2.4.1 Production, Productivity & Efficiency

Methods of production

• Job
• Batch
• Flow

Job Production

🔗 Specialised items produced to meet customers' needs

• Specific to customers' needs, higher customer satisfaction, more brand loyalty
• Higher quality products with a unique selling point, can command a higher price from customers (price inelastic), develop a brand reputation of being high quality, increase customer retention, increase market share
• Higher quality of raw materials used, higher cost per unit, businesses have to charge higher prices, deter customers, lower sales
• Labour intensive, requires a highly skilled workforce, higher wages, longer to achieve break-even, lower profits

Batch Production

🔗 Similar items produced together

• Variations appeal to different consumers with different preferences, ensures multiple segments are satisfied, less reliance on one revenue stream
• Save on costs from buying in bulk, economies of scale from batches produced, lower cost per unit, lower prices to attract more customers or increase profit margins
• Takes time to switch machines between batch variations, wasted time in the production process that could be used elsewhere, opportunity cost
• Products are typically of average/low quality, have a heavy dependence on price competitiveness in a mass market, low profit margins, requires high sales to reach the break-even point
• Tasks are repetitive, low motivation, lack of commitment, lower productivity, increased mistakes, increased wastage, lower efficiency

Flow Production

🔗 Continuous movement of items through the production process, usually on an assembly line

• A capital-intensive system, can work constantly, products are produced quickly, more efficient
• Mass production, benefit from economies of scale, cost per unit is cheaper, higher profit margins
• Need enough capital to buy machinery, may need sources of finance, debt? Equity? Internal? ensure market research is done effectively, higher risk if there is no demand for the product
• Tasks are repetitive, low motivation, lack of commitment, lower productivity, increased mistakes, increased wastage, lower efficiency
• A capital-intensive system is inflexible, less differentiation for customers, can't command a higher price from customers

Productivity and Efficiency

Productivity

🔗 A measure of efficiency comparing output per unit of input over a given time period e.g., hourly output per worker

Factors Influencing Productivity

• Worker motivation, higher motivation, higher productivity
• Skills of the workforce, higher-skilled workers, higher productivity
• Higher productivity, higher output produced, benefit from economies of scale, reduced cost per unit, ability to reduce prices whilst maintaining profit margins, undercut rivals and attract more sales

Formula

$$Productivity = Total output/units of labour$$

Efficiency

🔗 The ability of a business to use the lowest amount of inputs to create the greatest amount of outputs

Factors Influencing Efficiency

• Production method, more capital-intensive systems, less wasteful, more efficient

• Skill of workforce, higher skilled workers tend to be more resourceful and efficient Increased efficiency, less resources wasted, lower cost per unit, lower prices whilst maintaining profit margins, undercut rivals and attract more sales

• If a business and its employees are productive but not efficient, this implies they are quick but wasteful

The distinction between labour-intensive and capital-intensive production:

🔑 Labour-intensive production – Relies on human labour and relatively little capital machinery

🔑 Capital-intensive production – Relies on capital machinery and very little human labour