4. Operations management Flashcards
1
Q
Types of production
A
Job production
Flow production
Batch production
2
Q
Job production definition
A
Where items are made individually and is customisable to the customers wants
3
Q
Job production advantages
A
Motivated
High quality, good satisfaction
Can charge higher prices
4
Q
Job production disadvantages
A
Job production disadvantages
5
Q
Flow production advantages
A
Automated machines saves some time
Runs 24/7
Consistent shared quality (no errors)
Low labour skills needed
6
Q
Flow production disadvantages
A
Demotivated, repetitive, high labour turnover
Not flexible
If one machine breaks the whole thing breaks down
Also expensive hard to replace this machine
7
Q
Batch production advantages
A
Very similar same quality
Flexible production
Quicker production, producing multiple items at once,
Low costs, bulk materials and labor are more affordable
8
Q
Batch production disadvantages
A
Large stock of raw materials needs to be kept, high storage cost
Low motivation repetitive
Idle time, it due to machinery changeovers
Errors can be costly. An undetected quality error can ruin a whole batch
9
Q
Batch production definition
A
When one product is made in groups simultaneously
10
Q
Flow production definition
A
Continuous mass production in an assembly line
11
Q
What is productivity
A
Measurement of how efficiently resources are combined and ultized for an maximum output
12
Q
Labour productivity definition and equation
A
The average output of each employees
Output/number of workers
13
Q
How can productivity be increased
A
Motivation
Better equipment (automation)
Better training
Better inventory control (less waste)
14
Q
Production
A
The process of making products
15
Q
What is quality
A
A product is of good quality if it meets the need and expectation
16
Q
Quality control
A
Traditional method of checking quality, a sample of product are checked at the end of the production by a trained specialist
17
Q
Quality assurance
A
When the employees check for mistakes throughout the production process
18
Q
Quality control advantages
A
Good quality products
Specialist trained inspectors
Less training, as inspectors look for faults
19
Q
Quality control disadvantages
A
Wastage is high
Takes longer and more money
Doesn’t stop workers from taking responsibility of errors
Inspector wages
20
Q
Quality assurance Advantages
A
Better relationships with workers
Workers are more motivated
No time and money wasted on faulty products
21
Q
Quality assurance disadvantages
A
Slows down production
More money to train staff
Time consuming to train staff
22
Q
Why is quality important
A
Establishes a brand image
Builds brand loyalty
Maintains good reputation
Increases sales
Attracts new customers
23
Q
TQM (total quality management)
A
The continuous improvement of products and process by focusing on quality at each and every stage
24
Q
Advantages of TQM
A
Quality is built into every part of the production
Eliminates all faults and error before the customer receives the product
Less customer complaints
Reduced costs as there is less wastage
25
Disadvantages TQM
It is expensive to train all the employees to check and improve the product and processes
Relies on every employee following the TQM ideology
26
Lean production
a production methodology focused on eliminating waste,
27
Kaizen
Seeks to constantly to introduce small incremental changes from workers to improve efficiency and quality
28
Kaizen advantages
Lower labour turnover
Workers will empowered
Increase motivation
Improves teamwork
29
Kaizen disadvantages
Difficult to change employees culture
Depends of open communication
Takes time to adjust
Workers expecting rewards by encouraging ideas
30
Just in time (JIT)
Minimum amount of stock of raw materials and finished goods are held by the business to reduce waste in a business
31
Just in case (JIC)
The business hold buffers stock of raw materials/finished goods just in case there is a problem or a sudden increase in demand
32
JIT advantages
Minimum amount of stocks
- less costs
- less wastage
- less storage costs
33
JIT disadvantages
Not be able to meet increased demand
Relays on a strong relationship of the suppliers
More frequent deliveries, transport costs
34
JIC advantages
Never run out of stock
Doesn’t need strong relationships
Can meet unexpected demand
35
JIC disadvantages
More wastage
Extra storage cost
Money is tied up in stock
36
Buffer inventory level
When you keep more inventory than you need to help meet increased demand
37
Factors influencing location decision
Retailers
Where suppliers are
Where competitors are
Costs/rent
Amenities, malls
Proximity to market, where customers are
Access to labour, where employees are
Transport links
38
Factors influencing location decision
Manufacturing businesses
Access to labour
Availability of raw materials
Availability Of fresh water and power
Rent
Near transportation system
39
Factors to consider when deciding in which country to locate operations
New market overseas
Cheaper or new sources of material
Types of labour and wages costs
Rent and tax
Availability of government grants (when governments give certain perks to business such as low costs to be in their country and helps their economy)
Trade and tariffs barriers
40
Types of business costs
Fixed costs - cost that have to be paid whether the business is making sales or and do not vary with the number of items made eg: rent
Variable costs - costs that which vary with the number of items made eg: raw materials
Total costs - the fixed costs and the total costs combined
41
Economies of scales definition
Factors that lead to lower average costs as a business increases in size
42
Diseconomies of scale definition
Factors that lead to disadvantages as a business increases in size
43
Examples of economies of scales
Purchasing economies (Buying in bulk)
Financial economies, (easier to access to finance)
Managerial economies (High quality managers)
Technical economies (Machinery automation)
Marketing economies (marketing cost less)
44
Examples of diseconomies of scale
Unmotivated workforces
Ineffective communication
Weak co-ordination through layers of decision making
45
Break even output
The quantity that must be sold for total revenue to equal the total costs
46
Break even charts
Graphs to show how revenue and costs change with sales, shows how many sales is needed for revenue to equal total costs (this is called to break even point)
Y axis - measures the money amounts (cost and revenue)
X axis - the number of units sold
Fixed costs is always a straight line as they do not vary
Total cost starts at the fixed cost line and is diagonal because the variable costs vary
47
Margin of safety definition and equation
The amount of sales that exceed to break even point
Current sales - break even point = margin of safety
48
Revenue definition and equation
The businesses income from sales during a period of time
Total revenue = quantity sold x price
49
Advantages and disadvantages of a break even chart
Easy to plan and predict the future and how we can grow from this
Can redraw multiple scenarios and analyse which one is the best
Can show the margin of safety
Break even charts are produced to assume that all products made are sold (not always the case)
Fixed cost only remain the same if the scale of production does not change (it might)
Break even charts only shows break even point there are many other aspects that impact a business
50
Break even formula
Total fixed costs / contribution per unit
(Remember the unit is units sold eg: 200 units sold)
51
Contribution formula
Selling price - variable costs
52
Using cost data to make decisions
selling prices, needs to cover costs
is it worth it?, deciding whether to stop production or continue
## deciding on the best location
53
Diseconomies of Scale.
Rising average costs when a firm becomes too big.
54
Economies of Scale.
