Production, Productivity and Efficiency

Production:

Taking the 'factors of production' and turning them into 'products'.

Job, batch,flow and cell production:

Job production involves making a single product at a time.

Lets make a unique talking dog:

Because the numbers produced are small this method of production tends to be labour intensive.

Batch production:

Production is divided into a number of operations.

A particular operation is carried out on all products in a batch.

Flow production:

Cell production: 

Cell production is a form of team work where the entire process of production is split into small groups called cells. 

Each 'cell' is responsible for a complete unit of work.

Once this work has been completed it moves to the next 'cell'.

Each 'cell' checks the quality of its work.

More here.

More details on methods of production here. (Scroll down the page.) 

You need to learn two advantages and two disadvantages of each method.

Labour productivity:

How could Amazon improve productivity?


 

Factors Influencing Productivity

Productivity is defined as output per input (person or machine) per hour.

Factors influencing productivity:

1. Specialisation and the availability of new technology.

What jobs will robots replace in the next 20 years?

Click on the headline:

2. Education and training.

3. Improved motivation of employees.

4. Changing working practices.

Should trains have guards on board? Click on the picture:

Productivity and competitiveness:

Increased productivity equals more production with the same level of resources.

The cost per unit will be lower and they may charge lower prices.

Charging lower prices makes the business more competitive.

Efficiency

Efficiency is about making best possible use of all a businesses resources.

Production is said to be efficient if average costs are minimised.

Factors influencing efficiency:

1. Standardisation of products.

This involves using using uniform resources or producing a uniform product.

Ryanair only use Boeing 737-800 aircraft. This streamlined fleet helps us to keep their costs down and safety standards up.

2. Outsourcing - other companies providing services for a lower cost.

3. Relocating operations.

Dyson moves production to Malaysia:

4. Downsizing.

This involves closing unprofitable operations.

5. Delayering.

Removing a layer from the organisational hierarchy.

Investing in new technology.

Capital intensive production 

This requires extensive equipment and machinery to produce goods. 

It therefore requires a larger financial investment. 

Labour intensive production

Refers to manufacturing that requires a higher labour input to carry out production activities in comparison to the amount of capital required.

Lean production:

An approach to management that focuses on cutting out waste, whilst ensuring quality. 

This approach can be applied to all aspects of a business – from design, through production to distribution.

Kaizen = continuous improvement.

Lean Production

Definition - What does Lean Production mean?

Lean production is a systematic manufacturing method used for eliminating waste within the manufacturing system.

The word ”lean” in the term simply means no excess.

Some of the key aspects of lean production that you should be aware of are:

Just in time production (JIT)

Cell production

Kaizen (Continuous improvement)

Quality improvement and management.

Example 1:

Example 2:

Making Operational Decisions - Key Terms

Unit cost:

        The cost of producing a single unit of output. 

Formula to calculate Unit Cost =

Total Cost divided by Units of Output.

Capacity:

The maximum output that a business is capable

of producing with existing resources.

Capacity Utilisation:

A measurement of the extent to which a business

is using the capacity available to it.

Capacity Utilisation =      Actual Output  x 100
                                     Maximum Output

How are Ryanair Planning to increase capacity?




An interview with the Chief Executive of Ryanair:

Under-Utilisation of Capacity (Excess Capacity):

Where a business is not using their resources to

their full potential e.g. unused factory space.

Capacity Shortage:

Where a business has insufficient resources to

fully meet the demands of its customers.

Rationalisation:

Reducing the productive capacity of a business in

an effort to increase levels of efficiency.

Subcontracting:

The passing on of a unit of work to another firm

outside of the business.

Non-Standard Orders (Special Order Decision):

Where a business has to decide whether to

accept orders at a price different from that

usually charged.

Often a one-off request.

Capacity Utilisation - Notes

Capacity utilisation measures the extent to which a business is using its production potential.

Capacity utilisation can be defined as - the percentage of total capacity that is actually being achieved in a given period

The Problems Of High Capacity Utilisation:

100% capacity utilisation is not always a positive thing for businesses.  

By operating at maximum capacity for long periods of time the business might experience the following issues:

No time for the maintenance of machinery.

Extra stress upon staff.

Increased overtime costs

Unable to accept additional orders.

Harder to maintain quality standards.

The Benefits of High Capacity Utilisation:

·  Increased job security and motivation.

·  Lower unit costs.

·  Improved profitability.

   Thorntons Chocolate operate three eight hour shifts in the run up to Valentines day:

Under-Utilisation of Capacity (Excess Capacity):

Operating at low levels of capacity utilisation bring

with them their own problems:

Higher unit costs that may mean either lower profit
margins or higher costs for the consumer.

