3.4 Operational management

Question 1

What is the value of setting operational objectives?

Answer 1

Its helps to bring focus and direction to business, whilst also helping to measure performance based on ability to meet these objectives.

Question 2

What are operational objectives (examples)?

Answer 2

• Costs (aiming to cut costs such as fixed or variable)
  -Quality (maintaining or improving levels of quality, higher customer satisfaction)
  -Speed of response (speed at which business can operate, decreasing production time, waiting time for customers or getting new products into new market)
  -Flexibility (business needs to be able to react quickly to consumer wants and needs, demand doesn’t exceed volume)
  -Environmental (cutting carbon emissions, not creating massive amounts of waste, recycled raw materials)
  -Added value (increasing the difference between cost of raw materials and price customer pays, usually increasing profits)

Question 3

What is capacity utilisation and how to calculate?

Answer 3

A measure of the extent to which productive capacity of a business is being used.
Capacity utilisation (%)= output/ maximum capacity x100

Question 4

What is labour productivity and how to calculate?

Answer 4

Is a measure of how much output is produced per unit of labour input.
Labour productivity= output per period/number of employees

Question 5

What is unit costs and how to calculate?

Answer 5

The average production cost per unit.
Unit cost= total costs/units output

Question 6

What is the importance of capacity utilisation and how to use it efficiently?

Answer 6

High capacity utilisation will reduce unit costs, as fc will be spread over higher sales levels and output.
However, 100% capacity has its drawbacks as may be hard to keep high quality levels and may turn away potential customers as they cannot increase output anymore and can no longer react to changes in demand and if output is greater then demand there is surplus stock.
80% is an efficient capacity as they can react to these things.

Question 7

Importance of efficiency and labour productivity?

Answer 7

Being efficient reduces waste from inputs and should decrease unit costs whilst also increasing profits.
Higher labour productivity means the better the workforce is performing which increases efficiency as same number of workers are producing more output in same amount of time, making unit costs lower.

Question 8

Ways to increase labour productivity and difficulties of increasing it?

Answer 8

Can improve by:
-Improving worker motivation
-Training can make workers more productive
-New tech can increase speed at which workers do their job
Difficulties of improving:
-Quality may suffer and more waste produced
-New tech can very very expensive
-Labour costs are small percentage of production costs may not be worth investing labour productivity.
-If bus is not planning on increasing capacity training workers may lead to redundancies or lower morale.

Question 9

What is lean production?

Answer 9

Efficient form of production that keeps waste (time and resources) to a minimum, can help business save money and helps business meet operational objectives (costs, added value and environment).

Question 10

What is just-in-time production?

Answer 10

JIT is when business has little stock as possible and then order raw materials just in time for production and then is sent of to customers,this is often to reduce waste and maintain efficient stock control.

Question 11

Benefits and drawbacks of JIT (just-in-time production)

Answer 11

Benefits
-storage costs are reduced
-cash flow is improved as money isn’t tied up in stock
-less waste no stock lying around (damaged or out of date)
-more flexible business can react to changes in demand and can adapt products to suit consumer wants and needs
Drawbacks
-consumers can’t be supplied during production strikes
-suppliers have to be reliable as there isn’t much stick to keep production going
-problems with suppliers/supply of raw materials production cannot take place

Question 12

What is just-in-case production (JIC)?

Answer 12

Business keeps buffer stock (extra) at each stage of production just in case of supply shortages or customer demand increases unexpectedly, there will be enough stock to keep production going and satisfy demand.

Question 13

Benefits and drawbacks of JIC (just-in-case production)?

Answer 13

Benefits
- economies of scale on bulk buying stock (discount)
-reduced chance of running out of stock
Drawbacks
- cashflow may suffer due to money tied up in stock
- storage costs for accommodating buffer stock levels
- may result in trying to get rid of stock by selling at discounted price
- stock may be outdated

Question 14

What is labour intensive process? Benefits and drawbacks of this?

Answer 14

A process or industry that requires large amounts of labour to produce goods or service.
Benefits
- People are flexible and can be retrained
- Cheaper for small scale production
- Cheaper where lower labour costs available (Vietnam)
- Can offer ideas and solve problems that arise during production
Drawbacks
- Harder to manage people rather than machines
- People can be unreliable
- Need breaks and holidays
- Wages increases (cost of labour increases over time)
-Labour costs as percentage of turnover are high

Question 15

What is capital intensive process? Benefits and drawbacks of this?

Answer 15

When products are mainly produced by machinery and robots. Rise in the cost of labour may shift bus to switch to capital intensive.
Benefits
- Cheaper than manual labour in the long term
- Machinery often more precise than human work, consistent quality levels
- Machinery works 24/7
- Easier to manage than people
Drawbacks
- High set up costs
- Machines only suited for one tasks, making them inflexible
- If machinery breaks down, leads to longer delays
- Workers motivation will decrease due to fear of being replaced by a machine.

Question 16

How to choose optimal mix of resources?

Answer 16

Business should choose to use resources to best fit their objectives and production, depending on complexity of the product and number of production stages. Needing a right balance between capital and labour processes at each stage, bus may have trouble if there is shortage on suitably skilled labour or finances to update or invest in machinery (smaller firms)

Question 17

How to use technology in order to improving operation efficiency?

