Operations management

Table of Contents

1. Topic pack - Operations management - introduction
2. Operations Management (OM) - Introduction
3. 5.1 Production methods notes
   1. Production methods
   2. Job production
   3. Batch production
   4. Flow/mass production
   5. Halo Custom Guitars
   6. Summary of production methods
   7. Advantages and disadvantages of production methods
   8. Continuous production
   9. Cost structure of firms
   10. Cell production and teamwork
   11. Cell production - examples and illustrations
   12. Changing the production system
   13. Selecting the most appropriate method of production
   14. Combining methods of production
4. 5.1 Production methods - questions
5. 5.2 Costs and revenues - notes
6. 5.2 Costs and revenues - questions
7. 5.3 Break-even analysis - notes
8. 5.3 Break-even analysis - questions
9. 5.3 Break-even analysis - simulations and activities
10. 5.4 Quality assurance - notes
11. 5.4 Quality assurance - questions and activities
12. 5.5 Location - notes
13. Innovation - notes (HL only)
14. 5.6 Innovation - questions
15. 5.7 Production planning - notes
16. 5.7 Production planning - questions
17. 5.8 Project management - notes (HL only)
18. 5.8 Project management - questions (HL only)
19. Print View

Cost structure of firms

Some production techniques will be labour intensive and some will be capital intensive. So what do these terms mean?

The difference between an activity which is labour-intensive and one that is capital-intensive has significant implications for a firm and there is often a link to the size of the business. Small firms tend to be more labour-intensive than larger ones. Large capital-intensive firms tend to be more profitable than small ones, when conditions are good. However, when times are hard, small labour-intensive firms may find survival easier than large ones as they will find cost reduction easier.

Capital-intensive firms tend to produce standardised products, with low profit margins whereas labour-intensive firms are normally more customer focused, resulting in the opportunity to charge higher prices and obtain larger profit margins.

The bigger the market for a product, the more likely it is that it will be produced by capital-intensive methods. This has significant implications for the international market. Firms based in large markets, such as the USA, have a significant advantage over those that have developed in smaller national markets, such as Belgium or Luxembourg.