2.3.4 Impact on costs and sales revenue

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    IMPACT ON AVERAGE COSTS

    Increasing productivity results in a fall in average costs for the firm. They can either lower prices for customers, which makes them more competitive in the market creating higher market share or keep increased profit margins. They can use these profits to invest more (e.g. in production machines) to increase efficiency so average costs reduce even more.

    MINIMISING WASTE OF RESOURCES

    This creates less need to correct faults and store stock/finished products. if they become more efficient, there will be a reduction of waste. Production is in line with demand and moreover, the firm might be able to make the demand for their products more price inelastic by increasing brand loyalty and improving the quality of their products.

    COMPETITIVE ADVANTAGE OF SHORT PRODUCT DEVELOPMENT LEAD TIME

    This is the time delay between a decision being made and the decision being carried out. This reduces the development time in the overall product life cycle. This reduces cost of development, improves cashflow. It also allows businesses to enter the market before competitors (first mover advantage) and respond quickly to changes in customers tastes. This is necessary in more dynamic markets.

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