Chapter 23: The nature of operations Flashcards
Intellectual capital
intangible capital of a business that includes human (Skilled employees), structural (Databases) and relational capital (Links with suppliers and customers)
Operations management
Managing resources effectively in the production of goods and services
Transformational process
An activity that transforms one or more inputs, adds value to them and produces outputs for customers
Ways in which operations managers can increase added value
By effectively managing:
1. Efficiency of production (low costs)
2. Quality of goods/services
3. Flexibility and innovation (adapting and developing products)
Value added depends on
Design of the product (high quality for high price)
Efficiency of operations (Reduces costs)
Branding (to encourage customers to pay high prices)
Operations
Activities that businesses engage in on a daily basis to increase the value of the enterprise and earn a profit
Operations contribute to adding value by
Reducing production costs through increased efficiency
Producing quality goods that meet customer needs
Ensuring production is flexible to satisify dynamic tastes
Productivity
Ratio of outputs to inputs during production
e.g. output per worker per time period
Level of production
Number of units produced during a time period
Production
Process that turns inputs into outputs
Labour productivity
Average output per employee in a time period
total output in a time period
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Total workers employed
How to increase productivity
Improve employee training and motivation
Purchase technologically advanced equipment
More effective management
Reasons why productivity does not assure success
Unpopular products do not sell even if costs are low
More effort calls for more pay which increases costs
Quality of management can determine success
There’s a difference between efficiency and effectiveness
Efficiency
Producing output at the highest ratio of output to input
You can be efficient but not effective. Demand can change
Effectiveness
Meeting business objectives by using inputs productively to meet customer needs
Sustainability of operations
Business operations that can be maintained in the long term
e.g. protecting the environment and not damaging the quality of life for future generations
Ways in which sustainability can be achieved
Reducing energy use and carbon emissions
Reducing plastic and non-biodegradable use
Using recycled materials
Manufacturing recyclable products
Reducing waste from operations
Buying from sustainable suppliers
Why businesses are making operations sustainable
Businesses must comply with laws on the environment
Pressure groups expose a business’s environmental damage
Sustainable operations gain publicity
More sales because customers prefer “greener” products
Benefits of increasing sustainability
Reducing energy can reduce energy costs
Reducing the use of plastic will attract green consumers
Recycled products reduce costs, can reduce prices
Reducing waste can reduce production costs
Buying from sustainable suppliers reduces bad publicity
Limitations of increasing sustainability
May require capital investments (solar panels)
Environmentally friendly materials could cost more
Recycled materials need to be clean
May require worker training and more equipment
Labour intensive
Involving a high level of labour input compared to capital equipment
Capital intensive
Involving a high level of capital equipment compared to labour input
Limitations of labour intensive production
- Low output levels
- Skilled, high-paid workers required
- Product quality depends on skill and experience of the worker
Advantages of capital-intensive production
- Economies of scale
- Consistent quality
- low unit costs of production
- Ability to supply the mass market
Disadvantages of capital-intensive production
- High fixed costs
- High cost of financing the equipment
- high maintenance cost and need for skilled workers to fix them
- Quick pace of technological change
How to choose between labour or capital intensive
Nature of the product and brand image
Relative costs of labour and capital
Business size and access to finance
Operation (production) methods
- Job production
- Batch production
- Flow production
- Mass customisation
Job production
Production of a one-off item specially designed for the customer
e.g. wedding ring
Advantages of job production
Allows for specialist jobs
High levels of worker motivation
Disadvantages of job production
High unit production costs
Time-consuming
A wide range of tools is needed
Batch production
Production of a limited number of identical products
e.g. bread
Advantages of batch production
Some economies of scale
Faster production with lower unit costs
Some flexibility in design
Disadvantages of batch production
High levels of inventory at each production stage
Higher unit costs than flow production
Flow production
Production of items in a continually moving process
e.g. Coca Cola cans
Advantages of flow production
Low unit costs due to the constant working of machines
High labour productivity and economies of scale
Disadvantages of flow production
Inflexible (difficult to switch between products)
It is expensive to set up flow-line machinery
If machines break down, it interrupts production
High maintenance costs
Demotivated workers (repetitive work)
Mass customisation
Using flexible computer-aided technology on production lines to create custom products that meet individual customer requirements
e.g. Dell computers are specially designed to meet customer needs
Advantages of mass customisation
Combines low unit costs with flexibility
Capital intensive allows quality to be standardised
Disadvantages of mass customisation
Expensive product re-design to switch key components for a variety
Expensive flexible capital is needed
Low worker motivation (repetitive tasks) Machines do everything
How to choose an operation method
- Size of market: job production fits small markets
- Available capital: Flow production is quite expensive
- Other resources
- Customers demands to specific requirements
Problems of changing from job to batch production
- Cost of equipment may be high
- Additional working capital is needed
- Risk of worker demotivation since no need for indicidual craft skills
Problems of changing from job/batch to flow production
- High cost of capital
- Employee training needs to be flexible
- Accurate estimates of future demands are needed
