2.4 BUSINESS

Job Production

Involves businesses producing items that meet the specific requirements of the customer

Job Production Pros

Requirements and changes can be handled easier. May be able to charge high price due to value added. Flexible method of production, do not have to stay with one method. Associated with higher quality.

Job Production Cons

Unit costs may be high. More time consuming. May be difficult to recruit staff with high skills.

Batch production

When many similar items are produced together. Each batch goes through one stage of production process before moving onto the next stage.

Batch production Pros

Economies of scale can be achieved by buying in bulk. Lower unit costs means more can be produced. Specialization can be used in production process

Batch production Cons

Repetitive work can be de-motivating, reducing productivity

Flow production

Continuous movement of items through production process. Appropriate when firms are looking for high volumes of similar items.

Flow production Pros

Quicker method of production, so more is produced in less time. Less need for skilled employees, which makes it capital intensive, allowing work to be done constantly

Flow production Cons

Expensive to setup, so it requires a significant investment which may not be available for small businesses. Delays can have a knock-on effect, causing production to slow or stop.

Cell Production

Splits production process into cells, with each team or cell responsible for a part of the finished articleC

Cell Production Pros

Improved motivation as workers feel as they have more responsibility and are contributing to the final product more. Workers can become multi skilled.

Cell Production Cons

More labor needed which can increase costs, leading to a smaller profit margin. Machine may not be used as intensively.

Productivity

Measures the relationship between inputs and outputs of a production process.

Factors influencing productivity

Production method. Motivation; motivated workers are more likely to be more productive than unmotivated workers. Investment in new tech, however may incur large cost. Specialization; workers specialized in one part may become more productive, however the work can become repetitive, reducing productivity.

Link between productivity and competitiveness.

The higher the productivity, the lower the cost per unit. The lower unit costs leads to increased competitiveness as the business can make a higher profit per unit as the costs are lower, or lower prices can be offered, attracting more customers whilst still maintaining profit margins.

Efficiency

When a business makes the best possible use of its resources. Max efficiency is when outputs are maximized from inputs, as results in the lowers per unit cost

Factors affecting efficiency

Training; trained staff are more productive, increasing efficiency. New technology. Relocation of production; countries that have lower labor costs can lead to greater efficiency.. Method of production.

Labor Intensive

When the majority of costs relate to the employment of people

Labor Intensive Pros

Units costs may be low dependent on the location. More flexible than capital, such as training, which is usually less expensive that machine updates.

Labor Intensive Cons

Turnover can incur costs. Absenteeism can impact productivity and efficiency.

Capital Intensive

When labor costs are low, but majority of high costs result from extensive use of equipment

Capital Intensive Pros

Potential for significantly higher productivity, as machines can work for longer than people. Better quality and consistency, as a machine is programmed to output the same product every time, and is rarely affected by external factors.

Capital Intensive Cons

Significant investment needed, which may not be appropriate for small businesses.

Capacity utilisation

Measure of how much output achievable in a given period. Also measures extent to which capacity is used

Implications of under-utilization of capacity.

Significant spare capacity could lead to workers becoming bored, impacting motivation. Can impact brand image. Can allow time to train staff, leading to a more productive workforce. Can take on new orders.

Implications of over-utilization of capacity

Workers that have been overworked could reduce their motivation. Can increase brand image. Business cannot take on new orders, potentially missing out on opportunities for expansion. Quality could decrease if the production process is rushed. Not sustainable so does not allow for future planning.

Improving capacity utilization

Reducing capacity, such as moving to smaller premises or making staff redundant. Better marketing leads to increased sales, increasing amount of capacity utilized.Bu

Buffer stocks

Amount of stock held as contingency.B

Buffer stock pros

Allows business to meet sudden increases in demand, maintaining sales. Allows production to continue in case of supplier delay.B

Buffer stock Cons

Increased costs of storing stock. Unsuitable for perishable items. Cash flow implications could lead to business becoming less liquid, as asset is sitting in a warehouse instead of being turned into cash

Just in Time management

Lean production method where stock is delivered just before it is needed for production

Just in Time Pros

Less storage space required, resulting in cash saved on rent, decreasing costs. Reduces chances of stock going out of date, especially when referring to perishables. Business becomes more liquid.

Just in Time cons

Increased supply costs as orders are placed more often. Small margin of error. Supplier delay could lead to production completely halting; this could lead to missed opportunities that a business could’ve taken advantage of, such as seasonal spike in demand, or they may not be able to reap the benefits of effective marketing.

Waste minimization

The process of minimizing waste, including in the overall production process. Poor stock control can lead to increased waste, as too much perishable stock can lead to stock being damaged or going out of date. This then has to be disposed of, increasing costs, or have prices reduced, decreasing profits. JIT management reduces waste as there is no risk of stock becoming obsolete. Production can also be organized more efficiently so that less time is wasted.

Advantage of lean production

Aims to cut costs by making business more efficient, Minimizes activities that do not add value to production process, such as holding stock. Lean production can result in increased productivity, greater efficiency, lower unit costs so better profit margins, better quality.