3.4 operations Flashcards
operations
the function of a business that is concerned with providing customers with a product that they want in a timely, effective, efficient and profitable way
operations is about the actual production of the good or service sold by a business
effectively managed operations allow a business to
control costs of production
add value to its products
guarantee the right level of service
gaurantee the right level of quality
provide itself with ‘green’ credentials
meet the demand for its products or services
operations and added value
operations management is the key factor in the transformation process by which a business cretes its products and services
therefore operations is the key to adding value to what a business does
what do operations departments typically set objectives around
costs
quality
speed of response and flexibility
dependability
environmental objectives
how do costs influence operational objectives
the operations department must be able to control the costs of production in order to maximise profit margins
how does quality influence operational objectives
the operations department is responsible for ensuring these specifications are met, ensuring the product or service is fit for purpose
how does speed of response and flexibility influence operational objectives
opportunities and sales can be lost if a business cant meet order volumes in a specific time frame
operations is also responsible for ensuring the product is suitably flexible to meet the needs of different customers
how does dependability affect operational objectives
businesses cant afford to let their customers down
those that tend to lose loyalty and repeat purchases
dependability can be the key factor by which a customer chooses its supplier, especially in industrial markets
how does environmental objectives influence operational objectives
the production processes can cause many negative externalities such as pollution
businesses will set targets on a number of environmental factors such as recycling and waste disposal
the 4V’s of operations
can be used to analyse key isssues in the operational decisions of any business
volume
variability
variety
visibility
internal and external influences on operational objectives
legal/political factors
economic factors
employee skills
nature of the product
social factors
technological factors
how do legal/political factors influence operational objectives
such as health and safety legislation and industry regulation
how do economic factors influence operational objectives
operations must be able to adapt to changing levels of demand in the market
how do employee skills influence operational objectives
these may determine objectives, such as the level of quality
how does nature of the product influence operational objectives
minimising cost mat be very important for products sold for 1.99
social factors that influence operational objectives
consumers continue to expect more personalisation of the products they buy.
technological factors that influence operational objectives
technology drives all operational decisions in particular new product development and processes of manufacturing and distribution
formula used to analyse operational performance
labour productivity
labour productivity
measures the output per employee and is a measure of how productive the workforce is
productivity is a measure of output in relation to the input- the workers
labour productivity formula
output per time period divided by number of employees
unit costs
the unit cost is sometimes referred to as the average cost because it takes into account the total costs of a business (fixed + variable) and divides this by the level of outtput
unit cost formula
total costs of production divided by number of units of output produced
capacity utilisation
the capacity of production is the maximum amount a business can produce over a period of time given the resources it has available
capacity utilisation measures existing output as a percentage of the maximum possible output
capacity utilisation
actual output in a given time period divided by maximum possible output in a given time period x100
ways to increase efficiency and labour productivity
use data to set targets and motivate the workforce
use to identify training needs of the workforce
use to test differrent production techniques such as teamworking or cell production
use to measure the efficiency of the workforce
use as a tool to identify employees for praise and reward
use as a tool for performance related pay
using unit cost data
use to set prices based on profit margin target
use to make decisions about which products to produce
use to make decisions about scale of production- what level of output will achieve sufficiently low costs
use alongside variable costs to analyse distribution of overheads
use as a target to drive operational decisions such as how, where and what to produce
how can capacity utilisation be used
setting targets for output
identifying when a business should increase capacity (growth)
identifying when a business should decrease capacity (retrenchment)
identifying the maximum level of output before production becomes ineffective (diseconomies start to occur)
when does capacity utilisation data become most effective
when used alongside the other measures of performance such as labour productivity and unit costs
what happens to unit costs as capacity utilisation increases
unit costs will fall as the business experiences economies of scale
unit costs may rise as a usiness approaches maximum capacity due to stress mistakes and diseconomies
what does imroving effieciency mean
getting more output from a given level of input
can also consider efficiency as using the minimum level of resources to achieve the desired product at the right quality
as efficiency is directly linked to unit cost it is a key route to maximising profis
how are productivity and efficiency connected
directly connected
greater productivity means the workforce is more efficient and efficiency across the business allows more resources to be devoted to production
benefits of improved efficiency
labour productivity increased
unit costs fall
resources such as labour, expertise and time can be reallocated
profit margins increase
improved flexibility across the business
opportunity to explore new ventures such as new production lines
ability to charge lower prices and therefore improve competitiveness
ways to increase efficiency and labour productivity
new ways of working
training
new technology
better management
introduce new reward systems
how do new ways of working increase efficiency and labour productivity
design the job and workforce to be more effective
how does training increase efficiency and labour productivity
invest in training to improve workers skills and motivation
how does new technology increase efficiency and labour productivity
speed up processes and reduce human error
how does better management increase efficiency and labour productivity
improve supervision, direction ad leadershop of the workforce
how does introducing new reward systems increase efficiency and labour produvtivity
in order to create a new incentive to work harder (incentives linked to output)
difficulties in increasing efficiency and labour productivity
sometimes a trade off when increasing labour productivity
increasing output of a worker may increase productivity and unit costs in the short term
but high levels of output can cause stress and burnout
it is also true that a focus on output can compromise quality customer service and creativity
costly mistakes and faults are also more likely to occur leading to prodct returns and complainst
lean production
involves practices that reduce waste in the operational process
the main forms of lean production are focused on reducing defects, time wasted and inventory levels
waste
