Capacity And Resource Constraints Faced By Small Businesses Economics Essay

In order to resuscitate net incomes and save themselves from bearing heavy losingss, Fred and Gillian Giles had opened a two purposed farm for the general populace in 1993. Their ambitious ends had let them to set in all their nest eggs to set up installations on the farm which would entertain the tourers. This side of the concern was apart from the usual agriculture being carried out which included the distribution of ice pick which was manufactured behind the farm in a little mill, a milking parlour to see the latest engineering being used to milk the cattles and an extra guided circuit of the farm. Even though the concern is presently running moderately good, the proprietors are confronting some serious issues related capacity restraints and competition.


Answer 1: There is a no. of issues which Gillian Gales is confronting in her side of the concern. These issues include the fact that in order to turn the Holly Farm ‘s concern, it is non possible for the proprietors to add extra capital. They have already invested a batch of money and any extra capital available to them will be in footings of a loan. However, the involvement rate on the loan is expected to be above 10 per centum which would non do it executable since the proprietors are non anticipating to gain that high a return on their investing in order to pay the involvement and the chief sum. Other issues which Gillian needs to take notice of include the fact that the ice-cream mill is non runing at full capacity, the deep-freeze which has a capacity to keep 10,000 units is operated at 7000 units ‘ storage to let for stick rotary motion. The deficiency of preservatives used in the ice-cream would besides be a factor in this respect where the stock list needs to travel out of the mill within 6-12 hebdomads. This factor would be driving down retail gross revenues to stores and hotels which might be interested in carrying the ice-cream for their extremum periods ( since Gillian is non in a place to increase production for them at that clip ) .

Gillian besides needs to make up one’s mind whether to advance manager houses or market to households and schools for trips to their farm. Gillian references that on norm one out of two manager clients ‘ bargains one litre box of ice-cream while a four resident auto buys the same sum. This information, though a good starting point, would non let for proper determination devising since informations on how many a manager usually holds. Besides the usage of averaged informations is non advisable when doing determinations as to who the mark market would be for the approaching twelvemonth. There is besides a demand for excess staff by the farm, presently the ice-cream fabrication employs farm workers ‘ married womans ( three ) and a upper limit of four spirit can be produced given the clip restraints and the set up clip ( to alter spirits ) . Since capital investing is non possible at this clip, Gillian would necessitate to engage more staff for ice-cream fabrication if she plans to increase the figure of spirits to ten, analysis and accurate prediction of what measures of spirits to bring forth would besides be required if the figure of spirits is to be increased. Market researches as to which spirits are being demanded by the clients would besides be required and could assist extinguish the demand to spread out to ten spirits outright, but this is presently non being undertaken by Gillian.

The deficiency of promotional activities by Gillian has seen the figure of reachings to the farm cap at 15000 a twelvemonth ; this state of affairs is being ignored as Gillian is concentrating more on spread outing the fabrication side, now she needs to take a more active attack to increasing the traffic at the farm. The issue of farm timings non being contributing to field daies and mill visits ( 20 % of the clients leave before the milking procedure ) and this really fact that many visitants are unable to see the milking procedure is besides one which would be driving lower ice-cream gross revenues and demands to be looked into by Gillian.

Answer 2: To increase the figure of farm visitants by 50 % in a individual twelvemonth is a about unattainable end that Gillian has set for herself. Although it is possible that the figure be increased, but traveling from 15000 visitants to 22500 visitants is non a little undertaking which can be achieved in the continuance of a individual twelvemonth. This is due to a figure of factors which, for Gillian, would be restraints in accomplishing this growing mark. These factors include:

1. The fact that the farm is unfastened to visitants for 7 months in a twelvemonth, during the staying months the animate beings are kept indoors and the drives etc available to clients are non safe due to the conditions state of affairs. This is a bound which Gillian would be unable to overcome in a individual old ages clip without capital investing into constructing sheds and indoor installations etc at the Holly Farm.

2. Another clip restraint is the fact that Gillian and Fred found that maintaining the farm unfastened for more than the four yearss it is already unfastened ( Friday to Monday ) is non executable due to the low traffic during the staying yearss. Besides the farm workers would non be free during the three yearss of the hebdomad ( they would be involved in the “ existent ” farm work ) , so the lone manner to maintain the farm open the full hebdomad is through engaging excess staff which could merely be justified and executable if Gillian were able to corroborate attendance/traffic at the farm during these yearss via school trips etc. The weekend is the peak period for Holly Farm and it is improbable that working persons would be willing to take farm trips during work yearss.

