Adding Value

• What is production?


  Production occurs when a business takes inputs, carries out processes and produces an output or product
• What is the transformation process?


  Raw materials ->(input) Transformation process ->(output) Product

  
  

  The transformation process describes what happens inside the business. This is where value is added to create outputs.
• What is the definition of adding value?

  The difference between the price of the finished product / service and the cost of the inputs involved in making it.

  Profit is the money that businesses make from adding value
• Ways to add value:

  • Branding
  • Excellent Customer Service
  • Add product features and benefits customer wants
  • Operate efficiently
  • USP
• Signs that a start-up is adding value:

  • Strong gross profit margin
  • Gross profit / total sales
  • A strong signal
  • Repeat custom
  • Sign of satisfied customers
  • Suggests customers feel they are getting value for money
  • Brand or name recognition
  • Important for Word-Of-Mouth recommendation
• Product decisions:


  • What to produce
  • What production method should be used
  • Where production should be located
  • how large the business hsould be
  • How to ensure quality
• Usefulness of added value

  • Being able to charge a higher price and therefore
  • a higher level of profit
  • the higher price may enhance the image of the product or service
  • it may enable the business to target its chosen market more easily.
• Explain how added value can be calculated?

  Added Value = The selling price of a product - the cost of bought-in materials and components.