Business Unit 5 Flashcards
What is operations management?
Art of managing production to get the best end product
Economic sustainability
The need to use available resource and raw materials to their best advantage, ultimately ensuring the profitability and financial perfomrance
Social sustainability
the need to take human factors into account both internally (eg workers) and externally (eg local community) when making business decisions
Ecological sustainability
the need to take environment factors into account when making business decisions
Triple bottom line
the need to take economic, social and ecological factors into account when making business decisions
Operations methods
job production
budget production
mass / flow standardized production
mass customization production
Job production
production of a special “one - off” product made to a specific order
eg. wedding cake
Job production (advantages vs disadvantages)
advantages: mark-up is likely to be high, clients get exactly what they want, likely to motivate skilled workers, can be flexible
disadvantages: expensive (skilled workers and non-standardized materials), time consuming, might fail because of lack of client’s knowledge, labour intensive and reliant on skilled workers
Batch production
manufacturing method in which products are produced in groups or batches rather than in a continuous stream. Each batch goes through one stage of the production process before moving on to the next stage. This method is used when similar items are produced together, but there are breaks between production runs to change or reset equipment for different batches.
Batch production (advantages vs disadvantages)
advantages: economies of scale, wider choice than mass so captures more market share, useful for trialling products, help with unexpected orders
disadvantages: loss of production time, need to hold large stocks to manage unexpected orders, sizes of batches are dependent on the capacity of the machinery which can limit flexibility and efficiency
Mass production
Production of a high volume of identical, standardized products
Mass production (advantages vs disadvantages)
advantages:
- once set needs little maintainance
- larger orders achieving economies of scale
- labour costs may be low
- can respond to an increase of orders quickly
disadvanatges:
- High set-up costs.
- Costly breakdowns, as the entire assembly line may need to stop.
- Dependence on steady demand from a large market segment.
- Inflexibility, particularly evident if there’s a sudden drop in demand, potentially leaving the factory with large stocks of unwanted products.
- The potential demotivation of workers due to the repetitive nature of their activities
Mass individual customization
combines mass production with the personalization of custom made products for marketing purposes.
eg, furniture with many option to be chosen by customers
Comparison of production methods
- Set up time
- Cost per unit
- Capital
- Labour
- Production
- Stock
- Set up time
Job production: Long (new set-up for each job)
Batch production: Fast (modification of existing)
Mass production: Long (synchronize process - Cost per unit
Job production: high
Batch production: medium
Mass production: low - Capital (machinery)
Job production: flexible, depends
Batch production: mixture, based on general purpose machines
Mass production: large numbers of general purpose machines for specific function - Labour
Job production: highly skilled
Batch production: semi skilled
Mass production: unskilled - Production time
Job production: long
Batch production: once set, can be swift
Mass production: swift - Stock
Job production: low quantities of raw materials, high amount of work in progress
Batch production: high quantities of raw materials, medium amount of work in progress
Mass production: high quantities of raw materials and finished stock, low amount of work in progess
Changing the production method
Would have implication for all business functions
1. Human resources: reemployment and retained
2. Marketing: image may be altered, changes in prices, distribution channels affected
3. Finance: any change needs financing, long or short term
Appropiate type of production method
Factors affecting:
1. The target market
2. The state of existing technology
3. The availability of resources
4. Government regulations
Lean production
Business approach that focuses on less waste and greater efficiency.
Developed in Japanese manufacturing industries, notably by the Toyota Motor Corporation
Goal is to streamline production, improve quality, and increase overall customer value.
includes waste of time, transportation, products, space, stock, energy and talents
Methods of lean production
Continuos improvement
Just in time
Just in case
Continuos improvement (Kaizen)
Kaizen is a Japanese business philosophy that emphasizes continuous, incremental improvement in all aspects of an organization, involving every employee.
small, incremental changes that cumulatively lead to significant improvements in efficiency, quality, and overall performance.
