2.4 Resource Management Flashcards
What is production?
The transformation of resources (e.g. raw materials) into finished goods or servoces
(Total amount of output produced in a time period)
What are goods?
Physical products (tangible) such as a t shirt
What are services?
Non-physical items (intangible) such as a haircut
What are the 4 methods of production?
- job production
- flow production
- cell production
- batch production
What will dictate the method of production a business uses?
The level of output required to be produced
The nature of the product
Whether the product is standardised or customised
The level of automation (use of machinery, tech or robots in the production process) used in production.
What is job production and what are the advantages and disadvantages?
- producing one item at a time, as ordered by the customer
E.g. a personalised cake maker
Advantages:
High quality product
Motivated and high skilled workers
Customised products can be produced
Disadvantages:
Production is slow
Labour costs are high
What is batch production and what are the advantages and disadvantages?
Batch production is where groups of the same product are produced, before moving onto a group of different products or just making the same again
E.g. a bakery
Advantages:
Workers can specialise
Production can take place as the previous ‘batch’ finishes
Disadvantages:
Requires careful coordination to avoid shortages
Money is tied up in stock as completed products need to be stored
What’s is flow production and what are the advantages and disadvantages?
Flow production is continuous manufacturing of standardised products, usually on a production line
E.g. a car production line for Mercedes
Advantages:
Low unit costs due to economies of scale
Rapid production
Usually highly automated (capital intensive) meaning production can take place 24/7
Disadvantages:
Customisation is difficult
High initial start-up costs
What is cell production and what are the advantages and disadvantages?
Cell production involves workers being organised into multi-skilled teams, with each team responsible for a particular part of the production process
E.g. a car assembly line
Advantages:
Cell production is often more efficient than other methods as workers share their skills and expertise
Motivation is usually high as employees work as a team
Disadvantages:
Teams efficiency may be reduced by weaker workers
Requires extensive reorganisation of production processes
What is productivity?
The output per input (person or machine) per hour
What is the labour productivity of a business?
A measure of the output per worker during a specified period of time
How is labour productivity calculated?
Total output/number of workers
What is capital productivity?
A measure of the output of capital employed (e.g. machinery) during a specified period of time
How is capital productivity calculated?
Total output/number of machines
What are the benefits of increased productivity?
When productivity increases, business costs decrease
When business costs decrease, the firm can either pass on this decrease to consumers in the form of lower prices - or maintain the selling prices and enjoy higher profit margins
What are the factors that influence productivity?
Employee motivation: motivated workers tend to be more productive, financial incentives linked to output may increase worker productivity. Non-financial incentives may include workers in decision-making and increase their commitment and productivity.
Skills, education + training staff: Well-trained and educated workers are likely to be able to make useful contributions to decisions that improve productivity
Business organisation + working practices: Flexible and adaptable workplaces can improve the commitment of workers and allow a business to respond to changes in demand
Investment in capital equipment: Increased automation can improve levels of output and quality
Well chosen machinery is less likely to make mistakes than humans
What is competitiveness?
The ability of a business to maintain or grow its sales and market share given the presence and actions of rivals
Businesses that increase their level of productivity are likely to be more competitive
What is the link between productivity + competitiveness?
Businesses that are competitive are likely to have the financial resources required to continue investing in improvements to their productivity
How can productivity be raised?
Train staff
Introduce financial incentives
Maintain machinery
Improve working practices (rules and regulations that organisations implement to improve working conditions for employees)
What is efficiency?
The ability of a business to use its production resources as cost-effectively as possible
What is efficiency measured in?
Average cost per unit
How is efficiency calculated?
Total costs/number of units
When is maximum efficiency achieved?
When the cost per unit is at its lowest
What are the factors that influence efficiency?
Standardisation of the production process: occurs when all staff use the same components and techniques in the production process, bulk-buying of components reduces VC
Relocation or downsizing: Moving production to a cheaper or smaller location can reduce fixed costs
Investment in capital equipment: Purchasing or upgrading machinery and technology can increase the rate of output, lower costs and improve quality
Organisational restructuring: reducing the level of staff or reorganising staff can better match labour to output needs
Outsourcing: Purchasing or upgrading machinery and technology can increase the rate of output, lower costs and improve quality
Adoption of lean production techniques: An approach to production that involves the reduction of all types of wastage (time, resources and space)
Kaizen means that improvements are made continuously
Just in time involves holding little or no stock which minimises storage costs
What are the characteristics of Labour-intensive production?
