Capacity/quality Flashcards
Capacity -
- the maximum it can produce given its existing resources; at any moment the capacity of a business is fixed, as there are a given level of resources. Overtime the capacity of a business might change as more resources become available. However, it might take time (like building more power nuclear plants). Increasing capacity is an investment and managers will want to consider the cost, the likely returns and the risk. The desired level of capacity will depend on the expected level of sales.
Unit average costs -
Formula =
- this measures the cost per unit
= total costs/total output
Capacity utilisation -
Formula =
- measures existing output as a percentage of the maximum possible output
= existing output/maximum possible output x 100
Measures of the business (4)
- Labour productivity
- Unit average costs
- Capacity
- Capacity utilisation
Labour productivity -
Formula =
- this measures the output per employee in a given period
= total output/number of employees
Low capacity utilisation (2)
- It suggests that demand is relatively low
- The cost per unit is likely to be high as fixed costs are going to be spread among less units => higher FC per unit that might result in lower profit margins, that is why the businesses try to achieve a high capacity utilisation
Chain of capacity
Unit costs -> price -> sales -> volume of production
The use of data in operational decision making
By analysing the operational data, managers may be able to identify problems or opportunities. This enables them to analyse different courses of action and decide what to do next. Operations data therefore informs operations decision making and planning.
What can go wrong with capacity (4)
- If labour productivity is low, (the managers can analyse this further to identify the cause. They might then consider whether to invest in training, change reward system or change the way the work is undertaken.)
- If the unit costs are too high, (the managers might negotiate with suppliers or improve labour productivity, review levels of defects.)
- If capacity is too low, (might consider whether it’s worth to invest to expand.)
- If capacity is too high, (managers will consider whether to increase demand or whether the business should ‘downsize’ (reduce capacities by closing part of facilities).)
Quality -
- is measured by the extent to which an operation meets its customer requirements
Good quality process
A good - quality operations process delivers exactly what it is intended to produce and meets the targets that have been determined by the customer requirements. To achieve its targets and develop a quality process a business must develop appropriate systems; must monitor what is happening to ensure the targets continue to be achieved. If the targets are met -> quality process.
Quality operations process (5)
- A clear definition of what the targets are; these should be set to meet customer requirements
- Systems to achieve these targets
- Training of employees so that they have the necessary skills
- Ongoing measurement of what is achieved relative to the targets
- Action to be taken if performance does not meet the targets
Importance of quality
To remain competitive and gain brand loyalty the businesses should provide good consistent quality of their products. The market became more competitive due to high number of businesses online and developments in technology.
To improve quality (5)
- Using market research to ensure the requirements of customers are clearly met and the action are appropriate for relative to what competitors are doing
- The careful selection of suppliers
- Training employees to check the work they receive and make sure it is acceptable, to do their job properly and check their own work
- Investment in technology
- Reviewing the way the work is done to see if the systems can be improved (kaizen groups as employees know what’s best for them)
Quality assurance -
- the maintenance of target quality by attention to detail at every stage of the process
