Chapter 4 production and productivity (revised)

Production and

Productivity

Production involves using

resources to make goods and services to satisfy consumer needs and wants.

The production process applies to manufacturing as well as service

industries

iPhone 5 Manufacture processes - Edited by iSpace Technologies Ltd - Video Copyright of Apple Inc. (1).mp4

Production is a process that starts with using and managing resources

LAND

LABOUR

CAPITAL

ENTERPRISE

INPUTS

(economic resources)

Production process

OUTPUTS

GOODS

SERVICES

Resources are the inputs to productive activity.

Labour intensive

Use many workers and

few machines to produce

goods

Where labour cost are high,

where businesses use machines/robots and employ few workers

capital intensive

Products are the outputs of product activity

Operation DepartmentOD’s role in a business is to take

inputs and change them into outputs for customers use

(physical goods or services)

Operation manager

Factory Manager

Responsible for the quality and quantity of the

product

Purchasing manger

Responsible for providing the

materials, components and

equipment required for the production

Research & Development Manager

Responsible for the design and testing of new production

processes and products

Production adds value to the resources it uses by turning them into products consumers want and are willing to pay for.

For example, a business that produces 500,000 chocolate bars with a market value of $1 million but which cost only $700,000 to produce will have added $300,000 to the resources it has used in their production—labour, cocoa powder, milk, machinery, vehicles, foil, paper, electric power, etc.

For example, a business that produces 500,000 chocolate bars with a market value of $1 million but which cost only $700,000 to produce, will have added $300,000 to the resources.

It has used in their production—labour, cocoa powder, milk, machinery, vehicles, foil, paper, electric power, etc.

What other resources does the company needed for their production?

The total output of a business organisation is measured by the volume or value of all the goods or services it produces each week, month or year.

Productivity The level of production is the

output of the business Productivity is how a business

can measure its efficiency

Productivity = Quantity of output Quantity of outputs

The aim of any business will be to combine its resources in the most efficient way.

Productivity, measures how efficiently resources are being used in production.

Productivity in a business will have increase if more output or revenue is produced from the same amount of resources, or the same output or revenue can be produced using fewer resources.

A firm that fails to increase productivity at the pace or at a faster rate than rival firms will have higher production costs and therefore lower profits than its competitors.

Labour productivity is the most common measure of productivity in a business

Labour productivity is calculated by dividing total output over a given period of time,

Average Productivity of labour = _____total output_____ Number of employees

The average productivity of labour is a useful measure of how efficient workers are and how efficiently they use other resources.

For example, if a company employs 10 workers who produce 200 plant pots each day.

How much is the average product per employee?

the average product per employee per day is 20 pots

If the daily output will rise to 220 pots per day without employing additional workers.

How much is the average product per employee? ______________________

then productivity will have increased to 22 pots per worker per day.

Productivity in business organisations producing services can be more difficult to measure.

For example, a hair salon could measure the number of customers or hair treatments per day per employee, but not all employees in the salon will be hairdressers. Some may be office staff or cleaners, so how can we measure their productivity?

Productivity is also difficult to measure in organisations that do not produce a physical output or earn revenue

Improving productive efficiency

Training employees to improve their skills and to use new technologies

Rewarding employees who increase their productivity with performance-related pay

Improving the working environment to increase employees’ job satisfaction

Introducing automation

In addition, productivity can be increase by: Replacing old equipment and

machinery with new technologies Automating production by replacing

labour with modern computer-operated machinery

Ways to increase producti

vity

Improve employee motivation

Introduce new

technology

Improve inventory control

Train staff to be more efficient

Use machines instead of

people to do jobs

(automation)

Improved quality control/

assurance reduces waste

Benefits of increasing efficiency/productivity

Increase output relative to the inputs required

Lower costs per unit (average cost)

Benefits of increasing efficiency/productivity

Fewer works may be needed, possibly leading to lower wage cost

Higher wages for workers increases motivation

Inventory levels

Amount of inventory

reordered to return

inventory levels back to the maximum

Why business hold inventories

Maximum inventory

levelReorder

levelMinimum or buffer inventory

level

Time

Covers a variety of techniques used by business to cut down on waste and therefore increase efficiency.

introducing new

processes and

technologies to

reduce waste and

inefficiency in

production

Types of waste that can occur in production

Overproduction

Waiting

PRODUCING GOODS BEFORE THEY HAVE BEEN ORDERED

BY CUSTOMERS.

