3.4 Operations

Question 1

What are the operations department responsible for ?

Answer 1

The actual production of a good/service

It involves managing the process of transforming inputs into outputs

Question 2

What is the value of operational objectives

Answer 2

• can help a company achieve its overall objectives
• the performance of the production department can be reviewed on its ability to meet their objectives

Question 3

Define the operational objectives

Answer 3

• reduced costs
• quality
• speed of response
• flexibility
• reliability
• environmental
• added value

Question 4

Define added value

Answer 4

Added value is the difference between what a business spends to produce its goods or services, and the price that customers are prepared to pay

Question 5

Name some external influences which could determine the operational objectives used by a business

Answer 5

• competitors
• technology
• legislation
• economic factors
• social trends
• environment policies
• ethical factors

Question 6

Define what operational data is used for

Answer 6

To access the operational performance of a business

Question 7

Define productivity + the formula

Answer 7

A measure of the ratio of output to inputs

Total output/number of employees

Question 8

What can labour productivity be influenced by ?

Answer 8

• training + skills of the workforce
• motivation
• complexity of the product
• the effective use of machinery

Question 9

Define unit costs (average costs)

Answer 9

Unit costs measure the cost of producing one unit of a product

Question 10

Formula for unit costs ?

Answer 10

Total costs/units of output

Question 11

If a business’ unit costs are high what could you infer ?

Answer 11

The less efficient a business is at controlling their costs = less competitive in the market

Question 12

Define capacity

Answer 12

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

E.g a call centre may be able to handle 10,000 calls per day

Question 13

Define capacity utilisation

Answer 13

The proportion (percentage) of a business’ capacity that is actually being used over a specific period

Question 14

Formula for capacity utilisation ?

Answer 14

Current output / max possible output x 100

Question 15

Define two advantages of a high capacity utilisation

Answer 15

• if a firm is working near full capacity then its costs per unit are lower
• profits should be higher as more is being made and presumably sold

Question 16

Define 3 disadvantages of a high capacity utilisation

Answer 16

• might have to turn away potential customers because there is no capacity to complete any extra orders
• workers may be stressed and it could result in a high labour turnover
• it is hard to find time for maintenance and repairs

Question 17

How can you increase the capacity utilisation ?

Answer 17

• increase current output e.g promotions, discounts, offers
• cut capacity

Question 19

Define the importance of capacity

Answer 19

• unit costs decline as capacity utilisation increases
• the optimal level of capacity is 90% for some businesses, but not all
• if there is too much spare capacity the business isn’t operating efficiently

Question 20

How can efficiency and labour productivity be increased ?

Answer 20

• investment in technology
• improvements in training
• motivate workers
• delayering/flatter structures
• reduction in the workforce

Question 21

What are the difficulties of increasing efficiency and labour productivity ?

Answer 21

• cost (new tech and training are expensive initially
• quality can sometimes suffer when efficiency savings are desired
• resistance from employees (kotter)

Question 22

Define economies of scale

Answer 22

The benefits a business gains as it operates on a larger scale

Question 23

Define purchasing economies of scale

Answer 23

An increase in the scale of production leads to reductions in average costs per unit as the business will buy materials in bulk

Question 24

Define technical economies of scale

Answer 24

Where larger businesses can invest in modern technology that leads to cost efficiencies

Question 25

Define managerial economies of scale

Answer 25

A business that operates on a larger scale, can employ specialist managers who find efficiencies and lower costs per unit

Question 26

Define economies of scope

Answer 26

Involves the reduction of costs per unit as a result of producing a wider variety of goods or services It is often due to the joint use of production facilities

Question 27

Define diseconomies of scale

Answer 27

When a firm experiences an increase in average costs due to growing too much Main two reasons are: 1. Co-ordination issues 2. Co-operation issues (demotivated workers)

Question 28

Define lean production

Answer 28

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

Question 29

What methods could lean production include ?

Answer 29

- zero hour contracts - total quality management - quality assurance - just-in-time production - kaizen

Question 30

Define kaizen

Answer 30

“Continuous improvement” Business philosophy that focuses on making small, incremental, and ongoing changes to processes and systems

Question 31

Define stock control

Answer 31

Stock control is the process of monitoring stock levels to ensure: - production runs smoothly - demand by customers can be met

Question 32

Define Just in time

Answer 32

Where stock holdings are kept at zero or a minimum A business will only order parts and materials when they are required

Question 33

Define just in case

Answer 33

Where stock holdings are kept high just in case demand increases A business will ensure a minimum buffer level of stock exists

Question 34

Advantages of JIC ?

Answer 34

Customers always have supply Reduce regular distribution costs

Question 35

Disadvantages of JIC ?

Answer 35

Expensive storage costs Goods can go out of date

Question 36

Advantages of JIT ?

Answer 36

Reduces storage costs More efficient

Question 37

Disadvantages of JIT ?

Answer 37

Customers could be left without goods Can delay production process

Question 38

Define capital intensive production

Answer 38

Where a large % of machinery is used in the production process e.g car manufacturing

Question 39

Define labour intensive production

Answer 39

Where a large % of workers are used in the production process e.g agriculture

Question 40

Define quality

Answer 40

Achieving a standard of a good or service that meets the customers expectations

Question 41

What are the benefits of high-quality products?

Answer 41

- A good reputation - Increasing customer satisfaction - Repeat customer loyalty - Higher prices - higher profit margins

Question 42

How can quality be improved?

Answer 42

- recruit the right people - Train staff - Use better materials - Source new suppliers - Quality control

Question 43

Define quality control

Answer 43

This is where a selection of products are checked at the end of the production process It is a quick check of quality but doesn’t guarantee all products to be of high-quality

Question 44

Define quality assurance

Answer 44

Where every product is checked at every stage of the production process It is a slower process, but should guarantee good quality products and tries to prevent waste

Question 45

What is total quality management (quality assurance)?

Answer 45

Businesses will often strive for quality assurance through the adoption of a system Uses quality assurance throughout all the functional departments within a business

Question 46

What are the difficulties of improving quality?

Answer 46

- Training staff is both time-consuming and expensive - Can be difficult in price sensitive and competitive market - Cost is the major factor

Question 47

What are the consequences of poor quality?

Answer 47

- No customer loyalty/no return custom - Poor brand image - cost to rectify problems

Question 48

What factors influence the choice of suppliers?

Answer 48

- cost - quality - speed of delivery - flexibility

Question 49

How can a business match supply to demand?

Answer 49

- outsourcing - managing capacity utilisation - staff training

Question 50

Define outsourcing

Answer 50

Where a business will hire a 3rd party to perform services or create goods that were traditionally performed in-house by the company’s own employees and staff Usually undertaken by companies as a cost cutting measure/way to manage capacity utilisation Risk to companies reputation if the work is not to the required standard