Just in time
a modern method of stock control, which involves avoiding holding stock by being able to get supplies only when necessary and to produce just when ordered
Just in case
the traditional methods of stock control, which involve holding reserves of both raw materials and finished products in case demand arises
Cradle-to-cradle design and manufacturing
a recent approach to design and manufacturing based on principles of sustainable development, especially recycling
Quality
Suggests a product is reliable, safe, durable, innovative, and has value for the money paid
Quality revolution
Business not at the top end of the range can benefit from producing good quality products, eg. Honda
Quality control
- Quality is controlled by one person carrying out inspection after production
- Max percentage is set of failure, wasteful production
- Rarely to stop production, quality stops with the job
- Role culture, autocratic leadership, top down communication
Quality assurance
- Quality assured through he organization, whole business is focused
- Zero rejections are expected, lean production
- Company expects to halt production to fix errors, quality errors includes suppliers and after sales servicing
- Total quality culture, democratic consultative leadership, 360 degree communication
Methods of managing quality assurance
For quality assurance to work effectively, whole business has to embrace a total quality cultural shift.
Methods:
- Quality circle
- Benchmarking
- Total quality management
Quality circle
a formal group of employees who meet regularly to discuss and suggest ways of improving quality in their organization
Benchmarking
a tool for businesses to compare themselves to their competitiors in order to identify how they can improve their own operations and practices
Total quality management
an approach to quality enhancement that permeates the whole organization
Total quality management features and purposes
- Quality chain: As the quality of a business depends on suppliers and after sales services, all stages of the production process must be taken into account
- Statistical process control: all stages are monitores and info is given to all parties
- Mobilized workforce: all employees are expected to embrace TQM
- Market oriented production: focusing on customers wants, business can make sure that it is innovating and reinventing products. Can lead to improved sales and brand loyalty
Total quality management disadvantages vs advantages
Advantages:
1. creates closer working relationships
2. motivates workforce
3. reduces costs
4. improves design and production of quality products
5. enhance reputation
Disadvantages
1. costly
2. staff need training
3. take time to change corporate culture
4. creates stress
5. difficult to maintain long term
National and international quality standards
it is an excellent way to assure the consumer the quality
- enable exports
- give a competitive edge
- enhance image and reputation of a business
- save on the costs of withdrawing products
- act as an insurance
- lead to higher profit margins
Location of production
is one of the most important decisions a business has to make, where it will be based, or as business grows, where it should relocate to
Factors to take into account for deciding location of production
- Cost
- Competition
- Type of land
- Markets
- Familiarity of area
- Labour pool
- Infrastructure
- Suppliers
- Government
- laws and taxes - National, regional and international ambition
Business tool to decide location of a compnay?
Decision tree: forecast outcomes of alternative scenarios
The impact of globalization on location
Best analysed in terms of push and pull factors
- influence whether a business decides to operate domestically or expand its operations internationally, driven by both internal pressures and external opportunities.
Pull factors of globalization in location
- Access to New Market
- Economic Policies
- Technological Advances and Improved communication
- Dismantling of trade barriers
Push factors of globalization in location
Reduce Costs: allow businesses to move closer to raw materials or to utilize cheaper labor
Increase Market Share: new countries, new markets and increase their market share.
Use Extension Strategies: extend the lifecycle of their products, expand overseas to introduce their products into new markets.
Use Defensive Strategies: avoid competitors from doing so first.
Ways of reorganizing production, both nationally and internationally
- Outsourcing (subcontracting)
- Offshoring
- Insourcing
- Reshoring
Outsourcing
practice of using another business (as a third party) to preform some peripheral activities
Offshoring
the practice of subcontracting overseas, eg, outsourcing outside the home country
Insourcing
the practice of preforminf peripheral activities internally, wihtin the company (the opposite of outsourcing)
Reshoring
the practice of bringing back business functions (jobs and operations) to the home country (the opposite of offshoring)
Business tool to reorganize production, both nationally and internationally
Force fiel analysis, to compare the driving forces and restaining forces for and against a specific decision written in centre of the diagram
Break-even quantity
a measure of output where total revenue equals total costs
How do you calculate the break-even quantity?
Graphically: Intersections TC and TS
Numerically: fixed costs/contribution per unit
- Contribution per unit: subtracting the variable cost per unit from the selling price per unit.
