Productivity, efficiency and lead times

Productivity

Productivity = output per unit of input per time period. The most common measure is labour productivity = output / number of workers (per day, week or year).

Factors affecting productivity: skills and training, motivation, the quality and age of machinery and technology, management and organisation of work, and working conditions.

Ways to improve it: training, investment in technology, better incentives and motivation, improved work layout or methods (such as cell production or kaizen).

Productivity and competitiveness

Higher productivity lowers labour cost per unit (= total labour cost / output, or wage per worker / productivity). Lower unit costs let a business cut prices or earn higher margins, improving competitiveness. But if wages rise faster than productivity, unit labour costs rise. Productivity gains can also be cancelled out if quality falls.

Efficiency

Efficiency means producing at the minimum average cost, using as few resources as possible. Productivity is one part of efficiency; others include reducing waste, using capacity fully, economies of scale, and buying materials well.

Factors: technology, capacity utilisation, inventory control, quality, scale. Ways to improve: lean production, automation, reducing waste, better capacity utilisation, outsourcing non-core work.

Short lead times as a competitive advantage

The lead time (lead-in time) is the time from an idea or order to delivery of the product. Shorter product lead-in times mean a business can launch new products before rivals, respond to changing tastes (fast fashion) and satisfy customers who want quick delivery. They depend on flexible production, good supplier relationships and efficient design processes.

Worked example

A workshop of 12 workers makes 4,800 units a month. After training, the same 12 make 5,600. Each worker costs $3,000 a month. Find the change in productivity and labour cost per unit.

1. Productivity before = 4,800 / 12 = 400 units per worker; after = 5,600 / 12 = 466.7
2. Increase = 16.7%
3. Labour cost per unit before = 36,000 / 4,800 = $7.50; after = 36,000 / 5,600 = $6.43

Answer: Productivity up 16.7%; labour cost per unit falls from $7.50 to $6.43

Check yourself

1. A factory with 25 workers produces 6,000 units per week. Calculate labour productivity per week.
   Show answer

   240 units. 6,000 / 25 = 240 units per worker per week.

2. Labour productivity rises from 240 to 270 units per worker. Calculate the percentage increase.
   Show answer

   12.5 %. (270 - 240) / 240 x 100 = 12.5%.

3. Each of 25 workers is paid $600 a week and they produce 6,000 units. Calculate the labour cost per unit.
   Show answer

   $2.50. Total labour cost 15,000 / 6,000 = $2.50.

4. A worker paid $720 a week produces 160 units a week. Calculate labour cost per unit.
   Show answer

   $4.50. 720 / 160 = $4.50.

5. A firm needs 9,000 units per week. Productivity is 300 units per worker per week. How many workers are needed?
   Show answer

   30 workers. 9,000 / 300 = 30 workers.

6. A business is efficient when it
   • produces the highest possible output regardless of cost
   • employs the most workers
   • charges the highest price
   • produces at the lowest possible average cost
   Show answer

   produces at the lowest possible average cost. Efficiency is about minimising average cost.

7. Wages rise by 6% and labour productivity rises by 10%. Labour cost per unit will
   • rise
   • fall
   • stay the same
   • double
   Show answer

   fall. Output per worker rises faster than the cost of each worker.

8. Explain why a short product lead-in time can give a business a competitive advantage.
   Show answer

   It can launch new products before competitors and respond quickly to changes in consumer tastes, winning sales and market share.. Being first to market and responding fast to tastes wins customers.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Business specification (2018)

Last updated 8 November 2026. Spotted a mistake? Tell us.