Production and markets Flashcards
Define Organic Growth
Organic growth is where a business grows from within by increasing output and enhancing sales internally
Define Inorganic Growth
Inorganic growth is where a business grows from external methods such as buying or merging with other businesses.
How to calculate PED
PED = % Change in Quantity demanded ÷ % Change in price
How to calculate YED
YED = % Change in Quantity demand ÷ % Change in income
How can firms gain competitive advantage?
R&D, perfect information, Process innovation.
What is a niche market?
Niche firms can fill a gap in the market which larger firms are not interested in. They often have a small, dedicated customer base.
low demand = low supply = high AC = high prices and USP.
What is a mass market?
Mass markets have a high number of potential customers. The price of the product is low due to high level of substitutes. Highly elastic.
So, high demand = high supply = low AC = low prices.
What is productivity?
Productivity is a measure of the efficiency of factors of production in the production process.
What is efficiency?
Efficiency involves using scarce resources in the most economically achievable way. Costs can then be minimised and best possible use can be made of both capital equipment and labour.
How to increase productivity
Extra investment in education and training. Improvements in the country’s infrastructure
Incentives for increased R&D spending.
Improvements in management
How to increase efficiency
Increase capital labour substitutes
Increase labour productivity
Advantages of higher productivity
Lower average costs - Improvements in productivity allow businesses to produce output at a lower average cost.
Improvements in productivity allows businesses to produce
Improved competitiveness. Mainly in price-based competition
Higher profits. Due to lower costs and therefore higher investment.
Ways to capacity utilise
TQM, means having a qualitative approach to the whole process, from purchasing to manufacturing, through to sales and after-sales service.
Lean and mean techniques
JIT - Just in time. Stock holding reduced to minimum by arriving only when needed and have a good relationship with suppliers.
Kaizen - Japanese method of asking for employees input to perpetually improved work methods.
Potential Benefits of capacity utilisation
Lower stock holding means a reduction in storage space
Which saves rent and insurance costs.
As stock is only obtained when it is needed, less working capital is tied up in stock.
Less likelihood of stock perishing, becoming obsolete or out of date.
Less time spent on checking and re-working production as the emphasis is on getting the work right for the first time.
Drawbacks of capacity utilisation
There is little room for mistakes as minimal stocks is kept for re-working faulty product.
Product is highly reliant on suppliers and if stock not delivered on time, the whole production schedule can be delayed.
There is no spare finished product available to meet unexpected orders, because all product is made to meet actual orders.
A need for complex, specialist stock systems.