Break-even chart
a graphical representation that measures the value of a firm’s costs and revenues against a given level of output
- fixed costs
- total sale revenues
- total costs
Contribution per unit
The difference between the selling price per unit and the variable cost per unit
Total contribution
the difference between total sales revenue and total variable costs
Profit
total contribution - total fixed costs
total revenue - total costs
Margin of safety
the output amount that exceeds the break-even quantity
( current sales - break-even point / current sales ) *100
Steps to draw a break-even chart
- Calculate BEP
- Draw and Label the Graph, units
- FC Line, label
- TC Line, label
- TR Line, label
- Highlight BEP and Profit Margin
Target profit output
the level of output that is needed to earn a specified amount of profit
Benefits and limitations of the break-even analysis
Benefits
- lets manager see BEP, BEQ, costs, safety margin
- helps visualise a form’s profit on various levels of sales
- formulas can be used to check charts
- used as a simple decision-making strategy to decide on investment projects or whether a business should relocate
Limitations
- assume all units of produced are sold
- assumes all costs and revenues are linear
- FC may change at levels of activity
- semi-variable costs are not considered
- not useful in dynamic businesses with sudden changes
- unreliable data may influence wrong decisions
Supply chain
a system of connected organizations, resources, information and activities that a business needs to produce goods or provide services to its customers
Two types of flows must be managed in the supply chain
- Raw materials, LOGISTICS: the hardware of the supply chain (trucks transporting)
- Information, INFORMATION AND COMMUNICATION: the software of the supply chain, illustrated by databases and spreadsheets used by the administrative staff of the factory
Local supply chains
characterized by a short distance between customer and producer, in many ways being more sustainable.
Global supply chain
involves international trade, less sustainable but consumer demands mean they can be very profitable. economic point of view is essential because not all countries produce the same type of goods.
How are supply chains represented?
By flow charts and networks linking organizations involved
Buffer stock
the minimum amount of stock that should be held to ensure production is still possible and customers’ orders can still be fulfilled
Stock control
Raises issues in terms of costs. Both holding too much stock or holding too little can be costly
The economic order quantity
By combining two sets of costs we can see the minimum point of the total cost. This is the amount that should be ordered for a given period
Stock control diagram important elements
- The initial order: first amount delivered
- The usage pattern: stock used over a given time period
- The maximum stock level: max stock held at one time period
- THe minimum stock level: stock kept batch as a reserve (buffer)
- The reorder level: the level at which stock has to be reordered
- The reorder quantity: the amount of stock ordered
- Lead time: time taken from ordering to receiving stock
Limitations of a stock control diagram
- Assumes no unforeseen changes
- Nowadays software used to make calculations and establish optimum reorder levels and quantity
Critical Path Analysis
tool used for project management its time is to identify the minimum duration of a project when different stages may overlap
Capacity utilization rate
Operation managers have to know how efficient their facility is. Most time, it is impossible to reach 100%
(actual output / productive capacity ) * 100
Defect rate
Percentage of output (units) that fail to meet set quality standards
number of defective units / total output * 100
Productive rate
Measure of efficiency of production. The ratio of output to input production
total output / total input * 100
- needs to be contextualized in connection with the industry
Labour productivity
measures the efficiency of a worker, compares and identifies who is underperforming compared to the average.
total output / total hours worked
Capital productivity
measures the efficiency of the company’s capital, especially working capital
working capital = current assets - current liabilities
working capital productivity = sales revenue/working capital
Operating leverage
Measures how total costs are made up of fixed costs and variables to calculate how well a company uses its fixed costs to generate money
operating leverage = quantity * (price - variable cost per unit) / quantity * (price - variable cost per uni)t - fixed costs
Cust to buy and cost to make
Business decisions to buy or to make, can be supported by the costs and revenue formulas
CTB = P * Q
CTM = FC + (VC * Q)
Crisis management
The systematic steps and efforts taken by an organization to limit the damages of a crisis
Four related factors that affect crisis management
- Transparency: stakeholders want to be kept informed, assure safety is a priority. Part of CSR
- Communication: managers have to be objective and not act with concern for the business’s reputation rather than the safety of all involved
- Speed: managers have to act and communicate promptly
- Control: managers have to prevent future crises and keep things under control, minimize further economic, environmental or social impact
Contingency planning
An organization’s attempt to set procedures into place to deal with a. crisis through scenario planning, modelling and simulation
Four important factors of contingency planning
- Cost
- process planning itself and training staff for a range of scenarios can be costly
- much cheaper than dealing with crises lawsuits - Time
- The same applies to time - Risks
- have to asses the possible range of risks to the workers, customers, machines, company and suppliers
- degree and level of accuracy is likely to change, contingency planners will need to review their plans regularly - Safety
- dependent on the notion that safety must be a priority
Crisis management team
Plans can be written when modelling a hypothetical crisis
If there is no contingency plan the decisions in a crisis will likely be made out of stress, and the wrong decisions
Research and development
a form of innovation which is directly associated with the development of existing products or process or the creation of new ones
The process between thinking of an idea and launching the product
- long process
- most don’t get to the production stage, too costly or not viable
- Think of an idea
- Test pass idea through a focus group
- Market research, look for potential consumer profiles
- Workout budget
- Build the prototype
- Carry out launch test, pilot
- Launch
- Review
Advantages of successful R & D
- competitive advantage
- reduces costs
- enhances prestige
- improves quality
- extends the life of a product
- opens new markets
- motivates workers
R & D and developing goods and services that address customer needs
Helps find gaps in the market (existing or create new ones)
- Innovation is essential for any industry
- If fail to innovate may lose market share to competitors
- In the BCG matrix, cash cows may turn into dogs
Marketing and R&D
The absence of dialogue can create costly consequences
Information provided form market research helps the R&D department develop products for which there is a market demand.
