Topic 1- Operations Flashcards
Operations:
various processes (procedures) involved in transforming (turning) business inputs into outputs of goods and services.
other words for outputs:
production, products, finished products, final
goods or services, semi - finished products.
Lean production:->
WHY?
E.g. of Sources of waste in b.:
method of manufacturing that is designed to eliminate waste — or have no excess
— Waste is non-value adding, but adds to cost. If waste can be minimised then production processes are most efficient.
___under use of labour and/or machinery, overproduction, defects requiring remediation or creating lost product, slow lead times and waiting times within processes, and carrying of excess inventory.
GOAL of a business:
is to maximise profit (can be done in 2 ways)
Profit =Revenue –Costs. Revenue (Price X Quantity sold) – should be maximised so as to bring in the greatest possible volume of money.
Finance and Marketing tend to target revenue side.
Costs
Key b. functions of Human Resources and Operations.
The strategic role of operations:
gaining a long-term competitive advantage over its competitors, both local and overseas. May also use either a cost leadership and/or product differentiation strategy.
Strategic operations decisions focus on:
- products to be created
- how to produce products
- capacity/size of operations
- organisation of inputs and equipment in operations* location of operations
- employees used in operations
- quality.
Cost leadership:
aiming to have the lowest costs and/or to be the most price competitive in the market = obtaining a sustainable competitive advantage.
One key way to determine selling price is through:
- Cost: of producing the good/service
- Market: customer demand
- Competition: price comparison to competitors
To achieve cost leadership, businesses must:
- Minimize costs across all levels.
- Lower costs allow for reduced selling prices, attracting more customers.
- Increased sales result in higher revenue and profit.
Economies of scale:
-> And the WHY?
cost advantages gained by increasing the size of operations. As a business produces more, the average cost per unit decreases.
— When businesses produce on a ↑scale, they spread out fixed costs (like machinery or factory space) over a ↑ output, leading to a ↓ average cost per unit.
->allows the b. to achieve cost leadership.
Product differentiation:
Distinguishing a product from competitors, creating a competitive advantage.
E.g.: free delivery, loyalty cards, better warranties, superior quality.
Goods can be differentiated by:
Features: Offering variety (e.g., different types of cereal, Coke vs. Diet Coke).
Quality: Varying levels (e.g., a Honda vs. a Porsche).
Add-ons: Extra features (e.g., leather seats in a car).
Services can be differentiated by:
Time: More or less time spent on a service (e.g., a 15-minute vs. 1-hour haircut).
Expertise: Level of specialization (e.g., legal services in specific fields).
Experience: Qualifications of the service provider (e.g., tutoring by a student vs. an experienced teacher).
Technology: Use of advanced tools (e.g., self-serve registers at supermarkets).
Cross-Branding (Strategic Alliances):
Cross-branding adds value to products by forming partnerships. Examples:
Woolworths and Caltex
Qantas and the One World Alliance
Coles and Shell
Standardised Goods:
Mass-produced, uniform in quality, faster production, cheaper—Cost leadership is achieved through economies of scale.
-> but can limit the market (not all customers want the same product), can lead to quality issues
E.g: iphones & ikea
Customised Goods:
Tailored to customer needs, higher price but more customer satisfaction—Competitive advantage
-> but higher production costs & slower production
E.g. custom-built cars
Perishable vs Non-Perishable Goods
Perishable: Short lifespan, need for quick production and delivery (e.g., milk, eggs).
Non-Perishable: Durable, require quality control and inventory management (e.g., furniture, electronics).
Services Differentiation
Standardised Services: Uniform, less customization - but consistent (e.g., fast food).
Customised Services: Tailored to individual needs, often more expensive (e.g., legal advice).
Self-Service: Common in industries like banking and travel - but can be tech difficulties (e.g., self checkout).
Interdependence:
mutual dependence that the key business functions have on one another
Operations and Marketing Interdependence:
Marketing understands customer needs and wants ->helps plan & produce products that are in demand. Operations have to meet promotional promises of quality, features, and availability.
