Case Study ‘Company Handbook’

You work in the human resource department of a large and prestigious department store. The organisation is placing increasing importance on the need for skilled and high-quality sales staff to promote sales and customer satisfaction.

Tasks:

You have been asked to produce an information pack for new sales staff to explain their duties and responsibilities. The pack should be a well-presented document, produced using computer software. Photographs, video, and audio resources could also be included.

The structure of the information pack should be as follows:

1. A description of the nature and objectives of distribution and the various channels of distribution that exist. It is important to point out what direct and indirect sales methods the organisation might use to support and complement the work of its sales staff. For example, the store may also operate a mail-order or phone-order service.

2. An explanation of the importance to the organisation of meeting the requirements of customers, and what these requirements include.

3. An explanation of the main duties and responsibilities of the sales staff, and why it is important to perform them well.

4. A description of various sales communications methods the organisation may use from time to time to help sales staff in their tasks.

5. A summary of the main administrative tasks staff will be expected to perform, and how new technology can help them.

6. An example to demonstrate the response of consumers to the sales efforts of an organisation of your choice. For example, you can measure the success of sales efforts in terms of the image of the organisation, sales volumes and values, and profits.

Once you have completed the information manual, you will be required to present its main messages at the next induction course for new sales staff (i.e. your class or group). Your presentation should last no longer than 10-20 minutes and can include video recordings and overhead slides.

This assignment requires you to investigate actual sales methods used in department stores and other retail outlets before you produce your information pack. Alternatively complete the same tasks for any business organisation of your choice.

Unit 11. Production

Key words: production, labour-intensive production, capital-intensive production, productivity, labour productivity, average productivity (of labour)

11.1. What is Production?

Businesses create wealth by producing goods and services to satisfy consumer demand. Production, therefore, can be defined as any activity which is designed to satisfy consumer needs and wants.

Productive activity adds value to resources. Production involves organising resources – human, financial, material and intellectual – to produce goods and services. The owners of these productive resources – employees, suppliers will require payment. They will then be able to use this income to enjoy the benefit of goods and services bought from other business organisations.

By turning resource inputs into outputs which consumers want and are willing and able to buy, productive activity adds value to resources. For example, a firm that produces one million chocolate bars which are sold for 50p each but which cost only £200,000 to make, has added £300,000 to the value of the resources used – labour, cocoa powder, milk, paper, plant and machinery, vehicles, power, etc.

Firms can attempt to maximize the added value to the resources they use, measured as the difference between the cost of those resources and the revenues they generate, by:

Ensuring the best relationship between the costs of inputs and value of final products. Most firms will attempt to produce as much as they can from the least amount of labour, materials, machinery, etc. they can. A firm that is able to reduce the amount of inputs they use but still produce the same amount of output without employing more inputs, has increased productivity.

Reducing costs of resource inputs. This can involve employing workers who are willing to work for lower wages or are more productive than existing workers, buying or hiring more efficient machinery, securing supplies of materials from cheaper suppliers, keeping stocks to a minimum to save storage space, reducing waste and accidents at work.

Quality assurance. Poorly produced goods and services do not sell but still cost money to make. Making sure that quality is maintained throughout the production process will result in more revenues from given inputs. The management of ‘total quality’ in firms is becoming increasingly important.

Marketing. The marketing of goods and services is an important part of the whole production process. A firm that is unable to supply the right products in the right amounts at the right price, and in the right place, will be unable to sell their products. Marketing helps a firm increase the value added to resources through the production of goods and services, by informing consumers of the existence of the product and persuading them that the price of the product is worth paying.

Factors that cause changes in production

The decision by a firm to produce a given level of output of a particular good or service, or range of products, will be influenced by the following factors:

Market price. If the price at which a product is sold does not yield an acceptable profit, then firms will be discouraged from producing that product. Firms that are already engaged in the supply of the product may move their resources into the production of other goods or services, or will attempt to reduce costs to increase profit margins.

Availability and quality of resources. Once a firm has decided what to produce, it must engage the necessary resources to achieve its production targets. Some resources – for example, labour with appropriate skills, or natural materials – may be in short supply, and this will force up the supply price, thereby reducing potential profit margins. Labour must also have skills that are flexible and can be adapted to changes in products, production processes and methods of working. The cost and availability of resources will, therefore, affect the production decisions of firms. Increasingly, firms are contracting out non-core activities, such as cleaning and maintenance, and specialist services, to external organisations, rather than employing labour to undertake these tasks on a permanent basis. External organisations will often compete to win contracts with firms, and firms who employ them can therefore insist on quality at competitive prices.

Technology. Technological advance has resulted in new materials, products, and processes, and has changed the character, working practices, and production methods of many industries. For example, the manufacture of cars is now almost entirely automated. Automation, robotics, computer aided design and manufacturing, management information systems, are all examples of new technology in production. A firm must not only be aware of change, but must also consider the extent to which it can use new technology to keep ahead of the competition.

Legislation. A number of laws exist which restrict or prohibit the supply of certain products and set strict guidelines on how production should proceed in the workplace. Growing concern for the environment is being reflected in a number legislative measures concerning protection, preservation, and pollution. These measures are intended to shape and control production decisions that are potentially damaging to the environment. Firms are also required to invest in health and safety measures, such as training, protective clothing, and rest periods for machine operators. Thus, controls on pollution and health and safety at work may raise the production costs of firms, and in some cases limit resource use and production time.

