Page 206 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 4 Operations management

Operations management must:

■ use resources in the most cost-eff ective way
■ produce the required output to meet consumer demand
■ meet the quality standard expected by consumers.

ACTIVITY 15.1

Using Figure 15.1 as a template, draw similar diagrams for three different products produced by primary, secondary and

tertiary business activity. You should identify the resources used and the good or service produced.

Difference between production and productivity

KEY TERM It is important not to confuse production with productivity. Production involves
changing inputs into output. It can be measured by the number of units produced
Productivity: a measure of the in a given period of time – this is the level of production. Productivity is a measure

efficiency of inputs used in the of how efficiently the inputs are changed into output, which is the number of units

production process, especially
labour and capital. of output produced for every unit of input.

The productivity of labour (workers) is measured as follows:
Total output
Labour productivity =
Number of production workerrs

Benefits of increasing efficiency and how to increase it
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All businesses will try to increase productivity because this usually reduces average
costs – the cost of producing each unit of output.

How to improve labour productivity
If you look again at the formula for labour productivity above, you will see that if a
business wants to improve its labour productivity it can do this by:

■ increasing output with the same number of workers
■ keeping output at the same level but with fewer workers.

To increase total output with the same number of workers means that, on average,
each worker needs to produce a greater output. That means they must become more

productive. Increasing the productivity of workers could be achieved by:

■ improving the skill level of workers
■ improving the motivation of workers
■ introducing more automation and more or better technology
■ improving the quality of management decisions.

ACTIVITY 15.2

In pairs or small groups discuss:

1 How could a business achieve each of the four ‘improvements’ identified above?
2 Why do larger businesses find it easier to achieve improvements in productivity than smaller businesses?