btec nc - business systems - economic, environmental, legislation and social constraints that effect...

Brendan Burr

BTEC National Certificate in ElectronicsThe Economical, Environmental, Legislation and Social Constraints of a Company

Assignment 2 Business Systems for Technicians

External factors and legislation which affect the operation of an engineering companyPlease Note

Tasks 1 and 2 must be completed in full and are compulsory.

On successful completion of these tasks you will achieve a Pass (P4 & P5) Please note that other PASS criteria exist on other assignments and only on completion of ALL PASS CRITERIA will a PASS be awarded

Task 2 Optional

On successful completion of this task you will achieve a Merit (M2) provided that ALL the Pass criteria have been completed successfully.

Please note that other Merit criteria exist on the other assignments and only on completion of ALL Merit criteria will a Merit be awarded

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External factors and legislation which affect the operation of an engineering companyWHAT YOU WILL LEARN IN THIS ASSIGNMENT

You will appreciate that engineering businesses in the UK have to compete against the rest of the world and that sometimes their operations are affected by things over which they have no control. For example, sudden changes in energy and raw materials prices caused by economic uncertainty in other countries will have a knock-on effect if a product has been promised to a customer at an agreed price and there will need to be a strategy to take account of this eventuality. You will also appreciate that businesses have to operate according to a set of rules designed to protect their workforce, their customers and the environment.ASSIGNMENT OBJECTIVES

In this assignment you will need to:

1 identify a UK-based engineering company and investigate howprofitability is affected by external factors over which it may not have control

2 carry out further research to determine what effect changes in theeconomic environment may have on the operation of the company

3 identify the statutory legislation and regulations which govern theway that the company operates and explain how it complies with them

4 describe the environmental and social issues which impact upon the operation of the business.WHAT YOU WILL DO IN THIS ASSIGNMENT

You will use the internet and other information sources to carry out research into the external factors and pressures which can affect the profitability of an engineering business. You will investigate how the economic climate both in the UK and in the wider global economy affects the profitability of engineering businesses. You will find out about the statutory legislation and regulations which apply to businesses operating in the UK. You will investigate the environmental and social issues which must be accounted for when setting up and operating a business.TASK INTRODUCTION

The main focus of this assignment is to carry out research based on an actual engineering company in order to find out how it operates in an ever-changing economic and legislative climate. You have a number of options when deciding which company to base your research for task 4:

1 use the company where you work 2 use one where you have been on work placement 3 make an arranged visit (possibly in conjunction with gathering datafor other units)

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4 use the factory which featured in the activity on the use of chemicalsin Case study 5 but widen the scope of your investigation to include more than just electroplating chemicals.TASK 1

(a) A UK manufacturing company supplies most of its product to the USA and has negotiated regular deliveries over a 10 year span. The contract was signed five years ago. The product was priced in sterling (UK ) with an agreed uplift each year equivalent to the average of the USA and UK inflation rates. At time the exchange rate was $1.46 (US) to 1 (UK). The American company has asked for a price review. Explain why the US customer might want this review and consider what effect it might have on the profitability of the UK business. (b) Currently the Chinese economy is booming. Chinese manufacturing industries are able to produce goods much more cheaply than companies in the West. The Chinese economy is unique in that it has a positive balance of payments and is able to build up large reserves. To take advantage of the lower cost base, many UK companies have relocated their manufacturing facilities to China while maintaining design and support services in the UK and EU. (i) Explain how the Chinese are able to produce manufactured parts more cheaply than in the West while still maintaining quality. (ii) What external and economic factors might derail the Chinese success in manufacturing? (c) On the BBC News website on 29 May 2007 there was a short report about Nanjing Automobile Corporation (NAC) reopening the MG sports car factory at Longbridge, Birmingham. The article presented the reasons for this initiative and included a number of statements from the chief executive at NAC. You can find this report at: http://news.bbc.co.uk/1/hi/business/6700219.stm To set this report in context, it might be worthwhile to look at earlier reports by the BBC and other organisations when the MG Rover company ceased trading in 2005. (i) What caused MG Rover to go out of business in 2005 and what effect did this have on the local economy? (ii) How much design work, machining of components and testing is planned for Longbridge? (iii) What are the reasons for NAC deciding to build cars at Longbridge? (iv) In five years time will they still be producing cars at Longbridge? These tasks provide evidence for grading criterion P4.TASK 2

(a) When NAC reopens the Longbridge factory it will probably hire UK staff who previously worked for MG Rover before it closed, but with conditions of service possibly different to those they were used to. What might those differences be? (b) Most Rover workers who were made redundant after the firm's collapse found new jobs, many retraining to work in other areas. Explain the steps in a retraining process starting from the point when a worker is given notice of redundancy.

