CHAPTER 37: PRODUCTION, PRODUCTIVITY & EFFICIENCY
I. Methods of Production:
1. Job production:
Production of a single product at a time.
Because the numbers of units produced is small, the production process tend
to be labour intensive. The workforce is usually made up of skilled workers/
specialists.
e.g., small scale-baking of a child’s birthday cake large scale-building of a
ship.
Production - is the transformation of resources into goods/services.
Pros of Job production Cons of Job production
Quality is high because workers are skilled. High labour costs due to skilled workers
Workers are well motivated because work is Production may be slow-long lead times.
varied.
2. Batch Production - a method that involves completing one operation at a time on all
units before performing the next. To put it simply, after all units are produced in the
initial stage, all those units will go on the next stage. So, the initial stage will cease
on production.
Batch production is used when demand for a firm’s product / service is
regular than a ‘one-off’.
Products can be produced in very large/ small batches, depending on the
level of demand.
Pros of Batch production Cons of Batch production
Workers are likely to specialise in one process. Less motivation because workers specialise.
Unit costs are lower because output is higher. If batches are small, costs will still be high.
More use of machinery is made. More complex machinery may be needed.
3. Flow production - is large-scale production of a standard product, where each
operation on a unit is performed continuously one after the other, usually on a
production line.
Both batch & flow production produce large quantities. In flow production, after one unit is
produced in the 1st stage, it will go to the next stage & then another new unit will be produced in
the 1st stage.
Features of Flow production:
Production of large quantities.
Standardised product-produce in a consistent way.
Large amount of machinery & equipment.
Large stocks of raw material & components.
CHAPTER 37: PRODUCTION, PRODUCTIVITY & EFFICIENCY
Pros of Flow production Cons of Flow production
Very low unit costs due to economies of scale. Worker motivation can be very low due to
repetitive tasks
Output can be produced very quickly since flow Huge set up costs before production can begin-
production is usually capital-intensive method because business will need huge number of raw
which operates 24/7 or longer hours. So, the materials/ resources & machines for
business can produce higher output quickly production.
4. Cell production - Total production process is divided into different into different
cells.
There is a continuous production.
Each cell occupies an area on the factory floor & focuses on the production
of a ‘product family’. A ‘product family’ is a group of products which
requires a sequence of similar operations.
They divide the production process into cell to introduce ‘division of
labour’.
Each cell is comprised of a team of workers.
Pros of Cell production:
Product flexibility is improved-Since there are skilled workers in each cell, then they can
modify / improve the product so they can change their production process/ the product
itself.
Lead times are cut-If a particular cell is able to produce their product faster, then this will
reduce lead times.
Teamworking is encouraged.
Lead times is the total completion time of each product.
II. Productivity:
Output can be increased if productivity is raised. Productivity is the amount of output
that can be produced with a given input of resources.
A. Factors influencing productivity:
1. Specialisation & the division of labour - If workers specialised in certain tasks &
skills, productivity would increase because people will only concentrate on a limited
range of tasks.
2. Education & training - Government can help improve the quality of labour by
investing in education. This might involve providing more equipment for schools or
improving the quality of teaching. Firms can also improve the productivity of their
workers by providing their own training.
3. Motivation of workers-If people are more motivated at work; they will be more
productive. Firms can use financial incentives such as piece rates & nonfinancial
incentives such as job rotation to motivate employees.
4. Capital productivity-Productivity usually increases when new technology is
introduced because new technology is more efficient. Productivity is also likely to
increase if production becomes more capital intensive.
CHAPTER 37: PRODUCTION, PRODUCTIVITY & EFFICIENCY
B. Productivity & Competitiveness
If businesses can raise productivity, they will be able to produce more output with
same level of resources. For example, with the same number of workers, if these
workers are less skilled, business can provide training to increase their productivity.
This will mean that costs will be lower & they can charge lower prices than rivals.
This makes businesses more competitive in the market. Thus, they are likely to win
more customers, increase market share & possible threaten the survival of their rivals.
III. Efficiency
Involves producing a level of output where average cost is minimized.
Efficiency is about making the best possible use of all a business’s resources. A
business will want to use its materials, labour & capital as effectively as possible.
Business often use costs as an indicator of efficiency. Production is said to be efficient
if average costs are minimized.
Factors influencing efficiency:
Measures that a business might use to reduce costs:
1. Introducing standardisation
involves using uniform resources/ producing a uniform product. Bulk
purchases can be made, the same tools & procedures can be used, training
can be reduced. Thus, increasing efficiency.
2. Outsourcing
is when the business producing products normally but unexpectedly, they
got an order which they don’t usually produced so they will hire specialist
employees from other companies temporarily to produce the product for
the business at a lower cost.
3. Relocating
if the office/factories of the business are located where costs are high,
they might relocate. At first, it may be expensive, but in the long run it
will reduce costs & improve business’s efficiency, if it is newly located
where there is lower rent, lower wages & better transport links.
4. Downsizing
is reducing capacity such as laying off workers/ closing unprofitable
divisions/ factories of a business.
there are certain factors why a business does ‘downsizing’ such as if there
is a decrease in demand.
Through downsizing, business will be more efficient. For example, if the
business has 5 factories, it can close 2 of its factories to reduce costs.
5. Investing in new technology
New technology can often improve efficiency. New machinery may be
quicker, more accurate, be capable of more tasks & carry out work in
more extreme conditions than older equipment/labour.
IV. Labour- & Capital-Intensive Production
1. Labour intensive production
production methods that make more use of labour relative to machinery
CHAPTER 37: PRODUCTION, PRODUCTIVITY & EFFICIENCY
Pros Cons
People are creative & therefore solve problems People are more difficult to manage
& make improvements than machines. They have feelings &
react.
Cheaper for small scale production People sometimes need to be motivated to
improve performance
2. Capital intensive production
production methods that make more use of machinery relative to labour
Pros Cons
Generally, more cost-effective if large quantities Often poses a threat to the workforce & could
are produced. reduce morale.
Machinery can operate 24/7. Huge delays & costs if machinery breaks down.
V. Competitive advantage from short product lead-in times
1. Higher output
2. Reducing carrying cost
If the business is able to produce products faster, they will be able to cut
its transportation costs since they will be buying their raw materials once.
If they are producing longer, they will have to buy raw materials all the
time which will increase transportation costs since some stocks cannot be
stored for a long time.