luilncss - Profilr 2
c. .
«m nls if a customer desirod a variation lu .1 produci .
n Z c llv J S J b u r i n s can make adjustment* to meet |llta|
f
»m a t, UH*,n>
h t respond in Ihi® w a y to m a r k * con d itio*,
41
v
Z
*
O F ™ " ■ ? , r »«v .u ,- p
i
,
^
burinwae. contribute to the com petitive spirit o the e c o n o * * , f
V T a '™ n tr v by competing with
thorn from having .1 monopolistic position.
S m a ll
b u sin ess
"> « p rrve*^
incubator
The Idea o f the small b u s in c * incubator .5 relatively new . but c e n t * , h„ V(,
been established to provide:
>• essential business services
>■ consultancy and training
> .i flexible w orking space fo r the n ew businesses.
The incubator is seen as a lool that can be used In b ring about economic
grow th «n industrialising d evelop in g nations A m ajor o bjective o f the
incubator is to encourage innovations and the incubator w ill then provide
M im e resources and training for the small to m ediu m -sized businesses ^
incubator w ill provid e space, shared o ffice facilities, a d v is o ry services, nkilU
developm ent in small business m anagem ent, assistance and speed in securing
o ffice space, and access to 'seed money* through a loan scheme.
Small businesses are often born out o f cottage industries (see b elo w ) or other
com m unity self-help projects. M any are fam ily businesses w ith limited
capital These businesses o ften find it difficu lt to obtain a loan from the
established financial institutions that tend to focus th eir attention on the
larger, well-established businesses. I lo w ever, sm all businesses have .in
Important role in the economy.
>
>
>
Th ey contribute to the econom ic life o f the cou ntry by p ro v id in g
em ploym ent
T h ey p ro vid e a service that is needed by the pop u la tion , especially in
small com m unities that are not easily serviced b y the businesses in the
tow ns and cities.
Because o f the size o f the business, custom ers' personal preferences .ire
identified and met
Cottage industries
A cottage industry is o n e o f the extrem es o f sm all business A s the name
suggests, cottage industries are carried on in the hom e, althou gh increasingly
they are to be found in com m u n ity centres, parish halls o r som e other similar
villa ge facility. Frequently such businesses w ill in v o lv e h an d w o rk carried on
at hom e but the term also applies to m any o th er form s o f em ploym en t, often
when.* w orkers supplem ent their normal earnings in cotta ge industries after
their d a y 's w ork is com pleted
f oftage industries originated as w .iys o f increasing in com e w ithout leaving
hom e I hey also satisfy the psychological need to use o n e's spaa* time
productively. Today they are recognised as p la y in g an essential part in the
C aribbean econom ies.
I ci iplr w h o have skills in handicrafts have for a lon g tim e successfully used
ree or relatively cheap local materials to produce a variety o f goods.
Chaptef 12 - Production
the demand* o f the tourist trade This not only provides
spare tim e In
UCeTS °
ilem s bu* also makes sensible use or Iheu
p ro vid e riu- rr^ T ™ ®xamP,es lt can also p ro vid e em ploym ent tor other- w h o
enals or w h o sell the finished product on behali o f the makers
i nvol vvH1^
; r d‘v^ *
f K
^
r° <f ntinLU’a to * u ™ v e in the Caribbean K vau-*- those
andmcrc^ ** «»*
<****
ucts P rodu ced by cottage industries include: pastries, straw
ate garm ents, em broidery, basketry, jams and Jellies, string arts flo w e r
rangem ents, as w ell as direct services such as ta ilo r in g beautv culture,
catering, knitting, sm ock in g and crocheting.
T h rou gh ou t the Caribbean region variou s governm en ts have tried to
en courage production in this manner. For exam ple. Caribbean governm ents
m ay arrange m ajor exhibitions and com petitions, p rovid e skills training, assist
in the m arketing o f products, and m ay even m ake factory space available
A p a rt from the a forem en tion ed reasons fo r the continued existence o f cottage
industries, they h ave oth er im p ortan t contributions to m ake to the econom y
o f their countries. D u rin g a tim e o f h igh u n em ploym en t they p ro v id e incom e
and in d ep en d en ce fo r m an y p eo p le. W e a lso h ave to rem em ber that the
m o n ey earned b y those e n g a g e d in the cottage industries is eventu ally spent thus p r o v id in g w o rk for others
Linkage industries
In C h a p ter 1 w e said that there are three typ es of p rod u ctive industries
il
Prim ary: the industries concerned w ith the extraction o f basic materials
p ro v id e d b y nature (fa rm in g , fish in g and m in in g).
■
Secondary. the industries that ch an ge ra w m aterials and p a rtly produced
g o o d s in to a finished produ ct (m a n u fa ctu rin g and construction).
■
Tertiary; the s ervice in du stries (such as transport o r tourism ).
