Resource management 2.4 Flashcards
What is the definition of capacity utilisation?
The proportion of maximum possible output that is currently being used by a business
How is capacity utilisation calculated?
Actual output/maximum possible output X 100
What are 2 weakness of having a low capacity utilisation?
-Fixed costs are spread over fewer units of output leading to higher average total costs
-Workers may be made redundant leading to current employees having fears of being let go
What is one strength of having a low capacity utilisation?
Allows flexibility, and the business can respond to sudden changes in demand
What are three weakness of high levels of capacity utilisation?
-Staff under a lot of pressure
-Machines prone to breakdowns
-Less flexibility to respond to new orders
What are three ways to improve capacity utilisation?
-Outsourcing, increasing level of output
-Reduce capacity to decrease maximum poss. output
-Increase sales, requires more units to be sold
What is the maximum stock level?
The maximum amount of stock a business is able to hold in normal circumstances
What is the reorder level?
The level at which a business places a new order with its supplier
What is the minimum stock level?
Also known as buffer stock
The lowest level at which a business is willing to allow stock levels to fall
What is the lead time?
The length of time from the point of stock being ordered from the supplier to it being delivered
What are two disadvantages of holding buffer stock?
-Cost, requires storage space
-Opportunity cost, ties up capital that could invested elsewhere
What are two strengths of holding buffer stock?
-Competitive advantage, gain a reputation of being reliable
-Stable stock, able to respond in unexpected demands
What are two problems with holding too much stock?
-Storage costs are higher than necessary
-Risk of spoiled stock if products are perishable
What are two problems with holding too little stock?
-Business may run out of stock
-Sudden increases in demands can’t be met
What is Just in time stock management?
A process where raw materials are ordered as required and delivered as production starts
What are three advantages of JIT?
-Stockholding costs are minimised
-Cash flow is improved as money is not tied up in stock
-Teamwork is encourage, leading to motivation
What are three disadvantages of JIT?
-Bulk buying EOS is generally not possible
-Unreliable suppliers halts all production
-Administrative costs and complex planning
Give three ways to minimise waste
-Planning
-Sales tactics, reduce prices to encourage purchases
-Storage, careful stock rotation
What is lean production?
The minimisation of the resources used in production
What three examples of steps involved in lean production?
-Fewer materials used
-Less labour is used, normally capital intensive
-Space required for production is reduced
What are two competitive advantages from lean production?
-Lower unit costs so prices may be lower than competitors
-Better quality of output due to carefully managed production process
What is quality control?
Inspecting the quality of output at the end of the production process
What are two advantages of quality control?
-Specialists check the quality
-Inexpensive and simple way to check quality
What are two disadvantages of quality control?
-Bad quality products are waste of resources
-Little focus of the cause of defects
