Improving efficiency is key to any business especially in tough financial times. Good business managers recognise this; Great business managers address efficiency and make it happen!
Efficiency, productivity and the competition are linked. Improved productivity equals increased efficiency which results in a higher level of competitiveness.
Efficiency and productivity
Efficiency is about using resources to their maximum potential. Efficient companies maximise outputs from given inputs, and so minimise their costs. By addressing efficiency a business can reduce its costs and improve its competitiveness & productivity.
There is a huge difference between production and productivity.
Production is the amount made by a company in a given time frame.
Productivity measures how much each employee makes over a period of time. It is calculated by dividing the total output by the number of workers. If a manufacturing firm employs 50 staff that produces 1000 toys a day, then the productivity of each worker is:
1,000 toys/50 staff = 20 toys
An increase in productivity from 20 toys to 25 toys, without increasing costs, means the company has improved it’s efficiency. The result is lower unit costs and increased profit margins.
Staff productivity depends on their skills, the quality of machines available and management effectiveness. Productivity can be improved through training, investment in equipment/ machines and better staff management. Training and investment cost money in the short term, but can raise long-term productivity.