Falling average costs due to expansion.
55
External Economies of Scale.
The cost benefits that all firms in the industry can enjoy when the industry expands.
56
Internal Economies of Scale.
The cost benefits that an individual firm can enjoy when it expands.
57
Scale.
The size of a business.
58
Batch Production.
A method, which involves completing one operation at a time on all units before performing the next.
59
Flow Production.
Large-scale production of a standard product, where each operation on a unit is performed continuously one after the other, usually on a production line.
60
Job Production.
A method of production, which involves employing all factors to complete one unit of output at a time.
61
Process Production.
A form of flow production where materials pass through a plant where a series of processes are carried out in order to change the product.
62
Downsizing.
The process of reducing capacity, usually by laying off staff.
63
Outsourcing.
The contracting out of work to other businesses that night otherwise have been performed within the organisation.
64
Productivity.
The amount of output produced in relation to the resources used.
65
Work Study.
A process, which identifies the best possible way to carry out a task by looking closely at the way a job is done.
66
Cell Production.
Involves producing a ‘family of products’ in a small self-contained unit (a cell) within a factory.
67
Just-In-Time Manufacturing (JIT).
A production technique, which is highly responsive to customer orders and uses very little stock holding.
68
Kaizen.
A Japanese term, which means continuous improvement.
69
Lead Time.
The time between receiving an order and making a delivery.
70
Lean Production.
An approach to production aimed at reducing the quantity of resources used.
71
Multi-Skilling.
Where workers are trained in more than one skill, which enables them to do a range of jobs.
72
Computer Aided Design (CAD).
The use of computers to design products.
73
Computer Aided Manufacturing (CAM).
Where compters link and control the design and production of goods in manufacturing.
74
Computer Integrated Manufacturing (CIM).
The use of computers to control the entire production process.
75
Computer Numerically Controlled Machines (CNCs).
Machines, which carry out the instructions fed by computers.
76
E-Commerce.
The trading of goods and services electronically.
77
E-Tailing.
Ordering goods online and taking delivery at home.
78
Quality.
Features of a product that allow it to satisfy customers’ needs.
79
Quality Control.
Making sure that the quality of a product meets specified quality standards.
80
Quality Assurance.
A method of working for business that takes into account customers’’ wants when standardising quality. It often involves guaranteeing that quality standards are met.
81
Total Quality Management (TQM).
A managerial approach, which focuses on quality and aims to improve the effectiveness, flexibility and competitiveness of the business.

82
What does production mean?
The process of converting inputs such as land, labour and capital into saleable goods, for example shows and cell phones. Enterprise is the idea –> plays a part in production.
83
What is productivity?
How a business measures it’s efficiency
84
How do you calculate productivity?
total output/ factor of production (total input)
85
What are some ways to improve productivity?
Improving layout of factory so production becomes faster and more efficient
Training workers so they can be more productive
employee motivation
Using automation
86
What are the benefits of increase productivity?
Lower cost per unit
Less employees needed (reduce labour cost)
Reduces overall costs.
87
What can a firm hold in its inventory?
raw materials
goods that are not completed yet (a.k.a work-in-progress)
finished unsold goods.
88
Why are finished good held in inventory?
Finished good stocks are kept so that any unexpected rise in demand is fulfilled.
89
Why do businesses hold inventory (stock)?
Businesses keep stocks for a variety of reasons:
- factories keep raw material inventory to make sure there are enough materials for production
- a shop might hold stock to ensure that products are available to customers.
90
Why is it a disadvantages of holding inventory to a business?
Warehousing costs - need somewhere to store it
Handling costs - someone needs to move it in and out
shrinkage costs - might get damaged, lost or stolen
Insurance costs - have to pay monthly or yearly fee so losses are covered
obsolescence - might not sell so out-of-date-goods
opportunity costs - money tied up could be making profit somewhere else
91
How do you calculate labour productivity?
total output in a given time period/ total workers employed
92
What is the difference between production and productivity?
Production: Turning inputs into outputs
productivity: Output per worker in a given period of time
93
Why should a business hold inventory?
production process will have to stop if you run out
Struggles to meet customer orders without it - leads to loss of sales
Economies of scale - buy stock in bulk and suppliers with give discounts
94
What are the problems with holding inventory?
Notes from book
95
What is buffer stock/ safety stock?
inventory to deal with sudden customer demands for a product or in case supplies doesn’t get delivered on time.
96
What is lean production?
Lean production refers to the various techniques a firm can adopt to reduce wastage and increase efficiency/productivity. Also reduces costs.
97
What are 5 common wastes in businesses? What do they mean?
Overproduction – Producing too many products which then costs the business money to keep the product in storage. (and may get damaged/expires etc..)
Waiting – Goods not being processed
Transporting – Materials being moved around the factory inefficiently
Over-processing – e.g. using advanced machine to do simple tasks
Defects- production of faulty products which can’t be sold.
98
What are the benefits of lean production?
less storage of raw materials, components and finished goods- less money and time tied up in inventory
quicker production of goods and services
no need to repair faulty goods- leads to good customer satisfaction
ultimately, costs will lower, which helps reduce prices, making the business more competitive and earn higher profits as well
99
What are the 3 common lean production techniques?
Kaizen
Just In Time production
Cell production
100
What is kaizen?
Kaizen means continuous improvement by eliminating waste. it’s a Japanese term meaning ‘continuous improvement’.
101
How does Kaizen work?
* It aims to increase efficiency and reduce wastage by getting workers to get together in small groups and discuss problems and suggest solutions.
* Since they’re the ones directly involved in production they will know best to identify issues.
* When kaizen is implemented, the factory floor, for example, is rearranged by re-positioning machinery and equipment so that production can flow smoothly through the factory in the least possible time.
102
benefits of Kaizen:
increased productivity
reduced amount of space needed for production
improved factory layout may allow some jobs to be combined, so freeing up employees to do other jobs in the factory
103
What is just in time production?
This techniques eliminates the need to hold any kind of inventory by ensuring that supplies arrive just in time they are needed for production.
104
What are some disadvantages of just in time?
The firm will need very reliable suppliers and an efficient system for reordering supplies.
105
What are the advantages of just in time?
reduces the cost of holding inventory
Warehouse space is not needed any more, so more space is available for other uses
Finished goods are immediately sold off, so cash flows in quickly
106
What is cell production?
the production line is divided into separate, self-contained units each making a part of the finished good.
107
How does cell production make the work more efficient?
This works because it improves worker morale when they are put into teams and concentrate on one part alone.
108
What are the three methods of production?
job production
batch production
flow production
109
What is job production?