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Brendan Burr

BTEC National Certificate in ElectronicsThe Economical, Environmental, Legislation and Social Constraints of a Company(c) In assignment 1 you were given a profile about a business which manufactures hydraulic equipment. It was called company A. (In task 3 of this assignment you will be looking in more detail at one of its products.) Research the types of processes and manufacturing equipment which this sort of business would be using and identify which legislation and regulations are applicable to its operation. These tasks provide evidence for grading criterion P5.

TASK 3

In Case study 5 in the activity on the use of chemicals you were given this information: You work for a company which carries out a range of electroplating processes on its products. These products are made mainly from mild steel components which are stamped, formed and welded together. The factory has two injection moulding machines for producing small items such as covers, handles and trim pieces. The plating department employs 50 operators and there are baths for plating gold, silver and chromium. The factory is long established on what was once a greenfield site. It is now ringed by housing estates with a single access road to the factory. To remain competitive the management would like to move from a two 8hour shift system to a three 8-hour shift seven-day-a-week operation. The total number of people on site at any one time would be about 160. Car parking is restricted and lorry movements number about four per day with two of these being large articulated vehicles. Fuel oil is delivered by tanker and there are specialist chemical deliveries once a month by secure lorry. People living nearby have specific concerns about two operations carried out at the factory: 1 stamping, which is a noisy process 2 plating, which uses cyanide and is therefore perceived as a deadly process by some residents. The company has decided to make a presentation to the local residents association explaining how it complies with legislation and demonstrating its good green credentials, particularly in respect of discharging waste water from the onsite treatment plant into a nearby culvert which runs down to a river. Your manager has asked you to put together the presentation which will explain the legislation appertaining to the two operations and the benefits to the company of complying with the law. To counter the misinformed criticisms of some residents, your manager has asked that the presentation include comment about recent EU legislation which is limiting the way that the company can operate. This task provides evidence for grading criterion M2.TASK 4

Using the company in which you work, one you have visited or the one in task 3, evaluate the importance and effects of external factors on the businesss operation. The most straightforward approach is to use a real

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BTEC National Certificate in ElectronicsThe Economical, Environmental, Legislation and Social Constraints of a Companycompany so that you have access to published financial data (such as share prices and trading figures) and other economic data. You are looking to evaluate what happens if for example: 1 the Bank of England base rate changes 2 conflict between countries increases or is resolved 3 climate change and carbon footprint issues increase 4 raw material prices change 5 the supply chain for strategic materials changes. This task provides evidence for grading criterion D2.

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Task 1a) The American company is obviously doing the correct thing, for its own interest, when deciding to request a price review. This is because the Pound Sterling (UK) may have become a much stronger currency than that of the Dollar (US). If that is the case then the US company may be spending a lot more money than is actually required and effectively making a small loss on potential profits. If the opposite has occurred, where the US Dollar has become stronger than the UK Pound Sterling then the US company may be shooting themselves in the foot as they would currently be getting a bargain, so it could work both ways. The UK manufacturing company has had a steady income for the past five years on a pre-negotiated fixed inflation rate. It is however only half way through the contract and therefore a massive amount of money could be lost because of the price review. The trading may cease however, if the UK manufacturing company does not agree with the price review as with all companies they are looking for profit on their operations to be able to survive and grow. The US Company may ask for the price of the product to be lowered to make it more affordable, as it would be tough to maintain a small profit, as some months the company will make losses. Alternatively the US company may decide to look for a new cheaper source of this product if the price review doesnt go ahead, but there may be contract clauses and potential lawsuits ahead if this were to happen. The UK manufacturing company are quite likely to agree with the price review as the US company are the majority buyer from the UK company, so any loss in sales would be extremely significant for the UK company to handle. In conclusion; the UK company could make a large loss of earnings if the relationship between the two companies broke down, causing the US company to switch supplier. However if the UK company agreed then the contract may be extended to exceed 10 years if the relationship was strengthened by the cooperation between the two companies. The profits of the UK company are likely to decrease if the price plan is agreed, due to the inflation rate. However over the long term contract period it will gain a larger profit than if it were to cease supplying its products to America.