Operations and Human Resources
Interdependence:
HR recruits and trains workers for operations. Operations provide quality products, ensuring business growth and employee recruitment.
Operations and Finance Interdependence:
Finance allocates resources to operations for purchasing raw materials, machinery, and training. Operations focus on producing efficiently to maximize profits.
Key influences on operations include:
Technology
Environmental Sustainability
Legal Regulation
Globalisation
Government Policies
Quality Expectations
Cost-Based Competition
Corporate Social Responsibility (CSR)
Globalisation and its impact
removes trade barriers, allowing for global movement of capital, labor, ideas, and technology.
Impact: It creates both opportunities and competitive pressures as businesses compete globally on price and cost efficiency.
Operational Adjustments from Globalisation:
- Global Sourcing: Selecting suppliers worldwide for cost efficiency and quality.
- Standardisation: Global consumers prefer uniform products, leading to standardized product design and manufacturing locations.
- Economies of Scale: Global manufacturing allows businesses to reduce costs through large-scale production (e.g., Apple’s manufacturing in China).
Supply Chain Management:
The “global web” connects suppliers for cost, quality, and reliability.
Location choices depend on supplier proximity.
Reverse Engineering (imitation):
A business disassembles a competitor’s existing product to understand its components and design.
recreated using different (often less expensive) materials to reduce production costs
allows b. to quickly enter the market
Innovation:
The process of developing entirely new products or technology that hasn’t been introduced to the market.
To establish market leadership and differentiate from competitors.
What is technology & how does it affect operations?
Technology: involves the application of innovative devices and methods in operations.
Roles in Operations:
Administrative Level: Planning, decision-making.
- E.g: Gantt charts, office software.
Processing Level: Manufacturing, logistics, quality management.
- E.g: Robotics, CAD/CAM/CIM, large-scale machinery.
What are Quality Expectations & how do they impact a business?
Quality: is how well goods or services meet design, functionality, and service standards.
Operations management must meet quality standards to satisfy customer expectations.
Quality in Operations: Goods vs Services
Goods: Emphasis on design quality, fitness for purpose, durability.
Services: Focus on professionalism, reliability, customization.
Cost-based Competiton:
Achieving cost advantages to increase profitability, especially when price increases aren’t possible.
Break-Even Point:
Where total revenue equals total costs; operations must focus on cost management.
Cost Types:
Fixed Costs: Do not change (e.g., rent, insurance).
Variable Costs: Fluctuate with production (e.g., raw materials, utilities).
Examples of Government Policies
Tax Cuts: Lower costs and increase profit potential.
Interest Rates: Affect borrowing costs and expansion feasibility.
GST: Administrative costs for tax calculations and remittance.
-> Policies affect operational costs and practices.
What is Legal regulation and what are the compliance areas?
-> Businesses must comply with legal standards, known as “compliance,” to avoid penalties.
Compliance Areas:
1. Workplace Safety: Training, protective equipment.
2. Anti-Discrimination: Equal treatment regardless of personal characteristics.
3. Environmental Protection: Minimize pollution and safely dispose of waste.
The impact of Environmental sustainability on Operations
Reduce waste, recycle, minimize carbon footprint.
Use sustainable practices in production to meet rising environmental expectations.
What is CSR?
Voluntary business actions that respect people, society, and the environment, going beyond legal compliance.
CSR’s impact on Operations:
- Ethical Sourcing: Partner with responsible suppliers.
- Environmental Standards: Evaluate environmental impact; reduce waste and emissions.
- Social Standards: Fair labor practices, human rights considerations.
3 Key Areas of Operations
- Inputs – Resources that go into the transformation process.
- Transformation Process – The actual conversion of inputs into final products or services.
- Outputs – The final products or services delivered to consumers.
4 Common Direct Inputs
- Labour: Human effort, both mental and physical, required for operations. Includes roles in sourcing, maintenance, quality control, logistics, and distribution.
