2.4 Resource Management Flashcards
What is capacity?
A measure of how much output a business can achieve in a given period
What is capacity utilisation?
The proportion (%) of a business capacity that is actually being used over a specfic period
What is the equation for capacity utilisation?
Actual level of output / x100 Maximum possible output
Why is capacity utilisation important?
- Useful to measure productive efficiency to know where there is unused resoures in a business
- higher utilisation can reduce unit costs
- a high level of capacity utilisation is required if a business has a high break even
Why may a business operate below 100%?
- lower than expected market demand
- a loss of market share
- seasonal variations in demand
- recent increases in capacity
- maintenance and repair programmes
Can a business operate above 100%?
Yes - can be possible in the short term
* increase work force hours
* reduce time spent on maintaining production equipment
* sub-contract some productions activities
What are dangers of operating at low utilisation?
- Higher unit costs
- Less likely to reach break-even output
- Capital tied up in under-utilised assets
What are dangers of operating at high utilisation?
- Negative effect on quality - production is rushed, less time for quality control
- Employees suffer - added workload, demotivating
- Loss of sales - production equipment may require repair
What is stock?
Represents the raw materials, work-in-progress, and finished goods held by a firm to enable production and meet customer demand
What are the three main types of stock?
- Raw materials
- Work in progress
- Finished goods
What are raw materials?
Bought from suppliers, used in production (e.g parts for assembly or ingredients)
What is work in progress?
Semi or part finished production (e.g construction projects)
What are finished goods?
Completed products ready for sale and distribution (e.g products on supermarket shelves, or goods in the amazon warehouse)
What are reasons to hold stock?
- Enable production to take place
- Satisfy customer demand
- Precaution against delays from suppliers
- Allow efficient production
- Allow for seasonal changes
- Provide buffer between production processes
What are the main influences on amount of stock held?
- Need to satisfy demand
- Need to manage working capital
- Risk of stock losing value
What are 4 costs of holding stock?
- Cost of storage
- Interest costs
- Obsolescence risk
- Stock out of costs
What is Obsolescence risk?
The longer stocks are held, the greater is the risk that they will become obsolete (i.e. unusable or not capable of being sold)
What are interest costs?
Holding stocks means tying up capital (cash) on which the business may be paying interest
What is out of stock?
When a business runs out of stock this can result in lost sales & customer goodwill, cost of production stoppages/delays, and extra costs of urgent, replacement orders
What is the objective of stock control?
Maintain stock levels so that the total costs of holding stocks is minimised.
