This such as 90%. It is important to run
report will discuss the pros and cons of: capacity utilisation, productions
methods and managing change (stock control and quality).
aim of this report is to explain and provide recommendations for methods, that
would most benefit the company.
report includes a graph and a table from the previous year, which shows how the
company is currently producing products. Therefore, enabling clarity to
evaluate where improvements need to be made.
report includes descriptions of the most beneficial methods for businesses, to
clarify judgement, followed by comparisons to other useful methods. Finally,
the most efficient methods are recommended.
Stocks at start (thousands)
Monthly sales (thousands)
Production level (thousands)
Stocks at end (thousands)
Identifying under-utilisation and where stocks are building up
the graph attached
utilisation is a measure of the degree to which an organisation is using its
maximum possible capacity is usually shown as percentages.
At supermarket checkouts, queues build
creating the shop to have them be over 100% capacity utilisation, which can add
stress and an unneeded extra workload for the employee. It will create the
employee to rush, giving a bad impression to the customers. Whereas at some supermarket
checkouts, you can have employees sitting idly with no work to do. Creating
them to be working under 100% capacity utilisation. Companies try to combat
having a low capacity utilisation, for example B&Q operate a ‘over 60s’
discounts’ on Wednesdays, as it is classed as a quieter period and to hopefully
increase their capacity utilisation. Another example, cinemas offer discounts Mondays
as they are their quietest period, which they’d hope to increase their capacity
utilisation. It isn’t possible, or wanted, to keep all resources fully
employed. Majority of companies aim to function at just under full capacity, such
as 90%. It is important to run a business at around 90%, as it is a measurement
of efficiency and all organisation will want to be as efficient as possible.
The more output a company makes, the average production cost fall, therefore a
higher utilisation makes the business more competitive.
is a capacity utilisation issue with MowRite, as they can’t always keep their
production level at 90,000 because they do not have the storage (80,000)/demand
to hold the stock. As the demand increased for MowRite they clearly couldn’t
produce enough stock to keep to their minimum (buffer) stock level at 40,000
units. This is shown in the table from the stock at the end of the April-July,
as the stock was below their 40,000 thresholds. Capacity utilisation is substantial,
as it is used as a measure of productive efficiency, also the average
production costs tend to fall as the output rises, thus higher capacity
utilisation can reduce the unit costs, making a company more competitive and
more efficient. Therefore, organisations usually aim to produce as close the
full capacity (100% utilisation) as possible.
production is normally completed by a single worker or a group of workers, the
job can vary from complex and high technology to small scale and low
technology. An example of low technology jobs are hairdressing and tailoring,
where the production is very simple, requiring low skill and easy obtainable
equipment. This method allows customers specific requirements to be included,
normally as the job progresses. Whereas high technology jobs include a lot more
complexity, which means there is a greater management challenge. The business
should always keep a clear definition of objectives.
process is essential, like how are decisions taking about the needs of each
process in the job, labour and other resources. Examples of high technology /
complex jobs: film production; large construction projects.
As a business grows and production volumes
increase, it is not unusual to see the production process organised so that
batch production can be used. Using batch production obliges the work for any
task to be divided into sections or operations. Each section is finished
through the whole batch before the next section can be performed. It is
possible to achieve specialisation of labour, by using batch method. Careful planning
is needed to ensure that production equipment is not left idle, but the capital
expenditure can also be kept lower. The main aims for batch production are to
concentrate skills (specialisation), plus to achieve high equipment
utilisation. The batch method is probably the most commonly used method of for
organising manufacture. An example for batch method is the production of
electronic instruments. Batch production does have faults though, having to
finish an operation on all the products, before moving onto the next section,
means that there can be a high build-up of significant stock.
methods are very analogous to batch methods, apart from the issue of in batch
production where the batch is resting awaiting to be used for the following stage.
The objectives of flow production are:
Improved work and
Reduced need for
Added value / completed
methods are efficient as when work on a task at a specific stage is completed,
it is required to be moved onto the next stage in the process without waiting
for the remaining batch of products as you do in batch method.
flow production to work, there need to be a consistent demand for the product as
if the demand is random, it can lead to an excess amount of stock, therefore
having to buy storage is an unwanted business expense. Flow is very uncompromising,
it cannot deal very well with differences to the product
the raw materials for the product isn’t delivered on time, it may cause the
whole production to an end, with a likelihood of a serious cost consequence.
MowRite uses flow production, as it makes such
a vast amount of lawn mowers i.e. 90,000
Units possible per month. The use any other
production method wouldn’t make sense for
MowRite as it wouldn’t be able to keep up with
the demand that MowRite has. Which
would foresee a bad reputation.
5. Managing change – Stock control and quality
Stock control usually takes place at least
once a year, but varies with different company policies. Stock taking, is used
to check the amount and the value of the stock possessed. Also, it adds a
security check, to check for a theft and to monitor if the business has the
right amount of stock for production. This process can be done manually, but
most shops have computerised stock records.
Having low stock levels can have many implications,
running out of stock can be an issue, as there could be a sudden increase in
demand and the business may not have the stock to accompany for the demand. Not
having a lot of stock can implicate a organisations reputation, as consumers will
find start to find them unreliable, questioning the companies trustworthiness. Whereas
holding a high amount of stock can have its implications as well, storage to
hold all the materials and adds a more likelihood chance of spoilage/waste of
the products. Holding high levels of stock may make the good become obsolete,
therefore the company have wasted money on products that won’t get used. Having
such a vast amount of products in storage makes all your money tied up in stock,
which holds the company back to make any investments.
