Decision Making to Improve Operational Decision Making Flashcards
Factors of Production
Land
Labour
Capital
Enterprise
How does Quality achieve Customer Satisfaction?
-Brand image
-Reputation
-Appearance
-Reliability
-Functions
-Cost of ownership e.g. repairs
-Exclusiveness
Quality Control
Inspectors check every stage.
Cost of Holding Inventories
-Cost of storage
-Interest Costs
-Obsolescence risk
-Stock out costs
Kaizen
‘Continuous improvement’
Policy of implementing small incremental changes
Creates a quality culture
TQM
Total Quality Management
‘Getting it right first time’
Teams responsible for their quality
Key Reasons to Hold Inventory
-Enable production to take their place
-Satisfy customer demand
-Precaution against delays from suppliers
-Allow efficient production
-Allow for seasonal changes
-Provide a buffer between production process
Advantages of Customer Satisfaction
-Impact sales
-Create USP
-Charge higher prices
-Cost reductions
Achieving High Labour Productivity
Getting the workforce to be more productive is not an easy task and influenced by:
-Quality (and extent) of machinery
-Skills, motivation and ability of workforce
-Methods of production used
-Reliability of raw materials and suppliers
Influences on Amount of Inventory Held
-Need to satisfy demand (failure is costly, could be seasonal)
-Need to manage working capital (holding ties up cash and opportunity cost)
-Risk of losing value/inventory (longer stocks are held, greater risk they cannot be used or sold)
Factors of Affecting when/how much Inventory to Re-order
-Lead-time from supplier (higher lead time may require higher re-order level)
-Implications of running out (stock-outs) (if damaging then high re-order level)
-Demand for the product (higher demand, higher re-order levels)
Formula for Unit Cost
Total costs/output
Ways of Reducing Capacity
-Selling off fixed costs
-Changing to shorter working weeks/days
-Laying off workers
-Transferring resources to another area
Considerations of Choosing Suppliers
-Good prices
-Payment terms
-Quality
-Capacity of supplier
-Reliability
-Flexibility
Invention and Innovation
Invention: formulation of new ideas for products or processes
Innovation: practical application of new inventions into marketable products or services
Types of Innovation
Product involution: launching new or improved products (or services) on to the market.
Process Innovation: finding better or more efficient ways of producing existing products, or delivering existing services.
Benefits of Product Innovation
-‘First mover advantage’
-Higher profits and profitability
-Added value
-Opportunity to build early customer loyalty
-Enhanced reputation as an innovative company
-Public relations e.g. news coverage
-Increased market share
Methods of Lean Production
Time Based Management
Simultaneous Engineering
Just In Time Production
Cell Production
Quality
A product or service is of good quality if it meets the needs of expectations of the customer.
Advantages of Low Inventory Levels
-Lower inventory holding costs e.g. storage
-Lower risk of obsolescence inventory
-Capital can be used elsewhere in the business
-Consistent with operating ‘lean’
Benefits of Mass Customisation
-Higher customer retention (as few options and tailored)
-Fewer unfinished goods need to be stored, reducing costs
-Quick, efficient production process
-Higher price point for customised products, higher profits
-More flexible software and systems to handle highly customised orders
Drawbacks of Mass Customisation
-Impossible to build up stock ahead of time
-Forecasting trends in sales more difficult - wide range of options
-Difficult to plan for surge in product demand
-Affects flow of supply chains
-Wait time from order to shipment to in-hand increases
-Increased costs to maintain a variety of machinery that can produce different colours, shapes, etc
Advantages of High Inventory Levels
-Production fully supplied (no delays)
-Potential for lower unit costs by ordering in bulk/high quantities
-Better able to handle unexpected changes in demand
Ways of Increasing Capacity
-Extending factories
-Overtime or longer hours
-Hiring new staff
-Flexible workforce
-Sub-contracting/outsourcing
External Operational Objectives
-Competitor efficiency flexibility
-Technological change
-Economic environment
-Legal and environmental change
Advantages and Disadvantages of Produce to Order