Intellectual Property Rights
Rights given to a person over the creation of their minds
Fall into two categories
1. Copyright (right over creation)
2. Industrial property (distinctive signs)
Advantages of IP Rights
- first mover advantage
- safeguard continuity of production
- build customer loyalty
- increased profit margin
Innovation
The addition of something new. Two main types:
- Product innovation
- Process innovation
Product innovation
a type of innovation where new products are created or improvements to existing products are made
Process innovation
a type of innovation where some parts of the manufacturing or service delivery improved
Adaptive innovation
an innovation in existing organizational elements
Disruptive innovation
an innovation so important it may change the industry itself
Factors that affect R&D and Innovation
- organizational structure
- pastexperiences (past dependence)
- the pace of change
- ethical concerns
- legal constrains
- technology
- HR
- Finance
- the level of competition
Database
a collection of data that is organized to be easily found, managed, explored, and updated
Data mining
the process of finding trends, patterns, and correlations in large data sets
Data analytics
the process of inspecting and modeling data to find useful information
- Descriptive analytics (past)
- Predicting analytics (forecast)
- Prescriptive analytics (combines both and goes beyond predicting
The use of data mining and data analytics
Helps managers to make more informed decisions
examples:
- help to identify patterns to send certain customers offers
- help to decide when to put items in sale and when to sell at full price
The use of data mining and data analytics for customers
Advantages vs Disadvantages
Advantages
- appreciate offers and discounts
Disadvantages
- may feel uncomfortable knowing so much personal information is collected, stored, and used
Digital Taylorism
the use of digital technology to monitor employees
E-commerce
buying and selling goods and services through electronic networks commonly via the internet
E-commerce and the growth of technologies
Advantages vs Disadvantages
Advantages
- global reach: beyond geographical limits
- convienience for customers who can shop wehrever and whenever, customer satisfaction
- no need for a physical store, such as an expensive city store
Disadvantages
- increased competition
- customer relationship lacks and can hinder customer loyalty
- can’t feel or try prodcut
- returns and logistics
Cybercrime
an international and malicious attack on an individual or organization by targeting their computer system and accessing their data
Cybersecurity
the practice of defending computers and IT systems from malicious attacks
Artificial neural networks
an element of a computing system designed to stimulate how the human brain analyses and processes
found everywhere in businesses, eg:
- personalize recommendations for their audience
- email service providers to detect spam
- chatbox
Data centres
a building or a room designed to house computer systems and their components
Cloud computing
the delivery of services via the internet especially data storage, databases, networking and software
(metaphorically a cloud to suggest that data is stored and managed by third parties, allowing users to access their data and use services from anywhere)
Cloud computing
advantages vs disadvantages
Advantages
- flexibility of work practices
- IT costs may be reduced
- Business continuity
Disadvantges
- concerns for security, data protection, privacy and confidentiality
- location servers, different security and privacy laws
- cloud providers may lock businesses into contracts that may later regret
Big data
extremely large databases that can be analyzed to show trends and patterns
Virtual reality
the creation of a simulated three-dimensional environment that can be explored by a person who has entered the computer-generated world
Artificial intelligence
the ability of computers to mimic humans, especially how humans think and process information
External vs internal sources driving R&D
Internal
- a source of competitive advantage
- a source of extra revenue
- first mover advantage
- market orientation
External
- change in customers tastes and habits
- change in government legislation
- innovative products launched by competitors
Push factors
internal motivations
Pull factors
external opportunities
