AS Operations

Management

Productive Efficiency

Operations Management

Recap…The process that uses the resources of

an organisation to provide the right goods/services for the customer, at the

right time, cost and quality.

Areas of operations management include:

Production methodsScale of operationStock ControlQualityWaste reduction and flexibility

Productive Efficiency

Productivity is a measurement of efficiency. It measures the output of a business in relation to its inputs.Productive Efficiency is a measurement of the cost of producing one unit of a good/service. The lower the unit cost, the greater is the level of efficiency and the business is more cost effective. This can help to improve financial management of the business.

Input Output

Production

Process

Unit cost/Cost per unit

How much it costs on average to produce one item is a way of measuring the businesses productive efficiency

Unit cost = Total costOutput

Task: Calculate the average cost per jumper for the following years

Year Total Cost Number of jumpers2007 £900 302008 £1,000 50

Question: In which year was the business more effective in production?

Answer: 2007 - £30 2008 - £20

The business was producing more effectively in 2008 as cost per unit was lower, therefore they were more

efficient in 2008.

Labour Productivity

The most common measure of productivity is Labour Productivity.

Labour Productivity = Output of units (per annum)

Number of employees

Example…A company produces 300 units with 15 staff, labour productivity is 20 units per employee

If each worker produces more output, the labour cost per unit will be lower.

Labour Productivity

Labour productivity measures the amount a worker produces over a given period of time.

For example an employee might make ten pairs of jeans in an hour.

Measuring productivity is relatively easy in manufacturing, where the number of goods can be counted. In the service sector however it is not always possible to measure anything tangible.Productivity in services can be measured in some cases:

Number of customers served Number of patients seen Sales per employee

However it not possible to measure the efficiency of all service sector groups such as receptionists.

Productive Efficiency

When considering a firms efficiency it is important to distinguish between productivity and total output.

By hiring more employees a business might increase their output, however this does not mean that they have increased their efficiency.

By reducing the number of staff can also lead to an improvement in output per worker.

Greater labour productivity can lead to greater efficiency and higher profitability. This is because with al things being equal, it lowers the labour cost per unit.However productivity is only one factor that leads to a businesses success.They must also produce a high quality product that meets the needs of the target market, that is marketed in the right way and ensures that the business controls its costs.

Improving productive efficiency and international

competitiveness

A productivity gap has emerged in recent decades between the UK and its international rivals (USA, France, Germany).

This makes it difficult for British firms to compete internationally

The Government set up a special competitiveness unit to examine ways UK firms can improve efficiency and performance.

Task: Identify how firm’s productivity can be increased. Use your own knowledge and discuss

it with the person next to you. (5 mins)

Improving Productive Efficiency & international competitiveness (contd)

Answer:

Invest in new equipment and technology

Training and recruitment to improve staff skills – will be more flexible and adaptable

Motivate workers

Make markets more competitive

Invest in research and development to improve production methods and products

Manage the business effectively setting clear targets, and consulting workers

Tasks: Exam Questions & Case

Study

Task 1: Revision QuestionsComplete questions 1- 9 on page 225 of

the text book.

Task 2: Going Potty Case StudyRead through the case study on page 255

of the text book.Complete 1-4