Business - Unit 4: Decision-making to Improve Operational Performance Flashcards
Cost and volume objectives
Unit costs per item
Contribution per unit
Quality objectives
Reliability
Customer satisfaction
Efficiency and flexibility objectives
Capacity utilisation
Order lead times
Environmental objectives
Rate of energy efficiency
Percentage of supplies of raw materials from sustainable sources
Innovation
Putting a new idea or approach into action
Product
Launching new or improved products on to the market
Process
Finding better or more efficient ways of producing existing products or delivering existing services
Benefits of Innovation
Motivates workers
Improves waste reduction
Improved quality
Enhances reputation as a innovative company
Drawbacks of Innovation
Hard to achieve
Customers might not want the product
Internal influences on Operational Objectives
Corporate objective
Finance
Human Resources
Marketing issues
External influences on Operational Objectives
Economic environment
Competitor efficiency and flexibility
Technological change
Legal and environmental change
Capacity utilisation
Measures the extent to which capacity is used during a specific period
Why is Capacity Utilisation important?
Useful measure of productive efficiency
Average production costs tend to fall as output rises
High level of capacity utilisation is required if a business has a high break-even output due to significant fixed costs of production
Why do businesses operate below capacity?
Lower than expected market demand
A loss of market share
Seasonal variations in demand
Recent increase in capacity
Drawbacks of high capacity
Less time for repairs
Stress for employees
Customer service may deteriorate
A business is less likely to be able to respond to sudden or unexpected increases in demand
How to increase capacity
Increase workforce hours
Sub-contracts some production activities
Reduce time spent maintaining production equipment
Labour Productivity
Measures the amount or value of output per employee
What influences labour productivity?
Quality of the assets
Method of production organisation
Workforce is trained
Reliability of suppliers
Motivation
Issues with trying to improve labour productivity
Potential ‘trade-off’ with quality
Potential for employee resistance
Employees may demand high pay for their improved productivity
How to improve labour productivity
Measure performance and set targets
Streamline production processes
Invest in capital equipment
Invest in employee training
Improve working conditions
Unit Costs
The average cost per unit produced as measured over a particular time period
Economies of scale
The effect of unit costs falling as output rises
Labour intensive
Has a relatively high proportion of it costs related to the employment of people
Benefits of Labour intensive
Unit costs may still be low in low wage locations
Labour is a flexible resource through multi skilling and training
Labour at the heart of the production process
Drawbacks of Labour intensive
Greater risk of problems with employee/employer relationship
Potentially high costs of labour turnover
Need for continuous investment in training
Capital intensive
Relatively low labour costs, but high costs arising from the extensive use of equipment
Benefits of Capital intensive
Greater opportunities for economies of scale
Potential for significantly better productivity
Better equality and speed
Lower labour costs
Drawbacks of Capital intensive
Significant investment
Potential for loss
Mass Customisation
An approach to production in mass to achieve lower unit costs with customisation
Quality
Meeting the needs and expectations of customers
What would quality look like to a consumer?
Good design
Reliability
Durable
Value for money
Good functionality
Costs of poor quality
Product fails
Product delivered late
Unresponsive customer service
Why is Quality important?
Unique selling point
Brand image
Brand loyalty
Quality Control
The process of inspecting products to ensure that they meet the required quality standards
Advantages of Quality Control
It can help to prevent faulty goods and services being sold
Not disruptive to production
Improved reputation for quality
Disadvantages of Quality Control
It does not prevent waste of resources
Does not encourage all workers to be responsible for quality
Process of inspecting goods or services costs money
Quality Assurance
The processes that ensure production quality meets the requirements of customers
Advantages of Quality Assurance
Ensures product is not faulty
Stops customer complaints/gives better customer satisfaction
Disadvantages of Quality Assurance
Time consuming
Costs a lot of money to train staff
Time consuming to train staff
What are inventories?
Finished goods held by a firm to enable production and meet customer demand
Why do businesses hold stock?
Meet demand
Allow for seasonal changes
Allow efficient production
Enable production to take place
Influences on holding inventory
Need to satisfy demand
Need to manage working capital
Risk of inventory losing value
Costs of holding inventory
Costs of holding inventory
Cost of storage
Interest costs
Obsolete costs
Stock out costs
Maximum level
Max level of inventory
Re-order level
Acts as a trigger point
Lead time
Amount of time between placing and receiving the inventory
Minimum level
Minimum level of inventory
Buffer stock
An amount of inventory held as a contingency in case of unexpected offers
Lean Production
An approach to minimise waste
What waste would a business try to reduce?
Over- production
Waiting time
Transport
Defects
Stocks
Kaizen
Change for the better of continuous improvement
Just in Time
Products arrived when they are needed
Advantages of Just in Time
Reduces stock holding space
Less working capital is tied up in stock
Less likelihood of stock perishing
Less time spent on checking and re-working
Why are supplies important?
Closely linked to product quality
Costs
Good relationship
Disadvantages of Just in Time
Need for complex specialist stock systems
Little room for mistakes as minimal stock is kept for re-working faulty products
Highly reliant on suppliers
Characteristics of effective suppliers
Price
Quality
Reliability
Communication
Financially secure
Capacity