Each product is different and made to specific instructions by the consumer. e.g. tailor made suits, customisable birthday/wedding cakes
110
What are the advantages of job production?
very flexible method of production
Workers have more varied job (They won’t become bored)
Higher price can be charged for product
Product meets requirements of the customer
111
What are the disadvantages of job production?
Skilled labour will often be required which is expensive
Costs are higher for job production firms because they are usually labour-intensive
Production often takes a long time
Since they are made to order, any errors may be expensive to fix
Materials may have to be specially purchased for different orders, which is expensive
112
What is batch production?
Similar products are made in batches or blocks. A small quantity of one product is made, then a small quantity of another. Eg: cookies, building houses of the same design etc.
113
what are the advantages of batch production?
Gives more variety of jobs to workers
Production can be easily changed from one product to another
Gives consumers a variety of products (e.g. many colour shirts)
114
What are the disadvantages of batch production?
Expensive to produce goods
Can be expensive since finished and semi-finished goods will need moving about
Machines have to be reset when changing from one batch to another which slows down production (e.g. change colour of shirts from white to green dye)
Warehouse space is needed to store products
115
What is flow production (mass production)?
large quantities of products are produced in a continuous process on the production line. Eg: a soft drinks factory.
116
what are the disadvantages of flow production?
Very boring for workers (same product over and over)
Starting costs are high (expensive machines, big factory etc…)
If a machine breaks down the whole production line may stop
Expensive storage costs as they are lots of products
117
What are the advantages of flow production?
Goods are produced quickly and cheaply (economies of scale)
Increased efficiency through use of machinery
Less labour is needed (machines do the work)
Automated production line means production can operate overnight
118
What situations affect which method of production you use? Give examples
The nature of the product – Unique products will require job production.
Size of the market – Products with small number of customers mean job or batch production is used. Products with large amount of consumers = flow production should be used.
The nature of demand – Small and infrequent demand by customers means job or batch production will be used.
The size of the business – Small businesses tend to operate using job and batch production while large business may use flow production.
119
What are some examples of technology production?
Automation
Mechanisation
CAD (computer aided designing)
CAM (computer aided manufacturing)
Electronic point of sale
Electronic funds transfer at point of sale (EFTPOS)
120
What is automation?
equipment used in the factory is controlled by computers to carry out mechanical processes, such as spray painting a car body.
121
What is mechanisation?
production is done by machines but is operated by people
122
What is CAD?
(computer aided designing): a computer software that draws items being designed more quickly and allows them to be rotated, zoomed in and viewed from all angles.
123
What is CAM?
(computer aided manufacturing): computers monitor the production process and controls machines and robots-similar to automation
124
What is electronic point of sale?
used at checkouts/tills where operator scans the bar-code of each item bought by the customer individually. The item details and price appear on screen and are printed in the receipt. They can also automatically update and reorder stock as items are bought.
125
What is EFTPOS?
(electronic funds transfer at point-of-sale): the electronic cash register at the till will be connected to the retailer’s main computer and different banks. When the customer swipes the debit card at the till, information is read by the scanner and an amount is withdrawn from the customer’s bank account (after the PIN is entered).
126
What are the advantages of using technology in production?
Greater productivity
Greater job satisfaction among workers as boring, routine jobs are done by machines
Better quality products
Quicker communication and less paperwork
More accurate demand levels are forecast since computer monitor inventory levels
New products can be introduced as new production methods are introduced
127
What are the disadvantages of using technology in production?
Higher unemployment as machines replace human labour
Technology is expensive
Technology becomes outdated very quickly and may needs to be upgraded often
128
What are the three different types of costs?
fixed costs
variable costs
total costs
average costs
129
what are fixed costs?
Fixed Costs are costs that do not vary with output produced or sold in the short run. They are incurred even when the output is 0 and will remain the same in the short run. In the long-run they may change. Also known as overhead costs
130
What are variable costs?
Variable Costs are costs that directly vary with the output produced or sold. E.g.: material costs and wage rates that are only paid according to the output produced.
131
What are some examples of fixed costs?
rents such as office space or land,
insurance
employee salaries
advertising
design and development
software
132
How can fixed costs per product be lowered?
Fixed cost per product can be lowered by making more products.
133
What are some examples of variable costs?
Materials used to produce product
wages of production worker
bought in stock
134
What is total costs?
Fixed cost and variable costs are combined
135
What are the two formulas to calculate total costs?
total costs = variable costs + fixed costs
total costs = average costs * output
136
How do you calculate average costs?
Average cost per product = Total cost / Number of products produced
137
What can business do with this cost data? What are some examples?
A business can use these cost data to make different decisions.
e.g.
- setting prices
- deciding whether to stop production
- deciding on the best location
138
How do average costs per unit help set prices?
if the average cost of one unit is $3, then the price would be set at $4 to make a profit of $1 on each unit
139
How do the total costs help when deciding whether to stop production?
if the total cost exceeds the total revenue, a loss is being made, and so the production might be stopped
140
How do costs help deciding the location?
locations with the cheaper costs will be chosen
141
As output increases, a firm’s average cost …
decreases
142
what are economies of scale?
Your average costs lower as you increase your production
143
What are the five different types of economies?
purchasing
marketing
financial
technical
managerial
144
purchasing economies?
For large output, a large amount of components have to be bought. This will give them some bulk-buying discounts that reduce costs
145
marketing economies?
Buying own vehicle to distribute product
Advertising costs can be spread over a large number of products.
146
Financial economies?
Large firms able to negotiate cheaper finance deals (e.g. lower bank loans because banks view large businesses as less risky)
147
Managerial economies?
Large businesses can afford to hire specialists to work for them. This increases efficiency.
148
technical economies?
Use of specialist machinery to produce large quantities of products. (Small businesses cannot afford this)
149
What is diseconomies of scale?
Diseconomies of scale are the factors that lead to an increase the average costs of a business as it grows beyond a certain size.
150
What are the diseconomies of scale?
poor communication
demotivation of workers (low morale)
Poor control (slow decision making)
151
How is poor communication an example of diseconomies of scale?
when a business grows large, more departments and managers and employees will be added and communication can get difficult.
Messages may be inaccurate and slow to receive, leading to lower efficiency and higher average costs in the business.
152
How is poor control (slow decision making) an example of diseconomies of scale?
As a business grows larger, its chain of command will get longer.
Communication will get very slow and so any decision-making will also take time
since all employees and departments may need to be consulted with.
152
How is demotivation of workers an example of diseconomies of scale?
153
How is demotivation of workers an example of diseconomies of scale?
when there are lots of workers in the business and they have non-contact with their senior managers
the workers may feel unimportant and not valued by management.
This would lead to inefficiency and higher average costs.
154
How are business avoiding diseconomies from arising?