T h e lin kages b etw een these aspects o f p rodu ction are im portant because they
facilitate a series o f relationships b etw een the p ro d u ctive sectors m entioned
above. T h ese lin kages are o f crucial im p ortan ce to Caribbean d evelop m en t l or
ex a m p le, a gricu ltu re is an im portan t eco n om ic base in m a n y o f the territories
and the lin kage industries m ake an agricu ltu ral-in du strial d r iv e possible
A lin k a ge industry* is o n e that is lin ked w ith another. It is som etim es called a
's c re w -d r iv e r' in d u stry o r a 's p in -o ff' because it has c o m e about as a result o f
s o m e o th er d e v e lo p m e n t. For e x a m p le, can nin g and preservation o f fo od s are
'sp in -o ffs' o f a gricu ltu re (fo r w a r d lin k a g e ); o n e in du stry is produ cin g the ran
m aterial fo r an oth er industry. C o n versely, m anufacturers of farm machinery
w ill s u p p ly to a gricu ltu re (b a c k w a rd lin k a g e ).
T h e lin k a ge industries are im p ortan t in the C aribbean at both national and
regio n a l le v e ls because they:
>■ p r o v id e increased em p lo y m e n t a n d an im p ro v e d standard o f livin g
>
assist regio n a l self-su fficien cy (red u ced d ep en d en ce on im p orted g o o d s)
>■ redu ce w a sta g e o f the c o u n try 's resources
>■ increase o p p o rtu n ities for com b in ed research and d ev elo p m en t
► en co u ra ge m o re skills in the labou r force
► fo r g e closer Caribbean links at the social, econ om ic and political levels
>■ p ro m o te ea rn in gs o f fo reign exch an ge
Chapter 12 - Production
* ^ u l y ' Z mCCt1 ,ht* den u n ^ » of lh<* tou m i trade T h i* not o n ly provid e*
soarr »mu. i
PIW*U®H*
Item* but a b o make* sensible u%r o l their
nrnvif-i
n *" mt> rx,1m Pk''' 11 can also p rovid e em plovm cnt tor other* w h o
I
v raw material* or w h o v l l the fo b b e d product on behaU o l the makers
i ? dus,r?*"' * **** continued to e u rv tv r in the Caribbean because tho*e
«
*
ye d iversified and increas'd the range and «c o p r 01 their
p
uc s. Product** produ ced b y cottage industries include pastries, straw
nats. garments, em broidery, basketry, »ams and fr-llM. stnng a m , (lo w rr
arrangements, as w ell as direct services such as tailoring, beauty culture,
catering, knitting, sm ocking and crocheting.
rhroughout the Caribbean region various g o v e rnm ent* have tried to
« ncourage production in this manner For exam ple, Caribbean governm ent*
m ay arrange major exhibitions and com petitions, p ro vid e skills training, assist
>n the m arketing o f products, and rnay even m ake factory space available
Apart from the aforem entioned reasons for the continued existence o f cottage
industries, they have oth er im portant contributions to m ake to the econom y
o f their countries. D u rin g a tim e o f high u n em ploym en t they p ro v id e incom e
and independence fo r m a n y p eo p le. W e also have to rem em ber that the
m on ey earned b y those en gaged in the cottage industries is even tu a lly spent
thus p ro v id in g w ork for others
Linkage industries
In C hapter 1 w e said that there are three typ es o f p n n lu ctive industries
9 Primary: the industries concerned w ith the extraction o f basic m aterials
p ro vid ed b y nature (fa rm in g, fish in g and m in in g;
■
Secondary: the industries that change ra w m aterials and partly produ ced
g o o d s into a finished product (m an u factu ring and construction).
»a Tertiary: the service industries (such as transport o r tou rism )
T h e linkages betw een these aspects o f production are im portant because they
facilitate a series o f relationships b etw een the p ro d u ctive sectors m entioned
above. Th ese linkages a re o f crucial im p ortan ce to Caribbean develop m en t. For
exam ple, agriculture l s an im portant econom ic base i n m any o f the territories
and the linkage industries m ake an agricu ltu ral-in du strial d r iv e possible.
A linkage in du stry is o n e that is lin ked w ith another It is som etim es called a
's c re w -d riv e r' indu stry o r a 's p in - o ff because it has c o m e about as a result of
som e other d ev elo p m en t. For e x a m p le, can n in g and preservation o f food s are
'sp in -o ffs' o f agriculture (fo r w a r d lin k a g e ); o n e in du stry is p rod u cin g the raw
m aterial fo r another industry. C o n vers ely, m anufacturers o f farm machinery
w ill su p p ly to agricu ltu re (b a ck w a rd lin k a ge).
