2.2 - Financial Planning Flashcards
Production
The action of making or manufacturing from components or raw materials, or the process of being so manufactured
3 methods of production
- Job production (1 unique product from start to finish)
- Batch production (Batches of similar products)
- Flow production (Continuous production of identical items)
Pros and cons of job production
+/ - Bespoke, unique, one off, to your measurements/specification e.g. kitchen or tailor made suit
- Very motivated workers and simple production organisation
- High selling costs
-/ - Skilled labour are expensive
- Wide range of tools required
- Long lead time between starting and finishing (don’t get paid till after)
Pros and cons of batch production
+/ - Can change production to meet customer needs/ fluctuation in demand
- Can be mechanised, less labour than job
- Employeees specialise
- Lower skilled workforce means lower wages paid
-/ - Small batches carry higher average unit costs (don’t benefit fromEoS)
- Workers may be less motivated with repetitive work
- Idle time between batches needs to be managed
Pros and cons of flow production
+/ - Average costs lower because higher volumes produced (EoS)
- Automated production improves quality and time
- Raw materials don’t need to be held
(JIT system)
-/ - High set up costs to buy factory and machinery
- Low motivation due to repetitive tasks
- Break downs and lost production can be costly as this is a wastage
Cell production
The production of items is organised into groups and then teams are set at workstations and see a product through to completion
Pros and cons of cell production
+/ - Minimal handling of the product reduces costs
- Motivating for workers to see a completed product
- Lead times are reduced
- Less time moving from place to place
-/ - Maybe tension in the cell or between cells if work gets competitive
- Huge investment in machinery for each cell
Lean production
An approach to management that focuses on cutting out waster, whilst ensuring quality
Productivity
Productivity is the measure of the efficiency of a person, machine, factory or process of production
Labour productivity and factors that influence it.
Output per period (units)/ number of employees at work
- Extent and quality of fixed assets
- Skills, ability and motivation of workforce
- Methods of production organisation
- External factors
Average cost formula
Total costs - output
Total costs = fixed costs + variable costs
Methods to improve efficiency
- Lean production
- Cell production
- Improved employee training/ raising skills of employees
- Better quality materials
- Improved machine quality/ capital investment
- Better managemen t of staff & processes
- Improved motivation
Capacity utilisation
The proportion of maximum possible output that is currently being used
Why would working 100% capacity be a bad thing?
- Not enough time for routine maintenance so machine breakdowns more regular and orders will be delayed
- May not be possible to meet new/unexpected orders so business can’t grow without exapanding production
- Staff under excessive pressure, increased mistakes, absenteeism, labour turnover
- If factory overcrowded, less efficient
- May be necessary spend more time on staff overtime to satisfy order, increasing labour costs
Ways to operate above 100% capacity
- Increase workforce hours
- Sub-contract some production activities
- Reduce time spent maintaining production equipment
Features of stock control diagram
- Minimum amount of stock to have enough if needed (buffer stock)
- Need to order supplies at the right time so supplies are replenished when stock getting low (re-order level)
- Need to know how much stock to re-order (re-order quantity)
- Need to know how long our supplies will take to supply stock when putting in an order (lead time)
Potential consequences of poor stock control
Stock costs money for a business to hold
- Storage area
- Computer records
- Staff to manage stocks held
- Cash tied up in stock
Problems with holding too much stock
- Stock incurs costs (storages etc)
- Occupies space in the premises
- High opportunity costs
- May not sell all stock
- Cannot take advantage of bulk purchases
- Theft
Just-in-time (JIT)
Helps navigate issues associated with holding too much stock by introducing the required supplies at the moment they are needed
Advantages of JIT
- No wastage which fits TQM theory
- Cost saving in terms of premises and staff
- Less capital tied up in stock, reduced average costs of production
Consequences of not enough stock
- Business may not be able to cope with unexpected increases in demand
- If deliveries are late the firm may need to halt production
- Won’t gain discount for bulk purchzse
- Higher admin costs, need to place more orders
Quality
About meeting needs and expectations of customers. More than a product simply ‘working properly’
Benefits and drawbacks of quality
+/ - High level of repeat business
- Allows brand building and cross marketing
- Allows a price premium
- Make products easier to place
-/ - Loss of sales
- Bad reputation
- May have to price discount
- May impact on other products
- Retailers unwilling to stock
Types of quality
- Quality control (traditional, inspecting work that has already been done)
- Quality assurance (Builds quality into production process, staff responsible)
- Quality circles (group solves production issues)
- Total quality management (Culture that puts quality at heart of everything)
Kaizen
A policy of constantly introducing small incremental changes in a business in order to improve quality and/or efficiency
Key features of kaizen
- Improvements based on small changes
- Easy to implement ideas as they come from workers and are likely similar
- Less likely to require major capital investment as only small
- Helps encourage workers to take ownership for their work (improves motivation)
