4 - Decision making to improve operating performance 🚛 Flashcards
What is operations management?
An area of management concerned with designing and controlling the process of production and redesigning business operations to maximise efficiency
What are some key operational objectives?
- costs
- quality
- speed of response and flexibility
- dependability
- environmental
- added value
How can we add value?
- convenience
- USP
- branding
- design
- quality
What are some internal influences on operationa objectives?
- corporate objectives
- HR
- finance
- the nature of the product
- marketing issues
What are some external influences on operational objectives?
- technological change
- competitor efficiency/flexibility
- economic environment
- legal and environmental changes
- demand
- availability of resources
Operational Objectives
Why is costs important for business?
improves efficiency of the business to minimise costs and increase profits
Operational Objectives
Why is quality important for business?
- to limit customer returns = costs
- ensures sales remain high
- build a good customer reputation
Operational Objectives
Why is speed of response and flexibility important for business?
- improves the productivity and utilisation to gain a competitive advabtage
Operational Objectives
Why is dependability important for business?
- more loyal customers as won’t let them down
- attracts new customers
Operational Objectives
Why is environmental objectives important for business?
- shows morals and ethically aware
- creates a good reputation
Operational Objectives
Why is added value important for business?
Allows a business to profit from their goods/services
What can be used to measure efficiency?
- labour productivity
- output
- capacity
- capacity utilisation
Define labour productivity
The amount of output obtained from each employee
Formula of labour productivity
Output per period / no of employees in that period
What factors can help a business achieve high labour productivity?
- quality of machinery
- skills / ability/ motivation
- methods of production
- reliability of suppliers
- training
What is the unit cost?
The cost of producing one unit of output
What is the unit cost formula?
Total costs / unit of outputs
As output increases, what happens to unit costs?
Decreases as each unit costs less to make
What factors can influence unit cost?
- how many units are made
- how efficient the workforce is
- how efficient machinery is
- how controlled VC are
What is capacity utilisation?
The maximum total level of output a business can produce in a given time as a %
What is the formula for capacity utilisation?
Capacity output per annum / max possible output
What is labour intensive production?
When labour costs outweigh capital costs of a business
Pros of spare capacity
- time for maintenance
- less pressure on staff
- improvements can be planned in
- cope with sudden increase in demand
Cons to spare capacity
- higher fixed cost per unit
- negative image of being unsuccessful
- higher unit costs = lower profits = lower sales volume
- less work so staff boded
What is the optimum capacity utilisation?
93%
How could a business increase capacity?
- employ more staff
- provide training = increases productivity
- increase factory soace
What can a business do if they are under capacity?
- increase demand
- downsize
- lease off spare capacity
What can a business do if they are over capacity?
- reduce demand
- outsource parts of operations
- increase capacity by investment
Define lean production
Focuses on cutting waste while maintaining or improving quality
How can Lean production be enforced?
- JIT production
- Kaizen
What is JIT?
A technique used to minimise inventory holdings at each stage of production
What is Kaizen?
Technique that concentrates on small but necessary and frequent improvements in every aspect of the production process
How can inventory be held?
- raw materials
- work in progress
- finished goods
Pros of JIT
- less warehouse costs
- less working capital required
- less obsolete inventory
- avoids unsold stock
- lower extras eg. Insurance
Cons of JIT
- little room for error
- very reliant on suppliers
- unexpected orders hard to meet
- delays cause production to stop
- high initial costs
- complex system
What features are of Kaizen?
- all members of staff involved
- improvements take place at any level of hierarchy
- requires highly motivated workforce
- vital component of Total Quality Management
What are the factors of production that firms try to minimise the cost of?
- land
- labour
- capital
- enterprise
Pros of Kaizen
- increased productivity
- improved quality and speed
- lower labour costs
- greater opportunities for economies of scale
Cons to Kaizen
- High investment
- lack of human initiative
- greater resistance to change by workforce
What is the best way to combine factors of production?
With financial restraints
How can technology be used to improve efficiency?
- robotics
- automation
- communication
- design technology
Pros of robotics
- reliable
- 24/7 workforce
- less human error
- fewer labour costs
- accurate and consistent
- speedy
Cons of robotics
- lack of initiative
- maintenance time
- high initial costs
- need trained staff to use them
What is automation?