T h e lin kage industries are im p ortan t in the C aribbean at both national and
region al levels because they:
► p ro v id e increased em p lo y m en t and an im p ro v e d standard o f livin g
► assist region al self-su fficien cy (red u ced dep en d en ce on im p orted g o o d s )
>• reduce w a stage o f the c o u n try 's resources
>• increase o p p ortu n ities fo r com b in ed research and d evelop m en t
► en cou ra ge m o re skills in the labou r force
► fo rg e closer C aribbean links at the social, econ om ic and political levels
>• p rom ote earn in gs o f fo reign exch an ge
175
--------------- :
Crude oU (reftn.ng)
Sugar cane
Frurt
Bamboo
Aspba»t
Livestock
Prtrdeum p U ***. * P ha't
Cam#y ^
canning
Baskets
Road-building
leather goods
---------------------
Benefits of local and regional linkages
i»
r imm unity (C A R 1 C O M ) has b een established to encour
The Caribbean
m {ht. ^ g jo n . T h e organ isation has been seelur, * *
economic deve t p ^ ^ ^ j ^ v e s and o n e o f these is to establish h i ’
and means u * 1
w,thin the region. T h e argum ent is that »
**
Z l u Z Z - to do wcU economically, the,, li n k a g e b etw een i n d u * ! * B ,
w orthw hile alternative to cu n vnl practices.
For example. Trinidad and Tobago is a m ajor p ro d u c e r o l pitch which » , h .
product o f o il - one o f their m ajor resources. O th e r islands could form
linkages w ith this industry in o rder to obtain the r a w m aterials for their
purposes- For example, w ith further p ro ce ssin g asph alt used in road
construction can be obtained from the piti. h
Another exam ple is the hospitality and tourism sector w hich is a major o n *
o f foreign currency for most Caribbean islands. Because o f the nature 01 the
hospitality and tourism product, it is an area in w h ic h considerable co­
operation and linkages are needed Hor exam ple, lin k a ges can be established
between the agricultural sector and the hospitality and tourism sector bocauy
large volum es o f farm produce an* consum ed b y this sector on an annual
basis Information about the <jualilv. quantity and v a rie ty o f the produce
required by the sector is o f im portance to the fan ners. Farm ers w ould then tv
in a better position to produce to meet the produ ct specification s o f the
hospitality and tourism sector.
The design and management o l facilities an* im portan t aspects o f the
hospitality and tourism sector. Training o f m an agers to d e v e lo p these skills and
competencies w ould complement their existing gen era l m anagem ent skills
This type o f training is best delivered by a b u ild in g services engineer, allowing
building services engineer* and hospitality and tou rism to w ork co­
operatively.
Knally, craft items are produced b y m any local artisans tor the hospitality and
tourism sector. Yet, in the marketing o f the tou rist prod u ct, lim ited attention is
given to this often small but important sector.
It is. therefore, d ea r that the opportunities tor linkages at the local and regional
lt.*\ eU exist, but a concerted effort must be m ade b v the decision-makers to
bring these sectors together so that they com plem en t each other. In this way
decisions can be m ade about h ow much o f w hat is earn ed in on e sector, lor
example, hospitality and tourism, should t v p lo u gh ed back into other sector
such as cralt and small farming, in order to im p ro ve the qu ality o f their
products In other w ords, the backward sector cou ld benefit from the modem
o r tei hnologicallv advanced sector for their m utual benefit This can only be
achieved it a concerted effort is m ade b y the decision-m akers to forge the
necessary linkages. This w ou ld help to reduce or preven t econom ic dualism
Chapter 12 - Production
Regional linkages can result in:
► p rovid in g outlets for raw materials (at the prim ary and secondary levels)
assisting in the d evelop m en t o f the region at a faster pace
► assisting in reducing unem ploym ent
>■ p ro vid in g opportunities lor countries to d ev elo p their expertise in the
production o f specific products
► g iv in g the opportu nity for the region, in the long-run. to com pete in the
glob.il market-place
► preventing scarce resources from being used to obtain products from
outside the region which could, w ith greater co-operation, be produced
w ithin the region. This w ou ld then leave the savings free to obtain pnnlucts
that are necessary, but fo r w hich there w ou ld be no clear comparative
advantage if attempts are m ade to produce them locally or regionally.
The role o f governments in developing regional linkage
G overn m ents can contribute to the ideal o f regional linkage bv:
► outlin ing the benefits to b e gained by C A R IC O M countries from regional
strategies. T h rou gh C A R IC O M , regional strategies and policies cou ld be
iden tified and pursued.
► educating business organisations about the benefits to b e d erived from
regional linkages E ncouraging businesses to use the raw m aterials o i the
region, as w e ll as b u yin g locally produced goods. In this m anner both
local and regional businesses w ill be su pported and helped to su rvive and
d evelop .
>• financing trade fairs at w hich both local and regional persons could be
brought up-to-date on w h a t is bein g produ ced in the region, and thus
en cou rage businesses to obtain their supplies from both local and regional
markets
>• ascertaining the skills and com petencies n eeded tor the industries and
collaboratin g in p r o v id in g the necessary training o f ihe labour force to
handle the tasks to be carried out
► p o olin g resources in o rder to obtain the capital needed b y various industries.
