4.2: Operations planning

Question 1

Def. Operation planning

Answer 1

Preparing input resources to supply products to meet expected demand.

Question 2

What is the importance of the marketing mix?

Answer 2

• The future production levels needs to be estimated by the forecasted market demand in order to match the supply to the potential demand.

Question 3

Def. Operational Flexibility

Answer 3

The ability of the business to vary both the level of production and the range of products following changes in customer demand.

Question 4

How can operational flexibility be achieved? (4)

Answer 4

Increase capacity by extending buildings and machinery - however it is expensive
Hold high stocks - however can be damaged
Have flexible labour force - using temporary or part time contracts
Have mass customisation

Question 5

Def. Process Innovation

Answer 5

The use of a new or much improved production method or service delivery method. e.g. Robots in manufacturing

Question 6

Def. Job production

Benefits and Limitations (3)

Answer 6

• Producing a one off item specially designed for the customer.
  E.g Designed wedding rings
• Can be motivating for workers, because it allows job enrichment
• Is a very expensive method because takes a very long time to complete and is usually labour intensive. Requires highly skilled workforce.

Question 6

What are the production methods?

Answer 6

Job production
Batch production
Flow production
Mass customisation

Question 7

Def. Batch production (3)

Benefits and Limitations

Answer 7

*Producing a limited number of identical products - each item in the batch passes through one stage of production before passing on to the next stage.
E.g making batches of bread. The stages may involve mixing and kneading the dough, then separating, then baking.
*May allow some gains of economies of scale. Allows each individual batch to be specifically matched to the demand (some flexibility).
*However, high levels of work in progress inventories. The work may be demotivating for employees. If batches are small, unit cost may be high.

Question 8

Def. Flow production (3)

Answer 8

*Providing standardised items in a continually moving process
e.g soft drinks like coca-cola.
*Labour costs are low. JIT may be applicable. Quality can be consistent. Low unit costs. High productivity. Economies of scale.
* However, high initial set up cost because of capital intensive methods - machinery is expensive. Demotivating, repetitive work for employees.

Question 9

Recent innovations in production methods?

Answer 9

• CAD (Computer aided design) and CAM(Computer aided manufacturing) have aided the developments of new products, can do the repetitive and demotivating tasks etc.

Question 10

Factors influencing which production method to adopt? (4)

Answer 10

Size of the market: Small markets would be more suitable with job production, large markets would be more suitable with flow production.
The amount of capital available: Flow production line is difficult and expensive.
Availability of other resources: Flow production requires land. Job production requires skilled workers.
Market demand exists for products adapted to specific customer requirements: If firms want high volumes of production but some customisation, mass customisation is the most suitable.

Question 10

Def. Mass customisation (3)

Answer 10

• The use of flexible computer aided production systems to produce items to meet individual customer’ requirements at mass production cost levels.
  E.g Dell computers that allow customisation
  *Combines low unit cost with flexibility to meet customer’ individual requirements
  *Expensive product redesign may require key components to be switched. Expensive flexible capital equipment needed.

Question 11

What are the problems of changing production methods? (3)

Answer 11

Job to batch:
* Cost of equipment
* Additional working capital needed to finance stock
* Staff demotivation - less emphasis on their skills

Question 12

Def. Optimal location

Answer 12

A business location that gives the best combination of quantitative and qualitative factors

Question 13

Disadvantages to a business of non-otpimal location decisions? (4)

Answer 13

High fixed site costs -> high break even level of production
High variable costs e.g labour -> low contribution per unit produced or sold
High unemployment rate -> problems with recruiting suitable staff and staff turnover may be high.
Poor transport infrastructure -> high transport costs, hard to operate JIT

Question 14

Def. Quantitative factors

Answer 14

These are measurable in financial terms and will have a direct impact on either the costs of a site of the revenues from it and its profitability.

Question 15

What are the quantitative factors of choosing locations? (5)

Answer 15

Capital costs such as building costs
Labour costs
Transport costs
Sales revenue potential
Government grants

Question 16

Def. Qualitative factors

Answer 16

These are non-measureable factors that may influence business decisions.

Question 17

What are the qualitative factors of choosing locations? (8)

Answer 17

Safety
Room for further expansion
Manager’s preferences
Ethical considerations: if in need of relocations, making workers redundant would seem unethical.
Environmental concerns: to avoid any conflict with pressure groups
Infrastructure: like transport of communication links.
The pull of the market
External economies of scale

Question 18

Def. Multi-site locations

Answer 18

A business that operates from more than one location

Question 19

Def. Offshoring

Answer 19

The relocation of a business process done in one country to the same or another company in another country

Question 20

Def. multinational

Answer 20

a business with operations or production based in more than one country

Question 21

Advantages of multi-site locations (5)

Answer 21

Greater convenience for consumers
Lower transport costs
Production-based companies reduce the risk of supply disruption if there are technical or industrial relations problems in one factory.
Opportunities for delegation of authority to regional managers from head office
Cost advantages

Question 22

Reasons for international location decisions? (3)

Answer 22

To reduce costs: e.g. lower wage rate
To access global markets: rapid economic growth in less developed countries creates huge market potential
To avoid protectionist trade barriers: to avoid tariff barriers on imported goods by setting up operations within the country.

Question 22

Disadvantages of multi site locations (2)

Answer 22

Coordination problems between the locations - excellent two way communication systems will be essential
Different cultural standards and legal systems.
Supply chain concerns

Question 23

Def. Trade barriers

Answer 23

Taxes (Tariffs) or other limitations on the free international movement of goods and services.

Question 24

Def. Scale of operations

Answer 24

The maximum output that can be achieved using the available inputs (resources) - this scale can only be increased in the long term by employing more of all inputs.

Question 25

Def. Economies of scale

Answer 25

Reductions in a firm’s unit (average) costs of production that result from an increase in the scale of operations.

Question 26

Types of economies of scale and explain them (5)

Answer 26

Purchasing economies: bulk buying economies
Technical economies: machinery is operated at high capacity level
Financial economies: Banks tend to lend to larger businesses with lower interest rates.
Marketing economies: Costs of marketing can spread over high level of sales
Managerial economies: Can afford specialist managers

Question 27

Def. Diseconomies of scale

Answer 27

Factors that cause average costs of production to rise when the sale of operation is increased

Question 28

Types of diseconomies of scale and explain them (3)

Answer 28

Communication problems: Poor feedback to workers - demotivating, or communication overload.
Alienation of the workforce: Harder to involve every worker
Poor coordination: Harder to operate the higher number of departments, divisions and products.

Question 29

Advantages of economies of scale?

Answer 29

Overall lower unit cost