Chapter 23: The Nature of Operation Lesson 2

What does the term sustainability mean?

Sustainability in business refers to a company's strategy and actions to reduce

adverse environmental and social impacts resulting from business operations.

How can businesses achieve sustainability of operations?

• reducing energy use and carbon emissions and using renewable
sources of energy.
• reducing the use of plastic and other non-biodegradable materials
• using recycled materials
• manufacturing products that are recyclable
 Labour intensive vs Capital intensive

Labour intensive production requires a large
amount of labor (people) to produce its goods
or services. It is mostly used in businesses
produce specialized products – as per the image
above showing people making watches.
Capital intensive production relies mainly on
capital, i.e. plant & machinery, IT systems,
buildings, vehicles. Examples of this are oil
extraction & refining and car manufacturing.

It is also used in the service industry as people What are the advantages and limitations of each
are needed to deliver the service, i.e. restaurant method of production?
staff, tour guides, hair salon. Read page X to learn more.
 Production Methods

You will be assigned one of the above production methods. For the assigned production method create a 1-2
slide presentation with the following:
• Explain the production method.
• Provide examples of industries or businesses that use the production method.
• Explain the main advantages and disadvantages of the production method.
One more production method: Mass Customisation
Mass customisation refers to a business process of providing customised goods and services that also meet
individual customer's needs.
One of the first companies to offer mass customization was Dell.
 Other examples of Mass Customisation

Nike By You allows customers to select

individualized colours and style features to add to
their shoes.

Mini allows customers to select the colours for the

exterior and interior of their car.

Consider one other example of a business that allows this level of customer involvement in design.
Do you think all consumer product companies aim for this approach?
Mass Customisation Requires:

• advanced and flexible machinery & equipment

• skilled and well-trained workers to operate this
machinery
• product designs that have many standardised
parts but some interchangeable ones
• suppliers able to supply variations on parts and
components.

Therefore mass customisation is not an option

for all businesses.
 How do businesses decide what is the best production method?

Size of market
• Small or niche market (e.g. designer clothes), job production is likely to be used.
• Large market - flow production when selling the same item to a large market consistently throughout the year.
• Large number of items sold at different times of the year would use batch production, for example Christmas decorations.

Capital available
Flow production requires a large amount of capital which is costly, small businesses often cannot afford this.

Other resources
Job production will require highly skilled workers whereas flow production requires less skilled workers.

Demand from customers

If businesses want the cost advantages of high volumes combined with the ability to make slightly different
products for different markets, then mass customisation is most appropriate.
Activity 23.3

Sunburst Bakeries supplies bread and cakes to leading supermarkets. It has a large factory that makes the entire range
of products. No finished items are bought in from other bakers. Operations facilities are split into three main areas.
Different operations methods are used in these areas. The demand patterns for the bestknown Sunburst products are
very different. Standard loaves and bread rolls are bought by supermarkets every day, all year round. There is some
variation in demand through the seasons, but very little. Large, family-sized cakes are mainly bought at weekends,
whereas doughnuts are most often bought midweek for children’s lunch boxes. The business is famous for its
handmade wedding cakes, each one to a different design. Managers plan to convert one section of the factory that uses
batch production into flow-line production.

1. For each of the products referred to above, analyse an appropriate production method.
Changing operations methods

Overtime businesses may need to change production methods because of changes in demand or increased labour cost.

What problems do you think could occur when changing from job to batch production?

• Cost of equipment needed to handle large numbers in each batch may be too high.
• Additional working capital is needed to finance work-in-progress inventory.
• Workers could become demotivated as there is less need for an individual’s craft skills.

What problems do you think could occur when changing from batch to flow production?
• The cost of capital equipment needed for flow production may be too high.
• Employee training needs to be flexible and multi-skilled. If this approach is not adopted, then workers may end up
on one boring repetitive task and become demotivated.
• Accurate estimates of future demand are needed to ensure that output matches demand.
Exam practice questions