Resource Management
Unit 2: Managing Business Activities
Resource Management
FREE RESOURCES
EXAM RESOURCES
WorksheetsComing soon
PREMIUM
How many identical products a customer wants decides how a business should make them.
Imagine two orders arriving at a bike maker. One customer wants a single racing bike built to fit them exactly. A school wants 200 identical bikes. The business will not make these two orders in the same way.
In this topic you will follow Anvari Cycles, a bike manufacturer that makes 3,000 bicycles a month. It uses four methods of production: job, batch, flow and cell. This part covers the first two.
Job production: producing a single, one-off product to meet the specific requirements of an individual customer.
Job production suits products where every order is different, such as a wedding dress or a bridge. Workers need a wide range of skills, and each item is expensive to make. The customer pays more for something made just for them.
Batch production: producing a group of identical products together, with the whole group moving through each stage of production before the next batch is started.
A bakery makes 500 white loaves, cleans the equipment, then makes 500 brown loaves. Switching from one batch to the next is called a changeover. Nothing is produced while the machines are being reset, so changeovers add to cost.
Real Example: Rolls-Royce builds its cars largely by hand at its factory in Goodwood, England, and each buyer chooses their own paint, leather and interior details. A single car can take months to complete. That is close to job production: a small number of cars, a very high price, each built to one customer's wishes.
Exam Matters: You may be given details of a business's orders and asked which method of production suits it. Point to the evidence: one-off orders to customer requirements suggest job production; repeat orders for groups of the same product suggest batch. Then give one advantage and one drawback for that business.
Flow production makes huge numbers of one product cheaply. Cell production splits that work between teams.
When a business sells very large numbers of one standard product, it can set up a production line that never stops. This is how Anvari Cycles makes its standard bicycle.
Flow production: the continuous production of large quantities of a standardised product, with each item moving along a production line from one stage to the next.
Because the line runs all the time, each bicycle is cheap to make. But the line needs a lot of expensive machinery up front, every bicycle is the same, and if one stage breaks down the whole line stops.
Cell production: organising production into self-contained units (cells), each run by a team of workers who make a complete part of the product.
At Anvari Cycles, one team builds whole wheels from start to finish and another builds the gears and chain. Each team sees the finished result of its work, checks its own quality and organises its own work area. Workers are often more motivated than on a line where they repeat one small task all day.
Real Example: Coca-Cola's bottling plants use flow production. Bottles are filled, capped and labelled continuously, thousands every hour. A plant like this is only worth building because the business sells huge numbers of identical drinks.
Exam Matters: Questions may ask you to explain a benefit of a business changing its method of production, for example from flow to cell. Link the benefit to the business: "Each team would build complete wheels, so staff can see and correct their own mistakes and quality should improve."
No method suits every business. Volume, variety and the money available decide which one fits.
Exam questions often ask which method a business should use. There is no single right answer, because it depends on the business. Look at three things.
Many businesses use more than one method. Anvari Cycles builds special frames by job production, paints frames in batches and assembles its standard bike on a flow line.
Real Example: Nike makes its standard trainers in very large volumes. Its Nike By You service also lets customers design their own pair, which is then made to that one customer's design. One brand uses mass production for its standard range and something close to job production for personalised orders.
Exam Matters: In an assess or evaluate question, do not describe all four methods. Use the case: how many products the business sells, how varied its orders are and how much money it has. Then make a clear recommendation.
Productivity measures how much each worker or machine produces in a period, not how much the business makes in total.
If a factory makes more bikes, is it doing better? Not necessarily. It might simply have hired more workers. Productivity tells you how much is produced for each unit of input, such as each worker.
Productivity: output per unit of input per time period.
Always give the unit and the time period in your answer. "25" on its own does not say 25 of what, or over how long.
You can measure productivity for any input, such as output per machine hour or sales per square metre of shop floor. Labour productivity is the one exams use most.
Real Example: Studies of the car industry in the 1980s compared how many hours of work each factory needed to build one car. Japanese factories such as Toyota's needed far fewer hours per car than many American and European rivals. Higher productivity let them make cars more cheaply.
Exam Matters: Productivity calculations usually give you output and the number of workers. Show the division, then write the answer with its unit and period, for example "25 bicycles per worker per month". Then say what the figure means for the business.
Productivity depends mostly on things the business controls: training, equipment, organisation and motivation.
Why do two factories with the same number of workers produce different amounts? Usually it is not because one group of workers is lazy. It is because of the way each business is run.
Notice that nearly all of these are decisions made by managers, not by the workers themselves.
