Higher Business Management - Methods of Production

There are FOUR basic methods of production:

• Job production
• Batch production
• Flow production/mass production
• Just in time production

Job Production

Job production: one single item is made at a time, eg a ballgown for the Queen. The ballgown will be made to the Queen's specification. This is usually a one-off order that may be repeated at a later stage.

Job production is always very costly as it requires highly skilled workmanship and expensive materials.

Advantages of job production

Disadvantages of job production

greater job satisfaction flexibility quality of product is very high

very expensive economies of scale do not apply could be very time consuming.

Batch Production

Batch production: similar items are made in blocks or batches. This could happen on small scale or large scale. The manufacture of the England rugby team jerseys is an example.

Other examples are: school uniform, construction of similar houses for a new development.

Advantages of batch production

Disadvantages of batch production

unit cost may be lowered workers can specialise some variety in production less skilled workers needed

work is repetitive and workers may be less motivated the need for storage place can increase costs. management of moving batches between stages can be problema

Mass Production/Flow Production

A large quantity of the same product is made at a high speed, and as cheaply as possible. A good example is the manufacturing of television sets. Other examples are a clothing line for a departmental store, toys, canned food etc.

Advantages of mass production

Disadvantages of mass production

unit cost low due to large output specialisation of workers less skilled workers standard of quality can be maintained

repetitiveness can lead to unmotivated workers huge capital outlay to buy machinery breakdown in machinery can cause big problems.

Just in time production

Just in time production (JIT) is applied when stocks of raw materials are kept to a minimum.

The aim is to get the raw materials just in time when they are needed for the production process.

Advantages of JIT

Disadvantages of JIT

Keep stock of raw materials as low as possible Low stock of raw materials saves costs until you need the stocks

Can cause delays in production if stock is not on time Must have a highly organised system for ordering raw materials Shortages of stocks can result in serious delays of production

Higher Business Management - Product Life Cycle Extension Strategies

An easy way to gain marks is to think about the 4 Ps of the Marketing Mix and how we could alter/change each of these in order to keep a product selling.

Product

¨ Change/alter the products packaging

¨ Change the products name (ie Marathon became Snickers!)

¨ Re-launch the product

¨ Find a new use for the product

¨ Develop a range of the same product in different sizes or shapes (ie iPod Nano etc)

Price

¨ Lower the price to increase sales. Customers should will buy in greater volume

Place

¨ Change the market for the product (Brother Typewriters were phased out due to laptops and word processors. Now the typewriters are being sold in Developing Countries.)

¨ Change the distribution channels (ie buy and sell online – eCommerce)

Promotion

¨ Increased advertising of the product will increase awareness, or persuasive advertising techniques, might mean consumers may purchase more of the product or service

¨ Use promotional techniques to stimulate demand such as BOGOF (Buy One Get One Free)

Higher Business Management - Exam Banker Questions

The following topics are ones that regularly come up in exams. There is no guarantee they will ALL come up but I feel they are good questions that are often asked and to be honest you should be maximising these.

So if you have a chance to gain 5 or 6 marks from one of these topics you should be aiming for the full mark.


Product Life Cycle
Stakeholders – Influence
Quality Methods (TQM, Benchmarking etc)
Job, Batch and Flow (Methods of Production)
Stages in Recruitment and Selection
PESTEC Analysis (External Analysis)
Market Research Methods
Ratio Analysis
Structured Decision Making Model – POGADSCIE
Types of Ownership (Ownership, Control, Finance)

Remember, make a note of small things in the book that you are unsure of and at least know what they are. You may be asked a small 3 marker on a very specific topic. It is unrealistic to know everything indepth, but use your common sense and your thinking skills to generate answers.

i.e. TCP = Time, Cost, People. (In other words how does the question affect these factors?)

