Chapter 2 - The Modern Business Environment

Question 1

What is a global environment?

Answer 1

Companies operate in a world economy
Customers and competitors come from all over the world
Products are made from components from around the world
Firms have to be world class to compete
International regulations

Question 2

What is a just-in-time system?

Answer 2

System whose objective is to produce products as they are required by customers

Question 3

What are the primary objectives of the just-in-time system?

Answer 3

Elimination of waste
Elimination of inventory

Question 4

What is the impact on profit of the JIT system?

Answer 4

Cost savings:
stock holding costs, quality failure costs
Cost increases:
Labour costs, higher skills and training
material costs as we buy higher quality
delivery costs
Set up costs (more batches produced)
Other benefits:
More diverse product range
Improved quality
Flexible manufacturing
Improved supply chain relationships

Question 5

What is Total quality management?

Answer 5

general name given to programmes which seek to ensure that goods are produced and services supplied of the highest quality

Question 6

What are the two basic principles of TQM?

Answer 6

Get it right, first time
Continuous improvement

Question 7

What are the conformance quality costs of TQM?

Answer 7

Prevention costs
Appraisal costs

Question 8

What are the non-conformance quality costs of TQM?

Answer 8

Internal failure costs
External failure costs

Question 9

What are the pros of TQM?

Answer 9

Higher quality output
Lower non-conformance costs
Higher customer satisfaction
Goal congruence through employee buy-in

Question 10

What are the cons of TQM?

Answer 10

Increase in conformance costs
Time delay for benefits to be realised
Resistance to change

Question 11

How to work out throughput?

Answer 11

Sales revenue - Direct material cost

Question 12

How to calculate return per factory hour?

Answer 12

Throughput per unit / product time on bottleneck resource

Question 13

How to calculate cost per factory hour?

Answer 13

Total factory costs / Total time on bottleneck resource

Question 14

How to calculate throughput accounting ratio (TPAR)?

Answer 14

Return per factory hour / Cost per factory hour

Question 15

What is Kaizen?

Answer 15

Continuous improvement. Integral part of JIT management philosophy.
Improve processes via small, incremental amounts.[

Question 16

What is business process re-engineering?

Answer 16

Concerned with making far-reaching one-off changes to improve operations or processes

Question 17

What are the 5 steps to business process re-engineering?

Answer 17

1. Develop business vision and process objectives
2. Identify process to be re-designed
3. Rationalise - measure existing processes
4. Re-design process & create a prototype to show changes
5. Re-assembly - implement the revised system

Question 18

What are the pros of business re-engineering?

Answer 18

Increase the orgs ability to meet customer needs
Long-term cost reduction
Long-term strategic focus
Streamline activities throughout the org
Can reduce organisational complexity

Question 19

What are the cons of business re-engineering?

Answer 19

If used incorrectly, can be too focused on cost-cutting rather than process improvement
Can be used as a pretext for staff reductions
Need management buy-in
Improvement of one process at the expense of another
May ignore competitor activities if too focussed on internal processes