What efficiency means in production
- Efficiency means getting a given amount of output from as few resources as possible, so very little of what the business pays for is wasted.
- A more efficient factory turns the same workers, machines, materials and floor space into more finished goods.
- That matters because the money already spent on wages, rent and machinery is then carried by more units, so the cost of each unit falls.
- AQA names two ways of raising efficiency in production: lean production, and just in time as one of the techniques inside it.
Lean production
Definition
Lean production
An approach to operations that cuts waste of every kind, so the same output is produced using fewer resources.
- Lean production starts by looking at every step in the process and asking whether that step adds anything the customer would pay for.
- Steps that add nothing are redesigned or removed, and the workers who do the job are usually the ones who spot them.
- It is a continuous habit rather than a one-off project, so small improvements are made week after week.
Common Mistake
- Lean production does not mean cutting jobs, and it does not mean cutting the quality or the features customers are paying for.
- It means removing the waste inside the process, so the same staff produce more with less scrap, less waiting and less walking about.
The waste lean production removes
- Wasted time: workers and machines standing idle while they wait for parts, instructions or a slower stage to catch up.
- Wasted materials: offcuts, spillage, and faulty units that have to be scrapped or reworked, all of which were bought and paid for.
- Wasted space: floor space and warehousing filled with stock and half-finished work, which the business is paying rent, heating and insurance on.
- Wasted movement: parts and people travelling further than they need to, because machines and benches are laid out in the wrong order.
- Wasted effort: checks, forms and handling repeated at more than one stage, and making more units than there are orders for.
Example
- A Greggs shop that moves the ovens, trays and till into the order the work actually flows cuts the steps each member of staff walks in a shift.
- The same staff serve more customers per hour, so the wage cost carried by each sandwich falls.
How less waste lowers the unit cost
- Waste is money the business has already spent and will get nothing back for, so removing it lowers total costs while output stays the same.
- The cost of each unit is the total cost spread across the units made, so a lower total cost across the same output gives a lower unit cost.
Example
average unit cost=total costoutput
\text{average unit cost} = \frac{\text{total cost}}{\text{output}}
average unit cost=outputtotal cost
- A Warburtons bakery makes 10,000 loaves a week at a total cost of £12,000.
- Cutting scrapped dough and idle oven time takes the weekly cost to £10,800 for the same 10,000 loaves.
- Each loaf now costs 12p less to make, which the bakery can take as extra profit on every loaf or use to undercut a rival's price.
- A lower unit cost also gives room to survive a fall in the selling price, because there is more distance between the cost of a unit and its price.
Just in time
Definition
Just in time (JIT)
A way of managing stock in which materials arrive from suppliers just as they are needed, so the business holds almost none.
- JIT raises efficiency by removing the wasted space and the cash tied up in a warehouse full of stock waiting to be used.
- It also exposes waste elsewhere, because with no spare stock to hide behind, a faulty batch or a slow stage stops the line and has to be put right rather than worked around.
Note
Just in time, just in case and the trade-off between them are taught in full in the article on just in time and just in case.
Exam technique
Name the waste you are removing, whether it is wasted time, materials, space, movement or effort, instead of writing generally about being more efficient.
Self review
- What does it mean to say a business is efficient?
- Name four kinds of waste lean production sets out to remove.
- Why does removing waste lower the cost of each unit?
- Why is lean production not the same as cutting jobs?
- How does just in time raise efficiency?
