Efficiency and Competitiveness using Lean Production
Efficiency and Competitiveness using Lean Production
Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes
Quality
Lean Production – keeping wastage to a minimal during the different stages of the production process, with the intention to reduce costs. It aims to meet customer demand and do things right the first time round to increase efficiency and reduce wastage
Quality Control
- This involves checking products during and after the production process to ensure they meet a minimum standard
Quality Assurance
- The commitment between the design, production and marketing sections of a production process
- Aims to improve the quality and reliability of the product
- At each stage of the production process, the quality is checked
Total Quality Management
- Creates a responsibility for good quality during the stages of the production process
- Each team carries the responsibility of ensuring the product is of good quality
- The final customer determines the quality of the product
Continuous Improvement (Kaizen)
- Kaizen – is a Japanese word which means ‘continuous improvement’
The process of introducing small changes into a business in order to improve quality and efficiency, with the emphasis of getting things right the first time round
Small improvements are unlikely to need major capital investment and therefore can contribute towards a leaner production by reducing waste & increasing productivity
Employees are also encouraged to take accountability and responsibility of their work, as well as contribute any new ideas on how to improve the work
Just in Time Management of Stock
- This applies lean production to the management of stock by reordering small quantities of stock so that less stock is held
- It ensures inputs are only inserted into the production process when they are needed, based upon consumer demand – reducing the costs of holding stock
Advantages
- The costs of holding stock, rent and insurance will fall due to less stock
- Less stock is likely to perish
- Firms have more time available to ensure the work is done efficiently instead of checking the production
- Firms allocate less working capital to stock
Disadvantages
- Firm will rely heavily on its suppliers – there could be a delay in the production process if the supplier does not deliver the stock on time
- Amount of stock is kept to a minimum so firms cannot afford to make mistakes
- Firms may need to implement complex stock systems – could be expensive or time consuming
Competitive Advantage from lean production
- Firms can charge consumers with lower prices as they incur lower costs – this could increase sales and allow them to spend more on investment or R&D
- More consumers are satisfied as quality improves – if consumers increase their loyalty to the brand, demand can become income inelastic
- Workers may feel more motivated
Quick Fire Quiz – Knowledge Check
1. Explain what is meant by ‘Lean Production’ (2 marks)
2. Explain how the quality of a production is maintained during lean production (6 marks)
3. Explain Kaizen’s theory of continuous improvement (6 marks)
4. Explain what Just in Time Management of Stock is (4 marks)
5. Explain the advantages of Just in Time Management of Stock (4 marks)
6. Explain the disadvantages of Just in Time Management of Stock (4 marks)
Next Revision Topics
- Efficiency
- Capital Utilisation
- How the digital economy affects markets and firms
- Research & Development and Innovation
- The dynamics of competition and competitive market processes
- Technological Change
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