- Energy: Power sources (electricity, fuel) necessary for production. Energy drives the transformation process, from transporting inputs to delivering finished products.
- Raw Materials: Basic components like wood, minerals, water, and agricultural products, used to make goods.
Cocoa beans as raw materials for chocolate production. - Machinery and Technology: Equipment and advanced tech that perform complex tasks, often replacing manual labor but requiring new skills.
Transformed Resources: CIM
Resources directly changed by the production process.
These include:
Materials: Raw (wood or steel) and intermediate goods (silicon chips for computers).
Information: Knowledge on production, sourced internally (financial reports, lead times, inventory) or externally (ABS, media reports)
Customers: Their needs shape production, often managed through Customer Relationship Management (CRM) programs.
Transforming Resources:
->Resources that facilitate the transformation of inputs, including:
Human Resources: Staff who add value by managing and executing processes.
Facilities: Physical assets (plants, machinery) used in production, designed for long-term use with decisions on location, layout, and capacity.
What is Volume
Refers to the quantity produced—how much product to make.
Volume flexibility:
is the ability to adjust quickly to changes in demand, affecting lead times.
Advantages and Disadvantages of High Volume
A- Enables mass production (economies of scale)
-> which lowers costs.
A- Reduced lead times for quick response to demand surges.
D- Risk of overproduction, leading to wastage and inventory costs.
D- Compromises on quality if mass production is prioritised.
What is Variety
Refers to product range—the mix of different products offered.
Advantages and Disadvantages of High Variety
A- Attracts a wider customer base and reinforces brand loyalty.
A- Helps manage risk, as multiple products can offset poor sales in one.
D- Increased complexity in sourcing inputs and labour.
D- Challenges in achieving economies of scale due to less standardization.
What is Variation in Demand
Refers to changes in demand based on season, trends, economic cycles.
-> Companies need operational flexibility to adapt quickly to both increases and decreases in demand.
Advantages and Disadvantages of Variation of Demand
A- Ability to respond quickly to surges, increasing sales.
A- Reduced risk of stockpiling and wastage.
D- Difficulty sourcing certain inputs quickly, especially skilled labour.
What is Visibility
Refers to the level of customer interaction and feedback.
-> Direct (surveys, interviews) or indirect (sales data, reviews).
Advantages and Disadvantages of High Visibility
A- Helps tailor products to customer preferences, building loyalty.
A- Creates a stronger brand-customer relationship.
D- Requires investment in resources like call centres.
D- Risk of negative feedback impacting the brand image.
What are Gantt Charts and their benefits?
Visually outlines activities, sequence, and time for completion.
- Helps managers plan, monitor, and organize resources effectively.
- Makes project progress and the impacts of delays visible.
What is the Critical Path Analysis
Technique showing tasks needed, order, and duration for project completion
Critical Path: The shortest time needed to complete all project tasks, based on the longest individual path required.
What is Technology and what does it enable for businesses?
applying science or knowledge to perform tasks in improved ways. -> This enables businesses to conduct tasks more efficiently and, in some cases, opens new markets.
Types of Manufacturing Technology
- Robotics
-> Automates repetitive tasks, & ensures consistency, quality e.g. car manufacturing - CAD (Computer-Aided Design)
-> Creates digital designs, calculates material needs, time, & cost - CAM (Computer-Aided Manufacturing)
-> Allows for instant production upon design approval, optimizing resources
Office Technology & it’s Benifits
Involves devices such as computers, keyboards, storage devices, and mobile phones
-> Telecommuting: Enables employees to work remotely, saving on office space and improving employee flexibility.
-> Efficiency: Allows faster data processing, long-distance work, and enhanced communication.
What is task design, what does it involve, & what does it lead to?
structuring job activities to facilitate efficient and effective employee performance. This aligns with job analysis, job descriptions, and person specifications in HR.