in business waste can be considered anything that doesnt add value to the product
what are the 7 types of waste a business can reduce
motion- unessecary movement of people
transport- unessecary movement of the products or materials
inventory-too much stock
defects-faulty products
waiting- for processes to finish befpre others can begin
extra processing- adding features that do not add value
overproduction- producing products that cant be sold easily
ways of reducing waste
designing the work areas within a business so employees are close together and in close proximity to the resources they require
designing production facilities to minimise movement
using effective stock control systems
adopting quality assurance techniques to minimise defualts
designing products and services to meet the exact needs pf customers
using a range of forecasting trchniques to predict demand and match production accordingly
what are the two production methods
just in time
kaizen
lean organisation
just in time
supply of products and raw materials triggered by demand from customers
stock levels kept to a minimum and resources and capital are freed up
relies on effective communication and systems for order processing and delivery
kaizen
japanese concept of continous improvement eg by making marginal improvements in efficiency
lean organisations
only uses processes that add value and are effective
remove anything that isnt necessary
eg meetings, processes and organisational structure could be re designed
difficulties of adopting lean production
if there are disruptions in production, business may be vulnerable if there is no inventory
it creates over reliance on suppliers to deliver on time
there is the danger of stripping away processes and features that employees and customers value
it puts pressure on workforce to self check and monitor their own work- does the workforce have the skills
kaizen can bring about change that may be resisted by the workforce
how can a business increase capacityr
sub contract out production to another business
offer overtime pay to the workforce
employ workers on temporary contracts
how can a business decrease capacity (or utilise idle resources)
rationalisation (redundancies or sale of assets)
sub contract in work from another business
what are the two things a business’ production process can be
labour intensive
capital intensive
the balance of the two might depend on the nature of the product and the target market
capital intensive
high level of capital investment (such as use of machinary)
mass production, standardisation, efficient production
labour intensive
high level of human input in the production process
highly specialist, personal, service industry, high level of skill required
what is quality
the extent to which a product or operation meets its customers requirements
this means that it is ‘fit for purpose’
achieving the desired quality has a number of benefits for a business but it is a subjective concept
importance of quality
the key to achieving customer needs
a high quality product is one that meets customer expectations
products must have high quality to compete at the right price point
some businesses will differentiate themselves on having a premium quality
methods of achieving high quality
train employees in quality procedures
invest in technology
adopt processses that assure quality
work with high quality suppliers
involve all employees in managing quality
achieve a quality award/mark (recognition from external organisation)
have a clear understanding of cusomer needs
why does high levels of quality help businesses
imrpove customer satisfaction
help the business differentiate its product from competitors
add value to the product allowing a premium price to be charged
what are the two ways of implementing quality management systems
quality control
quality assurance
quality control
about the product
quality is checked at the end of the production process
focus on identifying faults
quality control is a specific role- maybe one person
difficulties in improving quality
quality can be difficult to improve because
customers changing perception of quality is constantly changing
a successful business could let quality slip if there is no incentive to outperform rival businesses
improving quality can add more work so might be naturally opposed by the workforce
measuring quality can be difficult and expensive
consequences if poor quality
poor quality can cause a number of problems for a business
if products need recallung this can be extremely expensive
poor quality can damage brand reputation
there may be legal costs if customers sue the company
correcting poor quality can be very expensive
inventory
refers to the supplies and stock held by the business
coordinating inventory and managing the supply chain effectively can influence the competitiveness of a business
factorss to consider when managing inventory and the supply chain
some industries rely on speed eg parcel delivery companies, even where speed isnt as important as other factors like quality it can still mean the difference between a customer choosing one business over another
meeting a deadline is very important for some industries eg travel industry, all businesses can claim to meet a deadline but reputation precedes a business when it comes to dependability, some businesses may provide ‘money back’ guarantee if a deadline isnt met
flexibility is about customisation- the greater kevel of customisation a business offers the better it is able to meet customer needs, however often greater customisation increases unit costs eg all Dell computers are manufactures to their customers inventory specifications this is known as mass customisation
issues in managing inventory
- meeting demand- holding stock allows a business to meet demand
-risk- some inventory poses a greater risk than others
inventory can be perishable (food), easily damaged in storage (glassware) or become outdated quickly (fashion and tech)
what factors will a business consider when choosing the right supplier
the cost and quality of materials
dependability
ethical practces
availability of trade credit
level of service
flexibility
speed
what things are seen on an inventory control chart
re-order level
re-order quantities
buffer inventory
lead time
re order level
the level at which new inventory will be re ordered
this will depend on the buffer stock level and the lead time
re order quantities
the quantity of an item the business will order at a given time
buffer inventory
the minimum amount of inventory a business wants to hold
lead time
how long it takes from the order being placed with the supplier to it arriving
what issues must a business consider when using inventory control charts
unexpected changes in demand
long lead times which make inventory planning more difficult
suppliers who fail to deliver
choosing the right buffer stock level can affect efficiency and cash flow
human or computer error when re ordering stock
the supply chain
refers to the netrowk of providers involved in the process of getting the product to the customer
may involve a number of people and organisations
what will effective management of the supply chain involve
supplier strategy- such as long term vs short term agreements
agreeing contracts with suppliers- service level agreement or a code of conduct
deciding on what aspects of the process the business will do itself and which it will outsource
vertical integration- will the business take control of the supply chain for itself
managing supply to meet demand
employ a flexible workforce
outsource production to other businesses when demand is high
outsourcing can help a firm subcontract a specialist task such as payroll and help manage capacity utilisation
queuing systems- automated queueing can help manage supply during high demand periods
produce to order- only producing a product when an order comes in
