How can a business raise efficiency and manage its capacity?
Ways to improve efficiency and labour productivity, lean production and waste minimisation, the meaning and management of capacity, capacity utilisation issues, and the choice between capital and labour intensity.
A focused answer to AQA A-Level Business 3.4, covering ways to improve efficiency and labour productivity, lean production and waste minimisation, the meaning and management of capacity, capacity utilisation issues, and the choice between capital and labour intensity.
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What this dot point is asking
AQA wants you to explain how a business raises efficiency and labour productivity, the role of lean production and waste minimisation, the meaning and management of capacity, capacity utilisation issues, and the choice between capital and labour intensity. Questions are usually analytical or evaluative on a named operation.
Improving efficiency and productivity
Efficiency is about getting more output from the same inputs, lowering unit costs. The main levers are training (faster, more accurate work), technology and better equipment (automation, faster machines), motivation (engaged staff work harder, drawing on the motivation theories), and improved organisation of work (better layout and methods). Each must be weighed against its cost and its effect on quality and morale: cutting too hard can raise errors and lower productivity.
Lean production and waste minimisation
Lean lowers costs, frees up cash tied in stock, and engages workers in improvement, but it leaves little slack, so a disruption can stop production quickly.
Capacity and capacity utilisation
Firms manage capacity by flexing output to demand: subcontracting or hiring temporary staff to handle a peak, or rationalising (cutting capacity) to deal with persistent spare capacity.
Capital versus labour intensity
A capital-intensive operation relies mainly on machinery and automation: high fixed costs but low unit costs at volume, consistent quality and high output, suiting standardised mass production. A labour-intensive operation relies mainly on people: lower fixed costs and more flexibility, suiting bespoke or service work, but variable quality and higher unit costs at scale. The right balance depends on the product, the volume and the importance of flexibility.
Exam-style practice questions
Practice questions written in the style of AQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
AQA 20209 marksAnalyse the benefits to a car manufacturer of adopting lean production techniques. (9 marks)Show worked answer →
Lean production aims to cut waste in all its forms while maintaining quality, using techniques such as just-in-time, kaizen (continuous improvement) and cell production.
Benefits: less waste of materials, time, stock and movement lowers costs and so unit costs, improving competitiveness or margins; just-in-time cuts the cash and space tied up in inventory; kaizen draws on workers' ideas, which can improve quality and motivation (Herzberg's involvement); and faster, smoother flow shortens lead times. For a car maker producing high volumes, even small per-unit savings scale into large gains.
Balance: lean leaves little slack, so a supply disruption or breakdown can halt the whole line, and the change requires investment and a cultural shift. Judgement: for a high-volume manufacturer in a competitive market, lean is usually worthwhile if supply is reliable. Markers reward developed, applied benefits (cost, stock, quality, lead time) plus a limitation and a judgement.
AQA 20186 marksExplain one way a business could improve its labour productivity. (6 marks)Show worked answer →
Labour productivity is output per worker, so improving it means each worker produces more.
One way is investing in training: better-trained staff work faster, make fewer errors and use equipment more effectively, raising output per worker. This lowers the labour cost per unit and so unit costs, improving competitiveness, and the development opportunity can also raise motivation and retention. (Other valid ways: better technology or equipment, improved motivation, and better organisation of work.) The cost and time of training is a fair caveat. Markers reward identifying one method and explaining the chain from it to higher output per worker and lower unit cost, ideally in context.
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Sources & how we know this
- AQA A-level Business (7132) specification — AQA (2015)