Combining factors of production 

In combining resources for productive activity, a firm can decide to use labour-intensive techniques involving a larger proportion of labour than capital (i.e. plant and machinery), or capital-intensive techniques, using more machinery relative to labour.

The decision how to combine resources will depend on a number of factors:

The nature of the product. Products in great demand in national and international markets will tend to be mass-produced using a large input of automated machinery.

The relative price of labour and capital. If wages are rising, a firm may decide to employ more capital instead.

The size of the firm. As a firm grows in size, it tends to employ more capital relative to labour.

What is productivity?

Production is the total amount of a good or service produced. Productivity refers to the amount of output that can be produced from a given input of resources. That is, productivity can be measured as a ratio of outputs to resource inputs. Put very simply, a firm that uses 10 units of resources to produce 40 units of output is twice as productive as a firm that uses 10 units of resources to produce 20 units of output.

The aim of any business is to combine its resources in the most efficient way. That is, it will attempt to maximise the productivity of its resources in order to produce as much as it can with as little resource input as possible, and at the lowest cost possible. For example, a construction firm that employs 10 carpenters and yet supplies only one hammer, drill, and chisel between them has clearly not combined labour and equipment in the most efficient way. By increasing the input of equipment – i.e. providing more hammers, drills, etc. – the firm is likely to achieve a higher level of productivity.

In general, productivity in a firm will increase if more output can be produced with the same input of resources, or if less resource can be used to produce the same amount of output. Thus, raising productivity adds greater value to resources employed.

Measuring the productivity of labour

Although businesses will aim to improve the productivity of all resources, it is usually the productivity of labour that receives the most attention. Workforce productivity is usually measured by assessing changes in the volume or value of output produced in a company.

Labour productivity in a firm can be calculated by dividing output over a given period of time – for example, each day, week, or month – by the number of workers employed. This will give a measure of the average productivity per worker per period.

A number of problems arise when using measures of the average product of labour. For example:

Should all employees be included in the calculation of productivity, including cleaners, management, and admin staff? Or should productivity measures concentrate solely on shop-floor workers?

How can the measure accommodate ‘multi-product’ plants, where the efforts of employees might contribute to the production of more than one product?

How can productivity be measured in organisations that produce services, for example, banks or hairdressers?

In a hair salon we might employ a measure of the number of haircuts per hour, but in many ways the salon will be like a multi-product plant, with some people washing hair, others cutting, applying perms, or cleaning. In this case, a better measure of productivity might be achieved by calculating the value added per worker per period. This simply means dividing total sales revenues net of costs by the number of employees, to find the average net revenue per worker.

Similarly, measuring productivity in organisations where there is no physical output or sales revenue – for example, the NHS, the Civil Service, or an educational institution – also poses problems. Here, clearly, other measures, such as time spent waiting for operations, or meeting deadlines, or numbers of students obtaining qualifications, have to be used.

Why do firms seek to raise productivity?

The performance of a business organisation, in terms of the achievement of certain objectives such as business survival, meeting domestic and international competition, improving profit, expanding market share will depend critically on the level of added value achieved within a firm. If the same amount of resources can produce more output at the same total cost, then the cost of each unit of output will have fallen. Increasing productivity can therefore lower production costs and increase value added. As costs fall, profit margins rise. A business may also pass on lower costs to consumers in the form of lower prices in an attempt to build and ensure repeat sales at the expense of its rivals.

A firm that fails to increase productivity at the same rate as, or faster than, its competitors will face higher costs and lower profits. Prices cannot be reduced without either sacrificing profits or sustaining a loss. If a firm is unable to offer quality products at competitive prices, then demand for its products will fall. In the long run the firm will face closure, and workers will be made redundant. Adding value is essential to the survival of a firm.

Business organisations in the developed countries are facing increasing competition from firms in developing economies, such as China, Malaysia, and Taiwan in South East Asia. Wages in these countries are still very low compared to those received by workers in developed countries.

It is therefore vital that firms in the developed countries increase productivity, reduce unit production costs, and improve product quality in order to compete with overseas organisations and thereby ensure their survival.

Strategies to improve production and productivity

In an increasingly competitive business environment, firms are constantly fighting to raise the productivity of, and add greater value to, their resources. Strategies that aim to improve production and productivity can be grouped into eight main categories. These are:

• secure a reliable source of supplies, and reduce business costs and the need for storage by keeping stocks to a minimum;

• introduce total quality control over the whole production process;

• research, develop and introduce new products and/or production processes and working practices designed to reduce waste, improve quality and increase the output from existing input levels of natural materials, equipment and labour;

• replace old plant and machinery with new, more efficient capital;

• increase the amount of new, more productive, capital equipment employed relative to labour;

• increase labour productivity through a combination of training for new and improved skills, financial rewards, changes in working methods and management techniques;

• improve safety and reduce accident costs;

• employ more environmentally friendly materials and processes to limit the amount of pollution.

R&D, new production methods, financial incentives to motivate workers, training, investment in new technology, health, safety and environmental measures – all these imply higher costs and lower profits in the short run. However, if a firm is able to raise productivity and more than offset these higher costs, the long-term reward will be higher profits, and the ability to compete more vigorously on price and market share with rival firms.