Chapter 23: The nature of operations

Question 1

Intellectual capital

Answer 1

intangible capital of a business that includes human (Skilled employees), structural (Databases) and relational capital (Links with suppliers and customers)

Question 2

Operations management

Answer 2

Managing resources effectively in the production of goods and services

Question 3

Transformational process

Answer 3

An activity that transforms one or more inputs, adds value to them and produces outputs for customers

Question 4

Ways in which operations managers can increase added value

Answer 4

By effectively managing:
1. Efficiency of production (low costs)
2. Quality of goods/services
3. Flexibility and innovation (adapting and developing products)

Question 5

Value added depends on

Answer 5

Design of the product (high quality for high price)
Efficiency of operations (Reduces costs)
Branding (to encourage customers to pay high prices)

Question 6

Operations

Answer 6

Activities that businesses engage in on a daily basis to increase the value of the enterprise and earn a profit

Question 7

Operations contribute to adding value by

Answer 7

Reducing production costs through increased efficiency
Producing quality goods that meet customer needs
Ensuring production is flexible to satisify dynamic tastes

Question 8

Productivity

Answer 8

Ratio of outputs to inputs during production

e.g. output per worker per time period

Question 9

Level of production

Answer 9

Number of units produced during a time period

Question 10

Production

Answer 10

Process that turns inputs into outputs

Question 11

Labour productivity

Answer 11

Average output per employee in a time period

total output in a time period
~~~~~~~~~~~~~~~~~~~~~~
Total workers employed

Question 12

How to increase productivity

Answer 12

Improve employee training and motivation
Purchase technologically advanced equipment
More effective management

Question 13

Reasons why productivity does not assure success

Answer 13

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

Question 14

Efficiency

Answer 14

Producing output at the highest ratio of output to input

You can be efficient but not effective. Demand can change

Question 15

Effectiveness

Answer 15

Meeting business objectives by using inputs productively to meet customer needs

Question 16

Sustainability of operations

Answer 16

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

Question 17

Ways in which sustainability can be achieved

Answer 17

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

Question 18

Why businesses are making operations sustainable

Answer 18

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

Question 19

Benefits of increasing sustainability

Answer 19

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

Question 20

Limitations of increasing sustainability

Answer 20

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

Question 21

Labour intensive

Answer 21

Involving a high level of labour input compared to capital equipment

Question 22

Capital intensive

Answer 22

Involving a high level of capital equipment compared to labour input

Question 23

Limitations of labour intensive production

Answer 23

1. Low output levels
2. Skilled, high-paid workers required
3. Product quality depends on skill and experience of the worker

Question 24

Advantages of capital-intensive production

Answer 24

1. Economies of scale
2. Consistent quality
3. low unit costs of production
4. Ability to supply the mass market

Question 25

Disadvantages of capital-intensive production

Answer 25

1. High fixed costs
2. High cost of financing the equipment
3. high maintenance cost and need for skilled workers to fix them
4. Quick pace of technological change

Question 26

How to choose between labour or capital intensive

Answer 26

Nature of the product and brand image
Relative costs of labour and capital
Business size and access to finance

Question 27

Operation (production) methods

Answer 27

1. Job production
2. Batch production
3. Flow production
4. Mass customisation

Question 28

Job production

Answer 28

Production of a one-off item specially designed for the customer

e.g. wedding ring

Question 29

Advantages of job production

Answer 29

Allows for specialist jobs
High levels of worker motivation

Question 30

Disadvantages of job production

Answer 30

High unit production costs
Time-consuming
A wide range of tools is needed

Question 31

Batch production

Answer 31

Production of a limited number of identical products

e.g. bread

Question 32

Advantages of batch production

Answer 32

Some economies of scale
Faster production with lower unit costs
Some flexibility in design

Question 33

Disadvantages of batch production

Answer 33

High levels of inventory at each production stage
Higher unit costs than flow production

Question 34

Flow production

Answer 34

Production of items in a continually moving process

e.g. Coca Cola cans

Question 35

Advantages of flow production

Answer 35

Low unit costs due to the constant working of machines
High labour productivity and economies of scale

Question 36

Disadvantages of flow production

Answer 36

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)

Question 37

Mass customisation

Answer 37

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

Question 38

Advantages of mass customisation

Answer 38

Combines low unit costs with flexibility
Capital intensive allows quality to be standardised

Question 39

Disadvantages of mass customisation

Answer 39

Expensive product re-design to switch key components for a variety
Expensive flexible capital is needed
Low worker motivation (repetitive tasks) Machines do everything

Question 40

How to choose an operation method

Answer 40

1. Size of market: job production fits small markets
2. Available capital: Flow production is quite expensive
3. Other resources
4. Customers demands to specific requirements

Question 41

Problems of changing from job to batch production

Answer 41

1. Cost of equipment may be high
2. Additional working capital is needed
3. Risk of worker demotivation since no need for indicidual craft skills

Question 42

Problems of changing from job/batch to flow production

Answer 42

1. High cost of capital
2. Employee training needs to be flexible
3. Accurate estimates of future demands are needed