Level 2 Business Studies AS90843 Demonstrate understanding of the internal operations of a large business

Production Process Students will explain the components of and factors affecting the production process and how it relates the supply chain Understand the components of the supply chain including the chain of production for a product Understand the difference between production (output) and productivity (output per input) Understand the need for efficiency in business production (lean production) Define economies of scale and work study

Supply Chain A supply chain is a system of organisations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer. Source:

A supply chain has three key parts: Supply focuses on the raw materials supplied to manufacturing, including how, when, and from what location. Manufacturing focuses on converting these raw materials into finished products. Distribution focuses on ensuring these products reach the consumers through an organised network of distributors, warehouses, and retailers.

Production The making of goods and services. Supplying a product or service to satisfy consumer needs and wants. The output of a business

Productivity The output measured against the inputs (usually labour) used to create it. The rate of output. Output Input

Productivity As employees become more efficient, the amount of output per employee will rise and therefore the cost of producing each product will fall. Sales can increase without a business facing increased costs.

Lean Production Uses as few resources as possible: space, materials, stock, time and labour. Waste and stocks of raw materials are kept to a minimum Workers are encouraged to think of ways to improve their productivity

Lean Production (continued) The Japanese car manufacturer Toyota was the first company in the world to fully adopt this production approach. It is now the world’s largest and most successful car manufacturer

Economies of Scale The factors that lead to a reduction in average costs as a business increases in size. The business benefits from being larger. Average costs means cost per unit of output. Total Cost Output Average Cost =

Main Internal Economies of Scale Internal Economies of Scale PurchasingManagerialFinancialTechnicalMarketing Risk- Bearing

Main Internal Economies of Scale 1. Purchasing Economies happens when a large business buys its supplies in bulk and so gets them at a cheaper unit price than a small business 2. Marketing Economies arise because the cost of an advertising campaign is pretty much a fixed cost. A larger business will spend less per unit advertising its products than a smaller business

Main Internal Economies of Scale 3. Managerial Economies are where a business can afford to employ specialist managers who have expert knowledge. Generally as a business doubles in size they do not require twice as many managers. 4. Financial Economies results from banks being prepared to lend more money to larger firms at lower interest rates. The banks knows that a larger business is more likely to pay them back than smaller businesses.

Main Internal Economies of Scale 5. Technical Economies occur because larger businesses can afford to operate more advanced machinery than smaller businesses. 6. Risk-Bearing Economies are where businesses can afford to sell a range of products into many different markets. A decline in sales of one product will not significantly harm the businesses cash flow.

Diseconomies of Scale Growth can bring businesses some diseconomies of scale. These are areas where growth can lead to increases in a businesses costs, eg: 1. The bigger the firm, the harder and more expensive to manage it properly 2. Decision take time to reach the whole workforce. Workers can get demotivated, which may cause productivity to go down. 3. The production process may become more complex and more difficult to coordinate.

Work Study an analysis of a specific job in an effort to find the most efficient method in terms of time and effort or A generic term for those techniques, particularly method study and work measurement, which are used in the examination of human work in all its contexts, and which lead systematically to the investigation of all the factors which affect the efficiency of the situation being reviewed, in order to effect improvement. This has to do with Productivity Improvement, but also improvement of Quality and Safety.