The use of machines to control a process eg. stock control
Internal use of technology for communication
- Interdepartmental eg. emails, managing relationships
- Order processing eg. transferring orders
- Quality data eg. telling staff about number of defects
External use of technology for communication
- Working with Suppliers eg.processing and automatic reordering of stock
- Sourcing supplies eg. finding new suppliers
- Tracking supply chain eg. informs customer of progress
What is design technology?
The use of computers in the design stage of developing a product
What objectives may technology help to achieve?
- reduce COST
- improve QUALITY
- quicker SPEED and FLEXIBILITY
- reliable DEPENDABILITY
- efficiency ADD VALUE
What objectives may technology hinder in achieving?
- high initial COSTS
- ENVIRONMENTAL uses more energy
- loss of hand made products ADDED VALUE
Quality
Tangible Factors
- features of the product
- colour
- style
- durability
- comfort
- reliability
Quality
Intangible Factors
- brand loyalty
- reputation
- customer service
- trendiness
- price
- personal experience
- after sales service
What are the benefits of selling a product that is perceived as high quality?
- brand loyalty
- high profit margins
- repeat custom
- good reputation
- demand increass
What is a quality control system?
A system that uses inspections to check the quality of work at stages of the manufacturing process
Advantages of quality control
👍 stops faulty goods reaching the customer
👍 inspectors can spot common problems
Disadvantages of quality control
❌ expensive to operate
❌ doesn’t encourage team responsibility
❌ decreases motivation due to no responsibility
What is quality assurance?
A system that improves quality by arranging every process to get products right first time
Advantages of quality assurance
👍 motivating
👍 workers take responsibility
👍 reduced costs
👍 greater consistency
Disadvantages of quality assurance
❌ could increase short term costs
❌ can take time to embed system
❌ need to change company culture
What is total quality management?
An approach to quality in which everyone is focused on preventing errors occurring, and ensuring quality at each stage of the production process
What may influence a customer’s interpretation of quality?
- price
- brand
- nature of product
- customer experience
What is inventory?
The number of goods help in stock, including raw materials, work-in-progress and finished goods
How can flexibility be improved?
- JIT
- technology
- good relationships with suppliers
What is mass customisation?
The ability to tailor foods made in bulk to meet the requirements of individuals
What is outsourcing?
The practise of using the services of other organisations to complete all of part of the manufacturing process
What is the value of outsourcing?
- provides flexibility in supply
- can increase capacity without high costs
- can buy in expertise
Factors affecting the amount of stock held
- nature of the product - perishable
- demand - trends
- costs - working capital
What do low stock levels mean?
- less cash tied up in working capital
- lower stock holding costs
- lower risk of obsolete stock
- in line with lean productikn
What do high stock levels mean?
- better able to handle unexpected demand
- production fully supplied
- less likelihood of running out
- ordering in bulk lowers xosts
Stock Control Chart
What is maximum stock level?
The highest amount of stock that a company is able to hold
Stock Control Chart
What is the re-order level?
Acts as a trigger point so that when stock falls, the next order is placed
Stock Control Chart
What is the minimum stock level?
Minimum amount a business holds
Stock Control Chart
What is the lead time?
The amount of time before packing an order and receiving it
Stock Control Chart
What is the buffer level?
The amount of stick held as a contingency in case of unexpected orders or delays from suppliers
What factors affect supply selection?
- price
- payment terms
- quality
- control
- reliability
- flexibility
What must be included in a policy when dealing with suppliers?
- terms and conditions
- responsibility and decision making
- degree of involvement
- code of conduct
- ethical requirements
What factors should be considered when outsourcing?
- tariffs
- ethics
- legislation
- costs
- sustainability
- logistics
- transport
Advantages of outsourcing
👍 business can react to demand changes
👍 cheaper oh our costs
👍 may be closer to resources
👍 better relationships abroad
Disadvantages of outsourcing
❌ need to research legislation
❌ no direct control over quality
❌ can damage reputation
❌ longer lead time
What is procurement?
Selecting suppliers, establishing the terms of payment and negotiating the contract