There are many things to take into consideration
that will influence the decision for holding stock, such as:
• Storage costs
• Type of products, as you wouldn’t want to
store cold or perishable items in a warm enclosed area
• Economies of scale
• Level of demand
• Suppliers reliability
• Opportunity cost
• Level of competition
are two types of stock rotation: FIFO (First in first out) and LIFO (Last in
first out). FIFO means that the stock
that has been delivered first are first to be sold, which is highly recommended
for perishable items and products that are likely to become out of date. For
example, such as meat, vegetables,
dairy products and even prescription drugs. LIFO means that the latest stock is
used rather than earlier stocks, these technique is used if stocks are bulky
and/or difficult to handle. It’s not suitable to use this for perishables as it
would cause a lot of stock to go off or/and out of date. A problem for this is
that old stock will be stored for extended periods of time, maybe even get
forgotten about, therefore wasting money on stock not being used.
Just in time was developed in the 1950s in
Japan. A form of ‘pull’ system. An organisation only produces, and therefore
orders, what is required at the required time. So, all stocks are kept to a
minimum, it requires efficient and effective scheduling, plus it is usually
managed by a computerised system, also ensures supplies are delivered only when
of just in time is that your cash is not tied up in stock, so it can be used to
cover other business expenses. It reduces storage costs, because stock is only
ordered when needed, and used straight away when it is delivered, also making
it very unlikely for stock to become obsolete. Also, it reduces waste because only
the required quantity is ordered.
of using just-in-time is that it’s extremely dependant on having reliable
suppliers, because if an order due is in for a certain date and the supplier is
late with the delivery, then production may be delayed, which may ruin the
reputation. If there is a sudden change in your demand it will be difficult
respond. A significant disadvantage of using just in time is that losing the
opportunity of getting bulk buying discounts.
Kanban system is used as part of the just-in-time process. It ensures only
materials/resources needed for a particular stage are authorised for movement.
Therefore, avoiding a build-up of unnecessary stocks. A Japanese method meaning
‘signboards’ or ‘cards’. It is used to move materials through the different
stages of production. The ‘kanban’ can be in various forms e.g. a physical
card; a plastic marker.
advantages of using IT are, the range of new products, for example, touchscreen
computers to routine updates on computer software. It can significantly increase
productivity, as any mistakes that are made are more easily corrected when on a
computer, but if you have all paper work then once you’ve sent it off it can be
a hassle to make any adjustments, whereas if it’s on a computer, adjustment can
quickly be made. Also, using IT can create a lot less waste as there would be
no paper waste as every would be done electronically. It can massively improve
communication as employees can email and fax things with computers. Having work
on computers can make your working conditions a lot more flexible, as you would
only need a small laptop to complete your work.
disadvantages of using IT include, the stress that employees may experience if
they are not computer friendly, which could create a bit of a hostile
environment. It may reduce jobs, fewer people are needed. If there are any
issues with IT equipment its reliant on specialists, which could cost a lot and
may even interrupt your normal routines, as equipment may not be available. The
software on computers are updated very regularly, which could put the person
using the computer under pressure making them feel like they must do things
which they don’t know enough about, so training would be needed to keep all
staff up to date with the software and confident enough to do their job. The
costs of IT equipment are not cheap, so, an initial amount of money will be
needed to invest in equipment. Lastly, employees may feel like the traditional
crafts/skills are lost as it is all controlled by computers.
benefits of innovative technology cannot be denied, and businesses cannot
ignore the change, otherwise they will be slacking behind every other business
that are embracing technology and making their company more streamlined. Introducing
new systems may be problematic but can be successful provided those applying
them are enthusiastic and confident. Technology is only another ‘set of tools’
relying on good understanding of customer and staff needs and wants; internal
auditing and knowledge of the external environment. So good management of it is
no different to good management generally.
Quality control involves testing of
units and determining if they are within the specifications for the final
product. The purpose of the testing is to determine any needs for corrective
actions in the manufacturing process. Excellent quality control helps companies
meet consumer demands for better products.
involves each step of the manufacturing process. Employees often begin with the
testing of raw materials, pull samples from
along the manufacturing line and test the finished product. Testing at the
various stages of manufacturing helps identify where a production problem is
occurring and the remedial steps it requires to prevent it in the future. A
quality product or service is one which is fit for its intended purpose, and is
produced at an acceptable cost. An organisation will need to consider the cost
of failing to meet quality requirements.
Quality management initiatives enable
an organisation to focus on both customer and employee satisfaction. However,
this may be at a cost in financial terms and in meeting requirements of
the table and graph provided, lawn mowers sell a considerable amount more
between March and June. To counter the issues of not being able to keep the
buffer stock based on the operations managers suggestions. This report would
advise to make more lawn mowers a few months before and keep them in storage
and it can then be more consistent with production, making it more consistent,
which may make the employees more comfortable than having to rush at certain
times throughout the year. Flow production is the most suitable way of
production for MowRite as make a lot of lawn mowers and on such a consistent
basis, therefore keeping things the same is most beneficial.
This report would advise FIFO to be adapted at
MowRite, as it would reduce the waste made, making sure that all the stock
being bought is being used and not going to waste, making the money go further.
MowRite using just in time is very constructive, as stock ordering can be
predicted can tell how much stock you would need. This will release cash would
be able to invest in other ventures. So, making investments in other areas like
marketing or advertising could be easily made.