Real Example: In many Amazon warehouses, robots bring shelves of products to workers instead of workers walking up and down the aisles. Cutting out the walking means each worker can pick many more items per hour. Productivity rose because of equipment and organisation, not because people worked harder.
Exam Matters: When asked about factors that affect productivity, choose two or three and link each one to the business in the case. Two factors explained in context are worth more than five listed with no context.
Higher productivity lowers the cost of making each product, which helps a business beat its rivals.
The ways to improve productivity come straight from the factors: train staff, invest in better machinery, reorganise the workplace, motivate workers and choose reliable suppliers.
Why does this matter? Because higher productivity lowers the labour cost per unit, the wage cost carried by each product.
Competitiveness: the ability of a business to win customers from its rivals, for example through lower prices or better value.
Real Example: Many supermarkets now use self-service checkouts, where one member of staff looks after several tills instead of serving at one. The labour cost of each customer served falls. This helps supermarkets keep their prices competitive.
Exam Matters: Explain the link between productivity and competitiveness as a chain: productivity rises, so labour cost per unit falls, so the business can cut prices or raise its profit margin, so it can win customers from rivals. Make each step clear rather than jumping to the conclusion.
Efficiency is about keeping the cost of each product as low as possible.
Productivity and efficiency sound similar, but they measure different things. Productivity is about output per worker. Efficiency is about cost per unit.
Efficiency: production at minimum average cost.
Average cost: the total cost of production divided by the number of units produced.
Average cost fell by $20, even though nobody worked any faster. The fixed costs were simply shared across more bicycles. So a business can become more efficient by making each worker more productive, or by making full use of the factory it is already paying for.
Real Example: Budget airlines such as Air Arabia and IndiGo keep their average cost low by filling as many seats as possible and keeping their planes flying for many hours each day. The cost of owning a plane is fixed, so more passengers and more flights mean a lower cost per passenger. That lets them charge low fares and still make a profit.
Exam Matters: If a question uses the word efficiency, focus on cost per unit. Use the definition "production at minimum average cost", then show how the change in the case affects average cost.
Efficiency improves when a business spreads its fixed costs, cuts waste and gets more from its workers.
Several factors affect how efficient a business is. Each one also gives you a way to improve it.
Some ways are cheaper than others. Using spare capacity costs little. Training and new machines cost money up front. Closing part of a factory saves money but is hard to reverse if demand comes back.
Real Example: IKEA sells most of its furniture flat-packed. Flat boxes fit far more products into each lorry, container and warehouse than assembled furniture would. That cuts the transport and storage cost of every item.
Exam Matters: In an assess question on efficiency, compare the methods rather than listing them. Say which is cheapest and quickest for this business and which has the biggest effect, then decide what it should do first.
Some businesses rely mainly on people, others mainly on machines. Each approach suits different situations.
Labour-intensive production: production that uses a high proportion of labour compared with capital (machinery and equipment).
Capital-intensive production: production that uses a high proportion of capital compared with labour.
A carpet workshop where every rug is woven by hand is labour-intensive: most of its costs are wages. A car factory full of robots is capital-intensive: most of its costs are machinery. Many businesses sit somewhere in between.
Anvari Cycles could switch to an automated line. Its fixed costs would rise by $90,000 a month, but each bicycle would cost $24 less to make. The two methods cost the same at $90,000 ÷ $24 = 3,750 bicycles a month.
Anvari sells 3,000 a month, so for now the labour-intensive method is cheaper. You do not need to learn this calculation, but using one like it makes a judgement much stronger.
Real Example: Bangladesh's garment industry is mainly labour-intensive: millions of workers sew clothes, because wages are low compared with the cost of automated machinery. Car factories in Japan and Germany are highly capital-intensive, using robots for welding and painting. Each country uses the approach that is cheapest for it.
Exam Matters: You may be asked to explain an advantage of a business becoming more capital-intensive. Link it to the case, for example a lower cost per unit because the business sells large volumes. To evaluate, weigh this against the high set-up cost and the effect on staff.
Getting a new product to market faster than rivals can win sales they never get the chance to compete for.
Product lead-in time: the time between the idea for a new product and its launch onto the market.
Launching a new product takes time: designing it, testing it, buying equipment, training staff and making the first units. The shorter this is, the sooner the business starts earning.
A business can shorten its lead-in time by working on design and production at the same time rather than one after the other, and by using computer-aided design to test ideas quickly.
Real Example: Zara can take a new design from the drawing board to its shops in a few weeks, while many traditional clothing brands take months. This lets Zara follow fashion trends quickly. It sells more at full price and is left with fewer unsold items.
