AS Business Production PDF

AS Business Production Adding Value Job Production Batch Production Definition: Added value is found in the difference Definition: A unique product that is often made by a Def...

AS Business Production Adding Value Job Production Batch Production Definition: Added value is found in the difference Definition: A unique product that is often made by a Definition: The manufacture of a limited number between the cost of purchasing raw materials and skilled craftsman specific to a person’s requirement. of identical products. Within each stage of the the price at which the finished foods are sold. production process, work will be completed for the Examples: Wedding dress, tailor made suits, whole batch before the next stage is begun. Formula: Selling price – Bought-in goods and buildings, bridges and ships. services Examples: Clothes, paint and production of loaves of Advantages: bread. How might added value be increased? ☑ Unique product. Purchasing cheaper raw materials – however, ☑ Likely to be of a high quality as it is likely to have Advantages: care must be taken that quality is not been handmade and a lot of time and detail will ☑ Reduction in unit cost as can benefit from compromised when doing this. As a business have gone into making the item. economies of scale. grows, it may be able to take advantage of ☑ Businesses can charge higher prices for the item ☑ Products can be produced in very large or very purchasing economies of scale and achieve due to its uniqueness. small quantities depending on the level of greater added value as a result. ☑ Specialised employees are likely to enjoy their job demand. Improving the efficiency of the production more as they are utilising their skills. ☑ Suitable when production is divided into a number process – for example, this may be achieved by of operations. purchasing up-to-date machinery or by training Disadvantages: ☑ Allows for a variation in the product being the workforce. ☒ It can be very expensive for the customer to produced, e.g. different sizes. Raising the price of the product – price elasticity purchase their specially made item. ☑ Quicker than job production as it combines of demand is a key issue here. If the business ☒ Time-consuming – it can take a long time to elements of job and mass production. raises the price of a product, the demand for produce the item as it is being made to specific ☑ Use specialist machinery – does not need skilled which is price sensitive, it will result in a fall in customer requirements. employees, which reduce the cost of production. overall revenue, which is clearly something it ☒ Higher wage bill – skilled employees will would not want to do. command higher payments for their time and Disadvantages: Achieving brand status for a product can create expertise. ☒ If there is a faulty product in the batch, then the added value. Chanel perfume sells for a great deal ☒ Often only targeting a smaller market. whole batch has to be written off. more than the majority of its competitors, but the ☒ Time lost switching between batches, e.g. cleaning processes involved in production will be virtually and reloaded the machines. identical. ☒ Machinery does most of the jobs – this can lead to Offering additional services with a product can the employees becoming bored and demotivated result in added value. A telephone helpline to help with their jobs. with technical questions, or the willingness to ☒ Initial cost of the machinery. install new equipment and ethically dispose of old ☒ Lost production time lost due to breakdown of equipment are examples of this. machinery. Improving customer access or convenience is a ☒ Cross contamination of ingredients – e.g. nut well-proven method of adding value. allergy “produced in a factory that uses nuts” – Drive-through fast-food outlets and home-delivery may lose sales. pizza are typical examples.  AS Business Production Flow Production Which Type of Production Method? How to Improve Productivity Definition: Production is organised so that different The type of production used will depend on a Making technological improvements - operations can be carried out one after the other, number of factors: replacing labour with machinery, robots. in a continuous sequence as production moves the product being produced Replacing labour with machinery. continuously from one stage of the process to the the cost of labour Developing a multi-skilled workforce through next. the cost of capital training – use quality circles. the availability of money for investment Improve the motivation of the workforce – Examples: Crème Eggs, golf balls and car technology both financial and non-financial rewards. manufacturing. the skills of labour Reducing absenteeism. the size of the market Redesigning production processes – changing Advantages: customer requirements. the layout of the factory or office. ☑ Large quantities can be produced for simplified or Job enrichment, job rotation, etc. standardized products. Adapt management styles – appoint better ☑ Unit costs can be reduced as a result of management. economies of scale. Adopting a 