Involves:
Skills Audit: Identifies employee skill levels and any gaps requiring recruitment or training.
Leads to-> Employee Alignment: Ensures the right person for the right role, enhancing productivity.
Job Satisfaction: Clear task design supports performance, accountability, and employee morale.
Process Layout
arranging equipment and workstations based on the function they perform. It varies according to production type and business requirements.
Process Layout (Functional Layout):
Hospitals, banks, or service businesses where activities are grouped by function.
Product Layout:
Mass production environments like car assembly lines.
Sequential arrangement of equipment to ensure an efficient, continuous workflow.
Fixed Position Layout:
Large projects where the product is immobile, like bridge construction or road repairs.
Office Layout
Arrange workspaces for workflow efficiency and employee comfort.
Monitoring:
Tracks actual performance against planned targets through Key Performance Indicators (KPIs).
-> KPIs Examples: Lead times, defect rates, and stock turnover.
Control
Compares actual outcomes to targets, prompting corrective action if required.
-> Actions: Facility redesign, tech adjustments, or process changes.
Improvement:
Time: Reduces delays and optimizes production stages.
Quality: Lowers defect rates and upholds product standards.
Cost: Minimizes expenses and per-unit delivery costs.
Outputs definition
Outputs: the end results of a business’s operations, representing the final goods or services delivered to consumers. These outputs should have a value to customers that exceeds the cost of inputs, ensuring that they meet customer needs effectively.
Why is customer service important to Operations
supports customer satisfaction, loyalty, and competitive positioning. Superior customer service can justify higher pricing, foster market growth, and increase profit margins.
Components of Effective Customer
Service:
Communication:
Anticipation of Needs:
After-Sales Support:
Issue Resolution:
Benefits for Businesses Prioritising Customer Service
Competitive Advantage: Companies with high customer service standards can charge a premium (about 10% more) for similar goods and services.
Market Growth: High service standards contribute to faster business growth compared to competitors.
Customer Retention: Positive customer experiences drive loyalty; conversely, one dissatisfied customer may share their experience with many others, which can negatively impact brand reputation.
What do warranties do?
Warranties serve as an assurance to customers regarding the quality and functionality of purchased products. They protect customers from defects or issues originating from the production process.
Australian Warranty Law Requirements:
Products must meet quality expectations, be fit for purpose, align with promotional descriptions, and be defect-free.
Impact of Warranties on Operations
Feedback Loop: Warranty claims serve as feedback on product performance, guiding improvements in production and quality control.
Customer Assurance: Providing warranties builds customer trust and demonstrates a commitment to product quality.
What are performance Objectives?
are goals focused on improving specific areas of operations to boost efficiency, productivity, and profitability. These objectives are often linked to Key Performance Indicators (KPIs)
6 Main Performance Objectives
quality
speed
dependability
flexibility
customization
cost
Definition of Quality
Quality is often based on consumer expectations and serves as a standard that influences every stage of production.
Quality performance objectives include:
- Quality of Design: Refers to how well a product or service meets consumer preferences. Design dictates inputs and transformation processes.
- Quality of Conformance: Ensures products meet specific standards and specifications consistently.
- Quality of Service: In service delivery, quality pertains to reliability, responsiveness, and the ability to meet specific client needs.
Definition of Speed and its goals:
Speed: is the time it takes for operations to respond to changes in demand.
Goals:
Reduced wait and lead times
Faster processing.
Implications of Speed for a Business
Faster operations improve cost efficiency, enhance competitiveness through product differentiation, and increase market share.
Definition of Dependability and how its measured
Dependability/reliability: refers to how consistently a product performs over time or how reliably a service is delivered.
For Goods: Longevity and low rates of warranty claims.
For Services: Consistency in quality, measured by customer complaints.
Implications of Dependability on a Business
High dependability strengthens customer loyalty and drives repeat sales, contributing to competitive advantage.
Definition of Flexibility and the strategies to achieve it:
Flexibility: is the ability of operations to adjust quickly to market changes.