Exam Matters: If a case study mentions how long a business takes to launch products, treat it as a clue. Explain how a shorter lead-in time would help this business compete, for example by launching before a rival or catching a trend. Then note what speeding up might cost.
Capacity utilisation shows how much of its maximum possible output a business is actually using.
Every business has a limit to how much it can produce with its current buildings, machines and staff. This limit is its capacity.
Capacity: the maximum output a business can produce in a given time period with its existing resources.
Capacity utilisation: the proportion of its maximum possible output that a business is currently producing.
The answer is a percentage, so always multiply by 100 and include the % sign.
Real Example: Hotels measure capacity utilisation as their occupancy rate: rooms let ÷ rooms available × 100. In Dubai, occupancy is highest in the cooler winter tourist season and falls in the hot summer months. Hotels cut prices in summer to fill more rooms.
Exam Matters: Capacity utilisation is one of the most common calculations in this topic. Write out the formula, show your working and give the answer as a percentage. Then explain what it means for the business, for example that fixed costs are spread over fewer units.
Spare capacity raises the cost of each product, but it also leaves room to take on extra orders.
Under-utilisation: when a business produces well below its maximum possible output, leaving spare capacity.
You can spot under-utilisation when machines stand idle and staff have little to do. The main problem is cost. Fixed costs such as rent and machinery must be paid however much is produced.
At Anvari Cycles, $240,000 of fixed costs shared over 3,000 bicycles is $80 per bicycle. Over 4,000 bicycles it would be only $60.
Real Example: In 2021 Ford announced it would stop making cars at its two factories in India, at Chennai and Sanand. Its sales in India were far below what the plants could produce, so the business was making losses. Ford decided to close the plants rather than keep paying for so much spare capacity.
Exam Matters: Questions on under-utilisation ask for consequences, so do not just say "capacity utilisation is low". Explain the chain: low utilisation, so fixed costs are spread over fewer units, so average cost is higher, so profit falls or prices become less competitive.
Running at or near full capacity keeps costs low, but leaves no room for breakdowns, maintenance or extra orders.
Over-utilisation: when a business operates at, or very close to, its maximum capacity for a long period.
In its busiest month, Anvari Cycles makes 3,900 bicycles: 3,900 ÷ 4,000 × 100 = 97.5%.
This has one big benefit. Fixed costs are spread across as many units as possible, so average cost is at its lowest. But it also causes problems.
This is why many businesses aim for a capacity utilisation of around 85–90% rather than 100%.
Real Example: In 2018 Tesla struggled to make enough Model 3 cars to meet its orders. Its factory was pushed to the limit, and Tesla even built an extra assembly line inside a giant tent next to the factory. Its boss, Elon Musk, called the period "production hell".
Exam Matters: When asked about the implications of high capacity utilisation, give both sides. The lower average cost is the advantage. The strain on staff, machinery and quality is the disadvantage.
A business with spare capacity can raise its capacity utilisation by producing more or by reducing its capacity.
Look at the formula: current output ÷ maximum possible output. To raise the percentage, a business can increase the top number or reduce the bottom number.
Rationalisation: reducing capacity to cut costs, for example by closing a factory, selling machinery or making staff redundant.
If Anvari Cycles closes one of its four lines, capacity falls from 4,000 to 3,200 bicycles. It still makes 3,000, so capacity utilisation rises from 75% to 3,000 ÷ 3,200 × 100 = 93.75%. Not a single extra bicycle was sold.
Rationalisation cuts fixed costs, but it is hard to reverse. If demand rises again, the business can no longer make more than 3,200 bicycles a month.
Real Example: In India, Toyota and Suzuki build some cars for each other: models made in a Suzuki factory are sold with a Toyota badge, and the other way round. Each company uses capacity in its own factories that might otherwise sit idle. Both lower the cost of each car they make.
Exam Matters: A common calculation changes the maximum capacity rather than the output. Recalculate using the new maximum, then explain what really happened, for example "utilisation rose because a line closed, not because more was sold".
A business at full capacity can subcontract, add hours, expand or manage demand. The best choice depends on how long demand stays high.
Subcontracting: paying another business to carry out part of the production process.
The key question is: will the extra demand last? For a short busy period, use overtime or subcontracting. For a permanent rise in demand, invest in more capacity.
Real Example: Amazon hires tens of thousands of temporary warehouse workers every year for the busy weeks before Christmas. It would make no sense to build new warehouses and employ extra permanent staff for demand that lasts only a few weeks. When the peak ends, the temporary jobs end too.
