2-Productive Efficiency

Question 1

Define productivity

Answer 1

The output per unit of input per unit of time. How effectively the factors of production can be utilised and turned into consumer goods or services.

Question 2

What are the affects of higher productivity for firms and the overall economy?

Answer 2

Lower average costs of production → lower prices → increase in demand → lower unemployment → higher GDP growth

Question 3

How can a firm’s credit history determine how productive it can be?

Answer 3

Good credit scores increase the loans given to firms, which they can invest in R&D and become more productive through technological advancements

Question 4

What is capital-intensive production?

Answer 4

This occurs when firms have access to cheap credit, whereby capital is cheaper to purchase than labour

Question 5

Give the formula for capacity utilisation

Answer 5

(Actual level of output / Maximum possible output) x 100

Question 6

Why would a firm choose to be operating under maximum capacity?

Answer 6

A reduction in demand from consumers means there is no need to be producing extra units of output

Question 7

How could operating at full capacity affect the quality of goods produced?

Answer 7

Operating at full capacity implies a rushed process where employees are demotivated, thereby diminishing the quality of goods

Question 8

Give one benefit of under-utilised capacity

Answer 8

Firms have the flexibility to change its level of output according to changes in the economic cycle (e.g. an economic boom means firms are able to produce extra units of output without exhausting its capital)

Question 9

If a firm entered a new market, how would it affect its capacity utilisation?

Answer 9

It would improve capacity utilisation, as more labour and capital is required to produce the extra output now that the firm has entered a new market

Question 10

What is lean production?

Answer 10

The process of minimising waste during the different stages of production

Question 11

Describe the difference between quality control and quality assurance

Answer 11

Quality control ensures the products meet the minimum standards, whereas quality assurance encourages collaboration between design, production and marketing

Question 12

How can small, continuous improvements (kaizen) reduce average costs of production?

Answer 12

Constantly making small ‘tweaks’ in a firm reduces the need for major capital investments

Question 13

Describe JIT management of stock

Answer 13

Just In Time ensures stock arrives as and when it is needed, based on consumer demand, thereby reducing costs of storage

Question 14

Give two disadvantages of JIT

Answer 14

1. The firm is dependent on the supplier for stock in a short timeframe
2. The firm won’t be able to handle huge, unexpected surges in consumer demand

Question 15

Factors affecting productivity of machinery

Answer 15

Age of machine and maintenance

Quality of inputs

Training of operatives

Hours used Vs down time

Efficiency of programming and management

Question 16

Benefits of increased productivity

Answer 16

Lower unit costs

Increase output

Question 17

How do you work out labour productivity?

Answer 17

Total output ÷ number of employees

Question 18

Factors affecting the level of labour productivity

Answer 18

Degree of competition in a market

Advances in production technology

Specialisation (division of labour) within a business

Business investment in new capital inputs

Quality of management

Employee training

Question 19

How does productivity affect wages?

Answer 19

As productivity increases, labour cost per unit increases. Labour becomes more valuable so is rewarded with higher wages. This creates incentives to work harder and be more productive

Question 20

Why does the UK lack productivity?

Answer 20

Low rates of new capital investment

Slowing rate of innovation

Skill shortages

Lack of lending

Less competition

Under utilisation of resources

Question 21

What are the difficulties when increasing labour productivity?

Answer 21

May impact on quality and customer satisfaction (reputation)

Employees may feel exploited

Question 22

What is labour intensive work?

Answer 22

Woke needing a large workforce or a large amount of work in relation to output

Question 23

What is capital intensive work?

Answer 23

Work requiring a large amount of machinery.

Question 24

What is the advantage of labour intensive work

Answer 24

Cheaper when produced in low wage locations

More adaptable

Continuous improvement

Can be government funded to protect jobs

Question 25

What are the disadvantages of labour intensive work?

Answer 25

Industrial relations can be a problem e.g. strikes Lack of skilled workers in some industries Can cost a lot to recruit, select and train

Question 26

What are the advantages of capital intensive work?

Answer 26

More productive Vetter quality and speed Reduced labour costs Greater opportunities for economies of scale

Question 27

What are the disadvantages of capital intensive work?

Answer 27

High investment needed Lack of human initiative Greater resistance to change by workforce e.g. retraining to use new equipment

Question 28

What is full capacity?

Answer 28

The maximum amount of output achievable if all resources are fully utilised

Question 29

What is capacity utilisation?

Answer 29

A measure of the percentage of potential output being achieved

Question 30

How do you work out capacity utilisation

Answer 30

(Current output ÷ max possible output) × 100

Question 31

What is spare capacity?

