4: OPERATIONS Flashcards
What is operations management?
Operations management involves managing: processes, activities and decisions relating to the way that goods and services are produced/delivered.
Name 3 types of operational objectives.
- quality
- efficiency (labour)
- environmental
- costs
- in/output volumes
What is the significance of having a low unit cost in relation to competitors?
Low unit cost = offer lower selling price = more competitive and a high profit margin due to more sales.
unit cost formula
Unit costs = Total costs/ Total units
what are some examples of cost and volume operational objectives?
productivity higher, capacity utilisation higher, more items produced per machine, higher contribution cost per unit.
Formula for contribution cost
Contribution = selling price - variable costs
what is contribution cost?
Costs left over to pay the fixed costs before profit is made.
Why is good quality important for a business?
Good reputation/brand image, repeated sales, loyalty.
How can quality be measured by a consumer?
The reviews given, returns, punctuality of service or delivery time.
Formula for punctuality (quality management)
deliveries on time/total deliveries X100
What are some examples of quality based objectives?
reduce defect rates, reduce returns, improve consistency of reviews, increase punctuality (delivery).
What does it mean for a business to be flexible and efficient in terms of processes, deliveries and decisions?
In operations, how responsive to short term change is it and how effectively the assets are used.
examples of flexibility and efficiency based objectives
improve labour productivity, output per time period, lead times, capacity utilisation, delivery time.
examples of operational environmental objectives
reduce energy use, more renewable, recyclable packaging, materials used more sustainable, waste disposal better, carbon footprint of product/service down
What is innovation?
Putting a new idea into action (idea -> business)
What are the two types of innovation within a business and what do they mean?
(2x Ps)
Product ( launch/improving products) Process ( more efficient producing)
Benefits of process innovation
reduce unit costs due to economies of scale, less energy used, meet demand, more flexible, reduce lead time, better customer service and higher profits.
Benefits of product innovation
first mover advantage, early loyalty, good reputation/brand image, high market share, market leader opportunity
Internal influences on operational objectives
finances (affects investments, cash flow), HR ( training, quality of workforce), corporate objectives, marketing position (prices, nature of product, life cycle)
Define capacity
capacity of a business is a measure of how much output it can achieve in a given period
define capacity utilisation
The proportion of businesses capacity that is being used over a specific period.
Formula for capacity utilisation
actual output in period/maximum possible output X100
Why is capacity utilisation important?
- Measure production efficiency and helps set objectives
- Determines how much benefit from economies of scale
- alters ability to break even
- affects ability to meet demand or target audience
Risks associated with low capacity utilisation
- less economies of scale = high unit costs = high selling price = not competitive
- capital tied up in assets eg. labour, equipment and recourses
- less likely to break-even and be profitable in long term
Why might a business be operating at low capacity utilisation?
reduced market share, varying demand (expected or unexpected), bad HR department (bad training of workforce), repairing of machinery,low labour productivty
problems with operating at a high capacity utilisation
de-motivates workforce due to high stress due to higher workload
quality affected due to worsened quality control = reduce sales and negative brand image
less flexible to meet sudden demand
What is labour productivity?
The output per employee during a given time period
Formula for labour productivity
Output per period/no.employees = x units per employee
Influences on labour productivity
Skill of employees, suppliers lead time, machinery quality/quantity, recourses available, training, number of employees,motivation
What is a capital intensive industry?
An industry that requires assets of machinery/tech in high volumes to meet demand eg factory
What is a labour intensive industry?
A business requiring a large workforce to meet demand eg. restaurants
How can a business improve labour productivity?
Improve training of workforce, improve layout of facilities, hire skilled workers, consistent leadership.
define economies of scale
When the unit costs fall as the output of a business increases
Unit cost formula
Total production costs (£) / Total output (units)
What is internal economies of scale?
Increasing output from within the business which lowers costs
What is external economies of scale?
Within an industry to benefit an entire industry
examples of external economies of scale
improved transportation links, uni research, governmental funding, improved infrastructure,better technology, globalisation
What is purchasing economies of scale?
Bulk buying to reduce unit costs
What is technical economies of scale?
Specialist equipment purchased to improve efficiency
What is marketing economies of scale?
spreading the fixed marketing cost across the purchased good inflows = less per unit
What is network economies of scale?
Increased number of users for the product or service reudce operating (indirect) costs
What is financial economies of scale?
Access to cheaper finance as they pose less risk eg more loans and more overdrafts
What is managerial economies of scale?
employing more specialised employees due to a larger firm = increase efficiency
What is diseconomies of scale?
Where the average unit costs rise when a business gets too big.
Define quality
Where a product or service meets the needs and expectations of a customer
Implications of a business having high quality
Good reputation, loyalty, repeated sales, increased revenue, spend less on marketing ( establish brand )
How can quality be measureds tangibly?
Surveys, returns, reviews, defect rates, volume of waste material.
How can a business improve its quality?
Training employees, working to improve motivation, tech better, quality control, quality assurance, work closely with suppliers
What is the difference between quality assurance and quality control?
