4.1 Production of goods and services Flashcards
Define Operations Management.
Operations Management is defined as the process of production of goods and services.
What does a successful operations management produce?
Successful operations management produces goods efficiently , in sufficient quantities to meet demand, at the right time, with the right quality.
Define Production.
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.
Define Productivity.
Productivity measures the efficiency of production. How many inputs are required to make the output?
How do you calculate productivity?
It’s calculated by dividing total inputs by total outputs.
What is the difference between production and productivity?
production will measure how much is produced but productivity measures how efficiently the output is produced.
How do you calculate Labour Productivity?
Labour Productivity = Total Output ÷ No of workers
What are the benefits of increasing efficiency?
keep prices the same and increase gross profit
lower prices and increase sales.
How can a business raise productivity?
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.
What is required for a business to change its production process to improve productivity?
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.
Explain lean production.
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.
Give an example of lean production
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.
Name two examples of lean production.
Kaizen
Just In Time (JIT)
Explain Kaizen.
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.
Explain Just In TIme.
Just-in-Time is a lean production method that improves efficiency through reducing inventory costs.
What is inventory?
Inventory is stock of work in progress, raw materials, and finished products held by a business.
Why would a factory need to hold inventory?
A factory will need to hold inventory so they can keep the production line running by having enough components.
Why would a retailer need to hold inventory?
A retailer will need to have enough inventory to satisfy demands for shoppers
Why would a restaurant need to hold inventory?
a restaurant will need to make sure they have enough ingredients for the dishes on the menu.
What happens if a business does not have enough inventory?
If businesses don’t have enough inventory to satisfy consumer demand they will lose customers and revenue, and develop a negative reputation.
Explain the relationship between holding inventory and its cost.
holding inventory is an additional cost for the business, and the more inventory a business holds the greater the cost.
What costs does inventory involve?
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.
List the risks of keeping inventory.
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.
How does JIT reduce inventory costs?
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.
