Business Functions (Added value, Production methods, Productivity, Economies of Scale, Labour and Capital intensive, Quality)

Added value

The difference between the cost of making a product or providing a service and the price customers are willing to pay for it
Price - Variable cost per unit

What adds value

• people don't want to provide it for themselves
• people think the quality is high
• the design is attractive
• there is a USP
• a well known brand name

Added value

The difference between the cost of making a product or providing a service and the price customers are willing to pay for it
Price - Variable cost per unit

What adds value

• people don't want to provide it for themselves
• people think the quality is high
• the design is attractive
• there is a USP
• a well known brand name

Job production

One-off production made specifically for somebody

• normally made to customers specification
• often undertaken by small, specialist businesses

Job production advantages

-Product usually high quality
-Producer meets individual customer needs
-Greater job satisfaction - involved in all stages of production

• a flexible production method

Job production disadvantages

• individual cost of one unit may be high
• labour intensive
• usually reliant on high skills
• requires close consultation with the client

Batch production

• similar items are produced together
• each batch goes through one stage of production process before making onto the next stage
  Aims:
• concentration skills
• produce good quality products more economically than manufacturing them individually

Batch production advantages

-Cost savings can be achieved by buying in bulk
-Still allows customers some choice
-Products can be worked on by specialist staff or equipment at each stage
-Allows a firm to handle unexpected orders

Batch production disadvantages

• takes time to switch production of one batch to another
• requires the business to maintain higher stocks of raw materials and work-in-progress
• tasks may become repetitive

Flow production

• product moves continuously through production process
• when one task is finished next must start immediately
• therefore time taken on each task must be the same

Flow production advantages

• costs per unit of production reduced through improved work and material flow
• suitable for manufacture of large quantities
• capital intensive
• less need for training and skills

Flow production disadvantages

• very long set up time and reliant on high quality machinery
• goods are mass produced - less differentiation for the customer
• production is shut down is flow is stopped

Cell production

Where work is organised into teams. Teams are given responsibility of doing a part of production process as product moves through assembly line.
Often leads to improved productivity due to

• increased motivation
• specialisation

The method of production depends on

• target market
• resources
• technology
• standards

Ways to measure productive efficiency

• productivity - measures the relationship between inputs into the production process and the resultant outputs eg output per worker/machine
• unit costs - divide total costs by the number of units produced. A failing ratio would indicate that efficiency was improving
• non productive 'idle' resources - which resources are used by a business? Are employees often left with nothing to do? Are machines only used for part of available time? Too many idle resources are a common sign of inefficiency in production

Productive efficiency

lowest cost per unit at which production can take place
why is this important?

• a more efficient business will produce lower cost goods than competitors
• may generate more profit possibly at a lower price
• investing in production assets is expensive - a business needs to maximise the return it makes on these assets

Average cost per unit

Total production costs in period/ total output in period

Economies of scale arise when…

unit costs fall as a firm expands its output

Internal economies of scale

Arise from the increased output of the business itself
eg buying economies, technical, marketing, network, financial

External economies of scale

Occur within an industry ie. all competitors benefit eg having more specialist suppliers close by,access to research and development facilities, pool of skilled labour to choose from

Labour intensive

where production relies more heavily on labour relative to machinery

• food processing, hairdressing, hotels + restaurants

Labour intensive advantages

• unit costs may still be low in low-wage locations
• labour is a flexible resource - through multi-skilling and training

Capital intensive

using more capital than labor in the production process

• oil + extraction refining, car manufacturing, transport infrastructure

Labour intensive disadvantages

• greater risk of problems with employer/employee relationships
• potentially high costs of labour turnover
• needs for continuous investment in training

Capital intensive advantages

• greater opportunities for EofS
• potential for significantly better productivity
• better quality and speed
• lower labour costs

Capital intensive disadvantages

• significant investment
• potential for loss of competitiveness due to obsolescence
• may generate resistance to change from labour force

Mass customisation

Products are adapted to meet a customer's individual needs, but at a rate of mass production

Automation

the use or introduction of automatic equipment in a manufacturing or other process or facility.

Productivity

the effectiveness of productive effort, as measured in terms of the rate of output per unit of input.

Key factors driving the use of technology to transform manufacturing

• need for significant boost in efficiency, safety and resource sustainability
• rising labour costs are pushing greater automation
• digital factory modelling is reducing product design errors and speeding up 'time to market'
• machinery and tools need to have greater flexibility
• increased processing power and sophisticated software

3D printing

a process for making a physical object from a three-dimensional digital model, typically by laying down many successive thin layers of a material.

CAD

Capable of generating, storing and using computer graphics

CAM

Sorting machines and can also aid flexibility in production

Robotics

Automated machinery that increases speed, quality control, and efficiency during production of goods

IT

formats, bar codes, EPOS systems, microsroft office

Benefits of Technology

• quicker, less chance of human error, less money needed to be spent on training staff, higher productivity

Costs of technology

• very expensive
• harder to carry out quality control
• harder to make bespoke products

Quality

meeting customer expectations

Measures of quality

• reliability, functions and features, support levels and standards, cost of ownership
• brand image, exclusiveness, market reputation

Benefits of greater quality

customer satisfaction, repeat purchase, customer recommendation, lower marketing costs, higher customer loyalty

Costs of poor quality

lost customers, cost of remaking or reworking a product, cost of replacements or refunds, wasted materials, a competitive disadvantage

Quality control

The process of inspecting products to ensure that they meet the required quality standards at the end of the production process

• based on inspection
• takes defects out
• occurs at the ed of production process

Quality Assurance

The processes that ensure production quality meets the requirements of customers

• quality is built into the whole production process
• high value production

Quality control benefits

• manufacturing business can identify exactly when batches of products were made
• enables them to identify which workers were on duty when each batch was made
• helps identify accountability and responsibility

Quality control drawbacks

• only detects faults instead of preventing them
• expensive to fix a faulty part once assembled
• impossible to check every single product

Total Quality Management (TQM)

where a business establishes a culture of quality which affects the attitudes and actions of each employee
achieved through

• aiming for zero defects
• errors or faults are corrected as soon as they occur
• using quality circles

TQM advantages

• more responsibility onto workers
• higher motivation
• fewer defects
• less cost of correcting faulty products

Quality Circles (QC)

Where a group of workers meet to discuss work problems and possible solutions

Quality circles advantages

Employees will be motivated as they get to have a say in decision-making
Management get well-informed suggestions from the workers who actually produce the product

Other ways of improving quality

• better machinery
• better technology
• improved training
• best practice benchmarking

Benchmarking

Where the business compares itself against the best in the industry to try to improve performance

Benchmarking steps

1. identify where your business needs to improve
2. identify best practice business in that area
3. study their operation
4. implement the changes in your business

Costs of improving quality

• higher variable costs
• higher fixed costs
• short term disruption when training or installing machinery
• high profits attracts competitors