12.6 Location of business
A m ajor decision that all firm s h ave to take is w h e re to site their premises. A
v a rie ty o f factors w ill influence this decision, in clu d in g the size of the
organ isation and the expected scale o f its operations, but m ost choices o site
are a co m p rom ise b etw een several adva n ta ges and disadvantages. T e
su m m ary chart, figu re I2.t». on the f o llo w in g page, sh ow s the main
in flu en cin g factors.
12.7 Business expansion
Business risk
B eing in business is risky. S o m e o f the risks in v o lv e d can be insured, e.g. a*,
debts, d a m a g e o r theft H o w e v e r, s o m e cannot. For exam ple, it is not possi
to insure against a business m akin g a loss. T h e m ain risk a business a
that it w ill fail to m ake a profit; and ev e n w orse, if this continues o v e r a
p eriod o f tim e, the business w ill b e forced to cease trading.
177
Principles of Business - Profile 2
IN FLUENCES O N LO CATIO N O F BUSINESS
Industrial inertia - Sometime-;
firms stay at a particular site
even though the original
reason for siting in that area
(e g near source of raw
materials) no longer apples
Transport access - Siting n* *
to good road. rail, sea or
links can save in distribution
costs or in the movement of
raw materials
raw materials or to the port
where they enter the count >
may influence choice of site
Market pull - Businesses are
attracted to sites close to
where potential customers
can be found, shops near
where the shoppers will be.
hotels near tourist areas
M0<OI
«T
Land - Availability of
sufficient suitable land, at an
economically viable pnce. in a
suitable position wil attract
business
Environment - Climaoc
condibons are important to
some businesses, particularly
those involved in agricultural
products.
V
Labour - Availability of
suitable labour with a good
no stnke record This will be
influenced by availability of
social amenities such as
housing and medical facilibes
Fuel or power - Closeness to
fuel or power is less
important today than m the
past, but some firms still need
to locate near to sources such
as water
.mcsN'O
•
Government influences - Some
governments try to influence
the location of businesses, e g.
to improve regional balance and
reduce overcrowding in cites
and towns
Linkage Industries - Firms will
locate near other businesses
on which they depend, or near
to other firms in a similar line
of business
Fig. 12.6 A business will lukr many fucton into ucivunt when decuimg where to locate »l» premises Lm L at the example* £ij**n Utu
Where cjm you see examples of the*e influences on businesses in your locality7
178
%
MH>X>
Chapter 12 - Production
O ne o f the obvious w a ys a business can reduce risks is b y b ein g successful and
increasing profitability. .-\s a firm becom es m ore successful, it tends to g ro w in
size. Through this grow th, it usually creates further profitability and success
and so increases its chances o f su rvivin g, and the grow th continues T h e most
ob vio u s w a y that this grow th is seen is in the organisational structure o f the
firm For exam ple, the structure o f a large business w ill be m ore com plex and
versatile than that o f a small business (see figure 12-7 fo r com parison)
The benefits of business expansion
T h e m ain aim o f a business is to create a p rofit for its ow n ers. T h e larger the
protit the greater capital is generated, and the m ore satisfied the ow n ers w ill
b e because the chances o f su rviva l and continued g ro w th w ill h ave increased.
P ro fit is w hat rem ains a fter all the costs o f ru nning the business h ave been
m eL C osts include things such as w a ges paid to em ployees, rent o f buildings,
and paym en t for stock and equ ipm ent A n y th in g that reduces these costs
increases p ro fita b ility .
Advertising
M anager
Sales
M anager
Sales Representatives
Sales Representatives
F ig .12.7 77t«* size o f a business x v ill in flu e tic e its s tru c tu re
G ro w th can h elp to in crease p ro fita b ility in the fo llo w in g w ays:
Economies o f scale
A s a business g r o w s it u su ally g en era tes e c o n o m ie s o f scale. T h is m eans that
as the business s iz e increases, its unit costs fall; the cost o f each thing the
business sells is redu ced because unit costs a re m o re w id e ly spread Thus, it
is ch ea p er to p rod u ce g o o d s o n a larger scale.
In tern a l e c o n o m ie s o f s ca le o ccu r as a result o f va rio u s factors w ithin the
business, a n d these a re related to its size For exam ple, a larger business can
179
rnncipies of Business
ProH*- 4 t a d to u * better M t a o t W .
VT
* -
^
* *
tht. tc jtU of production, thus further increasing e c o n o m y
Other internal economics of scale include being able to em ploy 'P « i a l i . t
U b o u X n g -W e to buy in bulk and finding it easier to raise further capitai
External econom ies o f scalc refer to the benefits gained by all the b u s i n g m
a particular industry. S o m e t im e lor example, b u sw essa wxth similar u u r r ^
t o t e in a particular area This can benefit all such related bu s,n ev*s
other suppcVung b u s in e s s (e g. those- p r o v i n g
~
* * fe e *
in the region, making access to them easier Similarly slu lled labour will n * » ,
into the area to benefit all the businesses In
such ll,N' n^ s "la y
co-operate to create ,oint research facilities w hich benefit them all
Increased share of the market
W hen a business is becom ing m ore successful, it w ill be obtaining an
increased share o f the market, and it w ill b e a ch ievin g this increase at the
expense o f its competitors This increased market w ill, in m an y cases, includr
exporting potential In order to satisfy- the increased num ber o f customers,
the business w ill have to expand to meet the extra dem and it c ra te s .