Strategies:
Increase production capacity.
Use skilled service providers and advanced technology for rapid adaptation.
Implications of Flexibility on a Business
Flexibility is essential for customer satisfaction and helps maintain competitiveness by responding efficiently to demand fluctuations.
Definition of Customisation and the Implications for a Business
Customisation: allows products to be tailored to individual customer needs, usually resulting in a higher cost due to personalised specifications.
Cost Management Definition, Strategies and Implications for a Business
Cost management: focuses on minimizing production expenses.
Strategies:
Use technology, minimize waste, optimize supplier contracts, and manage inventory.
Implications: Effective cost management supports competitive pricing and directly impacts profitability.
Approaches to Product Design and Development
- Consumer Approach: Products are designed based on customer preferences identified through market research.
- Technological Approach: Using technology for design and development, as seen with Apple and Samsung, who retain control over both software and hardware design.
Considerations made in Product Design & Development
Quality: Meeting customer expectations for quality.
Supply Chain: Aligning suppliers and inventory for new products.
Capacity Management: Investing in new equipment and technology as necessary.
Cost: Balancing investment with efficient production to control costs.
Types of Service Design
- Standardised Services: Uniform services (e.g., fast-food services like McDonald’s).
- Differentiated Services: Customised services (e.g., professional services like doctors or lawyers).
Key Aspects of Service Design
Explicit Service: The tangible aspects of service delivery, like skill or expertise provided.
Implicit Service: The intangible feeling of satisfaction or well-being experienced by the customer.
What does Supply Chain Management Involve
LEG - Logistics, E-Commerce, and Global Sourcing
Definition of Logistics
Logistics: the physical flow of goods from suppliers to end customers, covering distribution, transportation, storage, warehousing, materials handling, and packaging.
What are the main factors of logistics?
Distribution, Storage& Warehousing, Materials Handling and Packaging
Definition of Distribution
Ensures goods or services are accessible to customers. Effective distribution systems minimize delivery times and costs. (e.g., truck, rail, air)
Definition of Storage and Warehousing
Storage: Short- or long-term holding of goods until they are needed. Essential for fluctuating demand.
Warehousing: Long-term storage with added protection and management.
Distribution Centers: Focused on fast delivery rather than storage, located strategically to reduce lead times.
Definition of Materials Handling and Packaging
Ensures goods are handled properly to avoid damage, especially for fragile items (e.g., glassware) or hazardous materials (e.g., chemicals).
E-Commerce Definition
E-commerce: the buying and selling of goods and services over the internet. This process can be business-to-business (B2B) or business-to-consumer (B2C).
Advantages and Disadvantages of E-commerce:
Advantages of E-Commerce:
1. Convenience: 24/7 shopping availability increases customer satisfaction.
2. Cost Savings: Reduces costs for retail space and staff salaries.
3. Global Market Access: Reaches remote and international customers, expanding sales potential.
Disadvantages of E-Commerce:
1. Complex Supply Management: Requires effective inventory systems.
2. Customer Experience: Sites must be user-friendly to retain customers.
B2B vs. B2C in E-commerce:
B2B: Direct supplier access to inventory data allows efficient restocking.
B2C: Direct sales to consumers demand fast, reliable, and secure delivery.
Global Sourcing Definition
Global Sourcing: the practice of purchasing inputs or services from international suppliers to capitalize on cost and expertise advantages.
Advantages and Disadvantages of Global Sourcing
Advantages of Global Sourcing:
1. Cost-Effective: Often cheaper than local alternatives.
2. Access to Specialised Skills: Foreign suppliers may provide technology or skills unavailable domestically.
Disadvantages of Global Sourcing:
1. Complex Logistics: Increased transportation, compliance with foreign regulations, and potentially slower delivery.
2. Operational Complexity: Managing diverse suppliers adds layers to operations, impacting communication and control.
Outsourcing Definition
Outsourcing: hiring external providers (suppliers/outside businesses) to manage business activities.