Answer 17

For example robotic engineering or computer technology (computer aided design, computer aided manufacturing, 3D printing, internet/e-commerce and emails)
Can improve
- Increased productivity and quality
- Reduce waste (through effective production methods)
- More efficient marketing and delivery to consumers
- Reduced admin and financial costs
However, initial costs of tech can be high, tech requires maintenance, constant updating to stay current which is also expensive, new IT systems may require increased staff training and may new tech may lead to staff redundancies as it replaces manual work.

Question 18

What is Quality control (QC)?

Answer 18

Means checking goods as you make them or when they arrive from suppliers to see if there’s anything wrong with them, done by specially trained quality inspectors (check finished products)
- Assumes errors may be unavoidable, detects errors and makes them right and check other people’s work and are responsible for quality.

Question 19

What is Quality assurance (QA)?

Answer 19

Means introducing measures into production process to try and ensure things don’t go wrong in the first place, assumes you can prevent errors from being made (avoidable) in the first place, rather than eliminating faulty goods after they’ve been made.
- Employees check their own work, making them responsible for passing on good quality work to next stage of production. This may increase motivation for employees as they are responsible.

Question 20

What are the benefits and difficulties of improving quality?

Answer 20

Benefits
- Greater customer satisfaction, attract new customers
- Brand loyalty and brand reputation/association
- Charge premium pricing
- May increase employee morale/motivation
- USP
- Increase sales volume
Difficulties
- May be expensive to improve quality
- Train staff to produce higher quality item (retrain time consuming)
- Harder to understand what needs improving
- Employ more staff for QC, increased labour costs

Question 21

What are the consequences of poor quality?

Answer 21

• Customer dissatisfaction
• Increased complaints, etc
• Negative brand image, association and reputation
• Wasted materials
• Have to sell poorly made items at discounted price
• May ruin brand loyalty
• Refunds

Question 22

What are ways of matching supply to demand?

Answer 22

• Outsourcing (when bus contract out certain activities to other businesses rather then doing them in house such as advertising)
  Benefit of outsourcing is they receive help from people with specialist knowledge and doesn’t have to pay for permanent staff or equipment as it is occasional so reduces costs, drawback is business doesn’t not have control over quality.
• Temporary and part time employees (hiring people to help bus deal with unforeseen or foreseen changes in demand e.g christmas temp workers) Aren’t essential to business but employed when more staff are needed but need fixed costs down.
• Producing to order (production of item begins after an order is received from a customer, helps bus avoid holding large quantities of finished goods which helps to save costs due to storage) bus may customise product based on order too e.g wedding dresses thus increased customer satisfaction as its consumer wants and needs.
  However, a drawback is if demand for product rises unexpectedly business may not have production capacity to keep up, customised products also can be expensive and take a long time for the, to be delivered to customers.

Question 23

What is included in inventory control charts?

Answer 23

Business needs minimum level of stock so it won’t run out of raw materials or finished goods, this is buffer stock.
Buffer stock depends on storage space available and rate its used up and lead time.
Lead time is time it takes for goods to arrive after ordering from supplier. Longer lead time more buffer stock needed to be held (incase of demand).
Re-order quantity amount company orders from its supplier, the stock level which reorder is placed is called re-order level.

Question 24

How to calculate Re-order level?

Answer 24

Re-order level= lead time (in days) x average daily usage + buffer stock level

Question 25

What is a supply chain and how to manage it effectively?

Answer 25

A supply chain consists of group of firms involved in various processes required to make product/service available to customer. The members of supply chain vary depending on type of product typically includes supplier, manufacturers, distributors and retailers.
Business can improve supply chain by:
- only buying supplies that company really needs
- strategic supplier (provides goods essential to bus- high value raw materials) and non strategic supplier (low value supplies) take time selecting SS rather than NSS
- limit amount of sources they buy from (cost effective) but only having one supplier may be dangerous is problem arises.
- have alternate supply source ready to help in difficult times.

Question 26

What is the importance of managing supply chains?

Answer 26

Very well managed supply chain can lead to lower costs and efficient production thus operation performance will improve, profits will also increase by this.
Business with efficient supply chain will be in much better position to meet customers expectations.

Question 27

What are the influences of choosing suppliers?

Answer 27

Price firms have to decide how much they are willing to pay. Cheaper the supplier is, more added value to final product despite this cheapest supplier isn’t always the best often supply lower quality product.
Payment terms companies need to know how much they need to pay and when it is paid by. New companies will often pay for goods upfront whereas companies with well established relationship with supplier will be given credit, delaying the payment time.
Quality quality of suppliers needs to be consistent, as customers associate poor quality with business they buy from not suppliers
Capacity business must select suppliers who are able to meet any peaks in demand for particular product, big businesses opt to buy in bulk for discount.
Reliability if supplier tends to let firm down, firm may not be able to supply customers, suppliers need to deliver high quality products in time or warning if they cannot
Flexibility supplier needs to be able to respond easily to changes in company requirements, efficient production relies on suppliers who can provide extra supplies in short notice. Flexible suppliers will also be able to meet company’s other requirements (environmental).