CEV W O R D S
ind our the business*
la ted meaning o f each
the follow in g terms
rite a separate sentence
r each term to show
ur understanding.
porting potential
tage industry
rkct pu ll
kage industry
?mal econom ies o f
Ic
•mal econom ies o f
e
fit
Securing sources o f supply
W hen a business has to relv on others to su pply it w ith m aterials or sennces, u
can be at a disadvantage For exam ple, if the su pplier receives a better offer
from other buvers, it m ay bargain for a better price. Sim ilarly, w hen a supplier
is finding that dem and for its g ood s o r services are particularly good, it will be
more discerning about to w hom it w ill p ro v id e them. A business m ay become
large enough through expansion to create its o w n sources o f supply and avoid
having to rely on other businesses For exam ple, a tinned fo o d manufacturer
m ay extend into farming, thus becom ing its o w n supplier.
Securing outlets
G row th can enable a business to create its o w n outlets for its products. For
exam ple, a clothes manufacturer could expan d to set up its o w n retail outlets
o r a mail order company.
rialist labour
istrial inertia
Methods of business expansion
There are four main w a ys a firm can gro w :
1
W orking existing plant and machinery' harder and m ore efficiently, and as
close to capacity as possible.
2
Extending existing capacity b y m o v in g to a n e w b ig g e r site
3
M ergin g w ith another company. A m erger is w h ere tw o o r more
com panies join together to form a sin gle business. A h orizo n ta l merger
occurs w here tw o o r m ore businesses at the sam e stage o f production join
together, fo r exam ple a produ cer o f custom fu rnitu re join in g with another
in the same trade. A vertica l m erger is w h e re tw o businesses at different
stages o f production join together, fo r ex a m p le a cheese processing
com pany b u yin g a dairy* farm.
4
T h e take-over o f another business This d iffers fro m a m erger in that the
com pan y bein g taken o v e r has not agreed to the d evelop m en t. This is
achieved by bu yin g a controllin g interest in the o th er business. (See section
2.6 in Chapter 2.)
Chapter 12 - Production
12 8 Labour versus technology
Som e term s o f production arc said to t v labour-inten sive, that is, they arc
h igh ly dependent on labour, e.g. farm ing W h ere labour is relatively cheap
and capital is expen sive then firm s w ill be inclined to use large amounts ot
labour in their production processes. In som e cases tirms have n o choice but
to d ep en d on labour because o f the nature o f the business For exam ple, a
hairdresser remains labour-intensive irrespective o f the cost ot capital
Produ ction is said to be c jp ila l- t n tc n s iw w hen it uses a considerable
am ount o f ex p en sive plant, equipm ent, etc W h e r e capital is rela tively cheap
and labour is com paratively expen sive firm s w ill be in clined to use large
am ounts o f capital in their produ ction processes and be m ore in clined to
autom ate (see b elo w ).
Fig. U S Gwtfufr* vy-,Vm
In d e v e lo p in g countries there $8 a painful transition through w hich each
cou ntry must pass in its m ovem en t tow ard s international com petitiveness
Th is m eans that tow er labour-intensive m eth ods are used and m o d e m
tech nology increasingly becom es the norm D u n n g the process there are many
problem s ot adjustment tor w ork ers and businesses as the n ew technologies
are embraced.
T h rou gh ou t the w o r ld , each sector o f in du stry has been transform ed b y now
technology. Lean p rod u ctio n is the n am e g iv e n to m a k in g the host use ot
tech n o lo gy and labour techniques in o rd e r to con tin u ou sly im p ro v e the
produ ction m eth ods ot a business In the forefron t ot loan prod u ction is
autom ation com pu ter-aid ed d es ign (C A D ), com pu ter-aid ed m anufacture
(C A M ) and com pu ter-aid ed instruction (C A D
Automation
T h e term au tom a tion refers to ch a n gin g a task so that it can be earn ed out by
m achines. A u tom a tion in the m odern sense in v o lv e s the u s e o t sophisticated
m achinery, w hich is electron ically o r co m p u ter con trolled , to carry out
m an u factu re w ith m in im a l hum an in terven tion A u to m a tio n has been w ith
us tor a lo n g tim e, but ra p id ly ch a n gin g tech n o lo gy has led to autom ation
b ein g in creasin gly com p u ter d riven , as e x p la in e d in the fo llo w in g sections.