Businesses are now dividing themselves into small units that can control themselves and communicate more effectively, to avoid any diseconomies from arising.
155
What is the break-even level of output?
Break-even level of output is the output that needs to be produced and sold in order to start making a profit.
the break-even output is where
output at which total revenue = total costs (neither a profit nor loss is made, all costs are covered).
156
How can you find out a businesses break-even output?
A break-even chart can be drawn
157
Have does a break-even chart show?
Shows the costs and revenues of a business across different levels of output and the output needed to break even.
158
Where is the breaking point calculated?
Now the break-even point can be calculated at the point where total revenue and total cost equals
159
What is the formula for the break-even level of output?
Total fixed costs/ selling price - variable costs (per unit)(contribution)
160
What is the margin of safety?
Tells a firm the amount sales can fall before the break-even point (BEP) is reached and the business makes no profit
161
do businesses want their margin of safety to be high or low?
As high as possible
162
What are the advantages of break-even charts?
Enables managers to see the level of production/sales needed to break even
Allows managers to read off expected profit/loss for different levels of sales
Impacts of business decisions can be seen (e.g. See effects of lowering variable costs)
Break even chart shows safety margin
163
What are the limitation of break even charts?
Assumes that all costs and revenue can e shown in straight lines i.e. won’t change
Not easy to separate costs into fixed and variable costs
Assumes all output is sold, doesn’t take into account holding inventory
164
What is contribution (formula)?
Selling price – Variable cost per unit (this is the value added/contributed to the product when sold)
165
What is quality?
Quality means to produce a good or service which meets customer expectations. The products should be free of faults or defects.
166
Why is quality is important?
establishes a brand image
builds brand loyalty
maintains good reputation
increase sales
attract new customers
167
What happens if there is no quality?
lose customers to other brands
have to replace faulty products and repeat poor service, increasing costs
bad reputation leading to low sales and profits
168
There are three methods a business can implement to achieve quality. These are:
quality control
quality assurance
total quality management
169
What is quality control?
Quality control is the checking for quality at the end of the production process, whether a good or a service.
170
What are some advantages of using quality control?
Eliminates the fault or defect before the customer receives it, so better customer satisfaction
Not much training required for conducting this quality check
171
What are some disadvantages of using quality control?
Still expensive to hire employees to check for quality
Quality control may find faults and errors but doesn’t find out why the fault has occurred, so the it’s difficult to solve the problem
if product has to be replaced and reworked, then it is very expensive for the firm
172
What is quality assurance?
Quality assurance is the checking for quality throughout the production process of a good or service.
173
What are some advantages of quality assurance?
Eliminates the fault or defect before the customer receives it, so better customer satisfaction
Since each stage of production is checked for quality, faults and errors can be easily identified and solved
Products don’t have to be scrapped or reworked as often, so less expensive than quality control
174
What are some disadvantages of quality assurance?
Expensive to carry out since quality checks have to be carried throughout the entire process, which will require manpower and appropriate technology at every stage.
How well will employees follow quality standards? The firm will have to ensure that every employee follows quality standards consistently and prudently, and knows how to address quality issues.
175
What are the advantages of TQM?
quality is built into every part of the production process and becomes central to the workers principles
eliminates all faults before the product gets to the final customer
no customer complaints and so improved brand image
products don’t have to be scrapped or reworked, so lesser costs
waste is removed and efficiency is improved
175
What is Total Quality Management (TQM)?
Total Quality Management or TQM is the continuous improvement of products and production processes by focusing on quality at each stage of production. There is great emphasis on ensuring that customers are satisfied.
176
What are the disadvantages of TQM?
Expensive to train employees all employees
Relies on all employees following TQM– how well are they motivated to follow the procedures?
177
How can customers be assured of the quality of a product or service?
They can look for a quality mark on the product like ISO (International Organisation for Standardisation). The business with these quality marks would have followed certain quality procedures to keep the quality mark - good reputation
178
What factors affect the location decisions of a manufacturing firm?
Quantitive (measurable financial terms):
- government incentives
- Market potential (main reason)
- Cost of the site
- Labor costs
- Transport costs
Qualitative:
- The size of the site
- legal restrictions
- quality of infrastructure
- ethical issues
Production Method
Market
Raw Materials/Components
External economies
Availability of labour
Government Influence
Transport & Communication infrastructure
Power and water supply
Climate
Owner’s personal preferences
179
How does the production method of a business affect its location?
When job production is used, the business will operate on a small scale, so the nearness to components/raw materials won’t be that important.
For flow production, on the other hand, production will be on a large scale- there will be a huge amount of components and transport costs will be high- so components need to be close by.
180
How does the market of a business business choosing its location?
if the product is a consumer good and perishable, the factories need to be close to the markets to sell out quickly before it perishes.
181
How do the raw materials/Components of a place affect a business choosing its location?
the factories may need to be located close to where raw materials can be acquired, especially if the raw material is to be processed while still fresh, like fruits for fruit juice.
182
How do the external economies of a place affect business choosing its location?
the business may locate near other firms that support the business by provide services- eg: business that install and maintain factory equipment.
183
How does the availability of labour of a place influence a business choosing its location?
Businesses will need to locate near areas where they can get workers of the skills they need in the factory.
If lots of unskilled workers are needed in the factories firms locate in areas of high unemployment.
Wage rates also vary by location and firms will want to set up in locations where wage rates are low
184
How does the government influence of a place influence a business choosing its location?
the government sometimes gives incentives and grants to firms that set up in low-development, rural and high-unemployment areas.
There may also be govt. rules and restrictions in setting up, e.g.: in some areas of great natural beauty.
The business needs to consider these.
185
How does the Transport & Communication infrastructure of a place influence a business choosing its location?
the factories need to be located near areas where there are good road/rail/port/air transport systems.
If goods are to be exported, it needs to be set up near ports.
186
How does the Power and water supply of a place influence a business choosing its location?
factories need water and power to operate and a reliable and steady supply of both should be ensured by setting up in areas where they are available.
187
How does the climate of a place influence a business choosing its location?
not the most important factor but can influence certain sectors.
Eg: the dry climate in Silicon Valley aids the manufacturing of silicon chips.
188
What factors affect the location decisions of a retailing firm?
shoppers
nearby shops
Customer parking availability
Availability of suitable vacant premises
Rent/taxes
Access to delivery vehicles
Security
189
What factors affect the location decisions of a retailing firm?
shoppers
nearby shops
Customer parking availability
Availability of suitable vacant premises
Rent/taxes
Access to delivery vehicles
Security
190
How do the shoppers affect the location decisions of a retailing firm?
retailers need to be located in areas where shoppers frequent, like malls, to attract as many customers as possible.
