Flashcards
Matching Production And Demand
Flashcards do conjunto (9)
- 1DemandIf a business has spare capacity, it can attempt to improve its marketing mix to increase demand.
On rare occasions, a firm may suffer from the opposite problem - a capacity shortage. If a firm knows they will be short in supply they may charge higher prices in order to reduce the demand. In this way they achieve full capacity and high sales revenue - 2SupplyIf a business has spare capacity, it might decide to follow a policy of rationalisation in order to reduce its capacity and save unnecessary expenditure.
Rationalisation leads to cut in the capacity of a firm and thus to a reduction in its maximum output. If a firm is capable of producing 200 units but only sells 96, they can rationalise and half its capacity to 100 so its capacity utilisation is 96% - 3Ways Of Reducing CapacityIf a firm cannot find enough orders, it will be suffering from increased fixed costs, or overheads, per unit of production. Some solutions include:
1) New business - The most obvious solution is to try and find new business or change the marketing proposition so that the firm’s product or service is more competitive!
2) Rationalisation - This means stopping or selling off parts of the business.
3) Short-time working – Cutting out a shift or reducing working hours. This will mean either reducing the workforce, or asking them to accept reduced wages and/or a loss of overtime. This will reduce motivation.
4) Laying off workers – This will reduce labour costs but not other fixed costs unless other actions are also taken. - 4Ways Of Increasing Capacity1) Extra shifts or Longer Opening Hours - Using extra labour in the form of staff overtime or additional staff. Firms use this to address short term increases in demand, for example if one very large order is required. Staff may welcome the extra pay (which is usually at a higher rate) if only short term though.
2) Seasonal workers – If the capacity shortage is seasonal, then temporary staff may be taken on to meet the need. This is common in industries such as retail at Christmas. The main problem is finding enough good temporary workers who have the right skills to maintain the firm’s levels of service and quality.
3) Outsourcing or Subcontracting – This means passing one or more aspect of the production process to another firm. - 5SubcontractingWhen your business needs more help, you can hire more employees, or you can use a subcontractor to do the work for you. Some businesses, such as construction, routinely use subcontractors for specialized jobs, while other types of businesses, such as bakeries, rarely use subcontractors.
- 6Advantages Of Subcontracting1) You can hire a subcontractor when you need more flexibility
2) You can use a subcontractor for one-off jobs and jobs requiring specialist expertise or fast turnaround
3) Your permanent staff can concentrate on the core business
4) Some subcontractors can start the work or project at short notice, even when large numbers of workers are required
5) You can often specify the type and duration of contract you need for the job
6) You can obtain temporary cover for a permanent staff job or work that needs doing - 7Disadvantages Of Subcontracting1) Subcontractors may cost your business more than the equivalent daily rate for employing someone,
2) By relying on subcontractors, your business does not acquire or develop skills in-house
3) Permanent staff may resent contractors being paid more money for doing similar work to them
4) Subcontractors may not appreciate your business culture and may lack the motivation and commitment of permanent staff
5) The opportunity costs of subcontracting should be considered - 8Dealing With Non-Standard OrdersA decision on a non-standing order will be taken primarily on the basis of its financial consequences. However, the business will need to look at the implications for its objectives and its impact on the functional aspects of the firm such as marketing and operations.
- 9Key Operational Factors To Consider When Deciding Non-Standing Orders1) The Effect That The Decision Has On Production - (Capacity Utilisation) If there is plenty of spare capacity the non-standing order may improve efficiency. However if close to full, it may prevent other, more profitable orders from being accepted.
2) Is There Potential For Future (Profitable) Orders - Although non-standing order may make a loss, it can build a relationship with a newer customer who may return in future.
3) The Effects Of Staff - If workers are under pressure, a non-standing order may add to the stress and pressure on the workforce, however if workforce is feeling insecure due to lack of orders this may prevent redundancies and boost moral.
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- A Levels Business FlashCards sobre Matching Production And Demand, criado por danny-hudson97 em 30-05-2014.
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