Copyright 2007 – Biz/ed Efficiency Any production method relies on efficiency – this can be viewed in different ways: Productivity – a measurement of output per unit of the factor used (labour, capital or land) Total Output Productivity = Units of Factor Technical Efficiency – output produced using the fewest possible inputs Productive Efficiency – output produced at the lowest possible cost
Copyright 2007 – Biz/ed Efficiency Production decisions involve deciding methods for new production runs and analysis of existing methods. Decisions may include: –Substitute machinery for labour? –Use of new technology? –Organisation of the production layout? –Change of production method?
Copyright 2007 – Biz/ed Production Methods Copyright: Photolibrary Group Whilst all output can be classed as production, different production methods may be more appropriate for different products or services. Agriculture tends to be very land intensive – efficiency could be measured in terms of output per acre/hectare
Copyright 2007 – Biz/ed Production Methods Copyright: iStock.com As technology and analysis of production methodology has improved, methods have changed dramatically – what used to be labour intensive production methods are now capital intensive
Copyright 2007 – Biz/ed Production Methods California Oil is Source of Wealth and Fear Copyright: iStock.com Textile factory Copyright: Stock.Xchng Bottle production line Copyright: Photolibrary Group The choice of production method and the factor inputs depends on such things as: the nature of the product factor costs the scale of production
Copyright 2007 – Biz/ed Production Decisions Which method? Type of Product One-Off Order? Mass Market product? Batch? Market size and Segment Factor Costs – Land, Labour and Capital Complexity of design
Copyright 2007 – Biz/ed Production Methods Job Production – One-off production - each item might have particular specifications Flow Production – suitable for mass market products that are identical Batch Production – each stage of the production process has an operation completed on it before moving on to the next stage – allows modifications to be made to products that otherwise are the same
Copyright 2007 – Biz/ed Production Methods Which is more efficient? Operation Finished Product
Copyright 2007 – Biz/ed Production Methods Operation 1 1a1b1c1d 2a2b2c 3a3b3c3d 4 Finished product Or this?
Copyright 2007 – Biz/ed Production Methods Or this? Cell 1Cell 2Cell 3 Finished Product
Copyright 2007 – Biz/ed Production Methods Answer – it could be any of them! The design of the production space can influence: –Output levels –Factor use –Efficiency –Cost levels –Quality assurance procedures
Copyright 2007 – Biz/ed Kaizen (Continuous Improvement) Japanese concept – not made redundant by the decline of the Japanese economy which may be due to other institutional factors! Focus on gradual and continuous improvement A whole business philosophy Importance of EVERYONE buying into the concept and the vision
Copyright 2007 – Biz/ed Kaizen Great attention paid to customer requirements and needs Efficient stock control methods help reduce costs and improve cash-flow Flexible working practices and empowerment – help increase efficiency, reduce costs and improve motivation Leadership seen as vital. Ability to communicate a clear vision, take people along with the vision and to think about where the company needs to be in 5, 10, 15 and 20 years time Fundamental principles – often characterised as lean production – reducing waste, zero defects, high quality control measures at all stages Punctuality in all aspects – delivery, supply, manufacture, etc.
Copyright 2007 – Biz/ed Quality Assurance Six Sigma Methodology –Coined by Motorola Engineer Bill Smith –Now a major influence on production methods and quality assurance –Data and statistical driven approach to eliminate defects in production –Aims to improve processes and reduce variations in quality –Necessitates organisational change, training and planning