Exam Matters: In an assess question, choose the method that fits the case and explain why, using evidence about how long demand will stay high. Comparing two options, such as subcontracting and expanding, shows judgement.
An inventory control diagram shows how stock rises and falls over time, and when a business must reorder.
Businesses hold inventory, also called stock. Too little and production stops; too much and money sits on a shelf. An inventory control diagram helps a business plan when and how much to order.
Inventory: the raw materials, work in progress and finished goods held by a business.
Time runs along the bottom and the inventory level up the side. The line falls as stock is used, then jumps up when a delivery arrives, making a saw-tooth shape. Learn these labels:
Real Example: Large supermarket chains use the same idea for every product on their shelves. Their systems record every sale. When a product falls to its re-order level, an order is sent to the supplier automatically.
Exam Matters: You may be given an inventory control diagram and asked to read off values, such as the re-order quantity or the lead time, or to explain what happens if a delivery is late. Use the correct labels in your answer. Work out the daily usage first, because the other figures depend on it.
Buffer inventory is a safety stock. It costs money to hold, but it stops production grinding to a halt.
Buffer inventory: the minimum level of inventory a business holds to cover unexpected increases in demand or delays in delivery.
Think of buffer inventory as insurance. Anvari Cycles keeps 1,200 tyres as a buffer, which is four days of production. If a delivery is three days late, the production line keeps running.
But the buffer has costs. The money spent on those tyres cannot be used for anything else, and storing them costs rent, insurance and handling.
Real Example: During the COVID-19 pandemic, many car makers ran short of computer chips and had to stop production, because they held very little buffer inventory. Thousands of nearly finished cars waited for parts. Afterwards, several car makers decided to hold larger buffers of key components.
Exam Matters: Questions on buffer inventory often ask whether a business should hold more or less. Weigh the cost of holding it (cash tied up, storage costs) against the risk of running out (lost production and lost orders), using evidence from the case.
Poor inventory control can mean holding too little or too much, and both cost a business money.
Good inventory control is about balance. Get it wrong in either direction and profits suffer.
Anvari Cycles found 900 tyres in its warehouse for a wheel size it stopped using two years ago. It paid for them, paid to store them and will now sell them for scrap.
Real Example: In 2022 the US retailer Target found itself holding far too much stock of items such as TVs and garden furniture after customers changed what they were buying. It had to cut prices heavily to clear the stock. Its profits fell sharply as a result.
Exam Matters: For a question on the implications of poor inventory control, explain one problem of holding too little and one of holding too much. Link each one to the business's costs, sales or cash flow.
Just in time cuts the cost of holding stock, but it only works with reliable suppliers.
Just in time (JIT): a system in which materials and components are delivered exactly when they are needed for production, so very little inventory is held.
Instead of keeping a warehouse full of parts, a JIT business orders small amounts often. Deliveries arrive just as production needs them.
At Anvari Cycles, daily tyre deliveries would cut holding costs from $5,400 to $675 a month. But if one delivery were two days late, the line would stop, and one lost day would cost more than several months of savings.
Real Example: Toyota developed JIT in Japan after the Second World War, and car makers around the world copied it. In 2011 an earthquake and tsunami in Japan cut off supplies of many parts, and Toyota's production was badly disrupted. Afterwards, Toyota asked key suppliers to keep more stock of vital parts.
Exam Matters: JIT questions usually need evaluation. Explain the saving, then explain what it depends on: reliable, nearby suppliers. Finish by judging whether JIT suits the business in the case.
Waste is anything that adds cost without adding value for the customer.
Waste minimisation: reducing the resources (materials, time, space and labour) that are used up without adding value to the product.
Waste is not just scrap material. Here is a simple test: would the customer pay for this if they could see it? If not, it is waste.
Anvari Cycles moved two workbenches next to each other, so parts no longer have to be carried across the factory. The bicycle is exactly the same, but it now costs less to make.
Real Example: McDonald's kitchens are laid out so staff can prepare an order in very few steps. Restaurants plan how much food to cook for each time of day, so less is thrown away. Both cut waste without changing what the customer receives.
Exam Matters: Use the customer test in your answer, for example: "customers do not pay for the time parts spend being carried around the factory". It shows you understand what waste is, not just that costs fall.
Lean production removes waste in every form, so a business can charge less or earn more without cutting quality.
Lean production: an approach to production that aims to use as few resources as possible (materials, time, space and labour) while maintaining quality.
Lean production is the big idea. JIT, waste minimisation, cell production and kaizen are all tools that lean businesses use.
But lean production has a risk. With little stock and little spare capacity, one problem, such as a late supplier, can stop production.
