Chapter 4 production and productivity (revised)

IGCSE Cambridge Business Studies 4th Edition, Karen Borrington & Peter Stimpson

1. Production and Productivity

2. Production involves using resources to make goods and services to satisfy consumer needs and wants .

3. The production process applies to manufacturing as well as service industries

4. Production is a process that starts with using and managing resources Land Labour Capital Enterprise INPUTS (economic resources) Production process OUTPUTS GOODS SERVICES

5. Resources are the inputs to productive activity.

6. Labour intensive capital intensive

7. Products are the outputs of product activity

8. Operation Department OD’s role in a business is to take inputs and change them into outputs for customers use (physical goods or services)

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

10. 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.

11. 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. I t 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?

12. 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.

13. 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

14. 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.

15. 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.

16. 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.

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

18. Labour productivity is calculated by dividing total output over a given period of time, Average Productivity of labour = _____total output_____ Number of employees

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

20. 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

21. 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.

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

23. 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?

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

25. Improving productive efficiency Training employees to improve their skills and to use new technologies Rewarding employees who increase their productivity with performance-related pay

26. Improving the working environment to increase employees’ job satisfaction Introducing automation

27. 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

28. Benefits of increasing efficiency/productivity Increase output relative to the inputs required Lower costs per unit (average cost)

29. Benefits of increasing efficiency/productivity Fewer works may be needed, possibly leading to lower wage cost Higher wages for workers increases motivation

30. Inventory levels Amount of inventory reordered to return inventory levels back to the maximum Why business hold inventories Maximum inventory level Reorder level Minimum or buffer inventory level Time

31. Types of waste that can occur in production PRODUCING GOODS BEFORE THEY HAVE BEEN ORDERED BY CUSTOMERS. WHEN GOODS ARE NOT MOVING OR BEING PROCESSED IN ANY WAY THEN WASTE IS OCCURING

32. Types of waste that can occur in production 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

33. Types of waste that can occur in production 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

34. Benefits of Lean Production

35. Methods of Lean Production Kaizen Just-in-time inventory control Cell production

36. The Kaizen effect: before The Kaizen effect: after

37. This involves suppliers delivering components or materials to production lines ‘just-in-time’ for them to be processed. It also known as ‘ stockless production ’.

38. 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.

39. There are 3 main methods of production

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

41. 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.

42. FLOW PRODUCTION

43. Advantages Disadvantages Goods 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.

44. Batch Production

45. Advantages Disadvantages A 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.

46. Factors affecting which method of production to use