The gross revenues prognosis for 1999 shows that Gillian has prepared is extremely assumptive given that she has yet to make up one’s mind how she would be increasing the figure of clients on the farm. Whether she wishes to convey in more clients through manager houses or aim the household and recreational travellers ( who come by auto ) . With coach houses Gillian would most probably have to offer price reductions on the farm visits to the coaching houses to be after trips or revert to her old selling tactics of giving talks at schools and institutes and market her farm herself. The determination on whether or non to prosecute with coaching houses is non possible at this clip because the figure of riders on each manager has non been identified, therefore one can non cipher the net incomes to be had from the gross revenues of ice-cream and other green goods along with the admittance fees ( with or without the price reductions ) . Even if the averaged figure of one-liter ice-cream sale per two manager riders is taken to be faithfully accurate without the figure of possible clients coming through the manager trips, and via autos for that affair ( one litre per four riders ) , pick between the options would be more moot point than proper determination devising on the portion of Gillian. If we were to presume that half the clients come by auto and half come via manager trips than advancing manager trips would give more benefits in footings of ice-cream gross revenues as

7400 manager trips/2 = 3700 litres of gross revenues & A ;

7400 auto travelers/4 = 1850 litres of gross revenues

Given that 13500 litres were sold through the retail store ( $ 27000/ $ 2 ( selling monetary value ) ) this would intend that near to 41 % of the gross revenues comes through the clients on the farm. A 50 % addition in the figure of clients on the farm would take to gross revenues of $ 40,000 merely if the figure of clients at the farm window besides increased by 50 % which is a market non being targeted by Gillian, therefore the undermentioned computation taking to a figure of $ 40,000 would be wrong as the gross revenues would be lower ( higher from the clients on the farm but when including the tendency based gross revenues through the farm window the entire gross revenues would be lower ) .

14800*1.5=22200 clients

11100 manager trips/2* $ 2= $ 11100

11100 auto travelers/4* $ 2= $ 5550

$ 16650/0.41 = $ 40,610 in gross revenues.

School parties and trips could be a good maneuver on the portion of Gillian as they would guarantee higher figure of visitants and a larger sale of ice-cream and other merchandises which could be made on the farm. Charging a lower admittance fees for parties and retaining the catering of the party would be a good beginning of income for the farm and has the potency of increasing the traffic at the farm by opening a whole new mark market for Holly Farms i.e. party locale.

Gillian should put some clip and attempt into set abouting market research into how many schools would be willing to hold parties or field trips on the farm ( before offering party bundles ) , besides information on the client tolerance for line uping ( to watch the milking procedure ) would be good to Gillian in analysing how to increase the figure of clients on the farm because if the clients are non able to watch the milking procedure and position this as a trade ledgeman, they might seek out other beginnings of diversion and by increasing clients in the short tally, Gillian might lose clients in the long tally. Information on the existent figure of auto visitants vs. those coming through manager trips should be sought before Gillian decides on a class of action.

Answer 3: Before set abouting a determination to increase the figure of ice-cream spirits from 4 to 10 Gillian should burden the advantages and the disadvantages of this venture. The first factor which Gillian needs to see is whether a market exists for 10 spirits of ice-cream or non, and whether it is executable for the farm to be bring forthing 10 spirits. The fact that capital investing is non possible for Holly Farms means that the extra production would be through an addition in the labour force but the overall measure of the ice-cream produced would still be limited to an stock list degree of 7000 litres ( which can be held by the deep-freeze ) . This would intend that the new spirits would be introduced at the disbursal of the old spirits. This can be an advantage if the clients of Holly Farm are seeking one or two spirits other than those being offered ( market research would be required to corroborate this ) and that the measure demanded would let for greater turnover through either farm or retail gross revenues. Alternatively this venture could take to unsated clients in instances where the farm could see stock outs of certain spirits due to the fact that many spirits would be under production.

A move to straight offering 10 spirits would besides make logistical jobs as the machines available for production and storing are limited. The fact that more staff would hold to be hired would besides increase the cost of production of all ice-creams and that would impact the net incomes of the ice-cream venture and Gillian would be forced to do another cardinal determination on whether to go through on the increased cost to the clients in the signifier of higher monetary values, and hazard losing some concern, or diminish the net income borders of the same. Since an addition in volume is merely possible if the stock list turnover is greatly enhanced by the debut of new spirits ( which is non certain ) the net incomes for the farm would be on a downward tendency if all other factors remain changeless and spirits are added to the merchandise offerings. Since there is no research to propose that there would be a greater consumption of ice-cream ( at retail or farm degree ) with more spirits, a leap to 10 spirits would be rash and make more jobs for Gillian in footings of resource direction, calculating the demand for single merchandises and overlooking the fabrication of the same, instead than the advantages Gillian seeks.

Undertaking some grade of market research and researching one or two extra spirits ( based on research findings ) whilst keeping the same degree of staff could be more good for Holly Farms and they could spread out their spirit offerings over the long tally when they have the capacity to increase production or keep higher degrees of stock list.


The instance under reappraisal explores the capacity and resource restraints being faced by a little concern which was able to pull clients and diversify into other signifiers of complementary concerns i.e. Tourss and ice-cream retailing. What we find in this instance is that Gillian, the spouse in charge of the complementary concerns is confronting two critical determinations ( a ) how to increase the figure of clients sing the farm and ( B ) how to increase the retail gross revenues of the ice-cream. Since capital investing is non a feasible option for the concern the agencies of increasing client traffic are limited to promotional activities and pulling the right clients for both Tourss and ice-cream gross revenues. We find that such determinations are non possible with the informations available to Gillian at the present clip and that the option to increase the figure of ice-cream spirits to ten ( from four ) is besides non feasible given the fabrication and storage restraints. Gillian should therefore seek extra informations on the mark audience for promotional activities and if she plans to increase the figure of ice-cream spirits she should get down on a smaller graduated table after carry oning proper market demand research.