Chapter 4 Flashcards
What is operations management concerned with
Aspects of business that are directly linked to customer orders.
Takes inputs, processes them to become outputs + distributed to customer.
Operational objectives relate to many measures of evidence
Six
- Cost of e.g raw materials and labour.
- Quality of raw materials, processes, output and customer service to match their expectations.
- Speed of response and flexibility ( how quickly needs are met and/or ability to tailor good to meet individual needs e.g. matching supply to demand).
- Dependability
Needed to maintain customer trust + loyalty.
Right product with right quality and quantity to right customer in time. - Environmental objectives
E,g recycling, reduce waste. - Added value
Strong brand e,g rolls Royce.
Customer service.
Add features and benefits
Internal influences on operational objectives
- Finance
Budgeting is important in competitive market as should prioritise funds to high priority areas e.g marketing, customer service. - Effective marketing
Important in service sector where customers are persuaded to buy (as customer loyalty attracts customers, increase SR targets) - Workforce- their skills and how applied to a firm (more speedy response).
4.2
Factors influencing unit cost
- Number of units produced
Use economy’s of scale and invest in Machinery (decreases labour costs).
Train employees to increase their productivity w/o hiring more staff. - Labour productivity
If higher, reduces labour costs as workers produce more in less time so labour/unit costs decrease. - Suppliers
JIT supply (minimise storage costs) (however, if fail deliver on time, disrupt production + increase costs)
Extend credit terms (improve cash flow but may charge more increasing unit costs). - Material usage
Capacity
Max output achievable if all resources fully used.
In long run can be increased by acquiring more resources e.g bigger premises, more machinery.
Aim to match capacity to demand I.e. avoid overproduction.
It’s fixed as there is a given level of resources.
Increasing capacity is an investment.
Capacity utilisation
Percentage of total output being achieved.
- % of sears occupied at football match.
Allows them to spread FC/ more units, brings down the unit cost + be profitable.
Actual/ maximum output x 100
If low it’s a concern;
- suggest demand is low
- cost/ unit likely to be high (fc spread over fewer units, decrease profit margin.
Use of data in operational decision making + planning
Operational data used to measure performance against predetermined targets.
capacity
-is capacity sufficient to meet demand or too big?(consider if can increase demand (by improve product promotions) / if business reduce capacity by close some facilities)
-Should the firm look to increase(if it’s in high demand then can meet customer satisfaction)(ability to produce + sell more goods; ^ Sales Volume, ^ Market share, ^ Profit Margins) ( reduce AUC by spread FC over more output)
-or decrease (if demand for product drops as can align production with actual sales)(cut costs, lower labour costs e.g less shifts)
capacity utilisation
-are resources used effectively or assets under utilised?( producing less = increased C/U which decreases PM. money tied up. Missed sales opportunities)
labour productivity
-is additional training needed
-is labour used effectively.
unit costs
-if rising, look to change suppliers
-if rising, may mean more waste.
Operational data allows
Firm to measure performance of operations management function.
Then be compared to quantifiable operations objectives.
Changes be made to key areas to improve performance if needed.
Includes- unit costs, labour productivity , capacity, capacity utilisation.
3.4.3 operational efficiency (why does a firm want it)involves…
Why?
-to improve profitability as reduced production costs , increased profit margin
-low costs mean offer low prices than comp.
-high productivity;more wiht same inputs.
It involves maximise output achieved from inputs including machinery, materials and people.
Lean production increases efficiency
Working practices from Japan that focus on reduce waste while improve/maintain quality.
reducing waste (by reduce inventory held as decreased storage costs + risk of not selling)(employees need to take on responsibility;check own work, be engaged).
Techniques include:
-JIT(as close to 0 stock as possible help minimise costs) -Kaizen (small changes made often , continuous improvement)
Lean production ❎
Firm is vulnerable as they have no inventory left if disruption to production process.
Have ti
JIT ✅❎
✅reduced need for large amounts of inventory storage. Raw materials delivered when needed, no excess stock. Low storage costs, reduce risk of stock being obsolete and improve cash flow as money ain’t tied up in stock. More cost-effective helping it stay competitive.