191
How do the nearby shops affect the location decisions of a retailing firm?
being located to other shops that are visited regularly will also attract attention of customers into the shop.
Being near competitors also helps keep an eye on competition and snatch away customers.
192
How do the customer parking availability affect the location decisions of a retailing firm?
when parking is available nearby, more people will find it convenient to shop in that area.
193
How do the availability of suitable vacant premises affect the location decisions of a retailing firm?
Obviously, there needs to be a vacant premise available to set up the business.
Vacant premises can also help the business expand their premises in the future.
194
How do the Rent/taxes affect the location decisions of a retailing firm?
rents and taxes on the locations need to be affordable.
195
How do the access to delivery vehicles affect the location decisions of a retailing firm?
if the retailer has home delivery services, then delivery vehicles will be required.
196
How do the secuirty affect the location decisions of a retailing firm?
high rates of crime and theft can happen in shops.
Shopping complexes with security guards will thus be preferred by firms.
197
Why businesses locate in different countries?
New markets overseas.
Cheaper or new raw materials available in other countries.
Cheaper and/or skilled workers are available overseas.
Rent/ taxes are lower..
Availability of government grants and other incentives
Avoid trade barriers and tariffs
198
Why do businesses want to avoid trade barriers and tariffs?
When exporting goods to other countries, there will be some tariffs, rules and regulations to get by. in order to avoid this, firms start operating in the country itself, since there is no exporting/importing involved now.
199
What is the role of legal controls on location decisions?
(How does the Government influence location decisions)
to encourage businesses to set up and expand in areas of high unemployment and under-development.
Grants and subsidies can be given to businesses that set up in such areas.
to discourage firms from setting in areas of that are overcrowded or renowned for natural beauty.
Planning restrictions can be put into place to do so.
200
Map out the production process:
INPUTS (Economic resources) –> Factors of production (Land, Labour, Capital and Enterprise) –> Production process –> OUTPUTS –> goods/ services
201
How to manage resources effectively to produce goods and services?
Use resources in the most cost-effective way
Produce the required output to meet consumer demand
Meet the quality standard expected by consumers
202
Productivity
measure of the efficiency of inputs used in production process, especially labour and capital
203
How to calculate productivity?
Quantity of outputs / quantity of inputs
204
How to calculate labour productivity?
Total output / number of employees
205
Production
process of converting inputs such as land, labour and capital into saleable goods.
206
What are the benefits of increasing efficiency and how to increase it?
Lower average costs - cost of producing each unit of output
Increased output relative to inputs required
Fewer workers possibly needed, lower wage costs
Higher wages for workers increased motivation
207
How to improve labour productivity?
Improving skill level
Improving motivation (bonus, incentives, job enrichment, etc.)
Introducing more automation and better technology
Improving quality of management decisions
Lean production
208
What do inventories include?
Raw materials and components needed for production
Work-in-progress, which are partly finished goods that have not yet completed the production process
Finished goods ready to be sold or sent out to customers
209
What do inventories include?
Raw materials and components needed for production
Work-in-progress, which are partly finished goods that have not yet completed the production process
Finished goods ready to be sold or sent out to customers
210
What do costs of inventories include?
Warehousing costs: the business will need to rent or purchase a warehouse to store the inventories
Handling costs: Inventories need to be moved out of the warehouse
Shrinkage costs: Damaged, lost or stolen inventories will need to be replaced
Insurance costs: These will cover the cost of losses from shrinkage
Obsolescence: The business may not be able to sell out of date goods
Opportunity cost: Working capital is tied up in inventories which could be used more profitably by the business
211
Lean production
production of goods and services with the minimum waste of resources
212
Potential waste in production
Overproduction (high storage costs, damage to goods in storage)
Waiting
Transportation (causes waste, cost potential damage)
Unnecessary inventory
Motion (waste time)
Over-processing
Defects
213
What are methods of lean production?
Just In Time (JIT)
- Kaizen
214
Just In Time (JIT)
Just in time is the name of the method of using very little inventory (stock of components using in production) so that you only order what you need, when you need it
The raw materials or components are delivered just in time for when you need them.
215
Advantages + disadvantages of JIT
+ reduces the cost of holding inventory
+ saves space in warehouses
+ cash flow is better because money isn’t tied up in parts that have not been used yet
- supplier might not deliver materials in time
216
Kaizen
Means ‘continuous improvement” in Japanese and it is focused on the elimination of waste.
The improvement comes from the workers themselves.
-> Meet regularly to discuss problems and possible solutions.
217
Advantages + disadvantages of Kaizen
+ increased productivity
+ reduces amount of space needed for the production process
+ work-in-progress is reduced
+ improved layout of factory floor allow some jobs to be combined, freeing up employees to carry out other jobs
- time consuming
- plans need to be carefully thought out
218
What are the main methods of production?
Job production
Batch production
Flow production
219
Job production
where a single product is made at a time
220
Advantages + disadvantages of job production
+ unique, high quality
+ workers are often motivated and take pride in their work
- economies of scale are not possible
- product can take a long time and can be expensive
- uses skilled labour rather than machinery so selling prices are higher
221
Batch production
manufacturing items in sets for a particular length of time, before switching the manufacturing line to produce a different type of set
222
Advantages + disadvantages of batch production
+ lower unit costs
+ materials can be bought in build so cheaper
+ offers customer some variety of choice
- workers are often less motivated because work is repetitive
- goods have to be stored until they are sold -> expensive
223
Flow production
continuous production of large quantity of goods by an automated process
224
Advantages + disadvantages of flow production
+ capital intensive which lowers labour costs
+ bulk buying of materials so cheaper
+ large number of goods are produced
- requires large capital investment in production line
- high levels of raw material -> inventories -> increases costs
- inflexible
- repetitive
225
How has technology changed production methods?
Technology has increased production efficiency by producing less waste because computers make less mistakes than humans do
More cost effective
Decreases labour costs
Computer aided designs: fast way of producing designs of a product
226
Fixed costs
Costs that do not change with output
227
Variable costs
Costs that change in direct proportion to output
228
Total cost
All the variable and fixed costs of producing the total output
= variable costs + fixed costs
229
What are the uses of cost data?
Setting prices
Deciding whether to stop production
Deciding on the best location
230
Economies of scale
Factors that lead to a reduction in average costs as a business increases in size
231
Financial
Lenders such as banks often prefer to lend to large businesses because they consider them less of a risk than smaller businesses
232
Managerial
As a business grows, it often employs specialist managers for the different functional area, which improves the quality of business decisions and make fewer mistakes
233
Marketing
Average costs of marketing falls as output and sales increase
234
Purchasing
Large businesses usually buy greater quantities of raw materials. Suppliers often offer discounts on large or bulk purchases
235
Technical
Technology enables businesses to produce very high levels of output at lower unit costs
236
Diseconomies of scale
Factors that cause average costs to rise as the scale of operations increases
237
Factors of diseconomies of scale
Poor communication
Demotivation of workers
Poor Control
Alienation of staff
Slow decision making
238
Break-even
level of output where revenue equals total costs; business is making neither profit nor loss.
