2.4 Resource Management

• Production


  The transformation of resources (e.g. raw materials, components and processes) into finished goods or services
• Job production


  Manufacturers produce one product at a time as ordered by the customer
• Flow production


  The continuous manufacturing of standardised products, usually on a production line
• Batch production


  Groups of the same product are produced, commonly used in food production
• Productivity is the output per input (person or machine) per hour, while production is the total amount of output produced in a time period
• Formula to calculate labour productivity

  Labour productivity = Output / Number of workers
• Formula to calculate capital productivity

  Capital productivity = Output / Number of machines
• Increased automation can improve levels of output and quality because well-maintained machinery is less likely to make mistakes than humans and can operate for long periods without a break
• Efficiency


  The ability of a business to use its production resources as cost-effectively as possible
• Labour-intensive production


  Predominantly uses physical labour in the production of goods and services
• Capital-intensive production


  Predominantly uses machinery and technology in the production of goods and services
• Workers with autonomy are less likely to need close supervision
• Downsizing


  Moving production to a smaller location to reduce fixed costs
• Lean production


  An approach to manufacturing that involves the reduction of all types of wastage
• Competitiveness


  The ability of a business to maintain or grow its sales and market share given the presence and actions of rivals
• Formula to calculate cost per unit

  Cost per unit = Total costs / Number of units
• Capacity utilisation


  Measures the extent to which business assets are being used to produce output
• Formula to calculate capacity utilisation

  Capacity utilisation = Current output / Maximum possible output x 100
• Under-utilisation of capacity leads to increased unit costs as fixed costs are spread over fewer units of output, resulting in higher average total costs
• There is little opportunity to engage workers in maintenance tasks if a business is operating at full capacity
• Over-utilisation of capacity


  A situation where a business is using all or more than its maximum production capacity
• Operating under capacity provides a business with flexibility and the opportunity to engage workers in maintenance tasks
• Over-utilisation of capacity can lead to machinery being pushed to its limits and prone to breakdowns, which disrupts production and increases costs
• Under-utilisation of capacity


  A business is not making the most of its available production resources and is likely to have increased unit costs
• Redeployment


  Moving underused resources to other parts of the business that need them
• Selling fixed assets or reducing staff levels can increase capacity utilisation but reduce flexibility to respond to sudden increases in demand
• Buffer stock


  A quantity of components, raw materials or finished goods kept in case of stock shortages
• Just in Time (JIT) stock management

  A process in which neither raw materials nor components are stored onsite but ordered as required and delivered by suppliers 'just in time' for production
• Poor stock control can lead to holding too much stock, resulting in higher storage costs
• Stock control diagram


  Illustrates the flow of stock (inventory) into and out of a business over time
• Stock shrinkage


  The loss of inventory due to factors such as theft, damage or accounting errors
• Just in Time (JIT) stock management does not generally allow for bulk buying economies of scale
• Lead time


  The length of time between the point at which stock is ordered from the supplier to the point at which it is delivered
• Reorder level


  The level at which a business places a new order with its supplier
• Holding too little stock is risky, as a business may run out of stock, resulting in a loss of potential sales revenue
• Maximum stock level


  The maximum amount of stock a business is able to hold in normal circumstances
• Minimum stock level


  The lowest level to which a business is willing to allow stock levels to fall
• Just in case stock control

  Involves the holding of buffer stocks in case of stock shortages, so as to provide a competitive edge over rivals that are unable to meet demand
• Opportunity cost of holding buffer stocks

  It ties up capital that could be invested in other areas of the business
• In lean production, less labour is used as it is typically a capital-intensive process