Production efficiency: concepts, indicators, ways and factors of improvement

At all stages of historical development, society has always been interested in the question: at what cost the final production result is achieved. We found the answer to this question in terms of the efficiency of production, the efficiency of social production.

In modern conditions, the efficiency of foreign economic relations and the world economy is becoming increasingly important, which turns efficiency into an international category. Therefore, taking into account the structure of international relations, it is necessary to distinguish between national and international efficiency.

Economic efficiency is the achievement of the greatest results at the lowest cost per unit of production. It occupies an important place in the economy of economic systems, is a criterion for the feasibility of creating new industries and enterprises, reconstructing existing companies, developing and applying new equipment, measures to improve the organization of production, labor and management. In the most general form under the Production efficiency is understood as the ratio of results and costs that have been made to achieve these results. If this ratio is determined at the level of macroeconomics, then it will characterize the efficiency of social production, but if the definition is carried out at the level of microeconomics, then we are talking about the efficiency of production. In this case, it is necessary to distinguish between general and specific indicators. In turn, particular indicators are classified into forward and reverse.

To characterize the efficiency of production, a number of specific indicators are used, with the help of which the effectiveness of the use of certain types of resources is measured, among which the following should be highlighted:

1. Labor productivity = result / cost of living labor (this is a direct indicator)

The inverse value is the labor intensity of the product:

Labor intensity = time required / result

2. Material return = result / material costs

The inverse of this quantity is the material intensity:

Material intensity = material costs / result

3. Return on fund = result / funds used (capital)

Inverse value – Capital intensity = value of used fixed assets / result.

Both at the micro and macro levels, indicators of capital return (capital intensity) are of particular importance, since it is important not only to have production potential, but also to use it effectively. In recent years, the issue of material and energy intensity has become crucial in connection with inflation.

The overall aggregate  indicator of production efficiency is the rate of profit and the level of profitability. Profit in market conditions is the main goal of entrepreneurship and the criterion of production efficiency. Among the many indicators of profitability should be highlighted: 1) profitability of products, which is determined by the ratio of net profit to the cost of production and 2) profitability of production, which is determined by the ratio of net profit to the value of fixed production assets or to the cost of capital of the enterprise.

Labor productivity, product quality, its material intensity and capital intensity are the main components of production efficiency. In the conditions of fierce competition in assessing the efficiency of production, the importance of competitiveness increases, which is determined by a number of indicators, among which a special place is occupied by the price and quality of products. In this regard , both at the micro level and at the macro level, an important indicator of production efficiency is the improvement of product quality. But at certain stages and in certain specific situations, the dynamics of certain components of efficiency and its general orientation may be different. Thus, improving the quality of products is often associated with the use of more expensive materials, an increase in labor costs per unit of production.

Reduction of living labor costs and current material costs in many cases is achieved by large investments in fixed assets and may be accompanied by a drop in capital return, etc. Therefore, it is impossible to limit oneself to the use of certain indicators of production efficiency. We need a general, integral indicator. It can be expressed, for example, by the profitability of products, which can be determined by the following formula:

EP = PE/(T+M+UV),

where EP is the efficiency of production;

PE is a pure product, taking into account its composition and quality;

T — the cost of living labor;

M — current costs of materialized labor;

F — one-time investments in production assets;

Y is the coefficient of bringing to a single dimension, which allows you to sum up costs and investments.

In a market economy, this ratio takes, first of all, a monetary expression. The transition to market relations and economic management methods enhances the impact on increasing the economic efficiency of such levers and incentives as economic standards, the ratio of supply, demand and price, credit, and the taxation system.

Social efficiency is the correspondence of the results of economic activity to the social goals of society. It expresses the degree of satisfaction of the totality of needs. When characterizing socio-economic efficiency at the societal level, attention should be paid to the concept of “Pareto efficiency”, widely used in western economic literature. The Italian economist and sociologist V. Pareto defined efficiency as a state in which it is impossible to increase the degree of satisfaction of the needs of at least one person without worsening the position of another member of society. The optimum of Pareto efficiency is achieved when changes in production do not cause a deterioration in the situation of at least one person, but improve the situation of all members of society.

Social efficiency is associated with the standard of living of the population, the content and working conditions, the state of the human environment, the scale of free time. It involves strengthening the social orientation of economic growth. It is unacceptable to increase the scale of production due to the deterioration of working conditions, damage to the environment, and a decrease in other indicators of human life.

Economic and social efficiency are inextricably linked. The growth of economic efficiency serves as the basis for achieving high social results. In turn, without social achievements, it is impossible to solve economic problems. The degree of resolution of social problems (attitude to labor, moral climate, etc.) often has a decisive effect on the dynamics of economic efficiency of production.

The efficiency of production is also reflected in the achievement of the correspondence of its results to social needs. We are talking about the main macroeconomic proportion – the equality of aggregate demand and aggregate supply.

In the context of the transition to a market economy, the relationship of economic performance indicators with social ones increases. The higher the economic results, the higher the social ones should be, and vice versa. Social results are expressed by the following indicators:

raising the standard of living – the growth of wages, real incomes, housing, the level of medical care, the general educational and professional level of workers; the scale of free time and the rationality of its use; working conditions – reduction of injuries, staff turnover, employment of the population; the state of ecology and the impact of production on the environmental situation in the country (region).

There are the following ways to increase the efficiency of social production:

mastering the achievements of the newest stage of the scientific and technological revolution and improving on this basis the means of production, increasing their returns; implementation of forms and methods of scientific organization of labor at enterprises (advanced training of employees, improvement of division and cooperation of labor, rationalization of labor processes, standardization of labor); introduction of a rational system of specialization and co-operation of production; development of initiative and independence of labor collectives; implementation of structural and organizational restructuring of the national economy; improvement of the economic mechanism, system and methods of management; improving labor incentives, strengthening labor motivation, strengthening labor and technological discipline; taking advantage of the international division of labor.

There are the following factors that improve production efficiency:

scientific and technical (acceleration of NTP, automation, robotization, application of resource-saving technologies); organizational and economic (specialization and cooperation of production, rational distribution of productive forces, economic methods of managing economic activity); socio-psychological (humanization of production, educational and professional level of personnel, formation of a certain style of economic thinking); foreign economic (international division of labor, mutual assistance and cooperation of countries).