239
Breakeven analysis
shows the relationship between revenue, costs and volume of output/sales.
240
Use of breakeven analysis
Calculate how many units it needs to sell before it starts to make a profit
Calculate effect on profit of increasing or decreasing the price of a product
Calculate effect on profits of an increase or decrease in business costs
241
How to calculate breakeven sales?
Total fixed costs / Contribution Selling price - variable cost per unit
242
Limitations of breakeven chart
It assumes that all costs and revenues can be represented by straight lines
It is not easy to separate costs into fixed and variable
It assumes that all output is sold - it does not allow for inventories and the costs of holding these
243
Ways in which break even analysis may be helpful:
Planning/forecasting/decision making/helping set prices
Help work out level of profit at different levels of output
Show margin of safety
Shows how much needed to produce to avoid loss
Help apply for finance
244
Quality
ensuring a good or service that meets the needs and requirements of its customer
245
Why is Quality important?
if product/service does not meet requirements of customer, leading to them not buying → decreases business’ sales, reputation, profit
246
Quality control
process of ensuring that products have standard or uniform quality
247
Advantages and disadvantages of quality control
\+ reduces faults and errors
\+ less training for workers
\+ improves reputation
- expensive
- identifies the fault but may not know why there is a fault
- increases cost of scrap and repairs
- slows down production process
248
Quality assurance
checking for quality standards throughout the production process at every stage
249
Total Quality Management (TQM)
continuous improvement. It’s not just about the final product but also the process. Everyone in the system feels satisfied with quality and the process.
250
Advantages and disadvantages of quality assurance
\+ fewer customer complaints
\+ reduced cost in scrap
\+ tries to eliminate faults before customer receives them
- time consuming
- expensive - employees need training
251
Quality circles
where groups of workers meet regularly and discuss problems and possible solutions
252
Zero defects
systems that make sure no products leave the business with defects
253
Statistical Process Control
statistics which are generated to enable the business to evaluate their quality procedures
254
Advantages and disadvantages of TQM
+ corrects errors in a right first time approach
+ saving money no reworking
+ brand image is improved
+ waste is removed
- expensive as employees need training
- time consuming
- needs a culture of TQM which takes time and leadership
255
Factors relevant to the location decision of manufacturing businesses and service businesses
Quantitative factors:
Cost of site
Availability and cost of labour
Transport costs
Market potential
Issues
Government incentives
Qualitative factors:
Size of site
Legal controls
Infrastructure
Ethical
256
Factors that a business could consider when deciding which country to locate operations in
Barriers to trade
Economy of the country
Legal controls
Costs
Cultural differences
Communication problems
Ethical concerns
Quality issues
257
Role of legal controls on location decision
restrict businesses from operating near local housing or areas that could be harmed by noise pollution, light pollution, air pollution etc.
258
production
the process of converting inputs such as land, labour and capital into saleable goods, for example shoes and cell phones
259
productivity
a measure of the efficiency of inputs used in the production process, especially labour and capital
260
inventories
the stock of raw materials, work-in-progress and finished goods held by a business
261
lean production
the production of goods and services with the minimum waste of resources
262
job production
the production of items one at a time
263
batch production
the production of goods in batches. each batch passes through one stage of production before moving on to the next stage
264
flow production
the production of very large quantities of identical goods using a continuously moving process
265
capital intensive
production process that uses a high quantity of capital equipment compared with labour input
266
fixed costs
costs that do not change with output
267
variable costs
costs that change in direct proportion to output
268
total cost
all the variable and fixed costs of producing the total output
269
average costs
the cost of producing a single unit of output
270
economies of scale
the reduction in average costs as a result of increasing the scale of operations
271
diseconomies of scale
factors that cause average costs to rise as the scale of operations increases
272
break-even
the level of output where revenue equals total costs; the business is making neither profit nor loss
273
margin of safety
the difference between the current level of output and break-even output
274
quality
ensuring a good or service meets the needs and requirements of its consumer
275
quality standards
the minimum standard of production or service acceptable to consumers
276
quality control
checking the quality of goods through inspection
277
quality assurance
a system of setting agreed standards for every stage of production
278
infrastructure
the basic facilities, services, and installations needed for a business to function, for example water, power, transport links
279
government incentives
usually finance such as interest-free loans or grants provided to a business to help when locating in a country or an area of a country
280
What is production?
It is the provision of a product or service to satisfy consumer wants and needs. The process of production adds value to the raw materials and bought in components
281
In production what does adding value mean?
Businesses combine the inputs of a business (factors of production) to produce a more valuable product or service.
282
What is productions role in maintaining competitiveness?
The resources should be combined efficiently it makes the best use of resources, to keep costs low and and wastage low to increase profits.
283
What is a labor-intensive business? When is it’s usage most appropriate?
Is a business that uses mostly manual labor in production. Its best used in developing countries where the need for employment is high and so wages swill be low.
284
What is a capital intensive business? When is it’s usage most appropriate?
Is when the production process mostly uses machinery and robots instead of workers. This is seen in mainly developed countries where wages are high because many are skilled.
285
What is the role of the operations department?
To take in inputs and convert them into outputs that satisfy the need and wants of the customer. They make sure that raw materials are provided and made into finished goods or services.
286
Who is a Factory manager?
Is responsible for the quantity and quality of products coming out of the production line. Includes maintenance and repairs.
287
Who is the Purchasing manager?
Responsible for providing materials, components and equipment necessary for production?
288
Who is the research and and development manager
Responsible for design and testing of new production processes and products.
289
Define the term productivity.
Output measured against inputs used to create it; labour
290
What does level of production mean?
The total output of a business in a given time period.
291
What is labor productivity?
Is the output produced by the labor force over a given period of timber against the number of workers employed.
292
What are the two main ways of raising productivity?
1. Using fewer outputs to produce the same output
2. Using the same inputs to produce a higher level of output.
293
Why do businesses desire increased productivity?
Efficient employees produce more output, for the same cost. This means the cost price of producing each product decreases and allows for higher profits.
294
List out ways to improve productivity
Waste reduction
Automation.
Employee training.
Employee motivation.
Technology.
295
What are the benefits of increasing efficiency/productivity?
Reduced inputs needed for the same output level.
Lower costs per unit (average cost).
Fewer workers maybe needed, possibly leading to lower wage costs.