❎struggle to meet sudden increased in customer demand. Involves keeping minimal stock, no extra materials available to quickly respond to orders. Delays in fulfil customer needs, lost sales + damage reputation. Missed opportunities. Reduce flexibility in fast-changing markets.
Kaizen
Small improvements to production in every part of process.
All members involved
Work in groups to focus on their area + ideas on how improved + made leaner(reduce waste).
Highly motivated+ committed workers needed.
Capacity
Low utilisation - resources not being made to work effectively for firm , high unit costs.
High capacity utilisation- firm is ‘sweating’ its assets. Lower unit costs but may affect quality + cause stress to resources. E.g. workers being pushed to work hard
❎pressure on resources e.g machines constantly running + workers work rlly hard with lil downtime. Rims of employee burnout/stress. Less flexibility to take on new orders. Therefore, harm long-term productivity + limit ability to respond to opportunities.
✅reduced unit cost + improved efficiency. FC e.g rent is spread over many units when productions high. Cost to produce single item decrease; high profit margins OR charge low price. Also suggests effective use of resources with minimal waste. Therefore, boost profitability + more cost-efficient.
Importance of capacity
Match supply to demand
-meet needs on time
-avoid under/over production to keep costs low
Motivation of the workforce
-healthy capacity utilisation and manageable workload keeps staff engaged and challenged
Reputation of firm
-if operating at full capacity may struggle to meet customer demand in time, damaging reputation.
-under capacity can lead to delays, cancellations.
Achieve business objectives
-effective capacity management avoids overproduction and reduces waste. E.g. ethical aim to be environmentally friendly would want to reduce wage by only producing what is expected to sell. Efficient capacity planning to match supply with expected demand.
How to utilise capacity efficiently -underutilisation
Increase demand
-under utilisation means isn’t using all available resource which leads to high unit costs (FC/ FEWER UNITS). Increase demand fills the unused capacity ; operations more cost-efficient.
E.g. gym that’s quiet on weekdays could use off-peak discounts to attract more members. More customers + make fuller use of facilities + staff. Therefore, spreads its cost more effectively , improving profitability .
Can utilise capacity more efficiently by downsizing
- Downsizing helps cut unnecessary expenses by reducing FC like rent or staff wages. A small manufacturer that consistently runs below capacity may close 1 production line to lower overheads, aligning output more closely with demand. Operate more efficiently + maintain profitability even with reduced demand.
How to utilise capacity efficiently -over utilisation
Reduce demand
-Occurs when operating beyond its capacity; lead to overworked staff, increased chance of delays. Help create some downtime for the machines + give staff breaks. Restaurant operating beyond capacity limits in peak times can remove certain offers + slightly raise prices to give staff + machinery breathing time. Therefore, maintain service quality and reduce stress on resources.
Outsource parts of the businesses operations
-to reduce pressure/ strain on internal resources. Shift takes to external suppliers; flexibility + reduce internal workload. A clothing retailer w high online demand outsource customer service to 3rd-party companies, freeing up internal capacity to focus on core operations. By outsourcing non-core activities, the business can maintain quality and efficiency during periods of high demand.
Difficulties increasing labour productivity
Employees may feel exploited
-work harder for same pay, may negotiate with unions to get higher pay.
-business benefit but not the employees; workers producing more output per hour which boosts firms efficiency + profit margins, if employees aren’t awarded (higher pay) extra effort being taken advantage off, reduced motivation + high staff turnover.
Impact negatively on quality + customer satisfaction
-pressure on employees, when expected to produce more in less time may rush tasks n make errors if proper training isn’t provided. In a restaurant, if chef told prepare more meals/ hour to ^ productivity, they may not check quality, poorly cooked food which reduces customer satisfaction.
4.2 unit cost
Average cost of producing a single unit of output
TC/OUTPUT
Targets made to keep unit costs as low as possible whilst not affecting quality
Charge a low price to gain competitive advantage with added value.
External communication
Tracking of supply chain
-customers can see progress if their order
Sourcing supplies
-growth of internet to find suppliers
