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Unit 5 - Coggle Diagram

- - - - Unit cost is the average cost of making one unit of output.
    - - Productivity is a measurement of the efficiency of resources used in the production process.
    - - Capacity utilisation is the percentage of a firm’s total capacity that is currently being used
    - - Cost to buy is the total cost of subcontracting production to a supplier.
    - - Cost to make is the total cost of production if manufacturing is kept in-house.
- - - - It is built exactly to customers’ requirements so that a higher selling price can be demanded.
        
        Workers are often more motivated as they are building a unique product. This should lead to fewer mistakes and a higher quality product.
    - - The small scale of output may result in very high average costs.
        
        If used to build 'mega projects', such as bridges or stadiums, demand is likely to be irregular, leading to potential cash flow problems.
- - - - For example, if a firm can produce more goods or services (increasing output) using the same or even fewer resources (inputs), then the company is more efficient.
      - Better efficiency reduces costs. If more output is produced with the same inputs, or if the same output is achieved with fewer inputs, then average cost per unit will fall.
        
        An example of this is in labor, where labor efficiency can have a significant effect on unit costs. The more efficiently staff work, the fewer of them will be needed or the more units they will produce in a given period, thus reducing average labor costs.
    - - If waste can be reduced, costs are also reduced, leading to higher total profit.
      - Types of waste:
        
        Transportation – moving components between work stations or from suppliers.
        
        Inventory – building up excessive stocks, resulting in storage costs.
        
        Motion – staff risking injury while making the product.
        
        Waiting – delays in the production process.
        
        Over-processing – adding features to a product that are not required by the customer and therefore do not add value.
        
        Over-production – producing an inventory of finished goods before they are needed. This can lead to wastage in fast-moving markets.
        
        Defects – finished goods that do not meet quality control standards.
  - - - Kaizen (continuous improvement): Holding regular, scheduled meetings where staff are invited to give their opinions and suggest improvements
        
        Benefits
        
        A range of ideas are suggested, so the company is more likely to make the ‘best’ decision.
        
        Employees may have a greater knowledge of the problem than managers/directors who may traditionally make decisions.
        
        The decision to involve staff helps them to feel valued, improving motivation.
        
        Limitations
        
        It may lead to lost production time as a result of meetings and evaluation of ideas, possibly reducing productivity.
        
        Involving staff in improvements may result in them demanding higher wages for increased responsibility.
      - Just in time (JIT): Placing smaller, regular orders that are delivered just in time for them to be used.
        
        Benefits
        
        It improves cash flow by reducing stock holding (Topic 3.7).
        
        It encourages staff to be more careful. With no spare stock, staff know they need to get things right first time.
        
        It has positive benefits for stock-holding costs. With less warehouse space needed and less chance of waste and damage, costs are reduced.
        
        With less stock holding, there may be more room available for production, which could increase capacity.
        
        Limitations
        
        Purchasing economies of scale may be lost as order sizes are reduced, leading to higher costs.
        
        It carries high risks. Production may halt if a small part of the supply chain breaks down. Any delay in delivery becomes critical for production.
        
        It restricts a firm’s ability to react to massive, unexpected orders.
        
        It may not be suitable for businesses with seasonal demand (such as fireworks manufacturers), where large inventories are typically built up ready for short periods of high demand.
      - Kanban: Use signals or cards to ensure supplies arrive at the production line just when they are needed
        
        Benefits
        
        Less space is needed on the production line; this space can be used for other more profitable uses.
        
        Lower levels of stock put pressure on staff to avoid waste. Mistakes are less likely and quality will rise.
        
        The total amount of stock the company holds should reduce, thus reducing stock-holding costs.
        
        Limitations
        
        Mistakes are more likely to stop the entire production line as replacement stock components may not be available.
        
        Delays in deliveries or incorrect orders can lead to production staff running out of materials to work with.
      - Andon: Notification system that alerts workers to potential problems in the manufacturing process.
        
        Benefits
        
        Problems are spotted quickly, so large amounts of defective goods are not produced.
        
        Engineers can be directed straight to the location of the problem so that it can be fixed quickly.
        
        Empowering workers to halt production and solve their problems can be motivating.
        
        Limitations
        
        Complex systems may be expensive to install.
        
        Workers will need to be trained in using the system and fixing problems.
        
        Workers may demand extra wages for taking on additional responsibility.
- - - - Lower labour costs, acess to skilled workforce, gaining better access to a large market
    - - Land, Labour, Capital, Entrepreneurship
        
        The role of the operations department is to turn the factors of production into goods and services that consumers want to buy.
    - - Products – the output of the operations management department. This could be anything from a haircut (a service) to a lump of coal (a good).
        