Higher wages for worker: more motivation.
296
Define the term Inventory.
Materials, work in progress or completed goods held by a business which are or will be ready for sale.
297
Define the term Buffer inventory level.
Inventory held to deal with unexpected changes, e.g. in consumer demand which are or will be ready for sale.
298
In inventory management, what do we call the reorder point?
Is the point where a re-order will be placed with the supplier due to the decreasing of inventories either from sale or damage. It usually placed before a critical level as suppliers may take time to deliver.
299
Why should businesses not have too much inventory?
It would increase costs. The business will have to pay for warehousing. It also means that the money spent could have been used somewhere else; opportunity cost.
300
Define the term lean production.
Cutting out on waste and inefficiency in the production process.
301
What is the main aim of lean production?
To reduce the time taken for a product to be developed and become available in the shops for sale.
302
Identify the types of waste that could occur in production.
-Overproduction.
-Waiting.
-Transportation.
-Unnecessary inventory.
-Motion.
-Over-processing.
-Defects.
[OUT-MOWD]
303
Identify the benefits of lean production
less storage of raw materials or components.
Quicker production of goods and services.
No need to repair or provide replacements for unhappy customers.
Better use of equipment.
Cutting out some processes which speed up production.
Less money tied up in inventory.
Improved health and safety, less time off work due to injury.
304
Name three of the most popular methods of lean production.
Kaizen.
Just-in-tie inventory control
Cell production.
305
Define the term kaizen.
Continuous improvement through the elimination of waste.
306
Describe how kaizen is used to improve production.
Groups of workers meet regularly to discuss problems and possible solutions. It does not involve increased investments.
307
Why is Kaizen a better way to manage production and traditional methods?
Workers spend most of the time in production and so would have better knowledge than their employers or managers, as they do not spend much time in the production process.
308
How does Kaizen eliminate waste?
Getting rid of large amounts of inventory.
- Reducing time workers spend moving around the factory.
309
Describe how kaizen is implemented.
Machines are reorganized in cells and the factory floor is rearranged.
The floor will be open and marked with color coded lines
310
Identify the advantages of Kaizen:
Increased productivity
Reduced required space
Work-in-progress is reduced.
Layout may allow for jobs to be combined. Workers can be freed and used elsewhere.
311
Define Just-in-time.
Reducing or eliminating the need to hold inventories of materials and finished goods.
312
Explain how Just-in-time production works.
The materials are brought in just in time to be used, the making of components is done just in time before it goes along the next stage of production and then it is sent for sale just in time for when it is needed.
313
Why would a business want to use JIT?
reduces cost of holding inventory
Warehouse costs is not needed
Finished products sold quickly so money comes in fast and maintains a healthy cash flow.
314
What is the main disadvantage of JIT?
The business will need very reliable suppliers and an efficient system of ordering raw materials or components.
315
Define job production
A single product is made at a time.
316
List out some examples of Job production suited businesses.
Specialist machinery manufacturers
Tailors
Cinema films
Individual computer programs.
317
Identify the advantages of job production.
suitable for personal services or one-off products.
Product meets exact requirements.
Workers have varied jobs.
Increased employee motivation.
Flexible.
318
Identify the advantages Disadvantages of job production.
Skilled labor
Labor intensive.
Production takes long.
Products are mad specially to order. Errors are expensive to correct.
Materials may have to be specially purchased so leading to higher costs.
319
Define batch production.
A quantity (batch) of one product is made, then a quantity of another item will be produced (e.g. bread, dresses)
320
List out some examples of when using batch production is appropriate.
A small bakery.
Real estate; many similar houses built together.
Furniture.
Clothing.
321
Identify the advantages of using Batch production.
Flexible; production can be changed easily.
Workers have variety in their jobs.
Allows for a variety of products. More consumer choice.
Production of severely affected when machines break down.
322
Identify the disadvantages of Batch production.
Expensive as partially made products have to be moved to the next stage of production.
Machines have to be reset between production. Output is lost.
Warehouse space is need for inventories of raw materials and finished batches of goods.
323
Define flow production.
Large quantities of a product are produced in a continuous process.
324
Describe the process of flow production.
The basic ingredients are put together at one end of the production line and then product moves and more parts are added and so on, until the product is finished and packaged for sale.
325
List out some examples of businesses that make use of flow production.
Cars
Cameras.
Televisions.
Packaged foods and drinks
326
Identify the advantages of flow production:
Higher output of a standard product.
Low cost for each product and so prices are also low.
Allows for Capital-intensive production. Less labor costs and more efficient
Workers can specialized.so unskilled workers can be hired and trained.
Benefits of economies of scale.
Low average costs. So low prices and high sales.
Automated production lines operate 24 hours a day
Time is saved as products do not have to be moved around much.
327
Identify the disadvantages of Flow production.
Very boring system for workers. Little job satisfaction.
Significant storage requirements.
High set up costs for capital.
Production has to stop if a machine breaks down.
328
Identify the factors for deciding which production method is best suited.
The nature of the product.
The size of the market.
The nature of the demand.
The size of the business.
329
Explain how technology has benefited businesses today.
The use of automation keeps businesses ahead of the competiton, keeps costs falling, reduces prices and improves the products manufactured.
330
List out the different technologies that can be used in business.
Automation: Machines controlled by computer.
Mechanization: produced by machines operated by people.
CAD: Quick design for products.
CAM: Computers monitor production process and control machines.
CIM: Integration of CAM and CAD.
331
How has technology improved productivity in shops?
EPOS: Shows price and description at checkouts and inventory is managed appropriately.
EFTPOS: Electronic cash register at check out.
Contactless payment.
332
Identify the advantages of new technology:
Higher productivity.
Greater job satisfaction. Routine done by machines.
Highly skilled and motivated workers.
Better quality products.-Quicker communication and reduced paperwork.
More information available for managers, allowing for faster decision makings.
Opportunities for new products.
333
Identify the disadvantages of new technology.
Unemployment.
Initial cost is expensive.
New work practices make employees unhappy.
Technology becomes outdated quite fast.
334
Why do managers have to worry about cost?
To compare cost with revenue to calculate whether or not a profit is made.
To compare costs of locations, to aid decision making process.
To decide the price to charge customers.
335
What are fixed costs?
Costs that do not vary with the number of items of output produced (in the short run). They have to be paid, regardless the sales or production. Also known as overhead costs.
336
What are variable costs?
Are costs which vary directly with the number of goods produced or sold.
337
Are costs which vary directly with the number of goods produced or sold.
Management salaries
- Rent for property.
338
Identify some examples of variable costs.
Material costs.
- Piece-rate labor cost
339
Define total costs.
They are fixed and variable costs combined.