Real Example: Toyota's lean production system helped it become one of the world's largest car makers, known for low costs and reliable cars. Businesses in many other industries, including hospitals, have copied its methods.
Exam Matters: When asked about competitive advantage from lean production, take your chain all the way to customers: lower cost, so a lower price or higher margin, so more sales or profit than rivals. Add the risk of having no spare stock or capacity to evaluate.
Quality control finds faults at the end; quality assurance tries to stop faults from happening at all.
Quality control: checking products, usually at the end of production, to find and remove faulty items.
Quality assurance: a system that sets quality standards and checks them at every stage of production, to prevent faults from happening.
The difference is timing. Quality control catches faults after the product has been made, when the money spent making it has already gone. Quality assurance makes each worker responsible for checking their own work, so faults are stopped early.
When Anvari Cycles moved to checking at each stage, faults were caught before more work was added. The monthly cost of fixing faults fell from $6,000 to $720.
Real Example: Many businesses show customers their quality assurance by gaining ISO 9001 certification, an international quality standard. Large buyers, such as airlines and car makers, often only use suppliers that have it.
Exam Matters: To compare quality control and quality assurance, focus on when the checking happens and who does it. Then explain a consequence: faults found late cost more to fix, because more work has already gone into the product.
Quality circles use the knowledge of the workers who do the job to solve quality problems.
Quality circle: a small group of workers who meet regularly to identify quality problems in their area of work and suggest solutions to management.
The people who do a job every day know its problems best: which machine slips, which part often arrives damaged. A quality circle gives them time to discuss these problems and suggest how to fix them.
At Anvari Cycles, the wheel team suggested moving the tyre rack so the fitter no longer has to turn away from the bench. It saves forty seconds on every wheel.
Real Example: Quality circles became famous in Japanese companies in the 1960s and 1970s. Many Indian manufacturers use them too, and quality circle teams from different companies compete at national conventions each year.
Exam Matters: If asked how a quality circle could help a business, link it to both quality and motivation. Workers' ideas can reduce faults, and being listened to can raise motivation. To evaluate, note the cost of time away from production.
TQM makes quality the job of everyone in the business, not just the production department.
Total Quality Management (TQM): an approach in which every employee, in every department, is responsible for quality, with the aim of getting things right first time.
Quality control and quality assurance focus on production. TQM goes further: sales, purchasing, finance and delivery staff are all responsible for quality too.
A key idea in TQM is the internal customer. Each department treats the next department as its customer. For example, the purchasing team must get the right parts to the production team on time, just as the business must get the right product to its customers.
Real Example: In 1995 Samsung's chairman, Lee Kun-hee, had around 150,000 faulty phones destroyed in front of the company's workers. It was a message that quality was everyone's responsibility. Samsung went on to build a quality culture across the business and became one of the world's leading electronics brands.
Exam Matters: When evaluating TQM, compare its long-term benefits with its cost and the time it takes. Say whether it suits the business in the case, for example a firm with quality problems in several departments.
Kaizen means many small improvements, made all the time, by the people who do the work.
Kaizen (continuous improvement): a philosophy in which employees suggest and make small, frequent improvements to the way work is done.
Kaizen is a Japanese word meaning "change for the better". Instead of waiting for one big change, such as a new machine, workers look for small improvements every day.
Each change might save only a few seconds. But hundreds of small changes a year add up to a big improvement, and each one is cheap and easy to undo if it does not work.
Many businesses use the Plan–Do–Check–Act cycle for each improvement:
Real Example: Toyota asks its employees for improvement ideas and puts a large share of them into practice. Most are small, like moving a tool closer or changing the order of tasks. Together they help keep Toyota's costs low and its quality high.
Exam Matters: Explain kaizen as a continuous process that involves workers, not a one-off project. Link it to the business: lower costs, better quality or more motivated staff. To evaluate, note that it only works where managers listen to workers.
Better quality can cut costs and let a business charge more, but it costs money first.
Good quality management can give a business an advantage over its rivals in two ways.
But quality costs money: training, equipment and time. The benefits can take years to appear. In markets where customers only compare prices, spending on quality may not pay off.
Real Example: In 2016 Samsung had to recall its Galaxy Note 7 phone after some of its batteries caught fire. The recall cost the company billions of dollars and damaged its reputation. It shows how expensive poor quality can be.
Exam Matters: For a competitive advantage question, finish your answer with customers and rivals: lower costs, higher prices or more loyal customers than competitors. Then judge which benefit matters most for the business in the case.
How many identical products a customer wants decides how a business should make them.
Flow production makes huge numbers of one product cheaply. Cell production splits that work between teams.