WHEN GOODS ARE NOT MOVING OR BEING PROCESSED IN ANY WAY

THEN WASTE IS OCCURING


Transportation

Unnecessary inventory

MOVING GOODS AROUND UNNECCESARILY CAUSES WASTE AND

IS NOT ADDING VALUE TO THE PRODUCT

IF THERE IS TOO MUCH INVENTORY THEN THIS TAKES UP

SPACE


Motion

Over processing

Defects

ANY ACTIONS, INCLUDING BENDING OR STRETCHING MOVEMENT OF THE

BODY OF THE EMPLOYEE WASTES TIME.

IF COMPLEX MACHINERY IS BEING USED TO PERFORM SIMPLE TASKS

THEN THIS IS WASTEFUL.

ANY FAULTS REQUIRE THE GOODS BEING FIXED AND TIME CAN BE

WASTED INSPECTING THE PRODUCTS

Benefits of Lean ProductionQuicker production of goods and services

Less storage of raw materials or components

Better use of equipment No need to repair defects or provide a replacement service for dissatisfied customer

Less money tied up in inventories

Cutting out some processes which speeds up production

Methods of Lean Production

Kaizen Just-in-time inventory control

Cell production

All workers

can participat

e in kaizen in

a business

by identifyin

g problems

and making

suggestions

to improve

production and

remove waste.

The Kaizen effect: before

The Kaizen effect: after

This involves suppliers delivering components or materials to production lines ‘just-in-time’ for them to be processed.

It also known as ‘stockless production’.

The following requirements are necessary for just-in-time production to be effective:

the quality of materials and parts must be high.

the suppliers must be dependable and deliver on time.

the suppliers should be located near the company.

Cell production has the flow production

line split into a number of self-

contained units.

Each team or ‘cell’ is responsible for a significant part of

the finished article

rather than each person only

carrying out only one very specific

task

team members are skilled at a number

of roles, so it provides a means for job rotation.

Cell Productio

n

Choosing a method of production is very important in keeping the costs low.

Production methods can vary from the production of individual custom-made products to the continuous production of identical on a mass scale.

There are 3 main methods of production

i) Job production ii) Flow

production iii)Batch Production

Job Production

This method is used to provide goods & services that are made or delivered to order.

Advantages Disadvantages

Products meet the precise requirements of their customers.

It is labour intensive.

Businesses can often include a premium in the price they charge their customers to reflect increased quality.

Wage costs can be high and it is time consuming.

Workers have varied jobs and many can make a finished product from start to finish. This can motivate the workers and create a sense of pride.

Any mistakes can be expensive as the products are produced to order.

Involve mass production of identical or

standardized products in a

continuous moving process.

products are assembled, finished and

packed as they move or ‘’flow’

along a production line.

FLOW PRODUCTION

Advantages DisadvantagesGoods can be produced quickly and cheaply.

The costs of equipment and machinery required can be high.

Lower costs of production can result in lower price.

Storage requirements and the costs of stocks of materials, components and finished product can be substantial.

Can reduce the number of workers needed and cut labour costs.Automated production can be continuous for 24 hours each day.

Machinery break downs, power cuts or supply problems with components will hold up production.

It allows workers to specialize in specific, repeated tasks.

Workers undertaking repetitive tasks may become bored.

involve producing a limited number of identical products

to meet a specific requirement or customer order

capsul

Batch Production

Advantages DisadvantagesA good way of adding variety to otherwise identical products to give consumers a wider choice.

It needs careful planning to minimize the amount of unproductive time between different batches.

Workers’ tasks are more varied than in flow production, reducing the risk of boredom.

Costs will be higher than for production on a mass scale.

Factors affecting which method of production to use

The nature of the product

The size of the market

The nature of the demand

The size of the business