Efficiency
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, then the productivity of each worker is:
1,000 tables/50 staff = 20 tables
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:
1,000 tables/50 staff = 20 tables
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:
- skills
- quality of machines available
- effective management
- training
- investment in equipment
- better management of staff
- Reducing overheads such as administration, eg 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.