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Up to Quarter 4; One worker produces one unit per hour, (i.e. productivity = 1) 40 hours per week, 480 hours per quarter. (12 working weeks, one weeks holiday) From quarter 5 onwards, the working week and productivity can change, and overtime may be worked. One worker per machine on a two shift system. Therefore, unless the ratio of workers to machines is exactly 2:1, there will always be a surplus of one of these factors. MACHINE OUTPUT Machines do not have any limit on output, the only limitation is the time that the machine is in operation and the efficiency (Productivity) of the operator. i.e. For a 2 shift operation (The normal factory set-up) with each shift working 50 hours, (40 hours normal plus 10 hours overtime) this gives a total worked of 100 hours. Say a productivity of 1.15, Then output per week of 100Hrs X 1.15 Prod = 115 Units One unit of material per unit of finished goods throughout. If the above factors are not in balance there will either be; WASTAGE, e.g. workers being paid overtime for not working, or BOTTLENECKS e.g. production stopped due to a shortage of raw materials. As well as with each other, these factors must always be in balance with proposed production. MACHINES - choice of rental or purchase. In Quarter 1, it costs around £3400 per machine to buy 5 machines (£3500 for one only), which equals £340 per period during its working life. The purchase price will increase with inflation for future acquisitions. To rent a machine costs £450 per quarter throughout. Advantages of purchase: Possibly cheaper. Advantages of rental: Guaranteed price throughout helps cash flow early on, less need to borrow. Choice of buying on the; Open market Long term contract. On the open market the opening price is £1 Contracts: "security of supply" Contracts require speculation on availability of a commodity, but they have the benefit of helping cash flow planning. In reality a number of contracts would be placed to provide a hedge against poor harvests or other interruptions to supply.
Will you need to increase production? Does your company strategy include increased sales as time passes? Do you have a forecast for sales growth? If so how are you going to supply these: Working longer hours through over time? Increased productivity? Extra machinery and workers? All of the above will cost money All operations cost money and your staff will expect to be paid on time. Therefore does your company cash flow allow for these needs? You will need to supply a cash requirement forecast to finance, in order for them to allocate resources for your needs? Make sure that you know your factory costs each quarter, in other words how much is the factory cost of each unit made and are you in control of the costs. Don’t forget if you need to work overtime to overcome production needs this will increase costs as your workers will expect an increased rate for overtime.
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