2.4

• production is what happens when a business combine inputs,raw materials and components in order to produce goods.
• Productivity describes the effectiveness of production. It is commonly measured by output per worker.
• Efficiency is a measure of how well production is organised to make the best use of resources.
• Average cost - the cost to a business of producing each product. The lower the average cost of producing a product the more competitive and profitable the business will be. Most businesses will aim to reduce average costs to a minimum.
• Productivity and competitiveness

  The more productive a business is the more competitive they will be; being more productive than competitors allows a business to either

  Charge a lower price than competitors increasing sales and market share

  And/or have a higher profit margin on each unit sold.
• Job production

  Made individually from start to finish

  Designed to meet a customer's personal specifications

  Jobs vary from very small to very large
• Job advantages and disadvantages

  High quality products,skilled labour used,workers highly motivated

  BUT

  Output might be expensive,expensive labour,difficult to speed up production,extensive training of workers,high average costs of production.
• Batch production

  Making similar or identical items in batches

  Production halted to make changes before the next batch is made

  e.g bread,clothing,chocolates,paint
• Batch

  + some variety of output,unit costs may be lower than job production

  dis - Jobs more repetitive,specialist machinery may need to be reset
• Flow

  product made continuously along the production line,product passes through a large number of specialised operations

  e.g cars,breweries
• Flow

  + large volume of output,low average unit costs,very productive

  dis - huge costs of machinery,breakdown causes major problems,workers often poorly motivated and paid,repetitive work
• Cell production

  Workers are put into teams (or cells) and are responsible for setting and meeting their own targets,each team will have an input into how it can best perform the job or task.
• Cell

  + motivated workers as they can talk to each other,workers can do the job they are best at

  dis - group of workers may fall out,some workers may be lazy
• Impact of technology on production

  production costs - technology increases costs in short term but lower them in the long term

  Increased productivity

  Flexibility - when demand falls they can just use less machines but can't do this with staff
• Waste levels - the level of waste produced by a firm is a clear indication of efficiency. All firms attempt to minimise waste
• Capacity utilisation refers to the percentage of the firm's resources (machines,workers) that are being used. A firm working at full capacity would be using all their machines and workers. A firm using half of its machines would be at 50%.
• Problems with a firm having spare capacity

  higher fixed cost per unit which reduces profitability

  Reduced revenues

  can portray a negative image

  staff can become bored and demoralised
• Advantages of spare capacity

  More time for maintenance and repairs and for staff training

  less stress for employees

  firms can cope with new orders

  experience is more pleasant for customers if it is not full
• Problems with a business being at full capacity

  less pleasant experience for customers

  no time for staff training/maintenance

  stress for employees

  may have to spend more on overtime increasing labour costs.
• How might a business react if it is working at full capacity

  Expand

  Increase prices

  extra shifts or longer hours

  seasonal or temporary workers

  outsourcing or subcontracting
• Causes of low capacity

  new competitors entering the market

  high price

  unsuccessful marketing

  inflation

  fall in demand

  seasonal demand

  external shocks - covid
• JIT stock is trying to keep stock to a minimum,they have no warehouse and it is very efficient,stock arrives just in time as it is needed for use. However, there is a risk of stock running out.
• Stock for a retailer vs manufacturer

  retailer e.g next - clothes

  manufacturer e.g Toyota - cars,car parts (raw materials),half-finished cars.
• advantages and disadvantages of traditional stock (warehouse)

  d - warehouse costs - rent/mortgage,utilities,depriciation,wages,money tied up in stock,security and insurance

  a - bulk buying discount,never run out of stock and miss sales.
• advantages and disadvantages of JIT

  d - more frequent smaller purchases mans higher costs,higher transport costs,handling costs,risk of running out of stock.

  a - cost efficient,keep up with fashion trends,stock components never go out of date,less money tied up in stock.
• JIT

  finished goods are produced just in time for them to be sold,raw materials arrive just in time to be turned into products.

  All sources of uncertainty should be removed from the production process this includes unreliable suppliers and equipment.

  Buffer stocks are not kept
• What would stop JIT working

  unreliable supplier

  long lead times

  unforseen orders

  large fluctuations in demand.
• The lead time is the time taken from the stock being ordered (re order level) to the product arriving.
• when asked what the quantity re ordered is it is not the maximum stock-re order level its when the new stock arrives to max level.
• Firms hold buffer stock in case they sell more that they expect to or if there are supply issues
• Firms don't want to much stock as it can go out of date and they have to pay for storage
• How to implement quality assurance

  Follow a written procedure

  Purchase good quality machinary

  use quality raw materials

  train managers to have a democratic management style

  train workers to take responsibility for their own work

  regular meetings with workers
• There are no checks in quality assurance, it is down to the employee to ensure their work is high quality.
• Quality control

  A product is tested after it has been made. Faulty ones are discarded and good ones are sold
• Capital Intensive - goods are made predominantly by machines
• Capital intensive

  advantages

  more efficient,cheaper in long term,pay less staff wages,better for fluctuations in demand,more consistent quality,price competitive.

  disadvantages

  high cost,high maintenance,if it breaks lost of waste and less production,have to lay off lots of workers,poor motivation,cost of redundancy,staff may not have skills to use the machines
• Labour Intensive - large amounts of labour (people) are used to produce goods
• Labour Intensive

  advantages

  no breakages due to faults,higher productivit,high levels of output,quality assurance

  Disadvantages

  Have to pay wages,lots of mistakes can be made high waste levels,slower production
• lean production is eliminating waste at all stages of the production process. Lean production is keeping the factors used to make a product to a minimum.
• The factors used in a production process include raw materials/components used,labour,factory space,machinary