Efficiency, Productivity and competitiveness
are linked. Better productivity means
increased efficiency which results in a higher
level of competitiveness.
Efficiency is about making the best possible use of
resources. Efficient firms maximise outputs from given
inputs, and so minimise their costs. By improving efficiency,
a business can reduce its costs and improve its
There is a difference between production and productivity.
Production is the total amount made by a business in a
given time period. Productivity measures how much each
employee makes over a period of time. It is calculated by
dividing total output by the number of workers. If a factory
employing 50 staff produces 1000 tables a day, than the
productivity of each worker is:
1,000 tables/50 staff = 20 tables
Graph showing Staff Efficiency
An increase in productivity from 20 tables to 25 tables, without any
increase in costs, means the firm has improved efficiency. The resultant
lower unit costs increase profit margins.
Staff productivity depends on their skill, the quality of machines
available and effective management. Productivity can be improved
through training, investment in equipment and better management
of staff. Training and investment cost money in the short term, but can
raise long – term productivity.
Other methods of Cutting Costs
As well as improving productivity, a business can cut
Reducing overheads such as administration, e.g.
making some support staff redundant. Customer service
may suffer as a result of this.
Relocation to countries where staff with appropriate
skills can be hired at lower wages.
Improving management so staff are motivated to
work harder, or are better used.
Redesigning the product so an item is easier and
cheaper to make.
Lean Production is set of measures that aim to reduce
waist during production. Waste reduction methods, such
as just in time of ordering the stock, will increase
Ways to measure employee
Labour Productivity, Labour Turnover, Absenteeism and
Health and Safety
At the end of todays lesson you will be able to:
• Measure Employee Performance/Productivity
• Calculate and measure absenteeism
• Calculate and describe Labour Turnover
• Describe Health and Safety Measure and analyse time
lost through accidents at work.
• Managers need to assess the impact of any changes
they may make.
• It is no good implementing workforce planning,
rewards systems, appraisals etc if the impact of these
changes cannot be measured.
• There are many ways in which employee
performance can be assessed/measured. These are
called ‘Key Performance Indicators’.
Key Performance Indicators
Labour Productivity =
Output per period
No. of employees at work
This measures the performance of a group of
employees. However it is important to remember
that productivity can also depend upon other factors
such as talents and motivation of the workforce and
capital equipment used.
Key Performance Indicators
Absenteeism = Number of staff absent on 1 day
Total Number of Staff
Absenteeism is a term used to describe a situation
where an employee is absent from work frequently and
without good reason, and therefore is a good indicator
of the levels of morale within the workforce.
High Absenteeism means…….
Low absenteeism means……
Key Performance Indicators
Labour Turnover =
Number of Staff leaving during the year
Average Number of Staff
This ratio measures the proportion of people leaving a business
over a period of time (usually one year).
Poor morale can lead to high labour turnover and this can be
caused by low wages, inadequate training and ineffective
recruitment procedures. This can cost the business a lot of
Businesses require some levels of labour turnover to bring new
ideas into the business.
To identify and define the key terminology
required for the topic
To describe the purpose of operations
managements within business
To explain the utilisation of capacity
To differentiate between economies and
diseconomies of scale
To assess the 4 methods of production
To explain the purpose of lean production
and the impact on effectiveness
The purpose of operations
management is to ensure
that the business provides
the right goods, at the right
time, at the right cost and of
the right quality. Thus
The maximum output which a business can produce at any
moment in time given its resources.
What will this depend on?
How could it increase its capacity?
Capacity utilisation measures the amount it is producing compared
to the amount it could produce.
Capacity utilisation (%) =
Actual level of output
maximum possible output
If firm produces 60,000 in given period and its full capacity would
allow 80,000 items to be produced, what is the capacity
Answer = 75%
why might firms have to produce less
than the maximum capacity level?
How could a firm increase its
What problems could be encountered
if over producing?
Economies of Scale
EoS occur when the cost of producing a
unit falls as output increases.
DoS occur when a business increases its
output and the cost per unit increases too.
Why might diseconomies of scale occur?
What is the difference between internal and
external economies of scale?
When talking about production, it can
be labour intensive or capital intensive.
Refer back to your match it cards and
decide whether the following would be
LI or CI:
Wedding dress maker
Factory making crisps
Activity - Methods of Production
Ramy, Tamara, johny
Sarah, Mariyah, Khalid
Each pair must create a revision sheet for a specific
method, explaining what it is and the advantages and
disadvantages associated with using the particular
Which Production Method?
What would influence the type of production method they use?
Which method to use?
Type of product
Demand for the product
Quality level demanded by the
Size of firm
Availability of technology
Read through the exam pre-release case
study and answer the following:
What is the current method of production at
What capacity is Hoiles currently operating
What are the advantages and disadvantages
of the new production method explained in
Discuss which production method you would
recommend Hoiles to introduce (if need be)?
A collection of techniques designed to
eliminate the amount of ‘waste’ on the shop
floor. This could be wastage of materials,
energy, time, or human effort.
In turn, this reduces costs and improves
efficiency and overall competitiveness
Lean production includes:
Continuous improvement / Kaizen
Just in time stock management
Higher level of
Requires all staff to
May not be able to
Relies on a good
Complete the Kodak case study
on page 273 of textbook.
Pictionary for keywords learnt today