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b) i)

The Chinese are able to produce products cheaply at the same quality due to many reasons. Firstly the labour is extremely cheap which allows companies to produce products with less expenditure which can then be consequentially deducted from the overall price of the product. The lives of the individual workers are not valued as much as in the West which results in the health and safety for the Chinese workers being compromised. This in itself will deduct cost from the overall manufacturing cost, as machinery will not have to have guards and other safety features. Also there would be no maximum amount of safe working hours, so people would be exploited and forced to work many hours a day for the majority of the week. As China is a Communist country, its Government is more committed to the health of the county rather than the health of individuals. It doesnt offer help to individuals who need it, resulting in less expense for the country as a whole, but also results in a different mindset of its population. Due to the lack of income available from the Government, everybody is forced to get a job to be able to survive. Everybody wants to work hard to get more money, maintaining the quality of the products produced, simple but incredibly effective. By maintaining the design and support services in the UK and EU, the UK companies are able to ensure that the quality of the products are of a similar standard to that of before the relocation of production. Another reason is because materials are cheaper in China as they are more local. China are also able to keep large reserves, so production can begin quickly, cheaply and effectively.

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ii)

The internal factors which may result in derailing the Chinese success in the manufacturing industry may include things such as a change in Government. This may allow Unions to form which will increase the chance of individuals fighting to get higher wages and better working conditions. The external factors could be new EU regulations, that my require any imports to be manufactured with regulations on Carbon Dioxide emissions. This would increase the manufacturing costs of nearly all products produced cheaply by China as they are one of the highest polluting countries in the world. If cheaper labour was available elsewhere then it would be likely that there would be a relocation of the manufacturing operations to that country, as all businesses are looking to make as much profit as possible.

c) i)

MG Rover went out of business for a number of reasons, which all accumulated and caused a catastrophic breakdown of business structure within the company and its assets. According to the BBC website the company failed due to gross mismanagement, expressed with the concern that the Phoenix Four (The four owners) were incapable of securing the companys future and expanding it into a company that makes money instead of losing it. There was a continuation in the decrease in vehicle sales, losing thousands of sales each year. This was due to cheaper and more stylish cars being available to the public causing poor perception in all MG Rovers even if they were the most modern new release vehicles. Job losses were substantial in the local economy with losses of just under 5,000 almost immediately and then the remaining 1,000 after the cars still in production had been shipped to their customers. Within Britain car warranties were also in jeopardy as there were no longer places to repair cars under the MG Rovers approval. The new Longbridge factory, opened by NAC is vehicle assembly only. This means that all of the parts can be made in countries where labour is cheap (lowering the cost of the overall manufacturing of the product) and imported. The main advantage of this method is that the vehicle can be declared as Made in England, even though the car was only assembled in England. Because the UK is part of Europe, a large market then opens for the NAC to sell to other countries in the EU without having to pay large export fees. The cars will also be road tested in England, as it would be cheaper than sending a finished product to a distant country, complete the road test and then ship it back to England to be sold to a customer. There are plans to have a new model of MG designed in the UK and produced at Longbridge, within the next 18 months.

ii)

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iii)

As discussed in the previous answer, the Import tax is kept lower as parts can be shipped in large quantities. There is also the fact that less space will be used up on cargo flights and shipping, which will in turn reduce costs of transportation. The build quality will have a much higher reputation as the product will be labelled as being produce in the UK, even though it was only assembled here. And also due to the product being assembled in the UK, it can be shipped to and sold in the EU at a much reduced cost to that of a country outside the EU. All of these reductions in costs can enable the NAC to save money on the finished product. Which in turn will result in greater benefits to its employees, such as wage increases and secured pension agreements. It is tough to give an accurate answer as the country is now in recession and the car industry has taken a huge knock, with thousands of redundancies within the last 6 months. If things continue the way they are at present, then it is unlikely for any car factory to still be producing in five years time. However the plans from the NAC look promising, with five new models planned for production in the next few years, which would hopefully secure jobs at the site. The price range is still high, as the cars are not as modern, stylish or reliable as other cars on the market for less money. So depending on how the Longbridge site handles the UK recession will enable the NAC to potentially employ more workers and produce larger quantities of vehicles each year.