Chapter 12 - Production
12.8 Labour versus technology
Some forms o f production an; said to be labour-intensive, that is. they arc
high ly dependent on labour, e.g. farming. W here labour is relatively <. leap
arid capital is expensive then firms w ill be inclined to use large amounts o
labour in their production processes In som e caw.-" firms have n o choice m
to depend on labour because o l the nature o f the business For exam p e. a
hairdresser remains labour-intensive irrespective o l the cost o f capita
Production is said to be capital-m len sivi w hen il uses a considerable
amount o f expensive plant, equipm ent, etc. W h ere capital is re ativi n c
and labour is com paratively expensive, firm s w ill be inclined to use u rge
amounts o f capital in their production processes and be more inclined u
automate (see below ).
Fig. 12.8 Cumf/ulfr syali'm
In develop in g countries there is a painful transition through which each
country must pass in its m ovem ent towards international competitiveness.
I his means that few er labour-intensive m ethods are used and modern
technology increasingly becom es the norm. D uring the process there are many
problem s o f adjustment tor w orkers and businesses as the n ew technologies
are embraced.
Throughout the w orld , each sector o f industry has been transformed by new
technology, Lean produ ction is the nam e given to m aking the best use o f
technology and labour techniques in order to continuously im p ro ve the
production m ethods o f a business. In the forefront o f lean production is
autom ation, com puter-aided design (C A D ), com puter-aided manufacture
(C A M ) and com puter-aided instruction (CA1).
Automation
T h e term autom ation refers to changing a task so that it can be carried out bv
machines. A u tom ation in the m odern sense in vo lv es the use o f sophisticated
machinery, which is electron ically or com puter controlled, to carry out
m anufacture w ith m inim al human intervention A utom ation has been w ith
us fo r a lon g time, but ra p id ly changing tech nology has led to autom ation
b ein g in creasin gly com puter driven , as explained in the fo llo w in g sections.
'Innplrt of (lutlnnu
Profit** )
Computer-aided design (CAD)
C A D t u n computer technology **»
product* i*n lh»- i m v n «•# * Wl%,
d
uvUy u
unit
(VwO U
pi. fu rr |«rm ...... « v , !
dHitbw
m n
u ).
i The ,prototype'
........ . . con »*r lu ilt u -p in ■
,u .h o w diffrre.,1 * t * l ~ rh r d ~ , * n car. even h *
ittrd ,o ,*> *
sm h
111*11 fur IomJ limit*. eu Voitou* a lt e r n a t e rm xlel* ,
hr .n a y ,,,*
and m odified «m .rrreti. ami then p r in t * ! « H •* hard co p y I V , * r r* ( A I)
thin m anner
flu- n n xl In ,>n*iurc esp tm d ve n w * M * a,«| p m M y * , *
nuiur Hem* such a . ship*. brtdKe* < " *»rcr*fl In addition, fl«. » h o l * d ^
p r o c r * (* now muc h q u ic k s and ran be relatively
m odlfW d w h rt,A
new m odel U needed f or exam ple, a C A D pa* ka*» d e v e l o p ^ lo
•uRnf„ H
kitchen* ran readily l>e adapted lo many room * ..f differen t .h a p et and
Computer aided manufacture (C AM)
C A M ha* becom e com m on place in m o d e m m anufai lu ring. w h err Urgr
quantities are bem # p rodu tcd b y rn.iM o r fU*w p r o d u ilio n
* b *1*,
p layin g an im reaM nnly im portant pari Industrial robotic* ha* bdrmiw «
logical extension o f ctim pulerw ed autom ation Robot k » in ideal f»»r c.irrytnr
out w ork that i* repetitive ami b o r in g o r d a n g tfo u a T h e y are U M -d . f,*
exam ple, in ta r plant* for w ell! b o d y part* am i spray paint, and even U> (ji
w indscreen* They are expen sive !<• *et up, but use m in im u m labfiur
Computer-aided instruction (CAI)
Even the process o f teaching p eo p le to UN* n e w let h n o lo g y has <l«*vridprd lu
the *ta#e w here Ihe instruction I* freq u en tly carried out by rom p u trr Y<»u ran
* . I I 10
in 4 i , i f pUnl
recognlae this to b e true if you are fam iliar w ith u sing a com puter: f**w
com pu ter* si>ipply m anual* to h elp you learn about y o u r Computer hcrsuw
the m o d em com pu ter i* 'user frien d ly ' and U w h*-s yrni m uch o f the
k n o w le d g e y ou need Sim ilar Instruction p ro g ra m m e * h ave been d evelop*]
in thi* w o rk p la ce to fam iliarise *taff about Ihe w ork th ey m u »t d o
T h e uw* o f com pu ter* in produ ction can h ave the fo llo w in g result*
P
The 'londordhialiurt of product* results in m o re pronom inal production, and
lo w e r price*
H utinen r ii! can I * tntzreantd because sophisticated, esjarnsive mmhlnrry
m u »l be purchased w ell in a d va n ce td th r t a le td produ ct*
/ ru frp e o p le w ill fir emphnfrd,, and lh o « e dMplac 't l b y autmnafum m -d u»
find alternative fo rm * o f em p loym en t.
