BUSS2 Homework for Monday 18.03.13

Velocity Ltd

Since 1955, Velocity Ltd has produced high-technology sports cars on a large site it owns in Wimbledon, London. The company is renowned for the quality of its designs, the technical and craft skills of its employees and the advanced technology it uses in its cars. Velocity Ltd ’s cars are expensive (the cheapest is £75 000) and are hand-built.

Velocity Ltd ’s maximum production capacity was 200 cars each year. In 2010, following an agreement with the workforce to work longer hours for a 20% pay

increase, this figure rose by 17%. However, the company still experiences problems in meeting demand for its cars.

Figure 2: Velocity Ltd – Key data for 2010

Average period of time allowed by suppliers for payment	11 days
Outstanding debts owed by customers on 31/12/2010	£2 750 000
Cash balance on 31/12/2010	(£1 487 900)
Average annual profits (2006–2010)	1 800 000
Average monthly production	19 cars
Average labour turnover (2006–2010)	12.1%
Average span of control	14

 Velocity Ltd employs 278 people who receive regular training to develop and improve their skills. Many employees have high levels of technical expertise and the company provides advice to other businesses on a range of technical matters. The company has an empowered workforce, a flat organisational structure, relatively few managers and it uses teams throughout its workforce.

Recently, the company has experienced difficulties in managing its cash flow as it has developed a new model of car (Tempo) which will be sold from February 2011 onwards. Velocity Ltd exceeded its overdraft limit (£1 500 000) four times in late 2010 and incurred high penalty charges. The company’s financial director has proposed asking for a 33% increase in the company’s overdraft limit.

Velocity Ltd faces a major decision on whether to use more technology in its operations. Some of the company’s directors favour greater use of technology in designing new cars and the use of robotics on the production line which will ease operational pressures. The estimated cost of the new technology and associated training costs is £3 million. Other directors argue that this move is particularly unsuitable for Velocity Ltd, its staff and its customers. They believe that using new production line technology will result in the company losing its reputation for being a traditional manufacturer of hand-built cars.

1.   Calculate Velocity Ltd ’s capacity utilisation for 2010. [5 marks]

2.   Some of Velocity Ltd ’s directors support the use of more technology in its operations. Do you agree with them? Justify your view. [14 marks]