iv)

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Task 2a) The NAC in Longbridge is likely to make a loss in its first year due to the high expense of reopening the manufacturing factory. Due to expenditure in areas such as new tooling, factory assessments and other areas. For this reason I would say that expenditure costs will try to be kept to a minimum so the salaries of the new employees are likely to be lower than a similar job in a company with stronger foundations. Employees may be placed on the National Minimum Wage, whereas before they may have been on much more than that. Another aspect which may be limited, due to the reopening of the factory could be holiday. It could be kept to a minimum as this would ensure production is kept up to a high capacity, throughout the year. This would be sealed in a contract which would include contracted hours, holidays and other entitlements, which may differ from the contract held with the previous company. Peoples job roles may also be different so it may be necessary to retrain certain workers on new tooling and machinery, which will cause extra expense to the company. People may be asked to go on training courses without getting paid. When a person is made redundant it is their job role which is no longer required and not the actual person. This being the case, if the person has skills in an area that is no longer required by the company, that person may get offered a place in a different department with new training and skills to learn. It should be made clear to the person, whose job role has been made redundant, whether or not they will be offered a new place in the company or whether they need to find an alternative company to work for. There is a legal obligation for the worker to be given a period of notification of redundancy, allowing him/her time to find alternative employment/training before finding themselves without a job. (This keeps the unemployment rate lower, making the Government look better!). Employees may also be given the opportunity to go to college or university to study and get new skills, adapting their existing knowledge about the company into a different department. The company who makes the redundancy must allow the affected person to apply and attend interviews for new jobs, allowing them to more easily find a new job.

b)

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c)

Company A manufactures Hydraulic Equipment for the Newline Aeroplane Manufacturing Company (NAMC). The company has a strong structure of approximately 100 Employees and 30 years of experience. The Employees are so vast that many areas of the company which cover many aspects of business, such as design and manufacturing of the parts. The manufacturing equipment which this business would be using would be CNC (Computer Numerically Controlled) Machines, which are able to manufacture parts extremely quickly and precisely. The design office would produce the parts on a CAD (Computer Aided Design) Software, which would enable multiple calculations and redesigns before money is wasted on the actual production of the part, saving in material expense. Then the data would be sent to the CAM (Computer Aided Manufacture) Machines to begin production of the components. The manufacturing equipment would be things like, Computers for CAD as well as the software. Also CNC machines which are linked and compatible with the CAD software. Once the parts are manufactured they must then be treated to ensure life longevity of the parts. This could include electroplating or anodizing to give the material surfaces the properties of other materials, such as rust prevention and added hardness (scratch resistance). The Company will have to abide many laws and legislations set out by the UK and the EU to protect the employees of the company. This includes such legislation as the Health and Safety at Work Act 1974 (HASAWA), which helps to ensure the workplace becomes a much safer place. This is done by making it a legal requirement for employees to have adequate training and be given awareness on the facts of Health and Safety in the workplace and potential detrimental problems caused by working. Such as Industrial Dermatitis, hearing loss from repeated noise and repetitive strain injuries from the design work on computers. Turning and Milling machines will have to have impact proof guards to ensure that high velocity objects are prevented from hitting the operator or other people in the workshop. They would also have Emergency Stop buttons as there may be a need to isolate the power in the event of an emergency. Grinding machines should be used with extreme caution, as the grinding wheel is a very hard but brittle material and will shatter if stopped abruptly, so E-Stops would not be used. Manual Handling techniques are also important and should be taught to people who may be moving some of the components, as they are bound to be heavy from the materials they are to be made from. From the component treatment stage, the components are normally dipped into acids, to clean the surface and then treated with the

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appropriate materials. These substances are extremely hazardous to not only our health, but to the health of plants and wildlife, so must be disposed of with extreme care. This category falls under the Control of Substances Hazardous to Health Regulation (COSHH). I would also say that certain Aviation Laws have to be met, due to the components being produced for an Aircraft Manufacturing Company. This may include such things as impact tests, to ensure the new component can actually withstand the impact it was designed for (such as Landing Gear).

