Production Issues - International Business Management

What are the different production issues with respect to International Business?

The business to sustain in the market need to earn profits and thus have to closely examine the production factors as production constitutes an essential component for any business. Production includes all the activities from manufacturing, acquiring till the development of the product.

What are the different factors that affect Production?

To enhance and improve the production efficiency, there are three major factors that need to be considered. They are -

  • Facility Location
  • Scale of Operation
  • Cost of Production

Facility Location

The appropriate location of the business firm or the manufacturing firm implies facility location. The major aspects that need to be considered with regard to the location of the manufacturing facility are that the facility should be easily accessible to the customers, workers and the facility should have easy transportation.

Customer satisfaction is the main target for any business organization. On these lines, it is the product and service, that are crucial and with relation to product manufacturing unit plays an important role. Manufacturing unit tend to be successful only by its location, the place where the unit is situated.

While selecting the business location, the following are some of the important factors that have to be considered -

  • Customer Proximity – In order to reduce the transportation cost and time, it is very essential to maintain customer proximity.
  • Business Area – The business area which also has other similar type product manufacturing units turns out to be very helpful.
  • Availability of Skilled labour – Near the location, skilled labour should be available.
  • Free Trade Zone – Some of the incentives such as custom duties and other applicable are being promoted by the Free Trade zones.
  • Suppliers – The availability and quality of the raw material suppliers is very important in selecting the location of the manufacturing unit.
  • Environmental Policy – It is very important to understand the environmental policy and manufacturing unit should be located as per the guidelines of the environmental policy.

What is Scale of Operations?

The size of the business is referred as scale. The size of the business can be controlled by the management by offering volume-discounts, making dealings etc.

The process by which all the resources are allocated and optimized in order to obtain the best results in the market is known as operating the business at scale. The efforts are optimized. New customers can be acquired and more market share can be occupied and attained, and costs can be reduced by maintaining the costs under control and increasing the sales volumes.

  • Small-Scale Business – The business which employs a very less number of workers and which has a low volume of sales is known as small-scale business. The business is considered to be a small-scale business when it has less than 500 employees. For non-manufacturing business, the business which earns less than or equal to $7 million per annum is considered as a small-scale business.
  • Large-Scale Business – On the basis of country and industry, a business that has employees ranging from 250 and 1,500 people is considered as a small-scale business and anything above is considered as large-scale business.
  • Economies of Scale – When a business earns any cost benefits because of its large size and large output or large scale of operations, it tend to decrease the cost per unit and thus this is defined as economies of scale.

What is cost of Production?

The cost that is being incurred either to manufacture a product or to deliver a service is termed as cost of production. The main elements that influence the cost of production are raw material and labour. When the total cost of production is divided by the total number of units produced, it will give per unit production cost. In order to determine the price of a product or service, it is very essential to know the cost of production.

Two components – Fixed costs and variable costs constitute the Cost of production.

  • The cost that is fixed and will not change with the changes in the output levels is known as fixed cost. Some of the examples of fixed cost include rent, insurance, depreciation etc. Fixed costs are also termed as overhead costs.
  • The cost that is not fixed and will change according to the changes in the output levels is known as variable cost. Some of the examples of variable cost include raw material cost, fuel cost etc.

What are Make-or-Buy Decisions?

The choice of whether to manufacture an item internally or buy the item from external sources is known as Make-or-buy decisions. When manufacturing is being outsourced, it is known as outsourcing and is the Buy side of the decision. These decisions play an important role in the situations whether a complete product or a part of the product needs to be modified.

The business conditions that support Make decisions are as follows -

  • Less expenditure cost
  • When the business is planning to integrate the business operations
  • Productively use the idle plant capacity
  • To have direct control on the production and quality
  • To maintain the secrecy, when manufacturing involves confidential issues
  • When the suppliers cannot be relied upon
  • When the quantity of production is very less
  • To control the lead time, transportation and warehouse costs
  • To overcome with the political, social and environmental pressure.

The business conditions that support Buy decisions are as follows −

  • When the business lack the local expertise
  • When the business considers about the cost
  • When the required volume for production is very small
  • When the capacity is insufficient or production is very limited
  • When the business experience indirect managerial control factors
  • Considering the procurement and inventory factors
  • When brand is given more preference.

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