A firm will have to look at its financial status, and whether is has enough money to invest in new technology, even if it does not have the necessary finances can it arrange for loans? Loans are better to take in times where the interest rate is low, so the cost of borrowing decreases. The firm can also change its legal structure and go ‘public’, the share capital can be invested in new technology. However this is more beneficial for firms who are established and enjoy a good reputation.
The finance managers will also have to bear in mind that the cost of holding will increase as they produce a larger quantity, this may lead to cash-flow problems and the liquidity of a company will decrease as its finances are tied up in stocks and raw material. This will not be a large problem for financially stable firms, but those who are not can adopt the ‘Just In Time’ method of production, where raw material will only be ordered before the production.
Increased production will also lead to increase costs in the insurance and storage department, and the machines will have repair and maintenance costs. So the finance department will have to see if it has necessary finance for all this too, and if the spare parts are easily available.
HR is an imperative factor to consider before deciding to change the method of production. Batch production is less tedious and repetitive than flow production, so there is a chance that workers may get demotivated. However the HR managers can adopt cell method of production, where workers are grouped together in a cell for more interaction, this also increase productivity. As the company may change from labour to capital intensive this may lead to redundancies and job insecurity, social groups may be broken, the workforce may feel alienated, there may be more absenteeism, and the element of closure will be missing. Moreover, if new training has to given this may be problematic because some people are resistant to change. All this can be combated with providing financial and non-financial incentives. The HR department can also follow Management By Objective (MBO) and delegate more work to labour, so that they feel motivated and very much a part of the organization. Job rotation can also be used but this may lead to workers not being specialized in a certain area, but in factories where semi-skilled or unskilled labour is required and specialization is not a consideration, job production is a good idea.
The company will have to see if its labour force is giving problems by forming unions, demanding more wages, raising conflicts, or if the government has fixed high minimum wage laws which increase the Fixed costs, then it is a good idea to reduce dependence on labour and become capital intensive and adopt the flow method of production.
A firm may als0 consider its competitors mode of production, because if its competitors have adopted the flow method and are now achieving economies of scales, selling products at lower prices, and gaining more market share, then they should change too. If there is intense competition and the elasticity of a product increases, the company will have to lower its price to maximize revenue, and this can be done by achieving economies of scale through the flow method of production.
The company will have to see if adopting the flow method is in-line with its corporate objective. If the company’s corporate objective is growth and market development then changing to the flow method is inevitable, however some companies do not want to change because the want more control over production and do not want to increase workload. Moreover if the government is providing grants and subsidies for industrialization then the opportunity should be capitalized upon.
Keeping all these factors in mind a firm should carry out a Cost Benefit Analysis (CBA) where both the qualitative costs and benefits are weighed, and then change its mode of production if the benefits outweigh the costs.