E.g. of outsourcing option:
Joint Ventures - Engages an external provider that can also work for other businesses in the same industry.
Advantages and Disadvantages of Outsourcing
Advantages of Outsourcing
1. Focus on Core Business: Allows the company to concentrate on main activities, such as innovation and internal improvements.
2. Cost Savings: Access to cheaper labor and regulatory benefits in offshore locations.
3. Strategic Benefits: Avoids trade barriers, leverages time zones, and gains industry expertise.
Disadvantages of Outsourcing
1. Control Issues: Standards and data security may be compromised (e.g., Mattel’s lead paint issue).
2. Organisational Change: Downsizing may harm company image and lead to job losses domestically.
Leading Edge Tech Definition:
Advanced, innovative technology that sets industry standards (results from innovation, often creating new products and markets).
Advantages and Disadvantages to Leading-edge Technology:
Advantages:
Increases production speed ➔ reduces lead times ➔ enhances customer satisfaction and competitive advantage.
Lowers production costs ➔ supports cost leadership, allowing for lower prices.
Minimizes waste by detecting defects ➔ reduces resource costs.
Provides a competitive advantage as competitors may not have it yet.
Disadvantages:
High risk if unreliable ➔ could harm brand image.
Expensive initial costs and staff training.
Potential layoffs if tech replaces jobs.
Tech becomes obsolete quickly, pressuring businesses to keep upgrading.
Established Technology Definition and Examples in Operations
Established Tech: Widely used, proven technology that is broadly accepted and trusted.
Examples in Operations:
1. Barcoding and POS: For inventory management.
2. Robotics: Automating repetitive tasks.
3. CAD, CAM, and CIM: Computer-aided design and manufacturing for process integration.
4. Information Technologies (IT): For processing and managing data.
5. Flexible Manufacturing Systems (FMS): Adapts production to meet demand changes.
Advantages and Disadvantages of Established Technology
Advantages:
Lower acquisition and maintenance costs.
Customer familiarity ➔ increases user acceptance.
Proven reliability.
Disadvantages:
Widespread use ➔ difficult to gain a competitive edge.
May appear outdated ➔ can damage brand image as less innovative.
Less efficient than leading-edge tech ➔ potential competitive disadvantage.
Advantages of holding stock
- Meets consumer demand – Available stock prevents customers from seeking competitors.
- Reduced lead times – Stock on hand shortens the time between orders and delivery.
- New market promotion – Stock availability supports marketing in new markets, like online.
Disadvantages to holding stock
- Holding costs – Includes storage, spoilage, insurance, theft, and handling expenses.
- Obsolescence risk – Stock may become outdated and unsellable.
- Inventory costs – Holding stock in warehouses can cost up to 30% of stock’s value.
What is LIFO (Last-In-First-Out) and what are the advantages and disadvantages
LIFO: The most recent stock acquired is the first to be used or sold.
Example: Selling 2200 units at $120 each ➔ Cost of Sales = $264,000 ➔ Gross Profit = $99,000.
Advantages:
- More recent prices in cost calculations ➔ more closely reflect their economic value
Disadvantages:
- In times of falling prices, LIFO overstates profits and maximises taxes.
Usage: May undervalue unsold stock.
What is FIFO (First-In-First-Out) and what are the advantages and disadvantages
FIFO: The oldest stock is used or sold first.
Example: Selling 2200 units at $100 each ➔ Cost of Sales = $220,000 ➔ Gross Profit = $143,000.
Advantages:
- Reduces risk of stock spoilage or obsolescence.
Disadvantages:
- Increases gross profit, leading to higher tax obligations.
Usage: Can overvalue ending stock if prices rise.
What is Just-in-Time (JIT) Inventory and what are the advantages and disadvantages
JIT: A method that aims to only produce what is needed to meet demand, minimizing inventory.
