Operational Strategies Scale and Resources Mix

Aims and Objectives Aim: Understand operational scale and resources mix. Objectives: Define operational objectives Explain why firms set operational objectives Analyse different operational objectives Evaluate whether firms should set operational objective.

Starter Toyota is an extremely large business. What benefits exist for Toyota of operating on such a large scale?

Scale of Operation The size of an organisation will determine how efficiently it can operate. Firm is operating most efficiently at it’s optimum point where average costs of production are at their lowest. Before a firm reaches this point it benefits from economies of scale. After this point it will experience a rise in average costs: diseconomies of scale.

Economies of Scale Definition: The benefits enjoyed by a firm as a result of operating on a large scale. Average cost per unit of output falls, the more products a business produces, until the optimum output point.

Diseconomies of Scale Definition: The disadvantages to a firm of operating on too large a scale, and producing beyond optimum output. Average cost per unit of output increases as output increases.

Economies and Diseconomies of Scale Average Cost Good X Optimum Output Output Good X

Economies of Scale Purchasing Economies of Scale Benefits of buying in large quantities from suppliers. Lower average costs, mean these can be passed onto consumers in the form of low prices. Technical Economies of Scale The ability to buy technologically advanced equipment and spread the costs over a large amount of units. Specialisation Economies of Scale Ability to hire specialists as the business grows. More efficient production can take place due to everyone knowing their roles.

Diseconomies of Scale Communication Diseconomy Coordination Diseconomy Breakdowns in communication resulting from an increase in size of operations. Coordination Diseconomy Breakdown in coordination in the business resulting from an increase in the size of operations.

Resources Mix Definition: Combination of capital and labour resources used in a business to achieve output

Capital and Labour Intensive Businesses which are reliant on capital equipment such as machinery. Capital Intensive: Businesses which rely heavily on labour. Labour Intensive:

Capital Intensive Advantages and Disadvantages

Capital Intensive Advantages and Disadvantages - Reduction in human error - Greater speed - Easier workforce planning - Achieve economies of scale easier/ potential to benefit more - High initial capital cost - Finances may be affected if capital bought with loans, and the interest rate changes - Lack of human ideas to improve production processes -Less flexibility in responding to demand changes

Labour Intensive Advantages and Disadvantages

Labour Intensive Advantages and Disadvantages - Greater flexibility in workforce - Creates employment in economy - Better customer service - Can offer specialised goods easier to meet consumer needs - Opportunity for Kaizen - Production can be affected by industrial action - Possible workforce shortages - illness, days off, could lead to production targets not being met - High HRM costs - Could become over reliant on specialised workers, what happens when they’re ill?

Plenary Define economies of scale Define diseconomies of scale What is meant by the term optimum level of output? With the use of a diagram explain how a growing chain of Bike Stores may benefit from economies of scale. Distinguish between capital intensive and labour intensive.