivity
A business may be interested in the productivity of its capital.
This is becoming increasingly likely as more and more firms become capital intensive.
Capital intensive is when there is a greater proportion of capital ce.g. Machinery, technology) than labour.it can be expressed per machine.
Capital productivity definition
Measures the level of output compared to the capital employed (usually machinery) in the business. E.g. Is a measure of how efficient the capital employed in the business is at generating output over a given time period.
Capacity utilization definition
A measure of how much of a business’s potential production capacity is being used at a given time
Capacity utilisation formula
Current output / maximum possible output x 100
How to improve capital productivity
Invest in new (more efficient) machinery
Regularly servicing
Careful usage
Longer operational hours
How firms get towards full capacity
Increase demand
Cut capacity
A key factor in deciding whether to cut capacity
Or increase demand is the underlying cause of the low utilisation.
Methods to increase capacity
Increase output
- increase labour productivity
- increase machinery
- training
- increase raw materials
Cut capacity
- decrease machinery
- reduce staff
Advantages
Fixed costs are spread as widely as possible.
Assets are being used as fully as possible (thus potentially high profits)
The firm appears successful (workers feel safe, creating motivation)
Disadvantages
Lack of flexibility
Possible fall in quality
Pressure on staff
More breakdown and machine failures
Problems of spare capacity
Demotivating of staff (e.g. No overtime or threat of redundancy)
Increased costs
Reduced profits
Lack of return investments
Average unit costs
Average cost of producing one item
Efficiency is maximised when goods are produced at the minimum unit or average production cost
Production will aim to operate at the minimum average cost per unit, so that the business can take advantage of economies of scale
The more products that are produced the cheaper they are per unit to produce
Average unit cost formula
Total costs / number of units of output
Economies of scale
When a business’s average costs decrease as it increases production, distribution, and sales
Basically buying in bulk, the more you buy the cheaper it is
Why are economies of scales important
Lower costs
Increase market share
Ability fo lower prices
Investment
Using operational data
The operational data calculated within a business can have many uses, mainly to measure efficiency but also to:
Monitor and react to issues in production, which will help to solve problems
Speed up operations by snowing exactly where the problem areas are improve reliability and quality.
