4.1 Production of goods and services

Question 1

How to manage resources effectively to produce goods and services?

Answer 1

• Use resources in the most cost-effective way
• Produce the required output to meet consumer demand
• Meet the quality standard expected by consumers

Question 2

Productivity

Answer 2

measure of the efficiency of inputs used in production process, especially labour and capital

Question 3

How to calculate productivity?

Answer 3

Quantity of outputs / quantity of inputs

Question 4

How to calculate labour productivity?

Answer 4

Total output / number of employees

Question 5

Production

Answer 5

process of converting inputs such as land, labour and capital into saleable goods.

Question 6

What are the benefits of increasing efficiency and how to increase it?

Answer 6

Adv:
- Lower average costs - cost of producing each unit of output
How:
- Increased output relative to inputs required
- Fewer workers possibly needed, lower wage costs
- Higher wages for workers increased motivation

Question 7

How to improve labour productivity?

Answer 7

Improving skill level
Improving motivation (bonus, incentives, job enrichment, etc.)
Introducing more automation and better technology
Improving quality of management decisions
Lean production

Question 8

What do inventories include?

Answer 8

• 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

Question 9

What do costs of inventories include?

Answer 9

• 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• Obsolescence: The business may not be able to sell out of date goods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

Question 10

Lean production

Answer 10

production of goods and services with the minimum waste of resources

Question 11

Potential waste in production

Answer 11

Overproduction (high storage costs, damage to goods in storage)
Transportation (causes waste, cost potential damage)
Unnecessary inventory
Motion (waste time)
Over-processing
Defects

Question 12

What are methods of lean production?

Answer 12

• Just In Time (JIT)
• Kaizen

Question 13

Just In Time (JIT)

Answer 13

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.

Question 14

Advantages + disadvantages of JIT

Answer 14

+ 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

Question 15

Kaizen

Answer 15

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.

Question 16

Advantages + disadvantages of Kaizen

Answer 16

+ increased productivity
+ reduces amount of space needed for the production process
+ work-in-progress is reduced
- time consuming
- plans need to be carefully thought out

Question 17

What are the main methods of production?

Answer 17

Job production
Batch production
Flow production

Question 18

Job production

Answer 18

where a single product is made at a time

Question 19

Advantages + disadvantages of job production

Answer 19

+ 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

Question 20

Batch production

Answer 20

manufacturing items in sets for a particular length of time, before switching the manufacturing line to produce a different type of set

Question 21

Advantages + disadvantages of batch production

Answer 21

+ 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

Question 22

Flow production

Answer 22

continuous production of large quantity of goods by an automated process

Question 23

Advantages + disadvantages of flow production

Answer 23

+ 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

Question 24

How has technology changed production methods?

Answer 24

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