Productivity & Efficiency

Business Management: IB Diploma, topic 5.4.2

Productivity, Efficiency and Lean Production

Increasing efficiency and labour productivity is vital for a business to be successful in the long term.

Productivity refers to the number of units produced by an employee in a certain period of time.

Efficiency refers to the ability of employees to increase their output from a fixed amount of inputs, like raw materials.

Efficiency can be improved using lean production:
Lean production minimises waste so increases efficiency.
For example, if McDonalds redesigned their restaurant so that staff had less distance to walk between cooking appliances in the kitchen, time wastage will be reduced which improves efficiency and therefore productivity.

Just in Time is a form of lean production. Just in time involves businesses only ordering supplies when they are needed, and therefore reduces waste.
For example, a restaurant may only place its seafood order when it has confirmed orders from customers and this reduced food wastage.
Using Just in Time does have disadvantages, meaning it can be difficult to use:
Just in Time means that businesses will have no spare stock to respond to an unexpected customer order which may affect customer satisfaction.

Different types of businesses require different approaches for increasing efficiency.

Capital intensive businesses are businesses that mainly rely on the use of capital, or machinery, in the production of goods and services.

Labour intensive businesses are those which mainly rely on the use of human labour in the production of goods and services.

Businesses must ensure they use the right mix of capital intensive and labour intensive approaches, as each approach has advantages and disadvantages:
Capital intensive production can be cheaper than labour-intensive production in the long-term.
Capital intensive production can require businesses to commit to high start-up costs as machinery is purchased.
Labour-intensive production increases operational flexibility as people can be reassigned to different projects or retrained to complete different tasks.

For example, Asda relies on labour intensive approaches as its supermarkets are maintained and stocked using human labour.

For example, Coca Cola factories rely on capital intensive approaches as machinery completes most of the steps involved in the production, packaging and distribution of products.

"The number of units produced by an employee in a certain period"

Which of the following terms does this describe?
What is the most likely impact of minimising waste through lean production?
Which of the following is a disadvantage with Just in Time?
Which type of production is cheaper in the long term if there are lots of units produced?
Which of the following are true?