Advantages:
1. Enables a broader range of products.
2. Reduces storage, insurance, and waste costs.
3. Orders are made based on demand.
Disadvantages:
1. Requires high operational flexibility.
2. Businesses must respond rapidly to market changes.
3. Demands reliable suppliers and efficient planning.
Note: JIT is a stock management method, not a valuation method, and can be used alongside LIFO or FIFO.
Quality Management Definition
Quality Management: processes that ensure the consistency, reliability, safety, and fitness for purpose of products and services.
What is quality control?
Quality Control (QC): involves inspections, measurements, and interventions to identify and reduce defects in products or services during the production process.
Reactive Approach: Focuses on identifying and fixing defects after they occur.
Inspections: Conducted at various production stages to ensure standards are met.
Used in: Manufacturing & Service Industry
What is quality assurance?
Quality Assurance (QA): ensures that predetermined quality standards are consistently met throughout the production process. It adopts a proactive approach to prevent defects.
Systematic Approach: Implements processes and standards to maintain quality.
Right First Time: Aims to eliminate errors in the initial stages.
What is Inertia?
Inertia: the psychological resistance to change due to fear of the unknown. People may resist change if they feel it threatens job security, limits career growth, or requires adaptation to unfamiliar technology.
Change Management Steps:
- Identify Sources of Change: Assess internal and external factors prompting the need for change.
- Lower Resistance to Change: Communicate openly with employees about why change is necessary, fostering support.
- Use Change Agents: Utilize either internal leaders or external consultants to champion the change process.
Global Sourcing Definition
Global sourcing: involves obtaining goods, services, or inputs from international suppliers. This approach enables businesses to seek cost-efficient solutions, access advanced technologies, and benefit from specialized expertise available globally.
Benefits and Challenges of Global Sourcing
Benefits of Global Sourcing:
- Cost Advantages: Access to cheaper labor and specialized expertise.
- Quality and Competitiveness: Enhanced input quality and reduced costs improve overall competitiveness.
- Operational Efficiency: Extended working hours due to time zone differences allow 24/7 operations
Challenges of Global Sourcing:
- Increased Logistical and Regulatory Complexity: Managing international supply chains adds complexity and higher costs in logistics, storage, and compliance with varying legal standards.
- Communication Barriers: Cultural, language differences, and service-level agreement (SLA) misalignments can create communication challenges.
- Exchange Rate Risks: Currency fluctuations can affect the stability of operational costs.
Economies of Scale Definition
Economies of scale: refer to cost savings achieved by producing larger volumes, which lower the per-unit production cost. By increasing production, companies can reduce average costs, enabling greater profitability.
Benefits and Challenges of Economies of Scale
Benefits of Economies of Scale:
- Cost Leadership: Lower per-unit production costs enhance cost competitiveness.
- Enhanced Efficiency: High-volume production maximizes resource utilization.
- Investment in R&D: Savings from production costs can be reinvested in R&D, leading to product differentiation and innovation.
Challenges of Economies of Scale:
- Demand Fluctuations: Achieving economies of scale may require high production volumes that are challenging to maintain if consumer demand fluctuates.
- Resource Availability: Large-scale production requires sufficient raw materials, which may not always be available in the required quantities, risking overproduction and wasted resources.
What is the definition of scanning and learning and what does it provide?
Scanning and learning (environmental scanning): involves monitoring the global environment to identify trends and best practices. This strategy enables businesses to adapt by learning from successful practices worldwide.
- Competitive Edge: By observing and integrating global trends, companies can enhance their operational strategies.
- Innovation through Adaptation: Learning from other industries and international practices encourages innovative improvements in products and services.
What is Research and Development and what does it provide?
R&D: focuses on discovering and developing new products, improving existing offerings, and creating innovative solutions. This process helps businesses stay at the forefront of technological and market trends.
-> Government Incentives: Governments often provide grants and tax incentives to encourage R&D investments, reducing financial burdens for businesses.
-> Competitive Advantage: Leading-edge products differentiate businesses, providing a strong competitive advantage.
