3.4 DECISION MAKING TO IMPROVE OPERATIONAL PERFORMANCE Flashcards
Define ‘excess capacity’
Where a firm is producing at a lower scale of output than it has been designed for.
Define ‘unit costs’
Average cost of producing one unit of the product
A measure of cost-effectiveness
Describe what lower unit costs would mean for a business
Means a business is in a stronger position to be able to compete by being able to offer lower prices, allowing higher profit margins and making the products more attractive.
Ways of measuring quality
- Scrap/defect rates
- Reliability
- Customer satisfaction
- Number of customer complaints
- Customer loyalty
- Quality assurance / control
What are efficiency and flexibility targets
How responsive the business can be in short term or unexpected changes in demand
Suggest environmental objectives
- Use of renewable energy
- Recycled materials
- Compliance with waste disposal regulations (Apple buying back old phones)
- Reduce waste and emissions
Define ‘labour productivity’
How much each employee produces
Overall measure of the productivity of the workforce
Why is labour productivity important?
Higher LP = Lower UC/LC
Labour costs are a significant cost of a business
To remain competitive, a business must keep unit costs down, by keeping labour productivity high
Equation for labour productivity
Output per period (units) / No. employees at work
Equation for labour cost per unit
Labour costs (£) / Output (units)
Factors influencing labour productivity (Internal)
- Extent / quality of fixed assets
- Motivation of workforce (Supervision - Mayo?)
- Methods of production (machinery)
- Training and skills of workforce
- Employee’s workload
Factors influencing labour productivity (External)
- Reliability of suppliers
Suggest ways to improve labour productivity
- MOTIVATE EMPLOYEES
- Measure performance
- Set targets
- Invest in employee training
- Robotics / new technology
- Improve working conditions
- Improving flexibility
Problems when increasing labour productivity
- Employee resistance, don’t want to be replaced by automation
- Employees may demand higher pay
- ‘Trade-off’ with quality, RUSHING
- Initial costs of improving the labour productivity
- May conflict with other objectives
Define ‘quality’
Ability of a product to meet customer expectations
BARE IN MIND: different customers will have different perceptions of quality
Suggest some aspects of ‘quality’
Performance, appearance, availability, reliability, durability, value
CUSTOMER SUPPORT
Note: quality not always about the product
Define ‘sub-standard’
Doesn’t meet the customer needs
Define ‘intangible’
Not able to be touched / hard to measure
Define ‘tangible’
Physical / easy to measure
What service may a business use to build their reputation on quality? (Context)
TripAdvisor
Suggest the circulation of customer satisfaction
- Customer satisfaction
- Repeat purchase
- Lower marketing costs
- Higher customer loyalty
BACK UP
Suggest the link between quality and competition
At a similar price, higher quality product more likely to win - over competition
Give an example of a business that values high price and high quality (context)
Waitrose
Give an example of a business that values low price and low quality (context)
ALDI
Costs of offering poor quality
- Competitive disadvantage (bad reputation)
- Costs of remaking
- Costs of refunds
- Wasted materials
- Lost customers / loyalty
- Need for greater controls and checks
Examples of poor quality
- Product fails
- Product doesn’t perform as promised
- Product delivered late
- Poor instructions
- Unresponsive customer service
Contextual example of the consequence of poor quality
Dell recalls 4m laptops due to faulty battery
COST $400M
Define ‘quality control’
- Checking and reviewing the output, just before its delivered
- Takes defects out
Disadvantages of quality control
HIGH WASTE LEVELS
- Can be costly
- At end could be too late
- Takes responsibility away from operatives
- Done by inspectors, not workers
- Requires sampling
Advantages of quality control
- Minimize disruption of production (quick as not start-stop)
- Consistency to quality
- Common problems can be identified
- Efficient: robotic system
Define ‘quality assurance’
CHECKS PRODUCT AT EACH STAGE
- Based on process
- Builds in quality
- PROCESS
Define ‘TQM’
- Continual process of detecting and reducing or eliminating errors in manufacturing
- CONTINUOUS IMPROVEMENTS
- Whole workforce involved
- Aims to make managing quality the responsibility of all employees in a business to create a ‘culture of quality’ and gain a competitive advantage.
