3.4 - Operational Decisions Flashcards
What is operations management and 2 examples of key operational objectives? Why is is valuable for a business to set clear operational objectives?
Refers to administration of business practices to create highest levels of efficiency possible (concerned with efficiency and maximising profit)
Unit cost is key (output increases, costs fallen )
Eg/ added value (can you sell it for more than it costs to make) and flexibility (can production speed up, slow down)
+ help company achieve overall corporate objectives
+ decisions become focused in meeting these targets-performance can be reviewed and assessed
What are 2 internal and 2 external influences on operational objectives? In which 2 ways can operations objectives affect the method of production?
INTERNAL
- availability of resources (output targets may be limited by labour)
- overall company objectives (impact of methods on environment if a focus)
EXTERNAL
- competitors performance (set in response to rivals actions)
- demand for the product
Flow - continuously made
Lean - efficiency-get rid of waste
Why are improvements in efficiency snd productivity key in operations objectives? What do they mean?
Productivity - output per worker per time period-direct impact on costs of production
Output/labour
Efficiency - producing as quickly as possible with least possible waste, lowest possible energy, lowest possible pollution
How can a business increase labour productivity? What could be 3 problems of doing this?
Increase investment in modern equipment/technology
Improve skills of employees (motivational)
Improve employee motivation (incentives)
- getting workers to produce more through incentives for increased output could mean quality suffers
- being more productive may mean lower morale and redundancies (need less to work)
- new technology very expensive
What is the trend in UK labour productivity compared to other major economies? What are the reasons as to why the UKs is lower than other developed economies?
Uk productivity gap with G7 (group of 7-biggest economies) not as great as previously thought due to different ways countries measure hours worked
REASONS
- low rate of new capital investment (UK firms don’t operate at cutting edge of new technologies)
- banking crisis affecting lending to businesses wanting to expand
- persistent and deep skills shortages in key industries (have lots of service sector work requiring low skill whereas other countries may request high qualifications and training resulting in more output per person)
How could we improve the operational PERFORMANCE of a business?
Lean production
- philosophy aiming to produce more using less by eliminating all forms of waste whilst ensuring quality (makes business more efficient and responsive to market needs)
Capacity is important in operational decisions to improve performance (increasing efficiency and productivity)
What is capacity utilisation and what does the maximum level depend on? How is it calculated?
Percentage of total capacity thats actually being a used in a given period
- measure of productive efficiency (average production costs tend to fall as output rises, so higher utilisation can reduce unit costs making business competitive)
Maximum level of capacity depend on quantity of:
- buildings, machinery and labour
(actual level of output / maximum possible output) x 100
What is the ideal level of capacity utilisation? Give an advantage and 3 disadvantages
As close to 100% but 90% might be better (employees get break and machines checked so don’t all break at once)
+ would spread costs as thinly as possible boosting profit margins
- higher pressure and demand on worker and machines (working all time-can’t develop training-machines could breakdown as not serviced)
- doesn’t allow business to stop and think how can improve efficiency
- if demand rises further customers have to be turned away (rivals benefit)
How could a firm with high capacity utilisation increase their capacity? How could you get towards full capacity utilisation (3 points) or deal with under utilisation (2 points) ?
Buy more machines or subcontract (depends on whether it’s for long or short term)
1 increase demand
- extra promotional spending
- price cutting
- reposition/launch new products
2 cut capacity
- make some staff redundant
- move to smaller utilisation
What is rationalisation?
Reorganising a business to increase efficiency
-often implies cutting capacity to increase percentage of utilisation
What are the 3 main targets operations managers face when choosing the optimum mix of resources?
1 Quality (people or machines better? )
2 capacity utilisation targets
3 unit cost targets (linked to productivity)
Ideally mix should mean a compromise between cost efficiency and ability to respond flexibly to changing customer requirements
What are 5 key technology applications that can boost efficiency?
Automated stock control
CAD (computer aided design)
3D printing
Robotics
Communicating with suppliers/EDI
What is quality? What are 4 key aspects for quality for the customer?
Providing what customers want, at right time, at right standard of product and service, therefore yielding high customer satisfaction
Key aspects: 1 good design (looks and style) 2 good functionality (does job well) 3 reliable (acceptable level of breakdown or failure 4 good after sales service
What is quality product and quality standards?
Quality product
-product or service that meets customers expectations, therefore fit for purpose
Quality standards
-expectations of customers expressed in terms of minimum acceptable production or service standards
? Why is maintaining and improving quality important (4)?
- don’t want to buy “poor” quality products (less repeat customer, shorter product life cycle)
- Producer may have to reduce price (unsafe unable to charge premium price)
- Customer may buy another producer
- Production may be disrupted it quality at early stage isn’t good enough to be used at later stage
