useful extra knowledge theme 2

Question 1

factors influencing productivity

Answer 1

working conditions
how capital/labour intensive
amount of capital to invest into it
level of training
leadership style
nature of product 
staff morale
production method used

Question 2

how to improve productivity

Answer 2

more capital intensive
train and motivate staff
lean production

Question 3

define economies of scale

Answer 3

factors that cause average cost per unit to fall as output increases

(happens when business gets bigger)
Diseconomies of scale is the opposite

e.g. larger scale marketing, bulk buying, more efficiency in production

Question 4

factors influencing efficiency

Answer 4

level of wastage in production
good overall management
production process used (lean?)

Question 5

reasons to hold stock

Answer 5

• enable production (more efficient)
• satisfy demand (possible seasonal change)
• avoids supplier delays affecting production
• gain from purchasing economies of scale
• contingency in case of mistakes
• boost reputation for customers of being reliable

Question 6

costs of holding stock

Answer 6

• storage and insurance costs
• depreciation in value
• if capital for stock is borrowed the interest rate will become significant
• cash stuck in stock- (negative for cashflow-decrease –working capital and opportunity cost- could use it elsewhere, may hinder competitiveness)
• could become obsolete (higher wastage)

Question 7

importance of quality

Answer 7

adds value
limits waste- less cost
customer loyalty and satisfaction (less complaints and returns)
differentiates from competition
premium pricing

Question 8

problems associated with quality control

Answer 8

• greater cost of returns
• mistakes inevitable
• employees don’t strive for best quality, just good enough to pass the quality check
• greater waste

Question 9

how improved quality increases competitiveness

Answer 9

reduces returns (reduce cost)
adds value (premium pricing)
customer loyalty
USP against competitors

Question 10

methods of improving efficiency

Answer 10

• improving productivity
• economies of scale
• lean production
• outsourcing
• relocating
• delayering
• efficient procurement processes (reducing waste during buying processes in supply- lowest cost)