Advantages of ‘TQM’
- Less wasteful
- Eliminates cost of inspection
- Motivational, workers feel more involved in decisions
Disadvantages of ‘TQM’
- Strong leadership needed
- Substantial investment in training + support = disruption
Define ‘Kaizen’
Type of quality assurance
Continuous improvement
Gradually improving productivity by involving all employees
Advantages of ‘Kaizen’
- Encourages employees to engage fully with finding ways to improve quality
- Employees take ownership (all employees looking for small improvements)
- Eliminates faults and waste
- Teamwork
Define ‘capacity utilisation’
% of a business’ total possible production level that is being reached
Define ‘capacity’
- Measure of how much output can potentially be achieved in a given period
- MAXIMUM LEVEL OF OUTPUT
- DYNAMIC
Equation for ‘capacity utilisation’
Actual output (units) / Maximum output (units)
(x100)
Define ‘dynamic’
Changes / is a variable
Why is ‘capacity utilisation’ important?
- Higher utilisation can reduce unit costs
Why do most businesses operate below capacity?
- Lower than expected market demand
- A loss of market share
- Seasonal variations in demand
Dangers of operative at low capacity
- Higher unit costs, impacts on competitiveness
- Less likely to get breakeven output
- Capacity tied up in under-utilized assets - wasted
Problems with working at high capacity
- Negative effect on quality - rushed
- Employees suffer, more workload and stress
How can production efficiency be measured?
- Output per worker
- Output per time period
- Output per machine
- Unit costs (falling ratio would mean efficiency was improving)
How would unit costs show a fall in production efficiency?
Falling ratio would mean efficiency was improving
Why is high productivity important?
- Lower costs goods than competitors, high profit per unit sold
- Investing in production assets is expensive, needs to maximize the return it makes on these assets
How can productivity be improved?
- Training
- Improved motivation
- More/better capital equipment
- Better quality raw materials to begin with
- Improved organization of production = less waste
Define ‘lean production’
WASTE = COSTLY
- Approach to management that focuses on cutting out waste whilst ensuring quality
Advantages of ‘lean production’
- Involves employees in the improvement process, improves motivation and productivity
- Improves efficiency
- Reduces waste = reducing costs
Disadvantages of ‘lean production’
- Little room for error
- Can lead to delivery inconsistencies as it takes longer
Examples of waste
- Over production
- Waiting time - whilst idle
- Stock (out of date)
- Defects, not up to standard
Main methods of ‘lean production’
- Time based management
- Simultaneous engineering
- Just in time
- Cell production
- Kaizen
- Critical path analysis
Explain effective lean production
- Good relations with suppliers
- Committed, skilled motivated employees
- Involving employees
- Culture of quality assurance
- Trust
- Doing the simple things well
Define ‘time-based management’
Recognizes importance of time
Seeks to reduce levels of wasted time in production
What is required for ‘time-based managements’
- Flexible production methods
- Trained employees
Define ‘simultaneous engineering’
- Part of the time-based management approach.
- Helps firms develop and launch new products more quickly.
- All parts of the project are planned together, everything considered simultaneously
Define ‘cell production’
- Form of team working
- Flow production line split into a number of self-contained units.
- Allows job enrichment
Define ‘flow production’
- Continuous production
- Continuous movement of items through the production process
Benefits of ‘cell production’
- Improve communication
- Multi-skilled workers developed
- Motivation for employees
Define ‘just-in-time’ production
- Inputs only arrive when/as they are needed
- ‘Pull system’ of production
Advantages of ‘just-in-time’
- Lower stock holding, saves warehouse space
- Less working capital tied up in stock
- Stock won’t go out of date, supplier’s responsibility until needed
- Less time spent checking
Disadvantages of ‘just-in-time’
- Close corporation with suppliers needs to be built overtime
- Little room for mistake
- RELIANT on suppliers
- A need for complex stock systems, costly
- No spare finished product available to meet unexpected orders, all product is made to meet actual orders
Define a ‘push system’
Produce goods based on the best projections of what the market wants
Define a ‘pull system’
Production of goods is initiated by the person or organization who consumes that good.
Define a ‘working capital’
Difference between:
Company’s current assets
and
Current liabilities
Suggest types of technology used in operations
- Robots / automation
- Stock control systems
- Communications - mobile technology
How does technology help a business operate?
- Reduces chance of human error
- Makes decision making more efficient
- Security of data
- Market research
- Market mapping
etc etc etc