3.4.1 Setting Operational Objectives. Flashcards
Define operations management.
The process that uses the resources of an organisation to provide the right goods or services for the customer.
What is the value of setting operational objectives?
To act as a focus for decision making and effort.
To provide a yardstick against which success or failure can be measured.
To improve co-ordination, by giving teams and departments a common purpose.
Improves efficiency - examine reasons for success and failure in different areas.
Define an operational objective.
Specific, focused targets of the operations management function within an organisation.
Outline some operational objectives that are used to assess operational performance.
Costs.
Quality.
Speed of response.
Flexibility.
Dependability.
Environmental objectives.
Added value.
Define unit costs.
The cost of producing one unit of output.
What is the unit cost formula?
Unit cost = total cost / units of output.
Outline reducing unit costs as a cost related operational objectives.
Likely to be the primary aim of most businesses in terms of cost targets.
Lower unit costs can allow for lower prices or a higher profit margin by keeping prices at their same level.
What are two ways of reducing unit costs?
Reducing fixed costs.
Reducing variable costs per unit.
Why might we focus on reducing fixed costs rather than unit costs as a whole?
More specific focus and a more manageable target than a broader, unit cost reduction.
Common target for newly merged businesses or businesses that have been taken over.
Why might we focus on reducing variable costs per unit rather than unit costs as a whole?
Cutting labour and raw material costs - reduce variable costs per unit - can also be achieved by improving labour productivity - employee’s wages are spread over a higher level of output.
Define quality.
The features of a product or service that allow it to satisfy customer expectations.
What can quality provide?
A competitive edge over competitors - leads to greater sales volume and the ability to charge higher prices without losing customers.
Repeat purchases - high brand loyalty amongst customers.
Outline some measures of quality relating to operational objectives.
Customer satisfaction ratings.
Customer complaints.
Level of product returns.
Scrap rate (items rejected during the production process as a percentage of the number of units produced).
Punctuality (the degree to which a business delivers its products, or provides its services, on time.
Outline the punctuality formula.
Punctuality (%) =
deliveries on time
————————– x 100
total deliveries
Define speed of response.
Time taken for a customer requirement to be fulfilled.
Outline speed of response as an operational objective.
Quick response - leads to customer satisfaction - helps to build customer loyalty.
Quick response - may reduce costs - fewer hours of work have been put in by the labour costs.
Saving in costs associated with storage space - if inventory is moved in and out of the premises more quickly.
Define flexibility.
The ability of an organisation to change its operations in some way.
What is product flexibility?
Being able to switch production from one product to another.
What is volume flexibility?
Being able to change the level of output of a product in accordance with changes in customer demand.
What is mix flexibility?
Being able to provide a range of alternative versions of a particular good or service.
What is delivery flexibility?
Being able to adapt quickly to changes in the timing and volume of deliveries to customers.
What are the benefits of flexibility?
Increase the volume of sales - lead to a decrease in costs.
What are the drawbacks of flexibility?
Can add to costs - sophisticated machinery and highly skilled workers add to the cost.
How can a change in volume be achieved through flexibility?
If there is spare capacity which means that efficiency cannot be at its highest possible level.
How can delivery flexibility add costs?
Scheduling is more difficult and therefore additional costs are likely to be incurred if changes are made at short notice.
Define dependability.
Measures whether a business is ‘on time’ in providing for its customers’ needs.
Outline dependability for products.
Dependability may be applied to the consistency of quality or the punctuality of delivery.
Outline dependability for services.
Dependability can be measured in terms of whether the product is durable, long-lasting and unlikely to break down.
Define an environmental objective.
The aims set by a business that indicate its commitment to helping those aspects of the environment where it has an impact.
Why are environmental objectives becoming more important?
- Many environmental objectives, such as recycling, will allow the business to save costs.
- Many businesses recognise that they have a duty of care for the environment.
- People are becoming more aware.
Outline some environmental objectives. `
- Reducing water pollution by a certain level or percentage. - Reducing noise levels. - Reducing the use of energy.
Define adding value.
The process of increasing the worth of resources by modifying them.
Define added value (value added).
Sales revenue - the cost of bought in materials components and services.
How does e.g., marketing add value?
- Create a USP.
- Identifying an attractive mix of design, function, image and service.
