3.4 - Operational Managment Flashcards
What is operations managment?
The management of processes, activities and decisions relating to the way goods and services are produced and delivered
What is the transformation process?
what happens inside business
inputs -> transformation process -> outputs
What are cost and volume objectives?
A business needs to ensure that operations are cost effective
Traditional measure of cost effectiveness is “unit cost” (total costs / total units)
Businesses in the same industry face similar cost structures, but each varies in terms of productivity, efficiency and scale of production
The business with the lowest unit cost is in a strong position to be able to compete by being able to: Offer lowest price or Make the highest profit margin at the average industry price
What are speed and flexibility objectives?
Speed can look at how quickly it takes to produce a good or service or how quickly it takes to serve a customer
Look at how effectively the assets of the business are being utilised
Also measure how responsive the business can be to short-term or unexpected changes in demand
Firms need to be able change the amount they are producing to respond to changes in the demand they also need to be able to adapt their products meet customer needs more precisely
What is capacity?
The capacity of a business is a measure of how much output it can achieve in a given period
What is capacity Utilisation?
The capacity of a business is a measure of how much output it can achieve in a given period
What is the formula for capacity utilisation formula?
Actual level of output / maximum possible output x 100
What are the dangers of operating at low capacity utilisation?
- Higher unit costs - impact on competitiveness
- Less likely to reach breakeven output
- Capital tied up in under-utilised assets
What is labour productivity?
Labour productivity is concerned with the amount (volume) of output that is obtained from each employee
Labour costs are usually a significant part of total costs
Firms with labour productivity can produce goods at a lower cost per unit.
Business efficiency and profitability are closely linked to productive use of labour
To remain competitive, a business needs to keep its unit costs down
What is the formula for labour productivity?
output per period / number of employees at work x 100
What are the factors influencing labour productivity?
Skills, training and motivation of the workforce
Access and use of modern technology; robotics, computers
Quality of the management
Methods of production organisation
Extent to which the workforce is trained and supported (e.g. working environment)
External factors (e.g. reliability of suppliers)
What are some ways to improve labour productivity?
Measure performance and set targets
Streamline production processes
Invest in capital equipment (automation + computerisation)
Invest in manager and employee training
Improve working conditions
What are some potential problems with trying to increase labour productivity?
Potential “trade off” with quality - higher output must still be of the right quality.
Productivity is high, efficiency low
Potential for employee resistance - depending on the methods used (e.g. introduction of new technology
Employees may demand higher pay for their improved productivity (negates impact on labour costs per unit)
What is lean production?
An approach to management that focuses on cutting out waste, whilst ensuring quality. This approach can be applied to all aspects of a business - from design, through production to distribution
- Doing simple things well
- Doing things better
- Involving employees in the continuous
process of improvement
…and as a result, avoiding waste and therefore reducing costs
What does effective lean production require?
- Good relations with suppliers
- Committed, skilled and motivated employees
- A culture of quality assurance; continuous improvement & willingness to embrace change
- Trust between management and employees
What the methods of lean production?
- Time based management
- Simultaneous engineering
- Just in time production (JIT)
- Cell production
- Kaizen
What is cell production?
A form of team working where production processes were split into cells.
Each cell is responsible for a complete unit of work
What are the benefits of cell production?
Closeness of cell members should improve communication
Workers become multi-skilled and more adaptable to the needs of the business
Greater employee motivation, from variety of work, team working and responsibility
What are the drawbacks of cell production?
Business may have to invest in new materials handling and ordering systems suitable for cell production
Cell production may not allow a firm to use its machinery as intensively as in traditional flow production
Some small scale production lines may not yield enough savings to make a switch cell production worthwhile
What is JIT?
Just-in-time aims to ensure that inputs into the production process only arrive when they are needed
What are the advantages of JIT?
Lower stock holding means a reduction in storage space which saves rent and insurance costs
As stock is only obtained when it is needed, less working capital is tied up in stock
Less likelihood of stock perishing, becoming obsolete or out of date
Less time spent on checking and rechecking production as the emphasis is on getting the work right first time
What are the drawbacks of JIT?
There is little room for mistakes as minimal stock is kept for re-working faulty product
Production is highly reliant on suppliers and if stock is not delivered on time, the whole production schedule can be delayed
There is no spare finished product available to meet unexpected orders, because all product is made to meet actual orders
A need for complex, specialist stock systems
JIT v.s. JIC
Just in case used to be the system operated by firms for stock
Additional stock was kept just-in-case for example
- There was sudden increase in demand
- Some of the current stock was defective
- Stock deliveries didn’t turn up
- JIC raised costs due; for example, because of increased storage costs, for stock deteriorating / perishing or being stolen
What is Kaizen?
Kaizen (or ‘continuous improvement’) is an approach of constantly introducing small incremental changes in a business in order to improve quality and/or efficiency
This approach assumes that employees are the best people to identify room for improvement, since they see the processes in action all the time.
A firm that uses this approach therefore has to have a culture that encourages and rewards employees for their contribution to process
What is quality?
- Good design - looks and style
- Good functionality - It does the job well
- Reliable - acceptable level of breakdowns or failure
- Consistency
- Durable - lasts as long as it should
- Good after sales service
- Value for money
What are the benefits of good quality?
Improved image & reputation, which should result in Higher demand which may in turn mean Greater production volumes
Lower unit costs because of less waste and rejected output
Fewer customer complaints
Potentially higher selling prices
Fewer businesses are competing solely on price
At a similar price, the higher-quality product is likely to win
Quality can enable a business to differentiate its product from the competition
What is quality control?
The process of inspecting products to ensure that they meet the required quality standards
- Traditional way of managing quality
- Concerned with checking and reviewing output
- Mainly about “detecting” defective output - rather than preventing it
- Can be a very costly process
What are the pros and cons of quality control?
PROS
- Ensure bad products do not reach public
- Responsibility only rests with one trained
individual
- Less training costs
CONS
- Does not encourage others to take -
responsibility
- High levels of waste
What is quality assurance?
The process that ensure production quality meets the requirements of customers
What are the advantages of quality assurance?
No wastage, cost saving
Motivated staff, (training and responsibility Herzberg)
1. Higher productivity
2.Lower staff turnover
3.Improved quality
- No need for reworking
- Quality should increase
What are the drawbacks of quality assurance?
- Cost of training staff
- Not all staff may wish to take on responsibility
What is inventory?
raw materials, work-in-progress and finished goods held by a firm to enable production and meet customer demand
What are the different types of inventory?
Raw materials & components
- Bought from suppliers
- Used in production process
Work in Progress
- Semi or part-finished production
Finished goods
- Completed products ready for sale or distribution
What are the reasons to hold inventory?
- Enable production to take place
- Satisfy customer demand
- Precaution against delays from suppliers
- Allow efficient production
- Allow for seasonal changes
- Provide a buffer between production
processes
What is buffer stock?
An amount of inventory held as a contingency in case of unexpected orders so that such orders can be met and in case of any delays from suppliers
What is outsourcing?
The delegation of a business service to an external provider.
Subcontracting
The main reason for increased outsourcing is normally as a way of reducing costs
What are the benefits of outsourcing?
Reduction in costs, the external suppliers may be able to produce at a lower cost
Outside firms may have specialists’ knowledge or skills that can be used, to gain a competitive advantage
Greater flexibility to respond to customer demand
Less capital expenditure of machinery or new buildings
What are the drawbacks of outsourcing?
Costs may increase as profit needs to be made by the new company
Quality standards may suffer, and time will need to be spent ensuring customer expectations are achieved
Possible loss of in-house expertise if employees are let go
