Steeds Flashcards
Sectors of the economy
Primary
Secondary
Tertiary
Quaternary
Functions of a business
Accounting and finance Operations management Marketing HR management Customer service Sales and support services
Private/public sector and third sector organisations
Private sector- businesses owned by private individuals and companies, generally run “for profit”
Public sector- owned and run on behalf of the public, either run or funded by government. Not run “for profit”
Third sector organisations- value driven- not motivated by profit but a desire to achieve social goals (e.g. charities)
Unincorporated/Incorporated businesses
Unincorporated- owner is the business, unlimited liability, mostly sole traders
Incorporated- Owner isn’t the business, limited liability, most private limited companies
Unlimited/Limited liability
Unlimited- Owner(s) of a business are entirely responsible for its debts. Personal assets can be seized. Owner is the business
Limited- Can only lose what money you put into the business. Owner isn’t the business
Franchise definition
- when you buy the rights to sell an established product
2 ad + 2 dis to franchiser
Adv- Firm may not have to spend large amounts of money in order to expand Applicants can be carefully selected Dis- Element of risk Control issues
2 ad + 2 dis to franchisee
Adv- Lower risk (proven business concept) Support, advise and training Dis- Franchise fees Profit is shared Less control and independence
Cooperatives
A business run and owned by its members (employees and customers)
Profits shared between members rather than being distributed to shareholders
2 adv + 2 dis of cooperatives
Adv-
Legally straightforward to setup
Higher quality of service is likely to be provided
Dis-
Capital can be limited to what members contribute
Weak management- those selected may not have good business knowledge
2- adv + 2 dis of multinationals
Adv-
Job creation, significant training+ employment to work force
Adds to hosts countries GDP
Dis-
Domestic businesses may not be able to compete
Exploitation of employees/facilities
Determining size of business
Number of employees
Brand awareness
Number of factories, offices and shops
Factors affecting size of business
Market size
Nature of product (quality)
Legal structure
Reasons for growth
Entrepreneur wants greater challenge
Owners want higher return on investments
Growth into new markets can spread risk
Joint ventures (definition)
A commercial agreement between two or more participants who agree to cooperate and achieve a particular objective
Strategic Alliance (definition)
An agreement between two companies that undertake a mutually beneficial project while each retains independence
Operations management objectives
OM obj- Maximise the amount they produce
Mission statement
Overriding goal of the business’ reason for existence, provides a strategic perspective written for the stakeholders
Market orientated
Market oriented- prioritises identifying the needs and wants of consumers and creating products that satisfy them
Innovation adv
- adds value to existing products
- increases efficiency
Types of production + definitions
Job- Products that are made for a specific need/requirement
Batch- A certain amount of the product is made and production has changed
Flow- Mass production of a product. Continuous movement of items through the production process
Cell- flow production line split into number of self-contained units. Each cell responsible for a significant part of the finished article
2 ad 2 dis of job
Adv- High quality products Higher satisfaction for workers Dis- Product will take long time to make Higher paid workers as they are higher skilled
2 ad 2 dis batch
Adv-
Cheaper labour than job
More efficient than job due to more automation used
Dis-
Downtime for machinery
Potentially demotivating for staff (boring)
2 ad + 2 dis of flow production
Advantages-
Cost per unit of production reduced through improved work and material flow
Capital intensive which means it can work constantly
Disadvantages-
Very long set up time and reliant on high-quality machinery
High set up costs
2 ad + 2 dis cell production
Advantages-
Improves communication, avoiding confusion/non-received messages
Greater worker motivation due to a variety of work
Disadvantages-
Workers can feel constantly pushed for more output with no rest
Recruitment and training of staff must support this approach
Factors that influence selecting the production method
Nature of products Cost of machinery/technology Workforce Finance Customers Competition Stakeholders/objectives Practicality of change Legal structure of business
Research and development
The process that enables the creation of new and improved products to meet the needs of customers
2 ad + 2 dis of r&d
Advantages- Improves the production process Waste reduction Disadvantages- Cost of failure Copying from other businesses 
Morphological studies
A method that generates ideas are cheaply and quickly- grid system with a range of alternatives to be considered.
Advantages of CPA
Reduces risk and cost of complex projects
Helps spot which activities have slack and could therefore transfer some resources
Provides managers with overview
Disadvantages of CPA
CPA based on assumptions and estimates
Doesn’t guarantee the success of a project
Resources may not be as flexible as management hope
Division of labour (Specialisation)
When people are allocated into specific tasks.