■
U itu r e time ctMlId th4*»^retk:ally b e increa«e<i. e % by job «hanriK
I
The need for tertiary tfnH cet i » in r r e a v d Tertiary v T v K f-s im- ilw ^
b u vin r^ e* that are in v o lv e d in the ch an ge o f o w n e rs h ip erf ffffodt and fhr
provision (d •erviam .
KF;Y W O R D S
Find « j i th<- b u n n e *-related m eaning <d f tu h tif the UdUn'/lnpi t w m i
W rite a •e p a r a tf *^nfencw for each term U» *h rm y o u r umlerstaiuJinp;
iu r d co p y
com pu ter-aided d »*i^ n
corn pu te/'aided ir u n u tM tu r e
labour in le n «iv r
au tom ation
au tom ated
capital ifi'* n,<,f
rrrm p u let'a id ffd ln*lru<lJon
y
Principles of Business - Profile 2
Computer-aided design (CAD)
C A D uses computer technology to design product.-* on the screen of
display unit (V D U ) The prototype' can t v built up in picture form and r„t' .
to show different angles. The design can even be submitted to on-screen
"»
such as that for load limit#, etc Various alternative m odel* cm be c o m ^ , ,
and modified on screen, and then printed out as hard i op\ flu- us<- of ('a ..
this manner saves the need to produce expensive models and p r o t o t y p e ,n
major items such as ships, bridges or aircraft In addition, the whole di
process is now much quicker and can be relatively easily m odified w h « , ,
new m odel is needed For example, a C A D package developed to dt-M<.n
kitchens can readily be adapted to many rooms o f different shapes and
Com puter-aided manufacture (C AM )
C A M has become commonplace in modern manufacturing, where largo
cjuantities are being produced by mass or flow production. Robotics is also
playing an increasingly important part. Industrial robotics has become a
logical extension o f computerised automation. Robotics is ideal for carrvm.
out work that is repetitive and boring, or dangerous. They are used, for K
example, in car plants for weld body parts and spray paint, and even to fit
windscreens. They are expensive to set up, but use minimum labour.
Computer-aided instruction (CAI)
Even the process o f teaching people to use n ew technology has developed to
the stage w here the instruction is frequently carried out b y computer. You can
recognise this to be true if you are familiar w ith using a computer; few
computers supply manuals to help you learn about you r computer because
the m odem computer is 'user friendly' and teaches you much of the
kn ow ledge you need Similar instruction program m es have been develuped
in the workplace to familiarise staff about the w ork they must do.
Fig. 12.10 Robotia in a car plant
The use o f computers in production can have Ihe fo llo w in g results;
I
The standardisation o f pnxlucts results in m ore econom ical production, and
low er prices.
S
Business risk can be increased because sophisticated, expensive machinery
must be purchased w ell in advance o f the sale of products.
P- Fcuvr people will be employed, and those displaced bv automation need to
find alternative forms o f em ploym ent
■
Leisure time could theoretically be increased, e.g. by job sharing.
The need tor tertiary services is increased. Tertiary services .ire those
businesses that are in volved in the change o f ow n ership o f goods and the
provision o f services.
k e y w o r d s
Find out the business-related meaning o f each o f the fo llo w in g terms,
n c- a separate sentence for each term to show your understanding.
' ^
' ° inputcr-aidrd design
com pu ter-aided manufacture
labour intensive
automation
au tom alrd
capital intensive
com puter-aided instruction
j
tM
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Principles of 8usine*s - Profile 2
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13
Giv e tw o exam ple. e « h o f i n t e n d and
P I
Describe the four mam w ays a firm can grow.
§3
What factor* influence the location of a business’
E3
Explain the d ifference between the term s labour-intensive* a n d ’capttal-intmMve*?
UA
Explain the similarities and the differences betw een C A D and C A M
B3
*CAI has taken the human element out o f learning
m
« ° n o m . « o f scale.
B riefly discuss this statement
Explain how a business can benefit from com puter technology. A re there a n y disadvantage
from the point o f v ie w o f the business?______
GD
Technological developm ents are gotni for business, but m a n y w ork ers tear the changes they
bring.’ Discuss this statement
What do you know?
W rite out fh e c o m p le te sen ten ce an d in sert the m is s in g w o r d , w h ic h can b e chosen from
the list at the en d o f th e test.
1 The purpose o f production is to provid e p e o p le w ith the things t h e y ..... or want to consumr
2 A major decision that a firm has to m ake is w here t o ..... its premises,
3
occurs when a person leaves one area and m oves to another
4 The
... o f value that a firm ow ns is usually referred to as its capital.
^ The .....level of production meets only the basic needs
6 In order to be able to export a country needs to be produ cin g a .......
^
.....*s ^
8
I he chain of production shows t h e .....betw een the three levels o f production
human contribution to production.
