2.4 Resource Management

• job production


  where one single product is made at a time

  products are made for a specific client or customer

  products that are made are higher quality, highly complex so higher prices can be charged

  production process can be slow and labour intensive
• batch production

  used when businesses want to make more than one item at a time

  goods are made in batches, can be switched over to make something different on the same production line

  • a bread factory can also make crumpets and tortillas
• flow production


  production lines with continuous movements of items through the process

  many mass produced products are made this way: Coca-Cola, cars and toothpaste

  factory would be laid out in assembly lines - capital intensive, cost minimisation (lowers average costs of production)
• cell production


  dividing up a production line into separate self-contained areas that are each responsible for a section of work

  each cell will have a team leader and a team of multi-skilled workers

  allow job rotation - reduces boredom
• division of labour

  breaking down work into smaller chunks

  allows specialisation

  can cause demotivation and boredom as it may be repetitive for workers - lowers quality and productivity
• productivity

  how a business can measure how hard a person or machine is working

  helps in planning, scheduling, monitoring, budgeting and running a business

  can talk about productivity in terms of "efficiency" or "inefficiency"
• productivity method - bonus

  lump some of money based on productivity - set amount/percentage on wages

  • boosts productivity levels
  • recognises workers efforts
  • increases costs for the business - long running
  • may be inefficient due to increased costs
  • money is not a motivator - Maslow and Herzberg
• productivity method - deal

  union is a business negotiating a productivity deal

  • motivates everyone in the organisation
  • attempts to remove barriers to changes
  • may engage workers ideas to increase productivity
  • increases cost
  • requires a negotiation - time consuming, can cause disagreements
• productivity method - training

  taught what to do in order to work efficiently

  • workers able to work efficiently
  • more skilled - recognition
  • increases productivity in the long run
  • expensive
  • time consuming
  • loss in productivity in the short run while training occurs - opportunity cost
• productivity method - investment

  buying new machinery in order to boost productivity as it is more efficient since you can produce more goods per hour

  • can increase quality/uniformity
  • more efficient
  • lowers average costs
  • may take years to recoup costs
  • expensive - fixed costs
• trade unions

  organisations that protect workers

  looks after the rights of employees - job security, fair play, good working conditions etc
• factors influencing productivity

  • quality of inputs in the production process - fault parts in an assembly line can stop it
  • having the right number of staff at peak times will increase productivity overall, stretched staff are demotivated by being overloaded
  • investment in new technology - robots can work 24/7 without needed rest breaks and so will increase productivity levels
• productivity and competitiveness

  if a business is more productive, it can produce goods more economically efficient, so it is in position to charge more competitive prices
• efficiency

  measures how well you use your resources (such as time) to get a task done

  increasing efficiency means you use fewer resources (or less total input) to complete the same amount of work

  maximised when goods are produced at the minimum unit cost of average production cost

  production will aim to operate at the minimum average cost per unit for economies of scale
• average cost formula

  TC/output, where TC = FC + VC
• average minimum cost graph

  lowest average cost quantity

  
• firms that have a higher output per employee are more efficient - can lead to a competitive advantage as prices per item made are lower than competitors

  • the business can become market leader through low prices, or
  • enjoy high profits due to lower production costs
• quality may suffer though as a result of trying to produce items too quickly

  efficiency is about minimising the use of resources - reducing waste is one method for improving efficiency - waste management
• labour intensive production



  products made by mostly human effort

  China and India favour this as they have access to cheap labour

  nature of the product determines if it can use labour intensive production
• capital intensive production


  produced mainly with machines and equipment

  UK favours this - high labour costs

  businesses can produce goods at minimum average price level

  machines often break, need maintenance and expensive but aren't ever ill or need breaks
• capacity utilisation


  the extent to which the maximum capacity for output that is being used - normally expressed as a % of maximum output
• under-utilisation

  current output is less than maximum output
• over-utilisation

  current output is more than maximum output
• in any business there are decisions to be made about how best to use resources - an operations manager will need to make daily decisions about how best to turn inputs (machinery, labour and capital) into outputs (products and services)

  capacity utilisation is how best to use those resources for the benefit of the business
• capacity utilisation is important as it has a bearing on average costs per unit and therefore economies of scale

