(a) Using the case as an example, explain what is meant by ‘increasing the scale of operations’.
By ‘increasing the scale of operations’ it is meant that it increases the variety of jobs (operations) it does. For example with Timmings plc, it started as a small engineering company, it repaired agricultural implements for farmers in Hereford and Worcestershire. Now it has a full line of skid steer and mini skid loaders as well as attachments, mobile screening plants and six models of mini excavators and it recently added a complete line of potato harvesting, irrigation and handling equipment, and now it manufactures and distributes worldwide. This is an example of increasing the scale of operations, as it started doing only one thing and now it does many more, so in needs more resources, but it produces much more output.
(b) When Timmings began to grow it became more productively efficient. Explain what this means.
Productively efficient occurs when a business is utilizing all of its resources efficiently, producing most output from least input. When a business does this, it is said to be enjoying of economies of sales. When Timmings plc moved into the large production facility in Birmingham it probably took advantage of economies of scale, having lower average costs and lowering risks. With this, larger businesses have advantage over smaller businesses, as small businesses cannot enjoy economies of scale.
(c) Why do you think Timmings plc switched to capital intensive production?
Capital intensive production has several advantages and disadvantages, it generally gets more cost effective if larger quantities are produced, but it has huge set up costs. Machinery is often more precise and consistent, but if it breaks down there would be huge delays and costs. I believe that Timmings plc changed to capital intensive, because in 2001 it began to experience problems in recruiting high quality engineers, and at the same time, the business was sold to a large US engineering company, so maybe (and most probably) the US company believed that it would be better to change to capital intensive.
(d) Describe two technical economies of scale that Timmings plc is likely to exploit.
Technical economies arise because large plants are often more efficient. The capital costs and the running costs of the plants do not rise in proportion to their size.
A technical economy is indivisibility. Many businesses need a particular item of equipment or machinery, but fail to make full use of it. For example Timmings plc spent around $180 million on CNC machines and robots. The cost will be the same whether it is used 5 hours a day, as if it is used 10 hours a day. But if Timmings expands, more use is made of it and so average costs of the machine will fall. Businesses often employ a variety of machines which have different capacities. A slow machine may increase production time. As the Timmings plc expands and produces more output, it can employ more of the slow machines in order to match the capacity of the faster machines. This is called the law of multiples.
(e) To what extent do you think the benefits of switching to capital intensive strategies outweigh the drawbacks for Timmings?
In 2001 Timmings plc changed to capital intensive production and spent $180 million on CNC machines and robots (as it already had difficulties recruiting high quality engineers). Two categories of robots were purchased by Timmings. Processing operation robots and assembly line robots. Some of the advantages of capital intensive production are that they are generally more cost effective if large quantities are produced, machinery is often more precise and consistent, its easier to manage than people and it can operate 24/7. This is good, as people are difficult to manage and cannot work without breaks and holidays. They need to be motivated to improve performance, and may go sick or leave suddenly. In my opinion the benefits of switching to capital intensive strategies outweigh the drawbacks; the only downside I can see is that 30 staff were laid off.