3.4.3- Making operational decisions to improve performance: increasing efficiency and productivity Flashcards
3.4 Operational management
What is capacity?
The maximum output that organisations can produce in a given period
What are the drawbacks of having 100% capacity levels?
- Considering operational objectives, it may not be possible to operate at 100% with high quality.
- Theres no downtime: machines are on all the time, if they break down, it can cause delays
- Theres no margin of error, mistakes could shy customers away as the quality may not be up to their standards.
- Businesses cannot temporarily increase output for seasonal demands
- If trends change, it will be hard for businesses to change and cater towards them trends
How can firms with high capacity utilisation increase their capacity?
- By using more facilities for more of the working week
- Can buy more machines
- Can increase their staff levels. In the long-term: recruit permanent staff. Short-term: part time employees
- Increasing productivity
Why is under-utilisation inefficient and how does it increase unit costs?
- Its inefficient as a business is not getting use out of all machines and facilities they have paid for.
- This will increase unit costs because FC are spread over fewer units of outputs.
- Higher capacity utilisation means an increase in nb of units output without increasing FC.
How can firms deal with under-utilisation?
- They can increase demand: This can be done by changing the marketing mix
- They can reduce capacity: This can be done by closing part of their facilities.
-Short-term: Reducing the length of working weeks.
-Long-term: By not replacing staff, staff redundant.
How can businesses maintain change of capacity over time?
- Long-term: Planning capacity changes to match changes in demand. This can be done by market research. This also reducers units costs however it is risky.
- Short-term: Firms should be flexible and temporarily increase to be able to meet the changing demands.
What’s the difference between productivity and efficiency?
Productivity is measured as the output per worker in a given time period, whereas efficiency is getting more output from a given amount of inputs
How can businesses increase labour productivity?
- Improving worker motivation
- Training can make workers more productive
- New technology can increase speed workers can do their job
What are the difficulties with increasing productivity?
- Encouraging workers to produce more by offering bonuses could mean that the quality suffers or more waste is produced.
- If not increasing capacity, training staff can result in redundancies and job losses, lowering moral of staff.
- New technology can be expensive
- More waste on raw materials which could reduce added value, and have a negative impact on the environment.
What are lean production methods? Give examples.
Lean production is efficient form of productions that keeps waste at a minimum
* These methods include just-in-time and kaizen
What are the main factors of just-in-time (JIT)?
- JIT aims to reduce waste by having as little stock as possible
- It is based on an efficient stock control. the supply of components are linked directly to the demand of components
- Toyota uses JIT
What are some advantages of JIT?
- Storage costs are reduces and cash flow is improved as money isnt tied into the stock.
- Theres less waste, because theres less out-of-date or damaged stock lying around.
- The business is more flexible, therefore can cope with changes in demand and easily adapt to its products.
What are some disadvantages of JIT?
- No stock means that customers cant be supplied during production strikes.
- Supplies have to be reliable because their isnt left over stock of raw materials to keep production going.
- If theirs any delays in supply being shipped, can cause disruption in business service.
What are the main factors of Just in case (JIC)?
- JIC is an inventory strategy where companies keep large inventories on hand
- this minimizes the probability that a product will sell out of stock
- A company that uses this has difficulty predicting consumers demand or changes in demand at unpredictable times.
- Hospitals use JIC
What are the advantages of JIC?
- The ability to use the additional stock to meet any unexpected demand surges or mitigate supply chain disruptions, such as increase delivery time
- Could be profitable in the long run, generating more sales and gain a competitive advantage to competitors
- Reduces the chances of running out of stock
- Better supply rates, as buying in large quantitates is offered with discounts and can reduce shipping costs.
What are the disadvantages of JIC?
- It requires extra storage, more stock on hand requires warehouse space, which can lead to logistic challenges and higher storage costs.
- Cash flow challenges: When cash flow is tied up in inventory, you can be left with nothing to pay staff and bills, making it difficult to sustain smaller operators.
- Higher risk of shrinkage: Theres a risk of goods expiring before selling them, making JIC less desirable for those stocking and selling perishable items.
What are the advantages of using technology?
- Increased productivity and quality: machines are quicker and more accurate
- Reduced waste: more effective production methods
- More effective and efficient delivery goods and service to the customers
- Reduced administrative and financial costs.
What are the disadvantages of technology?
- Initial costs may be high
- Technology requires maintenance and updating which can be expensive
- New IT may increase need of staff training
- Some technologies may replace employees, leading to staff redundancies.
What is a capital intensive firm?
- Uses more machines and few workers
- Larger firms are usually more capital-intensive. E.g. BMW use robots and machinery
- A rise in costs of labour can cause companies to switch to a capital intensive method.
What are the advantages of capital intensive production?
- Cheaper that manual labour in the long term
- Machinery is more precise, high levels of quality
- Machinery is able to work 24/7
- Machines are easier to manage
What are the disadvantages of capital intensive production?
- High set-up costs
- Machines are inflexible
- If machinery breaks down, it can lead to delays
- Fear of being replaced by a machine can cause workers motivation to decrease.
What is a labour intensive firm?
- Uses more workers and less machines. E.g. NHS
- Labour intensive methods are common in areas where labour is cheap (China).
What are the advantages of labour intensive production?
- People ae flexible and can be retrained
- Cheaper for small-scale production
- Labour intensive methods are cheaper where low costs labour is available
- Workers can solve any problems that arise during production, can suggest ways to improve quality
What are the disadvantages of labour intensive production?
- Harder to manage people
- People can be unreliable
- People cannot work without breaks/holidays
- Wage increase means that the cost of labour can increase overtime
- Labour costs as a % of turnover are high
Why should businesses have the right mix of people, machines and materials?
To meet objectives more easily