A negative image for the company e.g. empty tables aa restaurant.

Motivational issues for staff e.g. employee boredom.

Excess capacity in the airline industry. See the story
here.

Possible Cause of Under Utilisation:

·  New competitors entering the market

·  Changing tastes and fashions in the market.

·  Seasonal factors.

·  Over-investment in fixed assets.

Possibilities that under capacity utilisation brings:

Sufficient space in the factory to meet new orders.

Maintenance and repair of machines is easier to
organise.

Stock Control and the Move to Just in Time

Can you describe what this chart shows?

If you are not sure watch this video:



The cost of holding inventory (stock in costs) involves:

Warehousing costs such as rent, utilities and salaries. 

Financial costs such as opportunity cost. 

Inventory costs related to perishability, shrinkage (theft) and insurance.

Buffer stock

The minimum level of inventory (stock) a business aims to hold.

Implications of poor stock control:

1. Stock out costs (Out of stock costs)

Stock out costs are the costs associated with the lost opportunity caused by the exhaustion of the inventory. 

2. Holding excess stock.

Less working capital would be available within the firm.

Costs of storage, insurance and security.

A risk that the stock could become obsolete, damaged or 'expired'.

Just in time production aims for near zero levels of buffer stock.

Stock levels of raw materials, components, work in progress and finished goods can be kept to a minimum. 

This requires a carefully planned scheduling and flow of resources through the production process.

More on JIT here.

Waste minimisation.

This is a key element of lean production.

Waste is anything that adds an additional cost.

Lost time is a major cause of waste.

Damaged or returned goods should be kept to a minimum.

Competitive advantage from lean production.

What competitive advantage would the 'leanest' European car manufacturer have over its rivals?

More here.

Operations: Quality Issues

Developing Effective Operations: Quality

The meaning of quality:                                          

'Quality is about meeting (or exceeding) the expectations of the customer.'
                 
Key targets for quality might include:
                        
Reducing customer complaints.

Improving delivery and punctuality times.

Reducing scrap and wastage rates.

The quality of your shorts:

You may be surprised how much testing is involved. 

Because they are sold in 4,958 stores around the world certain checks must be made to maintain quality standards.

Such as?

                                       

Quality control:

This involves QC inspectors checking work after production or certain activities have taken place.

QC was a method of finding a poor quality product (or a problem) before something is sold to a customer.



By today's standards this could be considered a poor way to manage quality.

Advantages of quality control:

With quality control, inspection is intended to prevent faulty products reaching the customer. 

Highly trained QC workers can help to reduce costs.

Disadvantages of quality control:

Individuals are not necessarily encouraged to take responsibility for the quality of their own work.

If defect levels are very high, the company's profitability will suffer.

Quality assurance:

This involves total quality management (TQM) where all employees have a responsibility for ensuring quality at all stages of production.

The aim is to stop problems occuring rather than finding them after they occur.

Advantages of quality assurance include:

Costs are reduced because there is less wastage and re-working of faulty products as the product is checked at every stage.

It can help improve worker motivation as workers have more ownership and recognition for their work (see Herzberg).

With all staff responsible for quality, this can help the firm gain marketing advantages arising from its consistent level of quality.

Disadvantages of quality assurance:

It may be difficult to change the existing culture within the business. (The way things are done.)

The costs of training staff about the new systems.

Features of TQM:

A philosophy which must start from the top with the most senior executive and spread through the organisation to every employee.

TQM relies on monitoring the business process to find possible improvements.

TQM stresses that teamwork is key to problem solving.

TQM will involve Quality Circles. 

These are groups of staff specifically brought together to identify potential improvements in the business.

Details here.

Total quality management (TQM). More details here.

Kaizen:

A Japanese business philosophy of continuous improvement of working practices, personal efficiency, etc.

One of the most notable features of kaizen is that big results come from many small changes introduced over time.  

Kaizen means everyone is involved in making improvements. 

While the majority of changes may be small, the greatest impact may be 'kaizens' that are led by senior management as transformational projects.

Less waste – inventory is used more efficiently as are employee skills.

People are more satisfied – they have a direct impact on the way things are done.

Improved commitment – team members have more of a stake in their job and are more inclined to commit to doing a good job.

Improved retention – satisfied and engaged people are more likely to stay.

Improved competitiveness – increases in efficiency tend to contribute to lower costs and higher quality products.

Improved consumer satisfaction – coming from higher quality products with fewer faults.

Improved problem solving – looking at processes from a solutions perspective allows employees to solve problems continuously.

Improved teams – working together to solve problems helps build and strengthen existing teams.

 




Quality Assurance from Wisegeek.com

Quality standards:

IS0 9000 on Wikipedia here.