Predominantly uses physical labour in the production of goods/services
The delivery of services is usually more labour-intensive than manufacturing
In countries where labour costs are low (e.g. Bangladesh) labour-intensive production is common
E.g. UK schools are labour-intensive operations as teachers plan and deliver lessons and provide pastoral support
What are the characteristics of capital-intensive production?
Predominantly uses machinery and technology in the production of goods and services
Large-scale production of standardised products is likely to be capital-intensive
Manufacturing in developed countries where labour costs are relatively high is likely to be capital intensive
E.g. Automative manufacturers such as Ford use robots and other production technology to manufacture vehicles with supervisors overseeing the quality of output
What are the advantages and disadvantages of capital intensive production?
Advantages:
Low-cost production where output is high
Machines are usually consistent and precise
Machines can run without breaks
Disadvantages:
Very high set-up costs and maintenance costs
Breakdowns can severely delay production
May not provide flexibility in production
What are the advantages and disadvantages of labour intensive production?
Advantages:
Low cost production where labour costs are low
Provides opportunities for workers to be creative
Workers are flexible (e.g. can be retrained)
Disadvantages:
Workers may be unreliable and need regular breaks
Incentives may be needed to motivate staff
Training costs can be significant
What is capacity utilisation?
The measure often the level to which a businesses assets are being used to produce output
It compares current output to the maximum possible output a business can produce using all of its assets and is expressed as a percentage
How is capacity utilisation calculated?
(Current output/maximum possible output) x 100
What is under-utilisation?
Where a business has a low level of capacity utilisation, it will not be making the most of its resources and is likely to have increased unit costs as:
Fixed costs are spread over fewer units of output resulting in higher average total costs
Workers may be under-deployed leading to fears of redundancy
(where a job role is no longer needed by a business and a worker is dismissed, usually with compensation)
What is over-utilisation?
Where a business has a high level of capacity utilisation it may not have the flexibility to respond to new orders from customers as:
Staff will be under a lot of pressure to produce high levels of output
Overworked staff may be inclined to leave increasing staff turnover
(a measure of the number of staff leaving over a given period of time in relation to the workforce as a whole)
Machinery may be pushed to its limits and prone to breakdowns which disrupts production and increase costs
What does high capacity utilisation cause?
Minimal average total costs and an increase in business competitiveness
If workers are busy they are likely to feel secure in their employment
A business that is busy is likely to be well thought-of and is likely to attract customers who are willing to wait for products to be delivered
What are the ways of improving capacity utilisation?
Increasing sales
Increasing usage
Outsourcing
Reduce capacity (sell fixed assets or reduce amount of staff)
Redeployment (move underused resources to other parts of the business that require them)
What is the maximum stock level?
The maximum amount of stock a business is able to hold in normal circumstances
What is the reorder level?
The level at which a business places a new order with its supplier
What is the minimum stock level (buffer stock level)?
The lowest level to which a business is willing to allow stock levels to fall
What is the lead time?
The length of time from the point of stock being ordered from the supplier to it being delivered
What does the stock levels line show?
How stock levels change over the given time period
What is buffer stock?
A quantity of goods/raw materials kept in case of stock shortages
This can provide a competitive edge over rivals
This approach is commonly called ‘just in case’ stock control
What are the advantages and disadvantages of holding buffer stock?
Advantages:
Stability in supply:
Buffer stocks ensure a stable supply of goods which is able to respond to unexpected customer demand
Price stabilisation:
Buffer stocks can help prevent extreme price fluctuations as it helps the market to avoid shortages, which would result in rapid price increases
Competitive advantage:
By having a reliable supply of goods, businesses can gain a reputation for always being able to meet the needs of their customers
Disadvantages:
Cost:
Holding buffer stocks can be expensive, as it requires storage facilities and inventory management systems
Opportunity cost:
Holding buffer stocks ties up capital that could be invested in other areas of the business
Risk of obsolescence:
Buffer stocks can become obsolete if the demand for a particular product or input declines
What are the implications of holding too much stock?
