3.4 Operational Management Flashcards
What are operational objectives?
Operational objectives are
S - specific
M - measurable
A - achievable
R - relevant
T - time based
What is the value of setting operational objectives?
Gives clear direction as to how to improve the business.
What are cost objectives?
Can be focused on reducing or maintaining costs, for example fixed and variable costs.
How do you measure a cost objective?
- productivity and efficiency.
- unit costs per item
What was shrinkflation?
The practice of reducing the size or quantity of a product while the price of the product remains the same or slightly increases. (Cost saving method.)
What are quality objectives?
Achieving or exceeding the required level of quality is also essential for a successful business
How to measure quality objective
- reliability of a product - how often does something go wrong
- customer satisfaction
- number of customer complaints
What are flexibility and efficiency targets?
Look at how effectively the assets of the business are being utilised and how responsive the business can be to short term or unexpected changes in demand.
What are environmental targets?
Objectives business sets itself to improve sustainability and environmental performance.
What are examples of environmental targets
- use of energy
- proportion of production materials that are recycled.
What is added value
An economic enhancement a company gives its products or services before offering them to customers.
Example of added value?
Offering a year of free tech support on a new computer.
What is a speed of response objective?
For an e-commerce business they may want to improve customer service and speed of response would be a good objective to set in order to accomplish this.
Example of speed of response objective
Reduce the average amount it takes from receiving an order for it to be dispatched to the customer.
What is capacity?
The maximum output that a business can produce in a given time with the available resources.
In what form is capacity utilisation in?
Percentage
What do you do if a question does not mention what a company’s current capacity is?
Assume it is 100%
What is the importance of capacity?
The ability to produce significant amounts of products is key to long term business success. If the business produces fewer products than the maximum capacity, the company’s revenue may suffer and in the long term profitability may become lower than it could have been otherwise.
How to utilise capacity efficiently?
- Entering new markets
-expanding the range of products - using promotions to increase demand
How to increase efficiency and Labour productivity?
-invest in employee training.
- invest in capital equipment (machinery)
- streamline production processes (lean production)
difficulties increasing efficiency and labour productivity.
- Employees may want higher pay if productivity increases
- higher cost in training
- New technologies may result in redundancies in human labour
What is lean production?
An approach to management that focuses on cutting out waste whilst ensuring quality
What is just in time management?
An inventory management method in which goods are received from suppliers only as they are needed.
Advantages & disadvantages of JIT management?
+ inventory turnover is high
+improves efficiency and productivity as it streamlines the production process (reduces time wasted)
- relies on the suppliers too much. If suppliers are late, production slows down.
-cannot meet sudden spikes in demand.
What is just in case production?
Just-in-case (JIC) is a stock control method that involves producing or purchasing stock with excess, or buffer stock in place. This means that there is always stock available for the business if required.
Advantages and disadvantages of JIC
+ reduce chance of running out of stock, can meet spikes in demand
+ benefit from economies of scale
-buffer stock space requires more storage space which is more costly.
- product kept in stock for a long period of time may lose their freshness
What is optimum resource mix?
The combination of capital and human resources which allows for the greatest efficiency
What are labour intensive processes?
- labour costs higher than capital costs.
-costs are mainly variable. - hotels, fruit farming, hairdressing.
What are capital intensive processes?
- capital costs higher than labour costs.
- costs are mainly fixed.
- significant investment often required, but with long term benefits.
- car manufacturing, oil extraction or refining.
What is operational effiency?
An organisations ability to reduce waste of time, effort and material while still producing a high quality service or product. It’s a measure that balances the input like costs against the output for example revenue.
How do robots improve operational efficiency? And what are their disadvantages?
- speed, accuracy, efficiency
- reliable quality + less waste
- demotivating for displaced staff.
- up front investment
What is quality assurance?
A way of organising every process to get the product ‘right first time’ and prevent mistakes
What is quality control?
The process of inspecting products to ensure that they meet the required quality standards
What’s the difference between quality control and quality management?
Quality assurance is how a process is performed or how a product is made, quality control is more the inspection aspect of quality management
What is total quality management?
A management approach where there standardised processes in the business where all employees are fully trained in how to do their role effectively and consistently to reduce the chance of defects and waste. The aims are zero defect and customer satisfaction.
What are the benefits and difficulties of improving quality?
- increasing sales volume
- gaining competitive advantage
- resistance to change within staff can be difficult to overcome
- training staff is expensive.
Consequences of poor quality?
- Customer loss
- reduced market share
- operational inefficiency
What is operational inefficiency?
When a business uses more resources than are necessary to maintain or improve its output
What are the ways of matching supply to demand?
- outsourcing
- use of temporary and part time employees
- producing to order
What are the ways of matching supply to demand?
- outsourcing
- use of temporary and part time employees
- producing to order
What is outsourcing?
The practice of hiring a party outside a company to perform services to create goods that were traditionally performed in house by the company’s own employees and staff.
What are examples of contracts that can be used for employees?
- zero hour: zero hour contracts specify that employees work only when required by their employer.
- part time contract- a part time worker works fewer contracted hours than a full time employee - less than 35 hours
- full time contract - a contract where it is expected to work 35 hours or more.
What is produce to order?
An approach to production where the production of an item begins only after a confirmed customer order is received.
Advantages and disadvantages of outsourcing?
+ higher efficiency
+ greater competitive advantage
- loss of control over business
Advantages and disadvantages of a zero hour contract?
+ can get employees to work at any time. The hours isn’t fixed, less costly for the business.
- an employee can say no to work on a zero hour contract, their work is not compulsory.
Advantages and disadvantages of producing to order?
+ reduces wastage
+ more efficiency as products are made according to specifications of the customer.
- uncertainty of demand raises can make keeping a sufficient supply of raw materials harder.
What is the objective of inventory control?
Maintain inventory levels so that the total costs of holding stocks minimise. A popular method of implementing stock control is through the use of inventory control charts.
What are the key parts of the stock control chart?
- Maximum level
- reorder level
- lead time
- minimum stock level
- buffer stock
What is maximum level? (Stock control chart)
Max level of stock a business wants to hold in
What is the reorder level (stock control chart)
Acts as a trigger point, so that when stock falls to this level, the next supplier order should be placed.
What is lead time (stock control chart)
Amount of time between placing the order and receiving stock
What is minimum stock level? (Stock control chart)
Minimum amount of product the business would want to hold in stock
What is buffer stock? (Stock control chart)
Amount of stock held in case of unexpected orders (sudden rise in demand)
Factors that affect when/how much stock to reorder
- lead time from supplier - how long it takes for the supplier to deliver the order
- implications of running out
- demand for the product.
What are the factors that influence the choice on suppliers?
- reliability
- value for money
What is supply chain efficiency?
Businesses ability to use resources in order to minimise logistics costs and maximise profits.
What is a supply chain?
A network between a company and its suppliers to produce and distribute a specific product to the final buyer.
What’s the difference between supply chain efficiency and supply chain effectiveness?
Supply chain effectiveness focuses on meeting the demand groups outside of the organisation
Supply chain effeciency refers to meeting those demands as quickly and cost effectively.
What is the value of an efficient supply chain?
Reduce costs associated with inventory, transportation and storage.
What is capacity utilisation?
The measure to the extent to the productive capacity is in use by the business.
Why do most business operate below capacity? <100%
Lower than expected market demand due to a change in customer changes.
Problems with working at low capacity utilisation?
- higher unit costs - impact on competitiveness
- less likely to reach breakeven output
Problems with working at high capacity?
- negative effect on quality (possibly) as production is rushed, less time for quality control
- loss of sales as they would be less able to meet sudden increases in demand.
