Key definitions
Production — managing resources effectively to produce goods and services.
- Productivity — the measure of how efficiently resources are combined and utilised in the firm.
- Inventories — raw materials, unfinished components and finished goods ready to be sold or moved.
Measuring productivity
Productivity = Quantity of output ÷ Quantity of inputs
Labour productivity = Output (over a given period of time) ÷ Number of employees
How to increase efficiency
- Training so employees work productively and waste less resource
- Introducing automation
- Motivating employees
- Improving quality control and assurance systems
Inventories
Why businesses hold inventories
- To be able to meet spikes in customer demand
- The time it takes to reorder supply has a lead time, so existing stock must be kept
Lean production
Lean production — techniques deployed by companies to reduce wastage and increase efficiency.
Types of wastage
- Overproduction
- Waiting
- Transportation
- Moving around of employees and machinery
- Over-processing
- Defects
Lean production techniques
- Kaizen — the technique of creating employee discussion groups to suggest methods to maximise efficiency. E.g. arranging a production line so the position of machinery is the most efficient.
- JIT (just in time inventory control) — the technique where inventory usage is mitigated through ordering supplies just in time for production (reducing lead time) and delivery to customers, so inventory does not have to be held.
Benefits of lean production
- Lower production costs
- Can lower prices to remain competitive
- Can make more profit
- Can increase productivity
Main methods of production
Job production
Often done by smaller firms or specialised firms. E.g. a custom cake business.
| Advantages | Disadvantages |
|---|---|
| Requirements of the customer are met, giving customer satisfaction | Since materials are special to order, cost of production may be high |
| A variety of jobs are given to employees | Output is slow |
| Skilled labour is expensive |
Batch production
Often done by small to medium sized firms. E.g. a candle making business.
| Advantages | Disadvantages |
|---|---|
| If one machine breaks down, there are other goods that can still be made | Each batch of goods requires their own materials which may cost a lot |
| A variety of jobs are given to employees | Machines have to be catered to each batch of goods |
| More than one good is produced at a time so variety is given to customers |
Flow production
Often done by larger firms. E.g. a bottled water business.
| Advantages | Disadvantages |
|---|---|
| Output is often high | Repetitive jobs demotivate employees |
| Economies of scale | Initial cost of set up is very high |
| As it is usually done with the aid of machinery, labour costs can be reduced | A high amount of materials are needed for production which is expensive |
| Machinery can run for extended periods of time | If one machine breaks down, the production line is halted |