Section 9 - Resource Management

• Production Methods


  Four methods you need to know about
• Unit costs


  Higher prices for products, economies of scale as they can buy smaller batches
• Batch production


  Produces identical products in batches, requires less equipment than flow production
• Flow production


  Continuous production, products move along a production line, equipment is highly specialised
• Businesses may switch between production methods depending on demand
• Productivity


  The amount of output produced per unit of input (e.g. per worker, per machine)
• Machinery


  • Can increase productivity
• Human workforce


  • Can also be used to increase productivity
• Efficiency is about producing the minimum average cost
• Ways a business can increase efficiency


  • Labour-intensive production
  • Capital-intensive production
  • Balancing people and machines
• Labour-intensive firm


  Very people-heavy, labour is relatively cheap
• Advantages of labour production


  • Flexible, can respond to changes, lower capital costs
• Disadvantages of labour production


  • Less consistent quality, harder to control, more difficult to scale up
• Capital-intensive firm


  Lots of machinery, machinery is cheaper than labour
• Advantages of capital production


  • Higher quality, more consistent, easier to scale up
• Disadvantages of capital production


  • High capital costs, machinery can break down, risk of being made obsolete
• Businesses need the right balance of people and machines
• Capacity


  Maximum output with the resources currently available
• Capacity utilisation


  The extent to which a business is using its capacity
• Increasing capacity utilisation too much


  Can lead to over-utilisation
• Problems with over-utilisation


  • Equipment breaks down, quality suffers, staff become overworked
• Ways to increase capacity


  • Increase working hours, hire more staff, invest in new equipment
• Under-utilisation is inefficient and increases unit costs
• Stock


  The sum of raw materials, work-in-progress, and finished goods
• Buffer stock


  Extra stock held to cope with fluctuations in demand or supply
• Advantages of buffer stock


  • Helps retain customers, economies of scale in purchasing
• Disadvantages of buffer stock


  • Storage costs, capital tied up, risk of obsolescence
• Just-in-time (JIT) stock management


  Holding very little stock, relying on frequent deliveries
• Advantages of JIT


  • Lower storage costs, less risk of obsolescence, more responsive to changes in demand
• Disadvantages of JIT


  • Risk of stock-outs, less able to take advantage of bulk buying discounts
• Quality control


  Checking products after they are made or received from suppliers
• Quality assurance


  Ensuring quality is built into the production process
• Advantages of quality assurance


  • More motivating for workers, helps prevent defects
• Total quality management (TQM)


  Approach that assures commitment to quality across the whole organisation
• Advantages of TQM


  • Lower costs from fewer defects, higher customer satisfaction, improved productivity
• Quality circles


  Groups of employees who meet to discuss quality improvements
• Kaizen


  Continuous small improvements made by all employees
• Advantages of kaizen


  • Engages all employees, leads to gradual quality improvements
• Disadvantages of kaizen


  • Changes may be too small to have a big impact