Decision making to improve financial performance- 4 Flashcards
What are operational objectives?
Operational objectives are set to achieve a competitive advantage and must fit with the overall competitive strategy of the business
Quality objectives:
Managers decide what they think customers want and expect and then set appropriate targets
Speed of response objectives:
Providing goods and services faster than competitors
Dependability objectives:
Ability of the business to deliver reliably on time
Cost objectives:
Enables controlling of prices between competitors - setting lower or higher prices
Flexibility objectives:
Providing customer needs more precisely
Environmental objectives:
Greater awareness of environmental impact of operation decisions
Internal influences on operational decisions:
- Marketing = what is produced, how and what quantities required
- Human resources = what is possible - skills of staff
- Finance = may affect what can be produced
External influences on operational decisions:
- economic
- technological
- competitive
- social
- legal
Political and legal factors:
Place restrictions on what can be produced, how, where and who it can be produced for
Economic factors:
Allows businesses to source supplies from around the world, removal of taxes have enabled more global operations
Social factors:
More availability of choices allowing customers to easily search for alternatives
Technological factors:
Quickly develop, test and launch new products
Competition factors:
Customers switch to competitors because they demand more
What is labour productivity?
Measures output per employee and can be calculated using:
- total output / number of employees
What is unit costs?
Measures cost per unit and can be calculated using:
- total costs / total output
What is economies of scale?
It is a cost advantage where production becomes efficient and cost per-unit decreases as quantity produced increases
What is diseconomies of scale?
Average unit costs begin to increase because of business growth
What is capacity?
Capacity measures the maximum it can produce with it’s given resources. Capacity can be increased by increasing resources although this could take time
What is capacity utilisation?
It measures the existing output as a percentage of the maximum possible output
- existing output / maximum possible output x100
- the higher the capacity utilisation, resources are being fulfilled
Why is efficiency important to a business?
Efficiency allows the business to drive unit costs down and either bring the price down or make higher profits with the same price
If capacity utilisation is low a manager might:
- improve marketing
- reduce capacity
- reduce demand
How can we increase efficiency?
By increasing labour productivity (output per employee)
How can we increase labour productivity?
- new ways of working
- better management
- new reward systems
- training
- new technology
What is lean production?
Lean production is when managers reduce waste to improve operations efficiency
How do managers reduce waste in lean production?
- Improving quality
- Reducing amount of inventory held
- Reducing time items are waiting for something to happen to them
- Reducing the time it takes for items to move from one stage of process to another
What is included in a quality process?
- Plan
- Do
- Check
- Act
How can managers improve quality?
- use market research
- careful selection of suppliers
- train employees
- invest in technology
- review the production process to see if any systems can be improved
How to improve operational performances?
- speed of response
- dependability
- becoming more flexible
What is mass customisation?
Using technology to produce items on a large scale while adapting the individual items to meet individual customer needs
What are the costs of holding inventory?
- opportunity costs
- cost of losing value
- security costs
- storage costs
How can inventory control charts help the management of inventory?
- buffer inventory = minimum inventory a business wants to hold
- lead time = how long it takes from a placed order to items arriving
- re-order level = level at which new order must be placed for suppliers
- re-order quantities = amount manager orders of a specific item
what influences the choice of suppliers?
- cost of materials and quality
- dependability
what is outsourcing?
When a business uses another provider for some goods and services
What are the benefits of outsourcing?
- use of special skills and services
- increase capacity of the business
what are the disadvantages of outsourcing?
- affected by other businesses cost and quality
- business could be held accountable for the actions of the suppliers
- pay enough for the products for the supplier to make profit
How can you improve operational performances?
- speed of response
- dependability (starting and finishing at stated time)
- becoming more flexible (made-to-order)
What is the cost of holding inventory?
- storage
- security
- opportunity
- loosing value
What does the inventory control chart include?
- buffer inventory = minimum amount held
- lead time = order placed -> item arriving
- re-order level = new order for supplies
What choices affect the decision of suppliers?
- cost of materials
- quality of materials
-dependability (when supplies arrive) - ethical considerations
What will an effective supply chain ensure?
- supplies arrive on time
- fair price is paid
- products are produced in an acceptable way
What decisions have to be made to manage a supply chain?
- what to produce
- supplier strategy = how many to work with
- suppliers operations (employees, where they source their materials)
