4 - Operational Efficiency Flashcards
What Is Capacity?
The maximum amount of goods or services a business can produce, deliver or handle
within a given time period.
What Are The Benefits Of A Business Increasing Capacity?
(3 Points)
~ Enables business to meet consumer demand.
~ Maximise revenues -> able to fulfil higher order volumes.
~ Larger capacity -> competitive advantage.
What Are The Drawbacks Of A Business Increasing Capacity?
(3 Points)
~ May lead to higher costs -> business may need more equipment or FOPs to increase capacity.
~ Higher costs -> result in lower dividends for shareholders.
What Are Things A Business Should Consider When Increasing Capacity?
(3 Points)
~ Will the extra revenues cover the additional costs.
~ Higher costs -> impact on shareholders.
~ Increasing capacity -> motivation impacts -> productivity and retention of employees.
What Are Some Evaluation Points For Capacity?
(3 Points)
~ Consider capacity utilisation -> less efficient? -> higher average costs per unit? -> competitive disadvantage.
~ Fall in capacity utilisation -> increased flexibility of the business.
~ Depends on how flexible capacity is.
What Is Efficiency?
Production is maximised based on a given level of FOPs.
What Is The Importance Of Increasing Efficiency?
(3 Points)
~ Reductions in AC per unit -> lower prices -> increase demand -> higher sales.
~ Reduction in AC per unit -> maintain price -> increase profit margins -> higher profits.
~ Efficiency gains achieved -> increased wages -> increased motivation -> increased labour productivity.
What Are The Solutions To Increasing Efficiency?
(3 Points)
~ Labour -> increase level of training -> less defects + waste -> increases motivation -> increases labour productivity.
~ Capital -> increase investment in machines -> supports labour -> increasing labour productivity.
~ Enterprise -> increasing output -> achieve EOS.
What Are The Drawbacks To Increasing Efficiency?
(3 Points)
~ Labour -> costs of training -> can offset the gains from increased labour productivity -> workers may ask for higher wages.
~ Capital -> Investment costs -> outcomes could be distorted by the problems with accessing finance.
~ Enterprise -> does the demand exist for higher output -> if not could increase waste -> too much output can lead to DEOS.
What Is Lean Production?
Reducing waste to increase efficiency and productivity to decrease costs or increase revenue.
What Are The Types Of Lean Production?
(3 Points)
~ Just-In-Time (JIT).
~ Just-In-Case / Buffer stocks.
~ Kaizen (Continuous improvement).
Describe Just-In-Time (JIT)
(2 Points)
~ Inventory management technique.
~ Stock arrives just in time for the sale or production.
What Are The Benefits Of Just-In-Time (JIT)?
(2 Points)
~ Reduce waste -> less inventory -> decrease storage costs -> less labour required.
~ Greater productivity -> time pressure from order -> added responsibility placed on employees -> more motivation?
What Are The Drawbacks Of Just-In-Time (JIT)?
(3 Points)
~ Higher average unit cost -> smaller and frequent purchases -> unable to get PEOS. -> higher delivery frequency -> increased pressure on logistics team.
~ Very reliant on suppliers -> fail to deliver or quality issues -> no production, no sales.
~ Risk of failing to meet unexpected demand -> loss of sales -> repetitional issues.
What Are Evaluation Points For Just-In-Time (JIT)?
(3 Points)
~ How reliable and flexible the supplier is.
~ Predictability of sales -> makes JIT easier to manage.
~ Relative size of storage costs -> does JIT make sense.
Describe Just-In-Case
Minimum stock a business intents to hold.
What Are The Benefits Of Just-In-Case?
(2 Points)
~ Manage uncertainty -> suppliers fail to deliver -> continue to produce.
~ Negotiate better deal with suppliers -> PEOS, due to importance to suppliers because of increased order sizes.
What Are The Drawbacks Of Just-In-Case?
(2 Points)
~ Higher storage costs -> always holding a level of stock.
~ Wastage -> depends on what is being stored.
What Is Capital Intensive Production?
Proportionally more capital used in the production process vs other FOPs.
What Are The Benefits Of Using A Capital Intensive Process?
(4 Points)
~ Full automated -> less need to take breaks and get sick -> no shortcuts taken -> less defects and less waste -> consistent and reliable production.
~ Capital is cost effective in the long term -> increased efficiency and productivity -> efficiency gains.
~ Reduced labour costs.
~ Greater opportunities for EOS.
What Are The Drawbacks Of Using A Capital Intensive Process?
(3 Points)
~ High initial costs -> depends on whether the business can afford it.
~ Inflexible -> lack of human initiative.
~ Greater resistance to change -> retraining to use new equipment.
What Is Labour Intensive Production?
Proportionally more labour is used in the production process vs the other FOPs.
What Are The Benefits Of Using A Labour Intensive Process?
(3 Points)
~ Cheaper.
~ Labour can do some jobs that capital cannot do.
~ Support wider kaizen or TQM cultures -> labour can report better ways.
What Are The Drawbacks Of Using A Labour Intensive Process?
(4 Points)
~ Breaks, holidays and management -> effective management needed.
~ Increased recruitment costs -> if you have high labour turnover.
~ Lack of skilled workers in some industries.
~ Strikes can occur.
What Are The Ways Technology Can Be Used To Increase Operational Efficiency?
(3 Points)
~ Design Technology -> CAD (Computer aided design).
~ Stock / Inventory Management -> Computerised reordering.
~ Capital For Production + Fulfilment -> Robotics / automation.
Describe ‘Design Technology’ To Increase Operational Efficiency
(2 Points)
~ Increases the speed of the design process.
~ Easier to alter designs.
Describe ‘Stock / Inventory Management’ To Increase Operational Efficiency
(2 Points)
~ Instant, automated re-ordering when inventory or stock falls below a certain level.
~ Supports JIT.
Describe ‘Capital For Production + Fulfilment’ To Increase Operational Efficiency
(3 Points)
~ Capital intensive production.
~ Consistent quality -> decreasing waste.
~ Increases production scale -> EOS.
What Is The Impact Of Introducing Technology?
(3 Points)
~ Resistance from employees.
~ Finances available for technology.
~ Labour replaced by capital can be demotivating.
