Resource Management


Production, Productivity and Efficiency

  • Effective resource management - organising prodution in a way that gets the maximum value from the resources. 
  • So it can be about

- Making sure that capital equipment and employees' time are not wasted.

- Using good quality inputs.

- Making sure that the procust is fit for purpose, reliable and exactly right for the target market.

  • It is about being as efficient as possible
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  • Using resources in such a way that production coasts are kept as low as possible.
  • It is about getting the maximum output from the minimum input
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Methods of Production

  • One way to ensure that the prodcution process is efficient - use all the inputs in the most economical way.
  • Labour and capital equipment are used to process raw matierials and components, to create a finished product ready for the customer (who may be an individual consumer or another business) 
  • Job, batch, flow and cell production are different ways of producing.
  • The most efficient method chosen will depend on the type of product, the amount required and the unit cost of each production process for the item in question.
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Job Production

  • Means producing one single item at a time.
  • Artists do this - each picture unique.
  • Often involves making things to order.
  • Works well for products with individual specifications.
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Batch Production

  • About a medium sized product run.
  • Usually partly mechanised.
  • Capable of producing relatively cheaply.
  • Printers use batch production - printing certain number of newspapers, then resetting machines to produce a batch of another title.
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Flow Production

  • Imagine a continuous car production or an assembly line, producing for a mass market.
  • Maybe in shifts working day and night, producing the same vehicle all the time.
  • Each employee does one thing as the car goes past and the next person on the line adds another component.
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Cell Production

  • Means each cell will be team working.
  • All members of the team will be multi-skilled and able to do a range of jobs. 
  • Individual products do not need to be identical.
  • Works well for car companies that takes orders for refinements and use computer aided manufacturing (CAM).
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Objectives and Production Methods

  • Objective: Minimising cost for a standardised product selling in a mass market.
  • Choosing Right Production Method: Mass production usually requires flow production, although batch production may work in some cases.
  • Objective: Being flexible - adapting to changes in markets that do not require continuous production of a single product.
  • Choosing Right Production Method: Flexibility is easier with batch production - the equipment can be re-set to make a slightly different product. Products can be altered to reflect new customer preferences.
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Objectives and Production Methods

  • Objective: Catering for niche markets 
  • Choosing Right Production Method: Short production runs for small markets often work with batch production.
  • Objective: Producing to order
  • Choosing Right Production Method: Job production works for large or costly products. Cell prodcution works for a basic product with many small variations added to order, or if flow production demotivates the workforce. 
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  • Output per unit of input per time period.
  • Provides vital information for businesses and decision-takers and how effectively their production processes are working.
  • e.g. when investing in new software, labour productivity before and after can be compared and this will provide useful information for future planning.
  • Productivity = measures of how efficiently resources are actually being used, by looking at output per unit of input over a given time period, e.g. hourly ouput per person employed.
  • Capital productivity can also be measured.
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Ways of Increasing Productivity

  • Amount of capital used
  • Capital means tools and machines.
  • They enable labour to be more efficient and productive.
  • Investing in more capital equipment should increase productivity.
  • Technology
  • Improvements in technology yield improvements in productivity and reduce unit costs.
  • May require spending more on research and development (R&D)
  • New production methods and new discoveries can increase productivity.
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Ways of Increasing Productivity

  • Human Capital
  • Refers to the skills and abilities of the workforce.
  • There is a direct correlation between the skills and the abilities of the workforce and the output yielded.
  • This is why money is invested in education and training.
  • Organising Resources More Efficiently
  • Careful consideration of the way the business is run can increase efficiency without adding more machines or labour.
  • This might mean addressing motivation issues or the way components are sorted; there will be a whole range of possibilities. 
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Productivity and Competitiveness

  • Rising productivity almost always leads to falling production costs. 
  • If the business needs to compete on a price, it can reduce prices and sell more, increasing sales revenue and achieving a competitive advantage.
  • Alternatively, if the business needs to compete on quality or reliability, it can keep prices the same and increase profit margins.
  • If it ploughs some profit back into the business by investing in new technologies or doing more R&D of its own, it can enhance the attractiveness of its products.
  • Either way, raising productivity creates competitive advantage.
  • Increasing productivity often makes it possible to increase pay. This itself may have motivational effects that go on to increase productivity further, or it may create possibilities to recruit more skilled employees and a kind of virtuous circle.
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Efficiency - and how it can increase

  • About getting the most out of resource inputs.
  • Means using resources in the most productive possible way.
  • Businesses require:
  • High quality resources that can deliver the product at the lowest possible cost, including highly capable labour and innovative capital equipment.
  • The right location, the best technologies and appropriate training (to improve human capital).
  • Being efficient means producing at the minimum average cost.
  • This is the lowest cost that can be acheived with the technologies, education and training that are available.
  • So we have to look at all the factors that determine the ability of businesses to mobilise the necessary resources and employ them in the most efficient way. 
  • Business can not be fuly efficient until it has reached the minimum efficient scale.
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Factors Influencing Efficiency

  • New technologies lead to new and improved products. 
  • They also open up opportinities for making the production process more efficient.
  • This is called process innovation.
  • Process innovation = using new technologies to improve production methods, so that costs are reduced. It can apply to services as well as goods.
  • Technological change means that managers have to keep up to date, knowing about recent developments that might be of use to them.
  • Process innovation occurs when businesses find new, better and cheaper ways to produce.
  • New technologies are introduced - New processes use more capital equipment - Productivity rises - Costs fall - Prices fall - Sales increases.
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Developing the Labour Force Makes Everyone More Pr

