Efficiency  Kaizen/ continuous improvement
The 3 main measures of efficiency of a business are productivity, average unit
cost and quality.
1. Productivity
It is the measure of efficiency with which the amount of output produced per unit
of an output or resources over a given time. Productivity is usually measured in
terms of output per unit of labour or per item of machinery.
For example:
If a factory employing 100 workers, produces 1000,000 screws a year, the
productivity per employ is (1000, 000/100 = 1000 screws)
2. Average cost per unit
Average cost = total cost/ number of units produced
A rising average costs may indicate falling efficiency. It will also probably means
falling profits.
3. Quality
To improve the efficiency quality must be controlled and managed well in all
areas of the firm.
HOW CAN EFFICIENCY BE IMPROVED
 Lean production (TQM, JIT, kaizen or continuous improvement)
 Quality control
 Team working/ cell production
 Automation and use of advanced new technology
LEAN PRODUCTION
Lean production is an approach to production and management of resources
developed in Japan. Lean production involves producing goods and services while
stripping out waste. The aim is to reduce the quantity of resources used up in the
production. Lean producers use less of everything, including factory space,
materials, stock supplies, labours, capital and time. It also reduces defective
products and cut down lead times. Thus, lean production raises productivity and
reduces the costs.
Techniques of lean production include:
 Total quality management (TQM)
 Just in time (JIT)
TOTAL QUALITY MANAGEMENT (TQM)
 TQM is a method designed to create a quality culture in all the areas of
the business. TQM involves everyone in the business, not just production
operatives checking the quality of their work.
 Raw materials, parts and components are checked for quality when they
are received, before they are used and products are checked at each stage
of the production process.
 Customer service and satisfaction is checked
 Even the administration area is also monitored and checked for the quality
BENEFITS OF TQM
 Focus clearly on the needs of customers and the relationship between
suppliers and customers.
 Achieve quality in all aspects of business, not just product or services
quality
 Critically analyses all process to remove waste and inefficiencies
 Find improvement and develop measures of performance
 Develop a team approach to problem solving.
PROBLEMS OF TQM
 Training and development costs of the new system
 TQM will only work if there is commitment from the entire business
 There will be great deal of bureaucracy and documents and regular audits
are needed. This may be problem for small firms.
 Stress is placed on the process and not the product.
JUST IN TIME (JIT)
 JIT production involves organizing production from raw materials to
finished products so that each stage of the production process is
completed ‘just in time’ for the next stage and ultimately the finished
product is completed ‘just in time’ to be delivered to the consumer.
 JIT aims to minimize the cost of holding unnecessary stock of raw
materials, components, work-in-progress and finished products.
 It relies on daily or hourly deliveries from trusted suppliers. Here the
principle is production cycle will start once a customer places an order.
 BENEFITS OF JIT

 It improves cash flow since money is not tied up in stocks

 The system reduces waste, obsolete and damaged products
 More factory space is made available for productive use.
 The stock of holding stocks are significantly reduced
 Locks with and the control of the suppliers are improved.
 More scope of integration within the factory
 The motivation of the workers are improved

DRAWBACKS OF JIT

 A lot of faith is placed in the reliability and flexibility of suppliers

 Increased ordering and administrative costs
 Advantages of bulk buying may be lost
 Difficult to cope with sharp increase in demand
 Possible loss of reputation if customers are let down by late deliveries

KAIZEN (CONTINUOUS IMPROVEMENT)

 Kaizen or continuous improvement is an attitude that must exist

throughout the organization.
 It suggests that businesses should keep continually improving their
performance, their production and their status in order to achieve its
objectives.
 It is based on continuously looking out for small improvements that can
be made, while each improvement may be minor and therefore
inexpensive, their cumulative effect can be powerful.
 Most kaizen improvements are based around people and their ideas rather
than investment in new technology.
 Components of kaizen includes:
- Employees 2 job- doing the job and then looking for ways of
improvement.
- They should work as a team ( team working)
- Give empowerment to employees
- Set performance targets and then monitor the achievements