The importance of labour productivity and efficiency

The importance of labour productivity and efficiency

Lean

Factors of Production:

Labour: The physical and mental effort of people involved in production of goods.

Land: All natural resources such as land, but also natural and mineral resources such as plants, livestock, minerals, fish, coal and gravel.

Capital: Goods that are made in order to produce other goods such as machinery, lorries, factories, shops and offices.

Enterprise: The act of bringing together all of the factors of production in order to create goods and services. This is carried out by entrepreneurs whose reward is the profit made from these activities.

Starter:

Recap

How to increase labour productivity and efficiency:

Importance

(5 minutes)

Provide a definition for the following terms:

Labour productivity

Capacity

Efficiency

Stretch and Challenge:

Why is labour productivity important to an organisation?

Why is efficiency important to an organisation?

Why is capacity important to an organisaiton?

Difficulties

There are a number of ways in which the efficiency of the factors of production (inputs) can be improved, in order to create greater output.

Improving the fertility of the land- Modern agriculture techniques enable farmers to achieve greater output per acre.

Using renewable or recyclable resources- Minimising waste improving energy efficiency.

Greater education and training- Greater output, productivity and motivation.

Increasing the level of capital investment- High quality capital goods can enhahnce labour efficieny and quality of products.

Improvements in management skills and the willingness to take risks for the business- Ensuring customer needs are met.

Combining factors of production in a balanced way- Avoiding problems such as reduced efficiency that may arise if one factor of production is overused in comparison with other factors.

Extending the overall scale of production- Benefit from Economies of Scale.

Capacity is important as it allows an organisation to meet the demand of its consumers. However, increasing capacity usually requires an increase in capital equipment, land and other resources and so it is important to avoid excess capacity which would merely add to a firms costs.

Key Terms:

Benefits of high labour productivity & efficiency:

• Efficient use of inputs allows a business to maximise production and therefore satisfy the needs of more customers.
• Efficient use of inputs allows fewer inputs are needed to produce a given level of outputs = reducing unit costs.
• Where consumers desire high quality, cost saving from greater efficiency can be used to improve quality of the product.

Labour productivity: A measure of output per worker in a given time period.

Capacity: The maximum total output or production that a business can produce in a given time period.

Efficiency: The ability to utilise inputs (factors of production) and maximise the resources in order to produce the greatest level of outputs.

Activity!

(5 minutes)

In pairs, create a brainstorm answering the following question:

What may the difficulties be of increasing efficiency and labour productivity.

• It is unlikely that the fertility of the land can be increased indefinitely- In some places modern agricultural techniques have been blamed for destroying fertility rather than increasing it. As a result conflicting with environmental objectives.
• Many resources and not renewable- As demand increases we are likely to face further shortages of essential resources.
• Education and training- Costly and time consuming.
• Increasing the level of investment in capital equipment means that reosurces are diverted from meeting short term customer needs to focusing on future wealth.

Lean Production

What is 'Lean production'?

Lean production is a Japanese approach to management that focuses on cutting out waste, whilst ensuring quality. This approach can be applied to all aspects of a business – from design, through production to distribution.

Lean production aims to cut costs by making the business more efficient and responsive to market needs.

This approach sets out to cut out all activities that do not add value to the production process, such as holding of stock, repairing faulty product and unnecessary movement of people and product around the plant.

Three elements of lean:

A) The elimination of waste

B) The involvement of all staff

C) kaizen- Continuous improvement

How did Lean production start?

After World War II the Japanese economy collapsed, there were few raw materials and they found that they could not compete with the west.

Taiichi Ohno worked as an engineer for Toyota and developed the Toyota Production System (TPS) which has become more widely known today as lean production.

If the 20th Century was about mass production, then the 21st century will be about lean production. It has provided a blueprint for success that the American car manufacturers try to follow.

Toyota can develop a car in 18 months, it takes GM three years. It takes GM 50% longer to assemble their cars than Toyota do. So there are impressive cost savings to be made from introducing lean production.

Lean Production theories:

• Cell Production
• Kaizen
• TQM
• Quality Circles
• Just in Time

Activity!

Plenary- Q&A

(15 minutes)

In your groups using the resources provided create a mind map on your allocated Lean theory in order to teach your peers.

Success Criteria:

Must include advantages & disadvantages of the theory.