2-4-1-production-productivity-and-efficiency

Methods of production

• Production is the transformation of resources (e.g. raw materials, components and processes) into finished goods or services

  • Goods are physical products, such as bicycles and T-shirts

  • Services are non-physical items, such as hairdressing, tourism and manicures

• Businesses can organise their production processes in a variety of ways

The main methods of production

• The method of production used by a business will depend on a number of factors, including:

  • The level of output required to be produced

  • The nature of the product

  • Whether the product is standardised or customised

  • The level of automation used in production

Job production

• Producing one item at a time, as ordered by the customer

  • Advantages

    • High-quality product

    • Motivated and highly skilled workers

    • Customised products can be produced

  • Disadvantages

    • Production is slow

    • Labour costs are high

Batch production

• Groups of the same product are produced before moving on to a group of different products

  • Advantages

    • Workers can specialise

    • Production can take place as the previous batch starts running out

  • Disadvantages

    • Requires careful coordination to avoid shortages

    • Money is tied up in stock, as completed products need to be stored

Flow production

• Continuous manufacturing of standardised products, usually on a production line

  • Advantages

    • Low unit costs due to economies of scale

    • Rapid production

    • Usually highly automated (capital-intensive)

  • Disadvantages

    • Customisation is difficult

    • Capital equipment can be expensive to purchase

Cell production

• This involves workers being organised into multi-skilled teams, with each team responsible for a particular part of the production process

  • Advantages

    • Cell production is often more efficient than other methods, as workers share their skills and expertise

    • Motivation is usually high, as employees work as a team

  • Disadvantages

    • Requires extensive reorganisation of production processes

    • Teams’ efficiency may be reduced by weaker workers

Calculating productivity

• Productivity is the output per input (person or machine) per hour (e.g. an IKEA worker is able to produce two Poāng chairs per hour)

  • This is not production, which is the total amount of output produced in a time period (e.g. IKEA produced 300 Poāng chairs in February)

Labour productivity

• The labour productivity of a business is a measure of the output per worker during a specified period of time

• Labour productivity is calculated using the formula

Capital productivity

• Capital productivity is a measure of the output of capital employed (e.g. machinery) during a specified period of time

• Capital productivity is calculated using the formula