Cost effectiveness One of the main ways a business can become cost effective and therefore competitive to have reduced variable costs. Firms can use cheaper materials or they can become as efficient as possible by raising productivity

Productivity The amount that can be produced with the resources available. Its all about reducing costs per item produced LABOUR PRODUCTIVITY = TOTAL OUTPUT NUMBER OF WORKERS

EXAMPLE In 2009, 100 workers produce 500 t-shirts per hour Productivity: 500/100 = 5 t-shirts per worker per hour In 2010 the same workers produce 600 t-shirts per hour Productivity: 600/100 = 6 t-shirts per hour WHICH IS BEST FOR THE BUSINESS? WHICH YEAR HAS THE LOWEST PRODUCTION COSTS?

WAYS OF INCREASING PRODUCTIVITY TRAINING Expensive at first but can increase skills and speed of workers, they make less mistakes and therefore less wastage and more produced per worker BETTER EQUIPMENT Can reduce time to undertake tasks, fewer staff needed can reduce costs MORE EFFECTIVE WORK PRACTICES Can reduce waste and find more efficient ways of production

REMEMBER…………. Increasing productivity is not achieved by taking on more staff, it is achieved by getting staff to produce more in the time given. You can of course take on more staff, this will allow you to produce more BUT that does not mean that the productivity per person increases.

OTHER METHODS OF REDUCING COSTS

WAYS OF REDUCING COSTS METHODPROBLEM? Buy cheaper raw materialsAlthough variable costs are reduced, they might be of lower quality and dissatisfy customers Relocation to a cheaper site Fixed costs reduced, but is this convenient for customers? Cutting overhead costs – eg. Staff wages, power Could effect staff motivation, may inmpact on ability to met customer needs