4.1 Production of goods and services

Question 1

Define Operations Management.

Answer 1

Operations Management is defined as the process of production of goods and services.

Question 2

What does a successful operations management produce?

Answer 2

Successful operations management produces goods efficiently , in sufficient quantities to meet demand, at the right time, with the right quality.

Question 3

Define Production.

Answer 3

Production is the processes used to transform inputs into goods or services.

This could be transforming wood into furniture or the programming and technology to set up a music streaming service.

Question 4

Define Productivity.

Answer 4

Productivity measures the efficiency of production. How many inputs are required to make the output?

Question 5

How do you calculate productivity?

Answer 5

It’s calculated by dividing total inputs by total outputs.

Question 6

What is the difference between production and productivity?

Answer 6

production will measure how much is produced but productivity measures how efficiently the output is produced.

Question 7

How do you calculate Labour Productivity?

Answer 7

Labour Productivity = Total Output ÷ No of workers

Question 8

What are the benefits of increasing efficiency?

Answer 8

keep prices the same and increase gross profit
lower prices and increase sales.

Question 9

How can a business raise productivity?

Answer 9

Increase worker motivation levels:
So they would work harder and take more responsibility for improving efficiency and reduce mistakes.

Better trained workers:
to operate machinery more efficiently and work better as part of a team.

Invest in more machinery and automation:
so the business doesn’t need as many workers.

the business’ production process should be better controlled and managed by leaders.

Question 10

What is required for a business to change its production process to improve productivity?

Answer 10

For a business to change its production process in order to improve productivity, it will require a capital investment.
e.g. training or additional machinery.
This will be higher cost in the short term. The business must calculate if the spending on productivity is cost effective.

Question 11

Explain lean production.

Answer 11

Lean production aims to continually improve the production process, decreasing waste so inputs are reduced and efficiency and productivity is increased.

This may mean looking at how workers move around a factory. If the production process is changed, so workers move around less between different machines, less time and energy is wasted and production will increase.

However, lean production can also involve decreasing product defects, lowering transportation costs, and decreasing inventory costs.

Question 12

Give an example of lean production

Answer 12

the “Speedee” service system at the first McDonalds which stripped down every single process and worker movement and reorganised them to maximise efficiency. These lean production principles are now applied at every McDonald’s franchise around the world.

Question 13

Name two examples of lean production.

Answer 13

Kaizen
Just In Time (JIT)

Question 14

Explain Kaizen.

Answer 14

Kaizen translated from Japanese means continuous improvement. Employees are empowered to suggest small changes to the production process to continually improve efficiency.

Responsibility for improving productivity is shared between workers and leaders, so Kaizen needs good communication and a highly motivated workforce.

Question 15

Explain Just In TIme.

Answer 15

Just-in-Time is a lean production method that improves efficiency through reducing inventory costs.

Question 16

What is inventory?

Answer 16

Inventory is stock of work in progress, raw materials, and finished products held by a business.

Question 17

Why would a factory need to hold inventory?

Answer 17

A factory will need to hold inventory so they can keep the production line running by having enough components.

Question 18

Why would a retailer need to hold inventory?

Answer 18

A retailer will need to have enough inventory to satisfy demands for shoppers

Question 19

Why would a restaurant need to hold inventory?

Answer 19

a restaurant will need to make sure they have enough ingredients for the dishes on the menu.

Question 20

What happens if a business does not have enough inventory?

Answer 20

If businesses don’t have enough inventory to satisfy consumer demand they will lose customers and revenue, and develop a negative reputation.

Question 21

Explain the relationship between holding inventory and its cost.

Answer 21

holding inventory is an additional cost for the business, and the more inventory a business holds the greater the cost.

Question 22

What costs does inventory involve?

Answer 22

Inventory involves storage costs. Businesses need a space or a building to store the inventory, so storage adds to their costs of rent.
Businesses may need to invest in a secure building and pay for security for valuable goods, or rent a refrigerated warehouse to keep goods fresh.

Question 23

List the risks of keeping inventory.

Answer 23

For perishable inventory like food there is also a risk it will go out of date or go “bad” while in storage and can’t be sold.
Inventory like clothes may go out of fashion, or high technology items may become obsolete as new models are launched.

Therefore, businesses have to find a balance between having enough inventory to satisfy customer demand, but also want to keep storage costs low.

Question 24

How does JIT reduce inventory costs?

Answer 24

Components or raw materials are delivered to the factory just when they are needed or “just-in-time” for production.
This means businesses can (in theory) remove the need for inventory and remove storage costs.

Question 25

In what circumstances does JIT work in?

Answer 25

It needs excellent communication between suppliers and the business to ensure all deliveries arrive on time, with the right raw materials and components. Any error which leads to a delivery not arriving on time or defective supplies will stop production and cause huge costs to the business.

JIT also requires flexible working from employees, and advanced machinery so production can quickly switch from one product line to another.

JIT offers large cost savings to a business, but will require a skilled workforce and effective leadership to set up the system and keep it running.

Question 26

What are the features of job production?

Answer 26

Job production is suitable for unique products.
It’s making a one-off product, like a wedding cake, tailor made suit, or a ship.

Question 27

What are the benefits and limitations of job production?

Answer 27

Limitations:
high labour costs
Economies of scale can’t be achieved
Can take a long time

Question 28

What are the features of flow production?

Answer 28

Flow production in many ways is the opposite of job production.
Instead of one unique product, thousands or even millions of identical products are constantly produced.

Question 29

What are the benefits and limitations of flow production?

Answer 29

Limitations:
demotivation of workers

Question 30

What are the benefits and limitations of batch production?

Answer 30

Question 31

What must one consider when choosing the best production line?

Answer 31

Choosing the most suitable method of production has strong links with mass and niche marketing.

Flow production is most suitable for mass market products, but the high capital investment won’t make sense for niche markets where sales are lower.

Businesses must also consider the type of goods they are selling, will there be significant cost savings by switching methods of production?

Will they lose customers by offering less variety in their product range, or offering unique products or will they gain more customers by offering mass produced goods at lower prices.

Can they maintain their brand image as a niche producer of high-quality goods if a business starts mass producing goods?

⚠⚠ DANGER! ⚠⚠
Students often recommend production methods on the basis of worker motivation or demotivation. For example, making a decision not to switch to flow production because of the impact of worker motivation. However, increasing sales and profit margins is a higher priority than worker motivation for business owners and leaders.

Question 32

What is CAD and what is the benefit of it?

Answer 32

Computer Aided Design (CAD) means products can be developed and tested to a higher standard at a lower cost.

Question 33

What is CAM and what are the benefits of it?

Answer 33

Computer Aided Manufacture (CAM) allows technology to control machinery on production lines, meaning factories can be run more efficiently, labour costs are lower due to less workers required and higher quality products with less defects are produced.

Question 34

What are the benefits and limitations of using technology to improve production methods?

Answer 34

Using the latest technology to improve production methods requires high capital investment, and businesses must continually update technology to ensure they have the most efficient systems in place. It may lead to employees being made redundant or additional costs to train workers. However, the potential cost savings and improvements in quality outweigh the short-term costs. Businesses that don’t use technology to improve production methods risk losing a competitive advantage and decreasing profit margins.