21. Operations planning Flashcards
Define operations planning
Preparing input resources to supply products to meet expected demand
Aims of operations planning
- Match output closely to the demand levels
- Keep stock levels to a minimum efficient level
- Reduce wastage of production
- Employ and keep busy a stable, appropriate number of staff
- Produce the right product mix. i.e. the range of products that are forecast to be demanded
Define CAD
Computer-aided design. Using computers and IT when designing products
Define CAM
Computer-aided manufacturing. The use of computers and computer-controlled machinery to speed up the production process and make it more flexible
Influences of CAD and CAM on operations decisions
Reduce unit costs (increase efficiency) and improve flexibility of operations
Define operational flexibility
The ability of a business to vary both the level of production and the range of products following changes in customer demand
Ways operational flexibility can be achieved
- Increase capacity by extending buildings and buying more equipment - this is an expensive option
- Hold high stocks - but these can be damaged and there is an opportunity cost to the capital tied up
- Have a flexible and adaptable labour force - using temporary, part time contracts reduce fixed salary costs but may reduce worker motivation
- Have a flexible flow-line production equipment
Define process innovation
The use of a new or much improved production method or service delivery method
Examples of process innovation
- Robots in manufacturing
- Computer tracking of stocks
- Using internet to track the exact location of parcels being delivered worldwide
Define job production
Producing a one-off item specially designed for the customer
Define batch production
Producing a limited number of identical products - each item in the batch passes through one stage of production before passing onto the next stage
Define flow production
Producing items in a continually moving process
Define mass customisation
The use of flexible computer-aided production systems to produce items to meet individual customers’ requirements at mass production cost levels
Main features of job production
- Single one-off items
- Highly skilled workforce
Main features of batch production
- Group of identical products pass through each stage together
- Labour and machines must be flexible to switch to making batches of other designs
Main features of flow production
- Mass production of standardised products
- Specialised, often expensive, capital equipment but very efficient
- High steady demand for standardised products
Main features of mass customisation
- Flow production of products with many standardised components but customised differences too
- Flexible and multi-skilled workers
- Flexible equipment - often computer controlled to allow for variations in the product
Advantages of job production
- Able to undertake specialist projects or jobs often with high value added
- High levels of worker motivation
Disadvantages of job production
- High unit production cost
- Time consuming
- Wide range of tools and equipment needed
Advantages of batch production
- Some economies of scale
- Faster production with lower unit costs than job production
- Some flexibility in design of product in each batch
Disadvantages of batch production
- High levels of stocks at each production stage
- Unit costs likely to be higher than flow production
Advantages of flow production
Low unit costs due to constant working of machines, high labour productivity and economies of scale
Disadvantages of flow production
- Inflexible - often very difficult and time consuming to switch from one type of product to another
- Expensive to set up and maintain the machinery
Advantages of mass customisation
Combines low unit costs with flexibility to meet customers’ individual requirements
Disadvantages of mass customisation
- Expensive product redesign may be needed to allow key component to be switched to allow variety
- Expensive flexible capital equipment needed
How to choose production methods?
- Size of the market (market small => job production)
- Amount of capital available
- Availability of other resources (skilled workforce or large flat land area)
- Market demand exists for products adapted to specific customer requirements - if firms wan the cost advantages of high volumes combined with the ability to make slightly different products for diff markets => mass customisation
Problems of changing production methods
Job to batch
- Cost of equipment needed to handle large numbers in each batch
- Additional working capital needed to finance stocks and work in progress
- Staff demotivation - less emphasis on an individual’s craft skills
Job or batch to flow
- Cost of capital equipment
- Staff training to be flexible and multi-skilled - if not adopted => repetitive tasks => demotivating
Factors influencing location decisions
- Quantitative factors: these are measurable in financial terms and will have a direct impact on either the costs of a site or the revenues from it and its profitability
- Qualitative factors: these are non-measurable factors that may influence business decisions
Quantitative factors
- Site and other capital costs such as building or shop-fitting costs
- Labour costs
- Transport costs
- Sales revenue potential
- Government grants
Qualitative factors
- Room for further expansion
- Ethical considerations
- Environmental concerns
- Infrastructure
- Safety
Define offshoring
The relocation of a business process done in one country to the same or another company in another country
Reasons for international location decisions
- To reduce costs - labour wage rates, costs of raw materials
- To access global markets - rapid economic growth in LEDCs
- To avoid trade barriers - taxes or other limitations (quota) on the free international movement of goods and services
Issues with international location
- Language and communication barriers
- Cultural differences
- Level of service concerns
- Supply chain concerns
- Ethical considerations
Define scale of operation
The maximum output that can be achieved using the available inputs - this scale can only be increased by employing more of all inputs
Factors that influence scale of operation
- Owner’s objectives
- Capital available
- Size of the market it operates in
- Scope for scale economies
- Number of competitors
Define economies of scale
Reductions in a firm’s unit average costs of production that result from an increase in the scale of operations
Purchasing economies of scale
Buying in bulk - more discount because it is cheaper for them to process and deliver one large order rather than several smaller ones
Technical economies of scale
- If machines are worked at a high capacity level, they offer low unit costs than other production methods
- Expensive expenses on machinery can only be justified when output is high so that the fixed cost can be spread thinly
Financial economies of sclae
- Banks and other lending institutions are more likely to lend big businesses with proven track record and a diversified range of product. Interests charged are usually lower
- Average cost of raising finance is lower than limited companies due to advisers’ fees, prospectus publishing costs and advertising
Marketing economies of scale
Outsourcing - employ an advertising agency and the cost can be spread over a high level of sales for a big firm
Managerial economies of scale
Can employ specialist functional mangers
Define diseconomies of scale
Factors that cause average costs of production to rise when the scale of operation is increased
Communication problems
- Distortion of message caused by long chain of command
- Overload with volumes of message being sent
=> poor decisions being made, poor feedback which reduces workers’ incentives
Alienation of the workforce
Difficult to directly involve every worker and to give them a sense of purpose and achievement => demotivated
Poor coordination
Growing number of departments, divisions and number of countries a firm operates in => problem to coordinate and control all of these operations
- Wasteful duplication of research into similar products by 2 branches
Links between economies/diseconomies of scale and unit
costs
- High average production costs and low scale of operation => economies of scale
- High average production costs and high scale of operation => diseconomies of scale
=> curved graph