Internal Organisation

Here is some information and study material from the Times 100 website for the topic of Internal Organisation:


http://www.thetimes100.co.uk/theory/theory--internal-organisation--230.php

Higher Business Management - Sources of Finance

Leasing
Renting of vehicles or equipment
More expensive in the long term than buying the asset
Asset is replaced when obsolete
Spread payments

Share issue
Dividends have to be paid to shareholders
Loss of control possible
Can generate large amounts of money/capital

Debentures
A long term loan to plcs
Debenture holders receive fixed interest
Debenture holders receive the money lent back

Venture Capital (think Dragons' Den)
Venture capitalists lend money when banks think it is too risky
Large amounts lent but interest is high
Part ownership often needed in exchange for finance

Hire purchase
A deposit is required and the rest of the price is paid in instalments
Ownership remains with the finance company until the last instalmentis made

Mortgage
A large sum of money borrowed from a bank or building society to purchase property
Monthly repayments required (interest)
Long term borrowing eg 25 years

Grants
Some of the money paid by eg Local Authority or Government
No need to repay a grant
May be given if organisation is creating jobs in an area of highunemployment etc

Sale of asset (Divestment)
Equipment or property which is no longer required is sold off to raisecash

Retained profits
Profits made are not distributed to the owners but kept back for reinvestment

Higher Business Management - Cash Flow Question

From 2005 Past Paper

Identify 4 sources of cash flow problems and suggest one solution for each source you have identified.

Sources of cash flow problems:
too much money tied up in stock
allowing customers too long to pay debtors
not paying on time
high levels of borrowing along with high interest rates
high drawings
low sales
high expenses
purchasing capital equipment

Solutions
introduce JIT
offer discounts to encourage prompt payment
offer discounts/promote cash sales
sell any unused assets
reduce loans by eg increasing number of investors
debt factoring
sale and leaseback
extended credit
arrange overdraft/loan
cut costs
promote product or services

This is a question that turns up in one shape or another. The important thing to remember is the difference between identifying the problems and the actual solutions.

This is the kind of question that seems daunting, but in actual fact if you get to know it well, you will realise that the question can never really be worded too differently and that the same answers normally apply to what is in effect a banker question.

Demergers on the rise during the recession

Demergers - the dividing up of an organisation into two or more parts, is once again becoming common.

I remember years ago when first creating my slides and notes for Higher Business Management at Mearns Castle High that finding examples of demergers were pretty rare. Rarer still were examples pupils had heard of! The only one I recalled was Racal Instruments splitting up and Vodafone being one of the new companies.

However there is an increase in the trend of the demeger.

Cable & Wireless, the famous UK communications firm will demerge into Cable & Wireless Worldwide plc and Cable & Wireless Communications plc, the new name for Cable & Wireless International.

Carphone Warehouse will split into New Carphone Warehouse (focusing on the retail) and TalkTalk (service provider).

Motorola are the latest big name to announce plans for a demerger.

Study Question:
What are the benefits to an organisation of demerging?

Johnnie Walker in Kilmarnock - Diageo and Stakeholders

Read this article: http://news.bbc.co.uk/1/hi/scotland/glasgow_and_west/8248348.stm


 Identify
 Interest
 Influence
 Conflict of Stakeholders

DEFINE STAKEHOLDERS

Stakeholders are a group of individuals with a key interest in a business or organisation.

INTERNAL STAKEHOLDERS

 Owners/Shareholders
 Johnnie Walker Managers in Kilmarnock
 Johnnie Walker Employees in Kilmarnock

EXTERNAL STAKEHOLDERS

 Kilmarnock Residents
 East Ayrshire Council
 SNP - The Scottish Government
 The UK Government
 Banks
 Johnnie Walker Customers


POTENTIAL EXAM QUESTIONS

Describe how 5 different stakeholders of Diageo could influence the
organisation.

Stakeholders are groups of people with a key interest in an organisation.

At Diageo's Johnnie Walker plant in Kilmarnock internal stakeholders would be:

 Managers
 Employees
 Shareholders/Owners

Managers can influence the organisation by making important decisions on the running of the firm for example what products to manufacture.

Employees can affect the quality of a product or service by how hard they work to produce the finished article.

Shareholder/Owners can change many things in the firm, for example they can buy more shares or vote at the AGM to replace the Board of Directors if results are not to their liking.

External Stakeholders would be:

 Customers
 Local Community
 Government
 Banks
 Suppliers

Customers can influence Diageo by deciding whether or not to purchase the product or service.

Local Community - in this case the Kilmarnock residents may decide to petition the organisation to make a change to their policies (eg their environmental policies), or in this specific case to keep jobs in Kilmarnock.

Government (in this example it could be Scottish Government, the UK Government or even East Ayrshire Council) can change or alter legislation which can affect production of a product or the working conditions of the employees (health & safety laws for example).

Banks can influence a firm by approving a much needed loan to keep a firm afloat in times of recession

Suppliers to Diageo can affect the firm quite drastically. They can alter the price of raw materials which in turn will affect Diageo's profit margin.