Understanding Productivity, Efficiency, and Inventory Management
Productivity and Efficiency Indicator
The indicator used to measure the efficiency of a company’s productivity is a concept similar to performance and is defined by the ratio of production during a period and the factors used to obtain them.
Productivity = Output Obtained / Factors Used
As we refer to a particular factor or all factors, there are two types of productivity indicators:
- Productivity of a factor: Relates the yield obtained with one factor, usually labor.
PT = Production Achieved / Factors Used
- Overall productivity of the company (PG): Production associated with all of the factors used to obtain them.
PG = Value of Production / Cost of Factors Used
The Causes of Productivity Growth
The determinants of productivity are several:
– Investment in capital assets used to produce, which are the productive capital of the company. If the employees of an enterprise have better tools and other equipment, they may do their job better and faster, and productivity will be higher.
– Improving human capital, i.e., the knowledge and skills acquired by workers through education, training, and experience. The training, skills, and experience of labor increase their capacity to produce goods and services.
– Technological change: The third determinant of productivity is the progress of technological knowledge. Technological improvements translate into better products, better ways of producing goods, and better ways of organizing production, quality management resources. Resources, both physical and human, for very good and plentiful as they are, should be organized and managed efficiently. Good management starts with the selection process of human resources and continues with motivation and communication, improving incentives…
Business Inventories
Companies need to provide all the necessary elements for the continued development of productive activity.
The stock or number of units, materials, and items for sale that a company has stored at all times is called inventory. Types of inventories:
- A stock of materials stored.
- A stock of products during manufacturing.
- A stock of finished products.
Inventory Costs
Inventories are needed in all companies but generate costs that should be analyzed before deciding its optimal size:
– Cost of maintenance, storage, or inventory: Increases the higher the average level of inventory levels throughout the year. As the growing level of stocks are higher, capital costs, rental costs, etc. increase.
– Re-stocking cost or ordering: Includes all costs to make a request: administration, transportation, insurance of goods, unloading, etc.
– Cost breakdown of inventories: The rupture occurs when the production or sales have to stop for lack of inventory in stock. When this break affects the finished goods warehouse, the company cannot meet customer demand, resulting in lost sales and damage to the company’s image.
The Market and Demand
From a marketing point of view, the market is defined as the set of consumers who share a need, who are willing to meet it, and have the financial capacity to do so.
Market Classes
1) For the degree of competition, markets may be of perfect competition or imperfect competition.
2) Depending on the possibilities of market expansion, we can distinguish:
- Current Market: Formed by existing consumers at the time the analysis is performed.
- Potential Market: The sum of current consumers who might become one with a policy of effective marketing.
- Market Trend: Refers to future market developments, regardless of the actions of companies. According to the trend, markets may be growing, stagnant, or declining.
3) For the reason of purchase, we can distinguish:
- Consumer Markets: In which goods and services are directly engaged to meet the needs of families.
- Industrial Markets: In which supply and demand are companies or organizations exchanging goods for other goods.