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Business > 3.4 - Operations: Decision Making To Improve Operational Performance > Flashcards

3.4 - Operations: Decision Making To Improve Operational Performance Flashcards

1
Q

Operations management

A

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

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2
Q

Key types of operational objectives

A
  • cost and volume
  • quality
  • efficiency and flexibility
  • environmental
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3
Q

Cost and volume objectives

A
  • businesses need to ensure that operations are cost-effective
  • traditional measure is ‘unit cost’ = total costs / total units
  • businesses in the same industry face similar cost structures, but vary in terms of productivity, efficiency and scale of production
  • businesses with lower unit costs are in much better positions to compete and offer both lower prices and make higher profit margins
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4
Q

Examples of cost and volume objectives

A
  • productivity and efficiency
  • number of items to produce
  • unit cost per item
  • contribution per unit
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5
Q

Why do businesses need quality?

A

Markers are more competitive and customers are more knowledgeable, demanding, prepared to complain about quality and able to share information about the poor quality

If a business can develop a reputation for high quality, the it may be able to create an advantage over it competitors

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6
Q

Possible quality objectives

A
  • scrap / defect rates
  • reliability
  • customer satisfaction
  • number of customer complaints
  • customer loyalty
  • percentage of in time delivery
  • number of products returned
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7
Q

Efficiency and flexibility objectives

A
  • closely linked to cost targets
  • looks at how effectively the assets of the business are being utilised
  • measure how responsive the business can be to short term or unexpected changes in demand
  • efficiency and flexibility are key determinants of unit cost
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8
Q

Examples of efficiency

A
  • labour productivity
  • output per time period
    -capacity utilisation
  • order lead times
  • speed of response
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9
Q

Flexibility objectives

A
  • able to switch production form one product to another
  • volume flexibility: change volume produced to meet demand
  • mix flexibility: provide a range of alternative versions
  • delivery flexibility: adapt to changes in time / volume of customer deliveries
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10
Q

Dependability of a product

A

A product durable, long lasting and less likely to break down

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11
Q

Environmental objectives

A
  • increasingly important focus of operational objectives
  • businesses face more stringent environmental legislation
  • customers increasingly base buying decisions on firms who priority is environmental responsibility
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12
Q

Examples of environmental objectives

A
  • use of energy efficiently
  • proportion of production or packaging that is recycled
  • compliance with waste disposal and proportion to landfill
  • supplies of raw materials from sustainable sources
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13
Q

Value added

A

The process of increasing the worth of resources by modifying them

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14
Q

Value added calculation

A

Sales revenue - cost of bought in materials components and services

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15
Q

Internal influences on operational objectives : corporate objectives

A

Corporate objectives are the most important internal influence.
An operations objective (e.g. higher production capacity) should not conflict with a corporate objective (e.g. lowest unit costs)

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16
Q

Internal influences on operational objectives : finance

A

Operations decisions often involve significant investment and cost The financial position of the business (profitability, cash flow, liquidity) directly affects the choices available

17
Q

Internal influences on operational objectives : Human Resources

A

For a services business in particular, the quality and capacity of the workforce is a key factor in affecting operational objectives.
Targets for productivity, for example, will be affected by the investment in training and the effectiveness of workforce planning

18
Q

Internal influences on operational objectives : marketing issues

A

The nature of the product determines the operational set-up.

Regular changes to the marketing mix – particularly product may place strains on operations, particularly if production is relatively inflexible.

19
Q

External influences on operational objectives : economic environment

A

Sudden or short-term changes in demand impact on capacity utilisation, productivity etc.

Changes in interest rates impact on the cost of financing capital investment in operations.

20
Q

External influences on operational objectives : competitor efficiency flexibility

A

Quicker, more efficient or better quality competitors will place pressure on operations to deliver at least comparable performance

21
Q

External influences on operational objectives : technological change

A

Also very significant – especially in markets where product life cycles are short, innovation is rife and production processes are costly.

22
Q

External influences on operational objectives : legal and environmental change

A

Greater regulation and legislation of the environment places new challenges for operations objectives.

23
Q

Unit cost formula

A

Total production cost in period (£) / total output in periods (units)

24
Q

Economies of scale

A

Economies of scale arise when unit costs fall as output increases

25
Q

What is the difference between internal and external economies of scale?

A

Internal arise from the increased output of the business itself however, external occur within an industry.

26
Q

Internal economies of scale : buying economies

A

Buying in greater quantities usually results in a lower price (bulk-buying)

27
Q

Internal economies of scale : technical

A

Use of specialist equipment or processes to boost productivity

28
Q

Internal economies of scale : marketing

A

Spreading a fixed marketing spend over a larger range of products, marketing and customers

29
Q

Internal economies of scale : network

A

Adding extra customers or users to a network that is already established

30
Q

Internal economies of scale : financial

A

Larger firms benefit from access to more and cheaper finance

31
Q

External economies of scale

A
  • arise from the industry as a whole
  • often associated with particular geographical areas
32
Q

What is labour intensity versus capital intensity ?

A

Labour intensive production relies on using labour resources compared to capital intensive production relies on using capital resources

33
Q

Examples of labour intensity industries

A
  • food processing
  • hotels and restaurants
  • fruit farming
  • hairdressing
  • coal mining
34
Q

Implications of labour intensity on unit costs

A
  • labour costs are higher than capital costs
  • costs are mainly variable = lower breakeven output
  • firms benefit from access to sources of low-cost labour
35
Q

Implications of capital intensity on unit costs

A
  • capital costs higher than labour costs
  • costs are mainly fixed = higher breakeven output
  • firms benefit from the access to low cost, long term financing
36
Q

Benefits of capital intensity

A
  • greater opportunities for economies of scale
  • potential for significantly better productivity
  • better quality and speed
  • lower labour costs
37
Q

Drawbacks of capital intensity

A
  • significant investment
  • potential for loss competitiveness due to obsolescence
  • may generate resistance to change from labour force
38
Q

Benefits of labour intensity

A
  • unit costs may still be low in low-wage locations
  • labour is a flexible resource through multi-skilling and training
  • labour at the heart of the production process and can help continuous improvement
39
Q

Drawbacks of labour intensity

A
  • greater risk of problems with employee/employer relationship
  • potentially high costs of labour turnover
  • need for continuous investment in training

Business (5 decks)

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