Business Studies

Business Studies

1. Production of Goods and Services

   • Production process
     • Production is the process of adding value to inputs into saleable goods.
     • Operation management involves managing business resources - known as inputs, throughout the production process so as to produce finished goods - known as output.
     • Operations management must: * use resources in the most cost effective way *produce the required output to meet consumer demand *meet the quality standard expected by consumers.
   • Difference between production and productivity
     • Productivity is a measure of the efficiency of inputs used in the production process
     • It measures using labour and capita productivity. a) Labour Productivity = Total output/Total number of production workers. b) Capital Productivity = Total output/Total number of machines   
     • Improving Labour Productivity
       • *Improving the skill level of workers *improving motivation of workers *improving the quality of management decisions *Keep the workplace tidy *Better technology
   • Inventory
     • Inventory is the stock of raw materials, work-in-prgress and finished goods held by a business.
     • Costs
       • Warehousing costs handling costs shrinakage costs Insurance cost obsolescence opportunity cost
     • Raw material
       • -these are needed as inputs for the production process
       • Work-in-progress
         • -that is part-finished goods that have not yet completed the production process
         • finished goods
           • -ready to be sold or sent out to customers.
     • Why businesses hold them
       • *If business does not have finished goods in stock, then customers' orders cannot be met and the business will lose sales.
       • *Businesses often benefit from economies of scale when they buy inventories in large quantities because they receive a discount from the supplier.
   • Methods of Production
     • Job Production
       • Job production is the production of items one at a time.
       • Benefits *unique, high quality products are made *workers are often more motivated and take pride in their work
       • Limitations *uses skilled labour rather than machinery so selling price will be high *production can take a long time and can be expensive. *Economies of scale are not possibles, often resulting in a more expensive product
       • Batch Production
         • Batch Production is the production of goods in batches. Each batch passes through one stage of production before moving onto the next stage. e.g making bread in a bakery
         • Benefits *offer the customer some variety and choice *since larger numbers are made, unit costs are lower. *materials can be bought in bulk so they are cheaper
         • Limitations *Workers are often less motivated because the works becomes repetitive *Goods have to be stored until they are sold, which is expensive
         • Flow production
           • Flow production is the production of very large quantities of identical goods using a continuosly moving process. (Also known as mass production)
           • Benefits *Large number of goods are produced *materials can be purchased in large quantities, so they are often cheaper due to bulk-buying economies of scale *more CAPITAL INTENSIVE than job or batch production, which lowrs the labour cost.
           • Limitations *requires very large capital investment in production line technology *workers are not motivated since their work is repetitive *if one part of the production line breaks down the whole production process stop until repairs are made.
   • How technology has changed production methods
   • Lean Production
     • Lean production is the production of goods and services with the minimum waste of resources.
     • Benefits
       • *Quality is improved *The costs of holding inventories is eliminated *New products can be brought to the market more quickly *wastage of time and other resources is reduced or eliminated.
     • Techniques
       • Just-in-time inventory control -it means no inventory is held by the business. Raw material arrive from suppliers just as they are needed by the production process.
       • Kaizen (continuous improvement) -gives all workers opportunity to make decisions about how to improve quality or productivity. +changes may be very small, but all these small improvements can lead to big improvements in efficiency.

2. Cost, scale of production and break-even analysis

   • Cost Classification
     • Fixed cost- costs that do not change with output. e.g factory rent, salary of managers
     • Variable cost -  cost that change in direct proportion to output. e.g. raw materials
     • Total cost - all the variable and fixed cost of producing the total output. -Total cost=fixed costs + total variable costs
   • Economies of Scale
     • Economies of scale is the reduction in average costs as a result of increasing the scale of operations.
     • Types
       • Managerial economies- Financial economies- Marketing economies- Purchasing economies- Technical economies-
   • Diseconomies of scale
     • Diseconomies of scale are factors that cause average costs to rise as the scale of operations increases.
     • Main causes of problems
       • >Poor communication >poor control >Demotivation of workers
   • Break-even chart
     • Break even is the level of output where revenue equals total costs; the business is making neither profit nor loss.
     • Uses
       • *calculate how many units it needs to sell before it starts to make profit *calculate the effect on profit of increasing or decreasing the price of a product *calculate the effect on profits of an increase or decrease in business costs.
     • Benefits
       • *Can show the effect of a decision to change costs or revenues *easy to construct and interpret *can help other important decisions such as the location or relocation of a business.
       • Limitations
         • *It is not easy to separate costs into fixed and variable *assumes that all costs and revenues can be represented by a straight line. *assume that all output is sold - do not allow for inventories and the cost of holding these

3. Achieving quality production

   • Quality is ensuring a good or service that meets the needs and requirements of its consumer.
   • Quality Standards
     • Quality standards is the minimum acceptable standard of production or service acceptable to consumers.
   • Importance of quality to all businesses
     • *develop a strong brand image *reduce customer complaints and returns *Keep customers and attract new customers *charge a premium price *Reduce costs *encourage wholesalers and retailers to stock its products.
   • Quality Control
     • -is checking the quality of goods through inspection.
     • Problems
       • *The work can be repetitive and boring and this may demotivate the inspectors, resulting in them not performing their task efficiently
       • *The uses of quality inspectors takes any responsibility for quality away from the workers.
       • *if inspection only takes place at the end of the process, then problems with quality that occur at the beginning are not found soon enough. Resources are wasted completing a product that should have been rejected much earlier in the production process.
   • Quality Assuarance
     • -a system of setting agreed standards for every stage of production
     • Benefits