Economics of the Real World Aspects of the Productivity and Costs within Different Size Organisations both in the Short– Run, and Long –Run Executive Summary There are several ways to an organisation to become more efficient, such as decreasing the costs and trying as much is possible to increase the profitability. Also, a very important factor is to find the supply – demand balance within short run and long term. Costs can be identified as fixed costs, which are not changeable of the given organisation, and variable costs, which are effecting to the productivity. Variable costs are the packaging expenses, distribution of the product or service, and salary of the workforces. The differences between the short run and long run are the following: The short run is a time period where one factor is fixed, for example the company has two vans and in order to make more profit they can employ more staff. The long run is a time period, where every aspect of the production is changeable, it means the 3M: so Money, Machinery and Man. In other words if the organisation wants to achieve their goals, and to get more profit; the firm can put more capital, is able to employ more labours, and buy or invest into more machines, such as vans, cars, computers, tools. Table of Contents Introduction4 Main Body5 I.The business issues: managing the fix and changeable costs5 1.Fixed Costs5 2.Variable Costs6 II.How ASDA, as a Large Organisation can Control the Firm`s Costs6 1.Case 1. for cost–cut within ASDA6 2.Case 2. for cost–cut within ASDA7 III.How can a Small Company Control their Costs7 IV.Difference between the Short Run and Long Run8 1.Short Run8 2.Long Run8 V.Compare the Productivity Different Size of Organisation9 Conclusion10 Bibliography11 Introduction For the long run success organisation it does not matter what the firm does, or what its size is, but innovation and growth are what matter. Furthermore, it’s essential to continuously find the ways for improving the organisation`s productivity, because every firm’s main goal is to make as much profit as possible. This report will compare the differences between the small and larger organisation potential costs, such as fixed and variable costs. Moreover, this report shows the ways how to cut costs, both in the short-run and long-run. Main Body
The business issues: managing the fixed and changeable costs
The entrepreneur`s employed by two main issues, namely how to get more profit and the most important question is how to manage / reduce their costs. The companies have two different costs, what is to say fixed costs and variable costs.
They are permanent, therefore continue to be the same and not related to the fact, how profitable the organisation is. The best example for fixed costs is when an organisation rents a property to use as an office or storage, so if they have to spend the same amount of expenses every month on rent, this expenditure is not connected to how productive the firm is, but has an effect on the productivity on the different sizes. If a small bakery makes 1000 breads / day and the rental fee is A£600 / month, then the cost of bread is 20 pence. However, any large organisation who makes bakery, such as Asda`s fixed costs per bread is definitely lower than the rent expense.(Investopedia, 2003)
In comparison with the fixed costs, variable costs are changing and are strongly connected with the productivity of the organisation. Examples for the variable costs are expenses paid to purchase material, or the costs of paying their employees, but distribution costs and packaging costs can be variable too. Therefore, if the company is more profitable then packaging costs will rise (Investopedia, 2003). Consequently, the small–size firms have less variable costs then larger size companies.
How ASDA, as a Large Organisation can Control the Firm`s Costs
According to the research a business can cut costs on multiple fields. When the price of the fuel reached sky–high in 2011, ASDA announced their plan how to cut costs and even gave advise to its shoppers –showing a good understanding of Marketing, with that action they did not create sales, but created a good relationship with its consumers–, their plan consisted of:
Investment in more fuel-efficient cars,
Advising their drivers to drive more scrupulously,
Closely monitoring their fleet-maintenance.(ASDA money, 2011)
One of the biggest costs of every organisation is the wages paid to their employees; therefore if the company employs fewer workers, they can reduce costs massively. Mark Ibbotson, the ASDA`s retail director said “We have had a look at the balance between middle managers and junior managers and shifted towards junior managers.”(Lawson, 2013) ASDA has found the solution for that: they cannot let he operation (floor) staff-members go, because they were creating the actual sales, therefore the store decided to restructure its hierarchy and not to use many of its middle managers, junior managers will fill the gap instead with lower paid rates. (Butler and Wood, 2014)
How can a Small Company Control their Costs
Big grocery stores, such as Asda, offer a wider range of goods on lower prices than any other corner store. However, the size allows specialisation, which fosters innovation. (The Economist, 2012) Options for smaller entrepreneurs:
Cut down the travel and transfer expenditures
Use the technology, such as Skype, The Cloud, Microsoft Office 365 (A£4 /person /month)
Use the optional opportunities, such SME Discount, Vibrant People, The Consortium, PeopleperHour (Andrew, 2013)
Use energy–efficient appliances, such reduce utility bills, green energy tax credit, free energy audit (Kearns, 2011)
Differences between the Short Run and Long Run
’’Short run is a period of time, where one factor of production is fixed, … capital is fixed and labour is variable.’’ (Begg and Ward, 2007, P. 50- 52) The short run marginal cost defines how much production is the optimal. Important issue: produce more units of a good or service in order to cover the cost of production. (Hamel, 2014)
Long run means duration, when every determinant of the manufacturing process is variable is volatile. “Other payments that cannot be changed but, in the long run, such costs can be altered.” (Hamel, 2014) The key elements of the manufacturing process:
Capitals: The organisations use these funds to pay every liability and purchase new assets to make the manufacturing more profitable.