'Kaizen' approach. TQM/lean ☑ Use can be made of compute-controlled machinery Productivity production methods to enhance productivity. and consistency of quality and uniformity can be Employ management consultants to suggest attained. ways of improving the running of the Definition: Productivity is a measurement of the business. ☑ Production can continue virtually non-stop for long efficiency with which a business turns production periods of time. Delayering and empowerment. inputs into output. Both labour and capital Benchmarking (must be develop to ☑ Less labour is required – only machines productivity can be measured. supervisors are needed. Lower labour costs. productivity). ☑ Faster production method than job or batch. ☑ Reduction in wage bill – there is no need to employee specialist workers as machinery does most of the work. Disadvantages: ☒ Set up costs can be very high. Investment must be justified by high volume of sales. ☒ Products will tend to be standardised, although modern machinery is becoming more flexible to overcome this drawback. ☒ Breakdowns can be very costly – interdependent Advantages of high productivity: nature of the process can mean that if one section ☑ increased economies of scale breaks down the whole line may have to stop. ☑ increased competitiveness ☒ Jobs for those working in such production ☑ spreading the fixed costs over higher output environments tend to be repetitive and boring. ☑ lower unit costs Motivation issues may arise. ☑ performance bonuses to employees – motivation.  AS Business Production Capacity Utilisation Spare Capacity Subcontracting The use that a business makes of its resources.​ To measure spare capacity, we look at output Definition: Getting someone else to produce the goods Measured by comparing actual output with as a percentage of total capacity. If the level of for you. By using subcontractors there is a reduction in potential output at full capacity.​ spare capacity is significant (i.e. large enough risk to the business. to be of concern), then this underutilisation of factors of production can have major effects on Advantages:​ Calculation: businesses.​ ☑ Reduction in capital investment required. If the business is not making the goods, it does not have Problems of spare capacity:​ to buy the machines to make the goods, lease the Enghraifft: ☒ Demotivation of staff. Overtime is probably factory space or employ and train the workers. not available, bonuses will be limited and there may be a threat of redundancy.​ Disadvantages:​ ☒ Increased costs to the business. Businesses ☒ Lack of control – especially with regard to quality.​ may be forced to make workers redundant ☒ If there are a limited number of potential and redundancy payments will have to be subcontractors, then prices of the goods can become made. Also, management time will need to prohibitively high – reducing profitability. ​ be spent on reorganisation.​ ☒ There can be delays in delivery, leading to customer CU = current output/maximum output x 100​ ☒ Reduced profits. This will limit capital for dissatisfaction.​ = 240000/400000 x 100​ investment and research and development, = 60%​ causing a reduction in long-term competitiveness. ​ Advantages of operating at full capacity:​ ☒ Lack of return on investment capital. Rationalisation​ ☑ Average costs minimised – fixed cost spread – Producer goods will continue to depreciate, helps raise profits.​ even though they are not being used to Definition: Concentrating on core products or services ☑ Employees may feel more secure in their jobs – full capacity. Technology will move on, and disposing of those products or services when they motivation raised.​ putting pressure on businesses to replace are not seen as profitable or necessary to the business' ☑ Improves company image – busy business may fixed assets that otherwise have plenty of long-term success.​ encourage customers to place orders.​ productive potential​. Advantages:​ Disadvantages of operating at full capacity: Resolving the problems of capacity ☑ Allows management to concentrate and focus upon ☒ Possible fall in quality – strain on resources if underutilisation – spare capacity:​ the business strengths.​ over-worked.​ subcontracting​ ☒ Pressure on staff – too much overtime for rationalisation​ Disadvantages: employees may lead to stress, tiredness – increasing the use of assets. ☒ Lost customers – risk that customers will be lost. absences and accidents may result.​ Some customers, especially business customers, who ☒ Machinery may be overworked and break down Because of the short-term expense of solving bought into the business’s whole package of products, if insufficient time put aside for maintenance.​ problems of spare capacity, businesses often may be less loyal when ‘one-stop shopping’ is not now ☒ Lack of flexibility – orders may be lost if try to ride out this type of situation in the available.​ no capacity available to accommodate new expectation that the market in which they ☒ Writing down (reducing) the book value of assets. ​ customers.​ operate will recover and demand will increase.​ ☒ Rationalisation also implies redundancy costs.​