Intended to increase productivity
Advantages of division of labour
Leads to an increase in productivity
Output increases, average costs fall (EOS), profits increase
Disadvantages of division of labour
Can be boring and repetitive for worker- may leave/replaced by machinery
Lack of flexibility in workforce
May be higher training costs
Economies of scale
Unit costs fall as output rises
Diseconomies of scale
Unit costs rise as output rises
Productivity equation
productivity= output/input
Labour productivity
Concerned with the volume of output (units) or value (£) produced by each employee
Methods of increasing productivity
Automation- quicker and consistent Reduce labour- Reduces labour costs Training of staff Monitoring Improved organisation of production (layout)
Benefits of increased productivity
Increases speed- decreases delivery time
Lowers average costs
Less staff further reduces costs
Drawbacks of increased productivity
Job losses may lead to job insecurity meaning tasks are more difficult with discontent staff
Capacity utilisation
A measure of the extent to which the productive capacity of a business is being used
Measure of productivity
Capacity utilisation formula
Actual level of output/Maximum possible output x100
Benefits of increasing capacity utilisation
Average costs fall which increases profit margins
Increased efficiency
Less wastage
Disadvantages of capacity utilisation
Maintenance and breakdowns
Additional orders
Quality impact
Stock control
Processes and controls used by a business to ensure that it has sufficient stock
Types of stock
Raw materials
Work in progress
Finished products
Labels on stock control graph
Buffer stock Minimum level Reorder level- will be higher the higher the demand Maximum level Lead time
Economic order quantity (EOQ)
Order quantity that minimises total inventory holding costs and ordering costs
Benefits of holding stock
Meets demand
EOS
Buffer stock
Costs of holding stock
Storage costs
Security costs
Insurance costs
Opportunity cost- business could spend costs of holding stock elsewhere
Calculating the average stock levels
Maximum + minimum stock levels/2
2 ad + 2 dis of joint ventures
Advantages-
Share costs
Can use each other’s expertise and resources
Disadvantages-
Conflict may occur
Clash of organisational structures (too many of one person e.g. HR departments)
adv and dis of strategic alliances
Advantages- Sharing resources/expertise New market penetration Disadvantages- Possibly no better off than if you ‘went alone’ legal disputes over who owns what
Strategy (strategic objective)
Long term plan, based on the business vision
Tactics (tactical objective)
Short term, responding to opportunities and threats
Adding value
Difference between price of finished product and the cost of inputs
How to add value
Build a brand
Excellent service
Product features/benefits
Reduce costs
Benefits of adding value
Charging a higher price point
Creates a point of difference from competitors
Protection from competitors tasking idea and charging less for it
Disadvantages of adding value
Not guaranteed that the cost will be recouped
Increase in price may reduce sales
Aim
Long term goal
Innovation
Practice of developing and introducing new products/services.
Taking an existing product and making it better
Just in time production (JIT) (Kanban)
Management strategy that a company receives good as close as possible to when they are needed. Part of lean production
Benefits of JIT
Low storage costs
Eliminates waste
Unit costs fall (insurance)
Drawbacks of JIT
Complicated system
Expensive materials
Reliant on suppliers
Last in first out (LIFO)
The most recently produced items are sold first.
1st in 1st out (FIFO)
Assets purchased or products made first are sold first.
Electronic point of sale (EPOS)
A combination of hardware and software designed to help you run businesses more effectively
Supply factors
Labour costs
Land costs
Energy costs
Transport costs
Demand factors
Customer convenience
Labour skills
Site suitability
Image
Quality control
Process of inspecting products to ensure that they meet the required quality standards
Advantages of quality control
Reduces wastage
Increased reputation
Reduces costs
EOS
Disadvantages of quality control
Employees aren’t encouraged to take responsibility for the quality of their own work
Increased costs
Logistics
Flow of things from origin to point of consumption
Supply chain management
The interrogation of the buying of supplies, production, warehousing and transportation
Reshoring
Transferring a business operation back to county where it was originally located
Offshoring
Practice of basing a businesses operations overseas
Outsourcing
Obtain goods/services by contract from an outside supplier
Benefits of reshoring
Lowers costs
Lowers lead times
No impact of exchange rate
Lowers CSR implications
Drawbacks of offshoring
Longer lead times
Increases management costs
Implications of CSR
Kaizen production
An approach of constantly introducing small changes in a business to improve quality and efficiency
Advantages of kaizen
Small changes require less capital investment
Encourages ownership of work, improves motivation
Disadvantages of Kaizen
Employees may be reluctant to make suggestions
Employees may feel under pressure and stressed
Ergonomics
Looks at relationship between employees and capital equipment being used so minimum time is spent on machines
Advantages of ergonomics
Saves time
Employees may feel more motivated
Savings although aren’t significant it adds up over time
Disadvantages of ergonomics
Employer has to pay the cost of ergonomic activity
Increases costs
Breakdowns leads to increased down time
Subcontracting
Production of a particular part of a product is undertaken by another firm
Importance of customer service
Adds value
Retains customers
Improves reputation
Measuring customer service
Speed
Complaints
Customer loyalty
Methods of improving customer service
Training
Roleplay
Benchmarking
Advice
Decision making
Process of making choices by gathering information, involves an opportunity cost
Corporate social responsibility (CSR)
About responsibility to all stakeholders
Most firms implement a code of practice/policy
SWOT
Strengths
Weaknesses
Opportunities
Threats
Internal audit
Business assesses its strengths and weaknesses in relation to competitors- done externally
External audit
Looks at opportunities open to the business and the threats faced in internal environment
Product orientated
Product orientated- prioritises making a product high quality