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Task 3

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Task 4AgustaWestland is my chosen company to study. They are a large sized company as they employ 200+ people (9,000 people in total). They design and manufacture varieties of Helicopter for the civilian and military markets. They also provide a large customer support network to train aeronautical engineers, employed by the Royal Navy or Royal Air Force, to maintain specific types of aircraft, such as Lynx or AW101 Aircraft. AgustaWestland are supported in Italy as well, due to their parent company being Finmeccanica. This means that a potential failure in the UK market can be supported by the Italian market, as long as the problem hasnt already spread to that area of Europe. AgustaWestland have sold multiple shares of the company to its workers, this made the company approximately 1 Billion which could be used in further investment. The company is split into three different sectors of Corporate, Business and Operations. If the Bank of England Base Rate changed affecting the UK market, there could be (and has recently) been difficulties in securing new and future contracts with major customers. There is currently a period of financial insecurity where the Government was looking at the Defence Industry and major talks in cutting costs. While doing this the Ministry of Defence were set to withdraw the purchase of 70 Future Lynx Helicopters. Luckily the MoD pulled funding from the manufacture of Aircraft Carriers instead of the Aircraft themselves, saving hundreds of jobs at the Yeovil site, but causing major lob losses in the Shipping Industry across Britain. There would also have been a major affect to the Shareholders, this is because the profit of the company would have been dramatically slashed causing a knock on effect to the price of Shares. If the BoE Base Rate decreased, the Shareholders themselves may get scared and begin selling their shares in the company, trying to avoid a loss. They may also sell up as they would begin spending money instead of saving and investing it. The local MP was in discussions with the MoD to secure the contract at the Yeovil Site, this was on the 4th of November 2008. From the Finmeccanica Share Graph (below) you can see that the share price had decreased significantly from the late summer in 2008. This was the period where the BoE Base Rate was dropping also. Once the Contract began to look secure again, around the 5th of November the share price began to increase steadily.

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The BoE Base Rate then fell significantly in late February to March, falling to around 1%, and then again to 0% on the 25th of March, hence the lowest Stock Price for years.

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If there were conflicts between countries then there may be a higher requirement for AgustaWestlands products and services. This would be because more aircraft would be deployed to the various warzones. All these aircraft would require servicing at regular intervals, with the increased demand in usage there would also be an increased demand in repairs and replacement parts. Other industries would probably decrement in share prices due to conflicts. This would be because the companies would find in difficult to trade to outside countries, which would significantly reduce the amount of potential sales. This decrease in sales would result in an increase in price of the individual products. Which as you can see is a knock on effect, as people are less likely to purchase things at higher prices so eventually all sales would dry up. The AgustaWestland company is based primarily in Europe (with bases in the UK and Italy) as well as the US. This would make the company quite vulnerable to any changes in laws regarding the climate or trading and manufacturing laws. The cost of the businesses products would have to increase to cover the cost of the time and money spent ensuring the company factories meet any new EU laws or Global Trading Laws. Pollution laws, for example, may result in newer expensive filters being installed to prevent emissions exceeding that stated in the law. This money would have to be covered somehow and it is likely the product that the new law affects, would increase in price to cover that expense. The company could also be greatly affected from the potential of changes in the costs and availability of Raw Materials. If raw materials from an aluminium source run out, for example, then almost the entire structure of the aircraft would be compromised. This would increase the price as a new

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source would have to be discovered and aluminium would have to be created to the correct specifications to meet those of the aircraft design. The same could be said for copper ore, as this would compromise the electrics of the aircraft. An increase in price in this material would force an increase in the overall aircraft price. At AgustaWestland in the Business sector of the company there is a division set up for Marketing. This allows AgustaWestland to sell directly to customers without going through an intermediary. This saves a large cost to the customer and enables a much better customer to business relationship which will help with the future servicing of the blades and airframe. AgustaWestland do not make the whole aircraft, which isnt surprising as it is a complex piece of equipment. They work with many companies, such as: AVIC II/JIANGXI CHANGHE, Kawasaki, NHIndustries, Bell Helicopter, CAE, Lockheed Martin, Boeing and Denel. These are the companies who are effectively the supply chain to the multiple various aircraft that AgustaWestland produce. If Boeing, for example, withdrew the Right to service Apache Helicopters (as it is their design) then the company would also lose that area to its existing customers, such as the MoD. This shows that there is a major effect from outside companies as well as AgustaWestland themselves.

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btec nc - business systems - economic, environmental, legislation and social constraints that effect...

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