Rationalisation Flashcards
Rationalisation
: Rationalisation is the reorganisation of
a business in order to increase its efficiency. This
reorganisation normally leads to a reduction in business
size, a change of policy or an alteration of strategy relating
to products
Examples of Rationalisation
veral underperforming rural branches.
* Transferring of production. Ford stopped production of
the Fiesta in the UK, instead using its Dagenham factory
for engine production only.
* Trimming of product ranges. Growing businesses can
end up producing large ranges of products but find
that many of these have little profitability. Businesses
will discontinue less profitable products and ranges and
focus on those that maximize sales. Boots the chemist
stopped selling pet food and increased sales space for
organic products.
* Incorporation of IT systems to replace paper systems.
The government is currently trying to increase
efficiency of the NHS by computerising all its patient
records
outsourcing
Outsourcing occurs when outside suppliers are
involved in activities that could be undertaken internally by
a business. These suppliers are not directly employed by
the business
Outsourcing moves jobs outside the business and may
even replace them with employment overseas (sometimes
called ‘offshoring’).
Outsourcing can lead to increased efficiency and lowered
costs. The outside businesses who take on the job will
often carry out the same work for a lower cost
Advantages of Outsourcing
Advantages of outsourcing
* Significantly reduced staffing costs.
* Well trained staff provided by the outsourcing company
will reduce HRM costs such as recruitment and training.
* Existing workload and stress levels are reduced.This
is very important if a firm is operating near or at full
capacity.
* Less investment risk. Instead of investing in new
production facilities, let the outside supplier take the
risk of investing.
* Capital needs are reduced. Because there is less
investment, there is less need to raise finance.
* Lower costs increase profits giving more capital for
research and development, therefore speeding the
development of new products.
Disadvantages Of Outsourcing
Disadvantages :
* Potential of poor customer service (call centre related),
with communication made difficult because of cultural
differences.
* Existing employees may feel demotivated if they believe
their jobs are at risk. This demotivation can increase
staff turnover and reduce productivity.
* Quality of production / product cannot be guaranteed.
Quality may be maintained, but it is difficult to keep
up with improvements in quality from competitor
companies.
* More difficult to implement JIT systems, which reduce
the need for working capital.
* Breakdown of communication in the production chain.
It is often difficult for functional departments to talk to
each other when they are notin the same building.
* Loss of security of data. There have been cases where
customer data has been made available to external
organisations from subcontracting firms.
* Lost tax revenues to the home government when
offshoring is used