Answer 31

When actual production is less than full capacity

Question 32

What is under utilisation of capacity?

Answer 32

Resources are not being made to work effectively for the business. This will result in high unit costs

Question 33

What is over utilisation of capacity?

Answer 33

The firm is sweating its assets (they are being made to work harder for the business). Lower costs per unit. This may affect quality and stress the resources (workers being pushed too hard or no maintenance time for machinery

Question 34

Ways to improve capacity when under utilising

Answer 34

Increase demand Downsize Lease off spare capacity

Question 35

Ways to improve capacity when over utilising?

Answer 35

Reduced demand Outsource parts of the business operation Increase the capacity by investing in more resources

Question 36

What are the types of lean production?

Answer 36

Just-in-time (JIT) Kaizen

Question 37

What is Just-in-time production?

Answer 37

Minimising stock holdings at each stage of production process, minimising costs

Question 38

What is Kaizen production?

Answer 38

Small but frequent improvements in every aspect of the production process - continuous improvement. Component of Total quality management.

Question 39

Customers interpretation of quality may be influenced by

Answer 39

Price Brand Customers personal expectations and experiences Nature of product or service (disposable, long term)

Question 40

How can quality be measured

Answer 40

Aesthetics Features Abilities Added extras Support features Performance

Question 41

What are methods of improving quality

Answer 41

Training and motivating employees Using technology Working closely with suppliers Understanding customers expectations Quality control Quality assurance Total quality management (TQM) Quality circles

Question 42

What is quality control?

Answer 42

The checking of a good or service before it's delivered to a customer to make sure it's met the predefined standards

Question 43

Advantages of quality control

Answer 43

Quality can be monitored Stops faulty products reaching customers Common problems can be identified Inspector takes responsibility

Question 44

Disadvantages of quality control

Answer 44

Requires specialist (additional personnel) Problems only identified at end of production process Waste levels may be high

Question 45

What is quality assurance?

Answer 45

The checking of a product at each stage of its production. Relies upon self checking

Question 46

Advantages of quality assurance

Answer 46

Spots any faults early (saves resources) Motivates workers Aims to achieve an objective of zero defects Ensures clear systems are in place Enhances reputation as less chance of faulty products

Question 47

Disadvantages of quality assurance

Answer 47

Requires staff training and high levels of staff commitment Can slow down the production process and labour productivity leading to higher unit costs May demotivate workers who feel under pressure

Question 48

What is total quality management (TQM)?

Answer 48

A system of management based on the principle that every member of staff must be committed to maintaining high standards of work in every aspect of a company's operations.

Question 49

What are quality circles?

Answer 49

Informal groups of workers who volunteer to meet on a regular basis to discuss issues relating to the work place and how to improve quality

Question 50

Benefits of Just-in-time management of stock

Answer 50

Less costs in holding inventory Less working capital required Less obsolete or ruined inventory Lower associated costs Avoids having unsold stock

Question 51

Negatives of Just-in-time management of stock

Answer 51

Little room for error Very reliant on suppliers Unexpected orders harder to meet Delays can cause production to come to a halt High initial set up costs Complex systems have to be put in place and understood

Question 52

Benefits of improving quality

Answer 52

Competitive advantage Reduced unit costs Enhanced reputation Motivated work force

Question 53

Difficulties in improving quality

Answer 53

Reluctance of employees to adapt to change or take an additional responsibility Requires finance Reliant on good relationships with resource providers including suppliers Once achieved must be monitored and reviewed regularly to maintain

Question 54

What is productive efficiency?

Answer 54

When no additional output (maximum output) can be produced from the factor inputs available at the lowest possible average unit cost

Question 55

What is Time Base Management?

Answer 55

The effective management of resources to ensure that unproductive time is eliminated from the productive process. Means shorter lead times, and increased efficiency

Question 56

Advantages of total quality management (TQM)

Answer 56

Better reputation Increased satisfaction

Question 57

Disadvantages of total quality management (TQM)

Answer 57

All rockers must be committed Requires constant monitoring and control Can be expensive

Question 58

Advantages of quality circles

Answer 58

Workers involved in decision making, increase motivation Workers are familiar with processes so relevant solutions are likely

Question 59

Disadvantages of quality circles

Answer 59

May not be voluntary, so employees may have low engagement Employees may have insufficient training

Question 60

Advantages of short lead times

Answer 60

Enhance responsiveness to market changes Improve customer satisfaction (fast delivery + responsive) Reduce inventory costs Improve cash flow

Question 61

What is lead time?

Answer 61

The time taken for a process to be completed