business (chapter 5)

economies of scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

diseconomies of scale

The phenomenon where the cost per unit increases as production scales up, often due to inefficiencies, management challenges, or resource constraints that arise from operating at a larger scale.

internal economies of scale

Cost savings that result from improvements in operational efficiency, specialization, or reduced input costs as a firm increases production internally.

types of internal economies of scale

purchasing economies: reductions in costs per unit achieved through bulk buying of materials and supplies.

marketing economies: reductions in costs achieved through spreading advertising and promotional expenses over a larger sales volume.

technical economies: savings that arise from using advanced machinery or technology to produce goods more efficiently.

managerial economies: cost savings generated by employing specialized managers who enhance productivity and operational efficiency.

types of external economies of scale

skilled labor: cost advantages gained from a large pool of skilled workers available in the region, attracting firms to local economies.

infrastructure: Cost benefits arising from well-developed transportation, communication, and utility systems that reduce operational costs for businesses.

cooperation: Collaboration between firms or industries that leads to shared resources and reduced costs, enhancing the overall efficiency of businesses in the area.

why might diseconomies of scale happen

bureaucracy: increases in administrative processes and layers that slow decision-making and increase costs.

labor relations: deterioration in employee relations leading to lower morale, productivity, and higher turnover, ultimately increasing labor costs.

control and coordination: difficulties in managing larger operations, causing inefficiencies and miscommunication among departments.

other limits to growth

lack of finance: insufficient capital or funding which restricts a company's ability to expand operations or invest in new projects.

nature of the market: The characteristics and dynamics of the market that can limit a firm's growth potential, such as competition levels, customer preferences, and market saturation.

lack of motivation: insufficient drive or desire among employees or management to pursue growth opportunities, which can hinder innovation and progress.

batch production

A method of manufacturing where goods are produced in groups or "batches" instead of in a continuous stream, allowing for more flexibility in production and customization.

job production

A manufacturing method where products are made individually to meet specific customer requirements, emphasizing customization and quality over quantity.

flow production

A manufacturing process that produces goods in a continuous flow, often using assembly lines, to achieve high efficiency and large quantities of standardized products.

labor-intensive production

A production method that relies heavily on human labor rather than automated machinery or technology, often leading to higher employment but potentially lower efficiency.

capital-intensive production

A production method that relies heavily on machinery and technology rather than human labor, leading to high efficiency and output while reducing labor costs.

impacts of using different types of production

job production: A production method that creates unique, custom products typically tailored to individual customer specifications, often resulting in higher costs and lower output.

batch production: A production process that creates goods in groups or batches, allowing for more flexibility and variation in products, but generally at a higher cost and lower speed than flow production.

flow production: A method that continuously produces identical products, maximizing efficiency and minimizing production time.

productivity

The measure of the efficiency of production, typically calculated as the ratio of output to input. Higher productivity indicates that more goods are produced with the same amount of resources.

how can labor productivity be increased

Labor productivity can be increased through various means such as investing in employee training, improving workplace conditions, implementing better technology, and optimizing production processes to enhance efficiency.

the impact on business of productivity improvements

financial impact: Increased profits, reduced costs, and enhanced competitiveness in the market. Productivity improvements can lead to higher output with the same or reduced input, resulting in better financial performance.

competitiveness: A business's ability to offer products or services more effectively than its rivals, often enhanced by improved productivity, leading to greater market share and customer loyalty.

customers: Improved satisfaction and loyalty due to better quality products and services, faster delivery, and often lower prices resulting from increased efficiency.

workforce: Enhanced skills and morale due to training and streamlined processes, leading to higher engagement and retention.

lean production

A systematic method for waste minimization within a manufacturing system without sacrificing productivity, focusing on value creation and improved efficiency.

just-in-time production

A management strategy that aligns production closely with demand, minimizing inventory levels and reducing waste, thus enhancing efficiency and responsiveness.

