Text A: Industries and companies

Industry groups

A national economy can be described in terms of its main sectors and industries. (See the
mind map opposite.) This mind map is a simplified version of the 'Global Industry
Classification Standard', developed by Morgan Stanley and Standard and Poor's and used
in publications like Business Week.

Another way to classify an economy is: Primary industries, which include agriculture,
forestry and mining.

Secondary industries, which include construction and manufacturing. Manufacturing itself is

often divided into capital goods (eg equipment and machinery used to produce other
goods), durable goods (eg cars, washing machines) and non-durable goods (eg food,
clothing).

Service industries, which include banking, entertainment, tourism.

An economy can also be divided into: The private sector, which includes large
corporations, SMEs (= small and medium-sized enterprises) and individuals working on a
self-employed basis. The public sector, where there are schools and hospitals as well as
SOEs (= state-owned enterprises) such as railways and the post office.

Types of business

Within each industry there can be a variety of types of business organization, each with
their own legal structure. A business can be:

 A sole trader (US: sole proprietorship). Here the business is owned by one person,
who is 'self-employed'. That individual has unlimited liability - they are personally
responsible for any debts. A self-employed professional will refer to themselves as a
'freelancer'.
 A partnership. Here two or more people run the business together. Lawyers,
architects and auditing firms are typical partnerships.
 A limited liability company. Here there is a legal distinction between the company
and the owners, so the company is responsible for any debts, not the owners. The
owners therefore have 'limited liability'. This type of company is often quite small,
and includes many family-run businesses. The company is referred to as a 'private'
company because shares cannot be sold to members of the public. In official
documents, the company name is followed by Ltd (UK) meaning 'limited', or Lie (US)
meaning 'limited liability company'.
A public limited company (US: a corporation). Here the company TiT owned by
shareholders (US: stockholders), who might be:

- large financial institutions (eg pension funds or investment banks).

- other companies.

- members of the public (and for this reason the company is called a 'public' company).

The shareholders receive a share of the profits every year (paid as dividends), and will also
get a capital gain or loss when they sell their shares (because the price can go up or down
on the stock market). These are large companies, and are run by managers under the
supervision of a Board. In official documents, the company name is followed by PLC (UK)
or Inc or Corp (US).

A franchise. This type of company includes McDonald's and the Body Shop. Here the
business owner allows other people (franchisees) to set up in business using the
company's brand name, products and reputation. The franchisee has varying degrees of
control over how products are marketed and sold.

Business expansion

There are various ways that a company can grow: 1 Internal growth: stay private. The
company increases its sales, number of employees, etc, but stays as a private company,
perhaps run by the original founders of the business (often family members).

Internal growth: IPO. The company moves from being a small, family-owned firm to being a
large corporation with a stock-market listing. The process of issuing shares for the first time
is called an IPO (initial public offering). 3 Internal growth: 'trade sale' to a much larger
company in the same sector. In this case the original small company is absorbed and its
name often disappears. Many start-ups in the IT and biotechnology areas sell themselves
in this way. (Microsoft, Intel and Google all grew by buying start-ups.)

Merger. Two established companies join to form one (eg Mercedes and Chrysler).

 Acquisition (= takeover). One established company buys another. The first step in
an acquisition is often to take a controlling stake in the other company - buying a
large number of shares but without complete ownership. The acquired company
often keeps its original trading name, becoming a subsidiary of the larger 'parent
company'
 Text B: Production

Managing the production process

Manufacturing takes place in a plant (= factory/facility). The process can be 'capital-

intensive' (= requiring a lot of finance) or 'labour-intensive' (= requiring manpower). If the
operation is efficient at transforming inputs (= materials, labour and information) into
finished goods, then there is a high level of productivity.

Key stages in the manufacturing process are:

Planning. This involves trying to bring together customer demand with operational issues of
volume, timing, and the purchase of materials. A 'bill of materials' is produced, this is
compared with the existing inventory, and any necessary purchases are made.

Sequencing. A supervisor decides which workstation (machine and/or employee) will carry
out which tasks in which order.

Scheduling. The supervisor decides when particular tasks should start and finish.

Dispatching. The supervisor authorizes tasks to begin (giving detailed instructions).

Loading. Materials or parts are introduced to an operation so that it can begin. (A robot
loads an assembly line with a new component, an operator loads a machine with raw
materials.)

Monitoring. This involves checking progress, eliminating bottlenecks, and identifying and
solving problems.

Key issues are:

# Control of capacity - there might be a need to ramp up (= increase) production.

• Control of inventory.

Lean operations and JIT

Outside of a business context, 'lean' means 'thin in a healthy way'/'no fat'. In a business
context, it refers to an approach which tries to meet demand instantaneously with perfect
quality and no waste. The most important idea of lean operations is that of minimizing
inventory kept on the premises - both stock and work-in-progress (WIP). So parts,
components, raw materials and other supplies are delivered to the factory just as they are
needed. And once delivered, the throughput (= rate at which work goes through the
system) is fast.

Note that with lean operations the capacity utilization (= ratio of actual output to potential
output) is often low. This is a difference with traditional approaches. Note also that the
need to carry inventory doesn't disappear - it just shifts to suppliers.
The techniques used for lean operations are often called 'just-in-time' (JIT) techniques.
These include:

Making every effort to eliminate waste.

 Developing working practices which support 'continuous improvement' (often called

by its Japanese name 'kaizen').
 Involving all staff in quality initiatives.
o Improving the flow of work-in-progress around the plant by rearranging layout
and using machines that small, simple, robust and flexible.
o Reducing set-up and change-over times.
 Incorporating manufacturing considerations into the design process
(reducing production costs by reducing design complexity).

Why use JIT techniques? Because materials, work-in-progress and finished goods that are
not being used represent a waste of time, space and money.

Quality management

What is quality? Is it a manufacturing process free of ern and waste? Or is it having the
best specifications, regardless of price? Is it perhaps a product that is 'fit for purpose',
having only features that the user actually needs Is value-for-money an important factor?

Most people would agree that quality includes: functional appearance, reliability, durability,
ease of recovery from problems, and contact with company staff. But is there anything
else, and how is quality to be measured?

Many years ago, 'quality control' meant taking samples c product and doing tests to see if it
met technical standard Then 'quality assurance' widened its scope to include non-
operational functions such as customer service. Nowadays, 'total quality management'
(TQM) covers the whole organization, from more traditional areas like proc control and
product testing to determining customer needs and dealing with complaints. It includes all
the ideas of 1< operations and JIT. And a whole industry has developed provide
international standards for measuring quality; amongst the best known are the ISO 9000
family and 'Six Sigma'. (This term is a statistical measure meaning fewer than 3.4 defects
per million items produced.)