Machinery: The tools which help to reach the manufacturing targets and this include vehicles as well.
Labours: The workforce, even at the fully automated production line the organisation relies on an expert, who’s maintaining and programming those lines.
Comparison of the Productivity of Different Size Organisations
No matter what a business does, the productivity depends on various factors. These technics strongly suggested specially for small companies:
Interactivity with clients;
Frequently process analysing and change, if it’s necessary;
Notice the unproductive strategies and issues, need to replace them;
Systematic approach, such as proper communication channel;
Trainings and rewards for the employees because its effecting the members, consequently the firm`s performances. (Steve, Adelaide and Sharmin_7, 2014)
On top of those, ASDA is planning to make a new automated process, a distribution centre in Warrington, UK, which “expects the facility to increase productivity by 70 per cent and space efficiency by 79 per cent once it is up and running in 2016.” (Supplychainanalysis.igd.com, 2014) Moreover, they intend to build a pallet delayering station to store delivery. Conclusion A continuously thriving entrepreneur needs to keep in the mind lot of aspects. In order to do this, both smaller and larger organisations need to determinedly monitor their costs and increase their profitability. To achieve their goals the SME’s have different options, such as be closer their customers or improve the communication tools within the firm, or encourage the employees with competitions and rewards. Asda was continuously monitoring the store management structure and the Asda leaders updated store member structure, therefore interspaced the middle manager line and in fact cut down the variable costs. These marketing tactics can be used to achieve the short–, and long term aims. Bibliography Andrew, A. (2013). From sharing cards to prepaid expenses: How to cut your business costs and boost your profits. [online] This is Money. Available at: https://www.thisismoney.co.uk/money/smallbusiness/article-2391148/How-small-businesses-cut-costs-boost-profits.html [Accessed 18 Dec. 2014]. ASDA Money, (2011). Rising Cost of Fuel – How To Cut Costs. [online] Available at: https://money.asda.com/news/motoring/rising-cost-of-fuel-–-how-to-cut-costs/ [Accessed 17 Dec. 2014]. Begg, D. and Ward, D. (2007).Economics for business. Maidenhead: McGraw-Hill Education. P. 50-52. Butler, S. and Wood, Z. (2014).Asda to cut 1,360 jobs. [online] the Guardian. Available at: https://www.theguardian.com/business/2014/jul/03/asda-to-cut-jobs-stores-restructure [Accessed 17 Dec. 2014]. The Economist, (2012). Small is not beautiful. [online] Available at: https://www.economist.com/node/21548945 [Accessed 17 Dec. 2014]. Hamel, G. (2014). How to Calculate Short-Run Marginal Cost | The Classroom | Synonym. [online] The Classroom | Synonym. Available at: https://classroom.synonym.com/calculate-shortrun-marginal-cost-2739.html [Accessed 17 Dec. 2014]. Investopedia, (2003). Fixed Cost Definition | Investopedia. [online] Available at: https://www.investopedia.com/terms/f/fixedcost.asp [Accessed 17 Dec. 2014]. Investopedia, (2003).Variable Cost Definition | Investopedia. [online] Available at: https://www.investopedia.com/terms/v/variablecost.asp [Accessed 17 Dec. 2014]. Kearns, S. (2011).12 Cost Cutting Ideas for Your Small Business to Save Money & Reduce Expenses. [online] Money Crashers. Available at: https://www.moneycrashers.com/cost-cutting-ideas-small-business-expenses/ [Accessed 18 Dec. 2014]. Lawson, A. (2013). Asda pilots streamlined store staff structure to cut costs. [online] Racplus.com. Available at: https://www.racplus.com/news/asda-pilots-streamlined-store-staff-structure-to-cut-costs/8655683.article [Accessed 16 Dec. 2014]. Steve, Adelaide, and Sharmin_7, (2014).How to Improve Your Business Productivity. [online] wikiHow. Available at: https://www.wikihow.com/Improve-Your-Business-Productivity [Accessed 16 Dec. 2014]. Supplychainanalysis.igd.com, (2014). Asda Supply Chain-How Asda plans to boost productivity by 70% – IGD Supply Chain Analysis. [online] Available at: https://supplychainanalysis.igd.com/Hub.aspx?id=13&tid=1&rid=1&nid=2965 [Accessed 17 Dec. 2014].