9 It an entrepreneur successfully predicts future dem and they an? usually rew arded with
10 Large firms achieve bigger profits because they e n j o y .....o f scale
C hoose the m issing w ords from the fo llo w in g ;
• irp lu .
need
subsistence
m igration
econ om ies
locate
lin k s
p r o fit
assets
labour
Chapter 12 - Production
Structured questions
C D T h e ta b le s 12.4 a n d 12.5 re la te to a s m a ll fir m w h ic h s p e c ia lis e s in th e p r o d u c tio n o f
h a n d -m a d e d o lls . T h e fir m h as v a r ie d its w o r k fo r c e in o r d e r to assess the o p tim u m
s iz e .
(a)
Labour
force
Total output
(per week)
4
5
6
7
8
9
10
11
12
200
260
324
392
456
504
540
572
576
T a b l e 12.4
V a ry in g the w orkforce
Average
output
Number of workers employed
10
Number of dolls produced
540
W eekly wages of each worker
51100
Rent, rates, depreciation, etc.
S 260
Power
S 100
Raw materials
S 500
T a b l e 12.5 The different c a t s incurred b y t he firm d uring a
five day w ork in g week
Explain the d ifferen ce b etw een the term s 'ou tpu t' and 'a vera ge output'
2
(b ) W hat d ocs the w o rd in g 'o p tim u m size' mean?
2
(c ) W hat is the o p tim u m sized labour fo rce indicated by table 12 4 ’
2
(d ) Calculate the a vera g e output o f d o lls fo r each o f the different sizes o f labour force.
3
(e ) U sin g the g iv e n data d r a w cu rves on a graph to sh ow a vera g e output
3
(f)
G iv e a reason w h y the firm m ay not w ish to produ ce its m axim um output o f 576 dolls
p er w eek.
_________
(g ) If the dolls w e re sellin g fo r S I0 each
(i) W hat w o u ld be the firm 's w e e k ly income?
tii) Subtract the total produ ction costs from the firm 's w eek ly incom e to calculate
the firm 's w e e k ly profit.
__________ ____________________
©
(a ) W hat d o you understand b y the term 'autom ation in relation to production?
(b> In w hat w a y s cou ld au tom ation im p ro v e w o rk in g conditions in a factory? _
<c) G iv e three ex a m p les o f w a y s that au tom ation can 'in crease technical innovation
(d ) W h y d o es autom ation often result in a need fo r retraining? 1lo w can C A I assist in this
(e ) W hat are C A D and C A M and h o w d o they contribute to autom ated production?
(f )
G iv e exam ples o f w hat makes som e production defin ed as 'labour-intensive and others
'ca p ita l-in ten siw
_____________ _ _ _ _ _______ _
Principles of Buvmest - Protte 2
©
( a ) D rtinr the terms below.
(i) economies o f scale
diseconomies o f scale________________________
lb) Select one product being manufactured for the tourist m dusm in your cvnxntrv
and explain to a manufacturer w ho could, but does no* currently benefit n w n
large-s<ale business, four benefits to be derived from such an operation
(c) Since vou wish to p rovid e some amount o f balance in
y o u r discourse w ith the
manufacturer in to) above, highlight four disadvantages w hich could result
from large-scale business operations
©
(a )
l - l ' - -
Primary production is sometimes referred to as the extractive industries Whv i> it
referred to in this w a y ? ____________________ _______________
___
(b ) H o w d o the extractive industries support the other form s o f production?
(c ) W hat is secondary production? N am e and define the tw o mam categories into
w hich this form o f production can be d ivid ed
(d> Wholesalers, retailer?, exporters and im porters are sometim es referred to as
the distribution trades' Explain w h y they are referred to in this way.
(e ) Tertiary production is very different from the other form s o f production but it is fust as
important.' Discuss this statement.
(/) Take a particular p a xiu ct and desenbe its developm en t from prim a ry through to
the tertiary stage Explain w h y each stage is important to the others.
©
(a ) W hat is the 'chain o f produ ction ’ ?
fb ) Briefly describe the three types o f production that are n orm ally in v o lv e d in
the cham o f production.
(c) W h y does the cham o f production result m interdependence in the econom y?
(d ) D raw a sim ple flo w diagram to s h ow com parison* o f the contrasting chains o f
production o f each o f the fo llo w in g items, a w oollen sweater, a china vase, cheese
ie> Draw a sim ple table w ith three columns headed b y the titles 'Primary'., 'Secondary'
and T ertia ry' production. Enter six o f the fo llo w in g occupations in the appropriate
columns, w ith at least tw o in each column: farmer, shopkeeper, road maker, fisherman,
builder, bank cashier, lorry driver, miner, o il driller, market trader, engineer,
insurance agent, dressmaker, carpenter.
©
fa) N am e tw o o f the basic needs o f people
<b> State on e w a y that secondary production helps to meet the basic needs o f people
(c> Describe three w a y s that tertian- production helps both producers and consumers.
i hi«|iivt I j
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