340
Define Average costs.
Total costs divided by b=number of units sold/produced; also called cost per unit.
341
How is total costs calculated.
Total costs of production =fixed costs + Variable costs
342
How is the average cost of production calculated?
Total cost of production (in a time period)/
Total output (in a time period)
343
How can total cost be calculated if average cost of production and the level of output is known.
Total cost= average cost per unit x output.
344
How can cost data be used?
Setting prices.
Deciding whether to stop production or continue.
Deciding on the location.
345
Explain why average cost is needed to set prices.
If it is not know, the business could charge a price that leads to a loss.
They could even charge unrealistic prices for customers which means less sales.
346
Explain why average cost is needed to deciding whether to stop production or continue.
No business wants to continue to make a loss.
- However factors like just launching a product and fixed costs have to be considered.
347
production def`
the process of converting inputs such as land, labour, and capital into saleable goods
348
primary sector def
firms whose business activity involves the extraction of natural resources.
349
secondary sector def
firms that process and manufacture goods from natural resources
350
tertiary sector def
firms that supply a service to consumers and other businesses
351
what is operations management
mangaging business resources throughout the production process so as to produce finished goods
352
productivity def
a measure of the efficency of inputs used in the production process, especially labour and capital.
353
labour productivity =
total output / number of production workers
354
what must operations management do
use resources in the most cost-effective way
produce the required output to meet consumer demand
meet the quality standard expected by consumers
355
how do you increase productivity of workers
improving the skill level of workers
improving the motivation of workers
introducing more automation/technology
improving quality of managment decisions
356
how do you increase productivity of workers
improving the skill level of workers
improving the motivation of workers
introducing more automation/technology
improving quality of managment decisions
357
inventories def
the stock of raw materials, work -in-progress and finished goods held by a business
358
what do businesses hold stock of
raw materials and components
work in progress
finished goods
359
how does holding inventories add to a businesses costs
warehousing costs
handling costs
shrinkage costs
insurance costs
obsolescence
360
what is obsolescence
the business may not be able to sell out of date goods.
361
why do businesses hold inventories
1. the production process needs raw materials or components. if these are not available when they’re needed production will stop and ouput will decrease
2. if the business does not have finished goods in stock, then orders cannot be met and the business will lose sales. this could result in the loss of current and future sales.
3. purchasing economies (bulk buying)
362
lean production def
the production of goods and services with the minimum waste of resources.
363
examples of lean production
Just in time inventory control
Kaizen
364
benfits of lean production
new products can be brought to the market more quickly
quality is improved
wastage of time and other resources is reduced or eliminated
the costs of holding inventories is eliminated
unit costs are reduced
365
what is Just in time inventory control
raw materials and components arrive from suppliers just as they are needed by the production process. as soon as finished goods leave the production process, they are delivered to the customer.
366
what is Kaizen
the approach gives all workers the opportunity to make suggestions about how to improve quality or productivity.
367
job production
the production of items one at a time
368
batch production
the production of goods in batches. each batch passes through one stage of production before then moving onto the next stage.
369
flow production
the production of very large quantities of identical goods using a continuously moving process.
370
capital intensive def
production process uses a high quantity of capital equipment compared with labour input.
371
what is CAD
computer aided design
372
what is CAM
computer aided manufacturing
373
fixed costs
costs that do not change with output
374
variable costs
costs that change in direct proportion to output
375
total cost
all the variable and fixed costs of producing the total output
376
total costs =
fixed costs + total variable costs
377
average costs
the cost of producing a single unit of output
378
example of fixed costs
rent, salaries, telephone bill - contract
379
example of variable costs
electricity, transport, wages - part time workers
380
average costs =
total cost / quantity produced
381
economies of scale
the reduction in average costs as a result of increasing the scale of operations
382
marketing economies
these economies exist because certain costs such as producing an advert can be spread over more units of output for a larger firm
383
purchasing economies
big multinational firms can get cheaper rates from suppliers as they buy in bulk at discounted prices
384
risk bearing economies
wider product ranges and more markets help to reduce the business risk; larher firms can invest in research an development projects
385
managerial economies
specialists such as accoutants can be employed to improve efficency through specialisation
386
financial economies
larger companies have easier access when raising money, banks are happy to lend at low interest rates because of the huge sums involved.
387
technical economies
larger factories invest more into machinery; this improved efficency and enables specialisation
388
diseconomies of scale
factors that cause average costs to rise as the scale of operations increases
389
problems for a business that has become too large
poor communication
demotivation of workers
poor control
390
problems for a business that has become too large
poor communication
demotivation of workers
poor control
391
reasons for breakeven charts
helps business decide how much to sell in order to make profit
helps business decide what the selling price should be
helps business gain loans from banks
392
limitations of break even charts
difficult to predict number of customers who will buy the firms products
changes in economy could cause demand for products/services to decrease
new competitors entering the market can lead to firms reducing the selling price to maintain market share.
393
break-even def
the level of output where revenue equals total costs, the business is making neither profit nor loss.
394
what is margin of safety
the difference between actual output and breakeven level of output
395
start up capital def
the capital needed by an entrepreneur when first starting a business
396
working capital def
the capital needed to finance the day to day running of the business
397
non-current fixed assets def
resources owned by a business which will be used for a period longer than a year, for example buildings or machinery
398
capital expenditure def
spending by a business on non-current assets such as machinery or buildings
399
long term fianance def
debt or equity used to finance the purchase of non-current assets or finance expansion plans. long-term debt is borrowing a business does not expect to repay in less than five years
400
short term finance def
loans or debt that a business expects to pay back within one year
401
quality def
ensuring a good or service that meets the needs and requirements of its consumer
402
quality standards def
the minimum acceptable standard of production or service acceptable to consumers
403
why is quality important
brand image
keep customers and attact new ones
reduce customer complaints and returns
charge a premium price
encourage wholesalers and retailers to stock the product
lengthen product life cycles
404
quality control def
checking the quality of goods through inspection
405
quality assurance def
a sysem of setting agreed standards for every stage of production
406
infrastructure def
the basic facilities, services and installations needed for a business to function, e.g. water, power, transport links
407
quantative factors examples
cost of site
availability and cost of labour
transport costs
market potential
issues
408
qualitative factors examples
site
legal controls
infrastructure
ethical concerns
409
government incentives def
usually finance such as interest-free loans, or grants provided to a business to help when locating in a country or area of a country
410
why would businesses locate their operations to anothr country
/continent
growth
reduce production costs
locate production closer to market
lower labour costs
access to global makrets
avoid legal barriers and tarriffs
gov incentives
411
problems of locating operations in another continent
cultural differences
communication problems
ethical concerns
quality issues