advantages of just-in-time production

cashflow is increased, space is released, no stock holding costs, stronger links with suppliers, and improved flexibility in meeting customer demand.

disadvantages of just-in-time production

Higher ordering and administration costs, Relies hugely on suppliers’ reliability, Advantages of bulk-buying may be lost, Hard to cope with changes in demand, Vulnerable to a break in supply

kaizen

A Japanese business philosophy focused on continuous improvement in processes, aiming to enhance efficiency, quality, and productivity through incremental changes involving all employees. Kaizen encourages a culture where organizations regularly evaluate and improve their practices, involving every team member in the process.

the importance of using resources effectively

is crucial for maximizing productivity and minimizing waste, ensuring that businesses operate efficiently and sustainably. This principle emphasizes optimizing resource allocation to enhance overall performance and competitiveness.

the impact of new technology in the primary sector

New technology in the primary sector leads to increased efficiency and productivity, transforming methods of production and extraction. It often results in enhanced crop yields, reduced labor costs, and improved resource management.

the impact of new technology in the secondary sector

New technology in the secondary sector enhances manufacturing processes, leading to improved efficiency and quality. It often results in reduced production costs, faster output, and the ability to produce more complex products.

the impact of new technology in the tertiary sector

New technology in the tertiary sector improves service delivery and customer interaction, enhancing efficiency and user experience. It often leads to better data management, streamlined operations, and innovative service offerings.

benefits of new technology

New products provide more choice

Higher productivity and lower costs

Less waste of resources

Improved health and safety

Tasks are easier for workers

Improved communications

costs of new technology

High set-up and purchase costs

Technology breakdowns can be expensive

Job losses may cause conflict and distress

Existing staff may need to be retrained

Reduced motivation for machine workers

Loss of flexibility

4 factors of production

The resources needed to produce goods and services, typically categorized as land, labor, capital, and entrepreneurship.

advantages of capital-intensive production

Generally more cost effective if large quantities are produced

Machinery is often more precise and consistent

Machinery can operate 24/7

Machinery is easier to manage than people

disadvantages of capital-intensive production

Huge set-up costs

Long delays may occur when there is a breakdown

May be inflexible — a lot of machinery is highly specialized

May leave the workforce

facing redundancy and effect morale

advantages of labor-intensive production

Generally more flexible than capital — can be retrained, for

example

Cheaper for small-scale

production

Cheaper for large-scale production when labour is cheap

People are creative and can solve problems and make improvements

disadvantages of labor-intensive production

People are more difficult to manage — they have feelings and reactions

People can be unreliable — they may be sick or leave suddenly

People need breaks and holidays

People sometimes need to be motivated to improve performance

what is quality

Quality refers to the standard of something as measured against other things of a similar kind or the degree of excellence of a product or service. It encompasses aspects such as reliability, durability, and meeting consumer expectations.

the importance of quality

The importance of quality lies in its ability to meet customer expectations, ensure reliability and durability of products or services, and ultimately enhance brand reputation and customer loyalty.

traditional quality control

A process that involves systematic inspection and testing of products to ensure they meet specified quality standards, typically conducted at various stages of production.

quality assurance

A proactive process designed to ensure that products or services meet established quality standards before they reach the customer, often involving ongoing monitoring and improvements throughout the production process.

total quality management

A comprehensive management approach focused on continuous improvement and customer satisfaction by involving all members of an organization in improving processes, products, and services.

advantages of total quality managment

Focus is on customer needs

Quality improved in all aspects of

business

Waste and inefficiencies removed

Helps develop ways of measuring

performance

Improves communication and problem

solving

disadvantages of total quality management

High training and implementation costs

Will only work if everyone is committed

May be bureaucratic (lots of documents)

Focus is on processes not product

quality and competitive advantage

The ability of a company to achieve superior performance and market position by delivering high-quality products or services that meet or exceed customer expectations, thereby differentiating itself from competitors.