Production Flashcards
Added value and formula
The difference between the cost of purchasing raw materials and the price at which the finished goods are sold
•selling price - bought-in goods and services
How to add value
•purchasing cheaper raw materials
•improve efficency of the production process- up-to-date machinery, training
•raising the price of the product
•achieving brand status
•offering additional services
•improving customer access/convenience
Job production and examples
A unique product that is often made by a skilled craftsman specific to a person’s requirement
•wedding dress, tailor made suits, buildings, bridges
Advantages of job production
•unique product
•likely to be high quality
•charge higher prices due to uniqueness
•specialised employees
Disadvantages of job production
•can be expensive for the customer
•time-consuming
•higher wage bill- skilled employees
•target a smaller market
Batch production and examples
The manufacture of a limited number of identical products- within each stage of the production process work will be completed for the whole batch before the next stage is begun
•clothes, paint, bread
Advantages of batch production
•reduction in unit cost- EOS
•products can be produced in large or small quantities depending on demand
•allows for a variation in the product being produced
•quicker than job production
•use specialist machinery- doesn’t need skilled employees
Disadvantages of batch production
•if there’s a faulty product in the batch the whole batch has to be written off
•time lost switching between batches- cleaning and machinery
•employees become demotivated
•initial cost of machinery
•lost production time due to breakdown of machinery
Flow production and examples
Production is organised so that different operations can be carried out one after the other, in a continuous sequence as production moves continuously from one stage of the process to the next
•creme eggs, car manufacturing
Advantages of flow production
•large quantities can be produced for simplified, standardised products
•unit costs are reduced
•machinery means quality and uniformity can be maintained
•can be virtually non-stop for long periods of time
•less labour is required
•faster production methods
•reduction in wage bill
Disadvantages of flow production
•set up costs can be very high
•products tend to be standardised
•breakdowns can be costly
•repetitive and boring jobs
what does the type of production used depend on
•the product being produced
•cost of labour
•cost of capital
•availability of money for investment
•technology
•skills of labour
•size of the market
•customer requirements
Productivity
A measurement of the efficiency with which a business turns production inputs into ouput
Labour productivity formula
Output (per period)
÷
Number of employees
Capital productivity formula
Output
÷
Capital employed
Advantages of high productivity
•increased economies of scale
•increased competitiveness
•spreading the fixed costs over higher output
•lower unit costs
•performance bonuses to employees
How to improve productivity
•technological improvements
•replacing labour with machinery
•multi-skilled workforce through training
•improve motivation of workforce
•reducing absenteeism
•redesigning production processes
•job enrichment, job rotation
•adapt management styles
•adopting a ‘kaizen’ approach
•delayering and empowerment
•benchmarking
Capital utilisation and formula
The use that a business makes of its resources; measured by comparing actual output with potential output at full capacity
Actual level of output
÷ x100
Maximum possible output
Advantages of operating at full capacity
•average costs minimised- fixed costs spread help to raise profits
•more job security- motivation
•improves company image
Disadvantages of operating at full capacity
•possible fall in quality- strain on resources if over-worked
•pressure on staff- stress, absences, accidents
•machinery may be overworked and break down
•lack of flexibility
Problems of spare capacity
•demotivating of staff- bonuses are limited, no overtime, threat of redundancy
•increased costs to the business- redundancy payments
•reduced profits- limit capital for investment and research and development
•lack of return on investment capital
Resolving the problems of capacity underutilisation (spare capacity)
•subcontracting
•rationalisation
•increasing the use of assets
Subcontracting
Getting someone else to produce the goods for you- reduction in risk to the business
Advantages of subcontracting
•reduction in capital investment required- machines, factory space, workers
Disadvantages of subcontractors
•lack of control
•limit number of potential subcontractors, then prices of goods can become high
•delays in delivery leading to customer dissatisfaction
Rationalisation
Concentrating on core products or services and disposing of those products or services when they aren’t seen as profitable or necessary to the business’ long-term success
Advantages of rationalisation
•allows management to concentrate and focus upon the business strengths
Disadvantages of rationalisation
•lost customers
•reducing the book value of assets
•implies redundancy costs
