3.4 - Operational Managment

Question 1

What is operations managment?

Answer 1

The management of processes, activities and decisions relating to the way goods and services are produced and delivered

Question 2

What is the transformation process?

Answer 2

what happens inside business

inputs -> transformation process -> outputs

Question 3

What are cost and volume objectives?

Answer 3

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

Question 4

What are speed and flexibility objectives?

Answer 4

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

Question 5

What is capacity?

Answer 5

The capacity of a business is a measure of how much output it can achieve in a given period

Question 6

What is capacity Utilisation?

Answer 6

The capacity of a business is a measure of how much output it can achieve in a given period

Question 7

What is the formula for capacity utilisation formula?

Answer 7

Actual level of output / maximum possible output x 100

Question 8

What are the dangers of operating at low capacity utilisation?

Answer 8

• Higher unit costs - impact on competitiveness
• Less likely to reach breakeven output
• Capital tied up in under-utilised assets

Question 9

What is labour productivity?

Answer 9

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

Question 10

What is the formula for labour productivity?

Answer 10

output per period / number of employees at work x 100

Question 11

What are the factors influencing labour productivity?

Answer 11

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)

Question 12

What are some ways to improve labour productivity?

Answer 12

Measure performance and set targets

Streamline production processes

Invest in capital equipment (automation + computerisation)

Invest in manager and employee training
Improve working conditions

Question 13

What are some potential problems with trying to increase labour productivity?

Answer 13

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)

Question 14

What is lean production?

Answer 14

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

Question 15

What does effective lean production require?

Answer 15

• 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

Question 16

What the methods of lean production?

Answer 16

• Time based management
• Simultaneous engineering
• Just in time production (JIT)
• Cell production
• Kaizen

Question 17

What is cell production?

Answer 17

A form of team working where production processes were split into cells.
Each cell is responsible for a complete unit of work

Question 18

What are the benefits of cell production?

Answer 18

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

Question 19

What are the drawbacks of cell production?

Answer 19

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

Question 20

What is JIT?

Answer 20

Just-in-time aims to ensure that inputs into the production process only arrive when they are needed

Question 21

What are the advantages of JIT?

Answer 21

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

Question 22

What are the drawbacks of JIT?

Answer 22

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

Question 23

JIT v.s. JIC

Answer 23

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

Question 24

What is Kaizen?

Answer 24

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

Question 25

What is quality?

Answer 25

• 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

Question 26

What are the benefits of good quality?

Answer 26

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

Question 27

What is quality control?

Answer 27

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

Question 28

What are the pros and cons of quality control?

Answer 28

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

Question 29

What is quality assurance?

Answer 29

The process that ensure production quality meets the requirements of customers

Question 30

What are the advantages of quality assurance?

Answer 30

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

Question 31

What are the drawbacks of quality assurance?

Answer 31

• Cost of training staff
• Not all staff may wish to take on responsibility

Question 32

What is inventory?

Answer 32

raw materials, work-in-progress and finished goods held by a firm to enable production and meet customer demand

Question 33

What are the different types of inventory?

Answer 33

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

Question 34

What are the reasons to hold inventory?

Answer 34

• 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

Question 35

What is buffer stock?

Answer 35

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

Question 36

What is outsourcing?

Answer 36

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

Question 37

What are the benefits of outsourcing?

Answer 37

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

Question 38

What are the drawbacks of outsourcing?

Answer 38

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