        Goods – these are products that are largely tangible (you can touch them). Cars, computers and chocolate bars are examples of goods.
        
        Services – these are products that are largely intangible (you can't touch them). Examples include watching a movie or renting a car. Once the service is finished, there is little physical evidence of what you consumed.
    - - Ecological sustainability
        
        Social sustainability
        
        Economic sustainability
    - - This aspect of sustainability refers to the use of the Earth's natural resources and the effect their current consumption will have on future generations.
      - Social sustainability
        
        Social sustainability is the ability of a business not only to meet the needs of its current stakeholders, but also to support the needs of future generations of stakeholders.
      - Economic sustainability
        
        Economic sustainability focuses on businesses making the most efficient use of their resources so that the future of the company and its stakeholders is not adversely affected by decisions made today.
- - - - Growth
        
        Diversification is the act of selling new products in new markets, which carries high risk but can yield significant rewards with proper investment in market research and R&D.
      - A unique selling point (USP)
        
        R&D leads to patented products, which give a unique selling point to companies, enabling them to increase sales and command higher prices while preventing competitors from copying their ideas.
      - Improved brand image
        
        Companies that continue to release successful, innovative products develop a strong reputation among consumers. This should lead to customer loyalty and price leadership.
      - Lower production costs
        
        R&D can lead to the development of new technologies and processes that improve the efficiency of production, reduce waste, and lower production costs. By investing in R&D, companies can identify innovative ways to streamline their production processes, which can lead to cost savings and increased profitability in the long run.
      - cons of R&D: A big R&D budget does not ensure success as companies need to consider other factors, and innovative and profitable products and a reputation for innovation may not result from it.
        
        Limitations of R&D
        
        Legal constraints
        
        Human resources
        
        Past experience and culture
        
        The level of competition
        
        Market demand
  - - - Innovative creativity: creating something new and unique, often risky, and can create new markets.
      - Adaptive creativity: improving or changing something that already exists, less risky and costly, but can still be profitable.
      - Creativity:
      - Innovation
        
        Product innovation: improving existing products or developing new ones.
        
        Positioning innovation: marketing a product to a new target audience without changing the product itself.
        
        Process innovation: developing new methods of production or product delivery.
        
        Paradigm innovation: changing an entire industry, rare examples include the production line and streaming services.
    - - Ethical considerations: some industries have ethical boundaries that may slow down innovation.
        
        Organizational culture: a strong culture where employees collaborate and work together is key to successful innovation.
        
        Pace of change within the industry: fast-moving industries require continued investment in R&D to stay ahead.
- - - - If production is labour intensive, it may make sense to move operations to a country that has a low minimum wage.
    - - Prime locations cost money. A shop on a busy high street will pay considerably more in rent than one a few streets back. The same is true on a national scale. In the UK, land prices in London and the South East are considerably higher than in the rest of the country. This has led some companies to leave London and relocate to regional towns.
    - - External economies of scale are those factors that lead to a lower average cost of production because of similar industries clustering together.
        
        Some of the factors include:
        Sklilled Labour
        Shared infrastructure
        Access to suppliers
        Improved image
    - - Access to efficient transport networks allows customers to visit stores and suppliers to deliver raw materials. This has the twin advantage of increasing potential sales while reducing costs.
    - - Sometimes governments will offer grants to companies that relocate to an area of high unemployment. This support might be in the form of free land, a favourable tax status or even a direct subsidy, all of which can significantly reduce business costs.
    - - When relocating to another country, there are a few additional factors to consider:
        
        Trade barriers
        
        government actions designed to reduce the number of imports into a country. Typical examples include tariffs (a tax on imported goods) and quotas (a physical limit on the number of imports allowed into a country). Trade barriers increase the cost of exporting to another country and moving production to another country will avoid these restrictions.
        
        Exchange rate
        
        the price for which a country’s currency can be exchanged for a different currency. If a currency becomes stronger, this can make it harder to export goods; foreign customers will have to pay more to buy the same quantity of goods.
    - - Finally, comes perhaps the most influential factor. If a company has been in an area for a long time, it may make sense just to stay there. Relationships with suppliers will already be established, the company's work force will be experienced and local customers may have developed brand loyalty.
  - - - A subcontractor is an external company that is hired to carry out a task on behalf of another company. The process of hiring the external company is known as outsourcing or subcontracting.
    - - Insourcing means ending contracts with external suppliers to undertake previously outsourced business functions.
    - - Offshoring is the relocation of a business function to another country.