Opportunity cost
Significant storage cost
What are the implications of holding too little stock?
Risk of stock out
Unexpected increases in demand cannot be met
What is just in time stock control?
A process in which raw materials are not stored onsite, stock is ordered as required, and delivered by suppliers ‘just in time’ for production
What are the advantages and disadvantages of just in time stock control?
Advantages:
- Stockholding costs, including storage costs, are minimised
- Cash flow is improved as money is not tied up in stocks
- Teamwork is encouraged so employee motivation is likely to be improved
- unused storage space is available for productive use
Disadvantages:
- Bulk buying economies of scale are not generally possible - The ability to respond to unexpected increases in demand is reduce
- Unreliable suppliers (e.g. late or poor quality deliveries) can quickly halt production
What are the reasons waste can occur in a business?
Stock becomes obsolete unless used by a particular date
Perishable stock (food and medicines) that is not used before they deteriorate will need to be thrown away
Stock may be damaged as a result of poor storage conditions and may not be suitable for use in the production process
What will allowing waste to go unchecked do?
Increase the unit costs of production and reduce both efficiency and productivity
How can a business minimise waste?
Storage:
- refrigeration and protection from damage
- careful stock rotation
Planning:
- staff training
- computerised stock control
- diligent forecasting
Sales tactics:
- reduce prices to encourage purchases
- find alternative uses for obsolete stock
What is lean production?
Production in which minimal resources are used in production
Why is the use of lean production is likely to lead to a competitive advantage
Lower unit costs are achieved due to minimal wastage, so prices may be lower than those offered by competitors
Better quality of output is likely as a result of supplier reliability and carefully managed production processes
What are the different methods of quality control?
Quality control
Quality assurance
Quality circles
Total quality management (TQM), continuous improvement (Kaizen) is a technique of TQM
What is quality control and what are the benefits and drawbacks?
Where the quality of output is inspected at the end of the production process
Benefits:
Quality specialists are employed to check standards
An inexpensive and simple way to check that output is fit for purpose
Drawbacks:
The rejection of finished goods is a significant waste of resources
There is little focus on the cause of defects and how to improve them
What is quality assurance and what are the benefits and drawbacks?
Inspecting the quality of production throughout the production process
Benefits:
Quality issues are identified early so products may be reworked rather than rejected
The cause of defects is the focus so future quality issues may be prevented
Drawbacks:
Staff training and a skilled workforce is required so labour costs may be increased
Reworking may lengthen the production process
What are quality circles and what are the benefits and drawbacks?
Quality circles are groups of workers who meet regularly to solve quality problems identified in the production process
Benefits:
Workers may be motivated as they are involved in decision making
Relevant and focused solutions are likely as workers are familiar with processes
Drawbacks:
Management need to have trust in workers’ views and solutions
Meetings and structures must be organised regularly
What is total quality management and what are the benefits and drawbacks?
TQM is an organisation of the business with quality at its core and with every worker responsible for quality
Benefits:
Quality in all aspects of the business improves efficiency
A culture of constant improvement exists within the business
Drawbacks:
All workers must be committed and receive significant continued training
Careful monitoring and control is required
What is continuous improvement (Kaizen)?
Kaizen is a method of TQM it involves a business taking continuous steps to improve productivity through the elimination of all types of waste in the production process
Changes are small and ongoing rather than significant one-off’s and are constantly reviewed to ensure that the desired positive impact on productivity is achieved
What are the elements of kaizen?
Total Quality Management
Just in Time stock management
Teamwork and quality circles
Zero defects in manufacturing
High levels of automation
High levels of cooperation between workers and management
Kaizen requires a long-term management commitment to change
Why is a competitive advantage gained from quality management?
Products will be of a high quality which can provide a competitive advantage
Unit costs are likely to be low if a business takes a preventative approach through the use of quality assurance or TQM
Low costs may allow a business to reduce its selling price to better compete with or undercut its rivals
High levels of quality can be used in promotional activity and provide a unique selling point for businesses in competitive markets
Successfully developing a USP for quality can ease expansion into new markets as a result of the positive reputation it creates