Assurance = checking at every stage
Control = check at end of process
Advantages associated with quality control
Be monitored well to stop faulty being received by customers, more time efficienct than assurance
Disdvantages associated with quality control
Requires specialist inspector, only identified at the end so wasted material = wasted capital.
Advantages associated with quality assurance
Spot faults early = less waste, provide focus of low defect rate via objectives for quality, enhance customer reputation if less faulty.
disadvantages associated with quality assurance
staff training required, can reduce labour productivity, slowed production.
Define inventory
The raw materials, work In progressed and finished goods that are held by a firm to enable production and meet demand.
What are the 3 types of inventory?
- Raw materials
- Work-in-progress
- Finished goods
Name 3 costs of holding inventory
- Storage cost
- Employees costs
- Obselence cost ( Can’t be sold anymore eg out of fashion or date)
- Stock out risk (run out)
- Interest involved in tying up capital
What is the just-in-time production method?
Where inventory is required just when it’s needed no buffer stock = lower storage costs, low lead times and a reliable relationship is required with the supplier.
Advantages of low inventory for a business
Less risk of obselence
Lower cost for storage
Less capital is tied up = more cash flow
Advantages of high inventory for a business
less risk of delays
meet sudden demand due to unexpected circumstances
less chance of stock out
economies of scale
What is the objective of having an inventory control chart?
To keep total costs of holding inventory low
formula for calculating the re-order level of a business ( inventory control chart )
(lead time x average daily usage) + buffer stock = re-order level
What is buffer stock on an inventory control chart?
Level below minimum stock held that is there for contingency purposes.
define supplier
A supplier is a business or individual that provides good and services to another
What is a supply chain?
The network between company and its suppliers to produce and distribute a product
What are some characteristics of a good supplier
good quality services/products
cost that suits
lead time that suits
location that suits
lead Time length ( very short if JIT model)
communicate
reliable
amount able to provide suits
what are the two types of suppliers?
Strategic and commodity
what is the difference between a commodity and strategic supplier?
Commodity: Can be bought elsewhere
Strategic: Can’t succeed without that specific supplier
What is a trade credit?
Where a business buys goods or service from another and pays later.
What are some factors that affect a businesses choice of suppliers?
- Quality
- Payment terms
- Ability to meet demand (capacity)
- Reliability
- Price
- Ethics of operation
What is mass customisation?
Large scale production while enabling customer to make preferences
What is CAD?
Computer aided design
Why is CAD (computer aided design) useful for a firm?
- CAD can help with innovation = unique models
- ^ competitively
- Can test before launch or mass production
- Able to alter designs to pick which is best
Advantages of a firm using robots
High speed and reliability, less workers needed, accurate processes, less risk for staff if in hazardous environment
Disadvantages of a firm using robots
Maintenance costs, hard to produce, less jobs = less team working
What is CAM?
Computer aided manufacturing
How can communication within a firm be improved by technology?
Emailing systems, zoom, quicker interdepartmental comms, able to sell on line, digital marketing, re-order systems to suppliers, tracking orders, loyalty cards.
Benefits of having technology within a firm
Less stock wasted, lower costs (less warehouse storage, digital marketing), better working conditions, innovation, monitoring finances, ^ productivity.
Drawbacks of having technology within a firm
Less job opportunities, loss of human touch=demotivating, cost of new technology development, if break = hard to meet demand and disrupted processes
what is lean production?
Organising production and operations to minimise waste (via cutting out processes that don’t add value)
How can a firm reduce waste via lean production?
- reduce waiting time (idle equip)
- Stock levels managed
- Reduce defects
- Less transport of materials
- reduce over production
What is just in time production?
Manufacturing system where materials/components are delivered immediately before required in production
- stock levels low
- inputs only when needed
- Type of lean production
Advantages of JIT production
Less likelihood of stock perishing, less stockholding space, less working capital tied up
Disadvantages of JIT production
less room for error, sudden rise in demand may not be accounted for (worsened customer service), reliant on suppliers, complex stock management
What is the Kaizan process in lean production?
The value of continuous movement of materials so time isn’t wasted
What is the Andon process in lean production?
And on chord above all processes, is pulled if something goes wrong so that production halts. Light appears so the issue can be addressed.
How can a businesses performance be altered by suppliers?
- Low quality inventory = bad reputation + lower sales
- Able to meet demand will affect sales and turnover
- The payment terms will affect cash flow and therefore ability to pay liabilities
- Unreliable delivery = less competitive as less reliable lead times
What’s a lead time?
How long it takes for a supplier to deliver goods.
What is outsourcing aka. subcontracting?
When an organisation uses an outsider supplier
Why outsource?
- Increases capacity to meet demands
- Employment of less specialist staff = lower labour costs
- Accept more contracts = diversify customer base
- reduce infrastructure costs ie. storages, office space
Examples of when businesses may outsource
Law services not done in-house
Software maintenance
Financial advisors
Capital intensive jobs like factory work
cleaning
Drawbacks of outsourcing
May be expensive
Less reliable quality as supplier may have worse quality than the business
Unethical supplier practices affect the ethics of company
Less control over quality