  • high capacity utilisation - the fixed costs are spread over more units of production
  • low capacity utilisation - the fixed costs can be too high to stay in business or keep producing that product
  • maximum capacity can go over for a short period of time until something breaks or becomes unsustainable
• Increase output/usage - improving capacity utilisation

  1. A business could increase demand for the product through a price cut sale or through promotions

  2. In order to increase usage at off peak times, the business could offer special deals (Meerkat Movies on Tuesday and Wednesdays) - helps to lower average costs but increasing sales is hard so it may not work, there are also additional costs of promotion
• Reduce overall capacity- improving capacity utilisation

  1. Make staff (resources) redundant

  2. Sell assets (machinery-resources)

  3. Lease capacity out to other businesses - lowers fixed costs but could mean the business is unable to meet increased demand in the future
• capacity utilisation formula

  $\frac{\\\mathit{current output}_{}}{\\\mathit{maximum output}_{}} X 100$
• capacity utilisation - under utilisation implications

  • higher fixed costs per unit
  • unmotivated staff standing around, not busy
  • impacts brand image
  • business may need to rationalise - redundancies, sale of assets, temporary staff, partial shutdown, reduction in overtime hours
  • increases in flexibility of business - able to accept a non-standard order, time to maintain machinery/update technology/train staff
• capacity utilisation - over utilisation implications

  • can damage reputation of business
  • manufacturing - can put too much strain on resources
  • staff may do too much overtime - accidents when tired
  • no time to maintain machinery/train staff
  • quality suffers as mistakes are made in production
• stock control

  the control of the flow of stock in a business, concerns the ordering and management of:

  • raw materials
  • components
  • work-in-progress
  • finished goods
• stock

  also known as inventory

  stock can be part made goods/items
• bar gate graph

  stock management can be carried out using this diagram

  assuming that we're using the stock at the same rate

  a business may need to order more stock when they run out - the goods will come from the supplier but may not turn up for a few weeks - the business needs to plan to make sure they don't run out

  
• bar gate graph terms

  • maximum stock level - highest amount of stock the business wants to hold
  • minimum stock level - the stock level the firm doesn't want to go below
  • reorder level - the stock level where the firm needs to reorder to ensure it doesn't run out
  • lead time - time between the reorder level and when the order arrives
  • buffer stock - level of stock between minimum level and running out
• high stock holding is expensive and adds costs to a business, reduces profit - makes it difficult to compete on price due to stock holding costs

  a business may be left with lots of unwanted stock - once a business has bought stock, it no longer has that cash, difficult to turn the stock back into cash
• buffer stock

  stocks which are held in case there is an unforeseen rise in demand or problem with supply

  kept to make sure production isn't stopped and customers are kept happy with supply dates being met

  some goods cannot hold buffer stocks - due to perishability (milk), due to obsolescence (technology)
• advantages of buffer stock

  • a business can easily respond to changes in consumer demands
  • if the supplier cannot deliver on time, production won't be affected
• disadvantages of buffer stock

  • cost of storage is high, business will need to pay for; premises, staff and security of the stock
  • can tie up the working capital (cash) of a business
• implications of poor stock control

  stock out costs are the costs of not having stock when it is needed:

  • loss of customer goodwill
  • loss of sales revenue
  • damage to reputation
  • disruption to production

  if stock "goes off"/obsolete/won't sell, it is a waste for the business
• just in time production (JIT) - improves efficiency


  a business does not keep stocks or parts in a warehouse - instead they order the parts and get them delivered on the same day from the supplier - lowers fixed costs

  need very close links with suppliers as they need to have good communication to make sure the right goods are delivered at the right time

  the manufacturer needs to have excellent working relationships with their smaller parts supplier