  • Human Capital = the knowledge and skills aquired by individuals - the more education and training they get, the more human capital they have.
  • Multi-skilling increases human capital. 
  • Many businesses now expect employees to grasp opportunities for life-time learning, acquiring new skills and refreshing existing ones.
  • Investment in training helps to increase productivity.
  • A flexible labour force can adapt to change with a minimum of lost time.
  • Capital investment = raises labour productivity and often cuts costs. Many businesses have increased their efficiency this way. Another aspect of process innovation. Becomes possible to increase the supply of consumer goods while using the same amoung of labour (or less)
  • A flexible labour force can adapt to change with a minimum of lost time.
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Capital Investment and Outsourcing

  • Capital Investment = Raises labour porductivity and often cuts costs. 
  • Many businesses have increased their efficiency this way.
  • Another aspect of process innovation.
  • Becomes possible to increase the supply of consumer good while using the same amount of labour (or less).
  • Outsourcing helps a business increase efficiency.
  • Means that the business buys some inputs from other businesses, rather than using its own employees to do the work. 
  • Can also mean building a factory or facility in another country with lower labour costs (offshoring).
  • Supplier business may have specialised so that its average costs are lower. 
  • May apply to part of the production process or to the business services such as accounting or payroll services.
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Supply Chain

  • Many businesses develop this.
  • May involve a network of suppliers at every stage of production and distribution. 
  • With businesses depending on suppliers rather than producing all their own inputs from within.
  • Typically a business will look for the cheapest available source of inputs, which may be in another country.
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Distinction Between Labour and Capital Intensive P

  • Production process requires both labour and capital.
  • Sometimes there is a choice as to how much capital or labour to use.
  • Capital Intensive Production = using large amounts of capital and relatively little labour.
  • Labour Intensive Production = using large amounts of labour and relatively little capital.
  • The more advanced the economy is, the more capital intensive it becomes. 
  • As wages rise, it pays to subsitute capital for labour.
  • Capital or Labour Intensive?

- Nature of the Product

- Relative Cost of Labour vs. Capital

- Size of the Business

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Labour or Capital Intensive Production?

  • Three main factors influencing whether a business should be capital or labour intensive.
  • The nature of the product itself: mass market goods with high demand are produced on a large scale using automated machinery and capital intensive processes.
  • Many service sector activites are more labour intensive, such as health care, although it is becoming a little less so as more use is made of capital equipment such as scanners.
  • The relative cost of labour vs capital: in developing economies where labour is cheap, industries such as mining and agriculture rely on labour intensive production methods because automated methods are too expensive.
  • In developed economies it is the other way round: in the UK the number of people employed in agriculture is the a third of the total fifty years ago.
  • The size of the business: small scale enterprises tend to be more labour intensive than bigger ones. As they grow, they can buy expensive machinery and equipment, cutting costs and using less labour.
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Capacity Utilisation

  • Shows how much of a company's resources are actually in use. 
  • If all available resources, all labour, machinery and space, are in use at any one time, the business cannot produce any more output and is said to be at 100% capacity utiliastion.
  • Capacity Utilisation = what proportion or percentage of the theoretical maximum possible output is acutally produced.
  • Formula (%) = current output divided by maximum possible output x 100.
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Implications of Under-Utilisation

  • Under-utilisation of capacity = means that some resources are not being used and production is not as high as it should be.
  • Inefficient because the business is not getting the full use or maximum potential output from its resources.
  • Average total costs increase because the total fixed costs are spread over a lower level of output.
  • BUT... having some under-utilised capacity can be a good thing.
  • It gives the business a degree of flexibility.
  • Can be especially useful if last minute orders arrive as new customers will not be kept waiting.
  • Machinery sometimes breaks down; if there is a spare machine production can continue while it is repaired.
  • The same applies to maintenance and servicing of equipment.
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Over-Utilisation of Capacity

  • Means that the business is trying to produce more than its capital equipment was designed for.
  • Taking on potentially lucrative new orders is not possible and new customers may not be prepared to wait. 
  • There is no "down-time" in which to service machinery.
  • Staff absence can slow production.
  • Quality may suffer if the whole business is working flat out.
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So Which is Best?

  • A capacity utilisation level of arounf 90-95% is probably ideal.
  • Although it depends on the business concerned.
  • This makes good use of most of the capacity but allows for unexpected orders, problems or increases in demand.
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Capacity Utilisation can be Increased by

  • Improving marketing so as to increase sales.
  • Diversifying into new markets.
  • Adding a new product line to the range.
  • Taking on production for another business that have over-utilised capacity or want to offer own-brand lines that are very similar to the existing product.
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If Capacity is Over-Utilised

  • There are ways a business can increase output even if they are working at 100% capacity.
  • If the need to increase production is temporary...
  • Staff could work more shifts, come in at weekends or during holidays.
  • Some production could be sub-contracted out, i.e. be undertaken by a similar company.
  • Temporary or part-time staff may be taken on.
  • If the need to increase production is long term, the business can...
  • Invest in more capacity, extend the premises and/or buy more machinery.
  • Sub-contract or outsource some production.
  • Recruit more full-time staff.
  • Work on improving productivity - rationalisation, re-organisation, staff motivation.
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