Advantages:
-Customer satisfaction
-Customer loyalty
-Higher prices
Disadvantages
-Fluctuations of demand
-Higher cost
Disadvantages of Customer Satisfaction
-Costs increased
-Training needed
-Disrupting production
Disadvantages of Improving Efficiency
-Capital needed
-Train workforce
-Higher wages
Operational Objectives
-Costs
-Quality
-Measuring quality
-Speed of response
-Flexibility
-Dependability
-Environmental
-Added value
Internal Operational Objectives
-Corporate objectives
-Marketing issues
-Finance
-Human Resources
Benefits of Process Innovation
-Reduced costs
-Improved quality
-More responsive customer service
-Greater flexibility
-Higher profits
Disadvantages of Labour Productivity
-To increase may have to spend money on training
-Increased investment in machinery as well as people i.e. to work more efficiently may need better equipment
Causes of Spare Capacity
-New competitors or new products entering the market mean a fall in demand for existing products
-Fall in demand as change in fashion/taste
-Unsuccessful marketing
-Seasonal demand
-Over-investment in fixed assets
-A merger or takeover leading to duplication of resources
Just In Time Advantages and Disadvantages
Advantages:
-Increases motivation
-Reduces costs
Disadvantages:
-Bulk-buying discounts
-Halt to production line expensive
Advantages of Improving Efficiency
-Reduces costs
-Reduces waste
-Improves quality
-Financial monitoring
Effective Lean Production Requires..
-Good relations with suppliers
-Committed, skilled and motivated employees
-Culture of quality assurance; continuous improvement and willingness to embrace change
-Trust between management and employees
Increasing Capacity
A major decision and would have to fit in with corporate objectives.
Businesses need to ensure there’s a future demand for the products as well as available finance.
Examples of Waste
-Over-production: leads to excess inventories which may be unsalable
-Waiting time (idle)
-Transport (moving unnecessarily)
-Stocks, acceptable buffer, not excessive
-Motion: worker appears busy but not adding value
-Defects: doesn’t meet required quality
Formula for Labour Productivity
Output per period/number of employees per period
What is Capacity?
The maximum level of output.
Advantages of Labour Productivity
-Efficient use of inputs = fewer employees needed
-Increasing appeal to stakeholders gives:
-> Shareholders a higher ROCE (return on capital employed)
-> Employees higher wages
Labour Intensive
Method of production that uses high levels of people; labour is expensive in the UK.
When labour costs outweigh capital costs of a business.
Capital Intensive
Method of production that is highly automated, therefore needs large amounts of investment.
Advantages and Disadvantages of Quality Control
Advantages:
-Stops faulty goods reaching consumer
Disadvantages
-No team responsibility
Lean Production
An approach to management that focuses on cutting out waste, whilst ensuring quality. This approach can be applied to all aspects of a business.
-From design, through production to distribution
Problems caused by Poor Quality
-Productivity problems
-Reduces profitability
-Reduces customer satisfaction
-Increases costs
If Labour Productivity increases…
Unit cost decreases
Formula for Capacity Utilisation
Actual output per annum/maximum possible output x100
If Capacity Utilisation increases…
Unit cost will decrease.
Outsourcing
The business practice of hiring a party outside a company to perform services or create goods.
What is Mass Customisation?
The personalisation or custom-tailoring of goods or services to meet customer needs - but at near mass-production prices.
-Collaborative Customisation
-Adaptive Customisation
-Transport Customisation
-Cosmetic Customisation
How can Technology Improve Efficiency?
Manufacturing
-Robotics
-Automation
-Planning
-Operating
Design
-Create new products
-CAD, CAM
Advantages and Disadvantages of Quality Assurance
Advantages:
-Encourages teamwork
-Reduces costs
Disadvantages:
-Change in culture (difficult to achieve)
-May take time to bed in
Main Types of Inventories
Raw materials and components
Work in progress
Finished goods
Economies of Scale
The benefits of being larger
-Improving scale of production brings about efficiency
-Can affect unit costs
-Needs investment
Quality Assurance
Improves quality throughout the business
Inventory Control Chart
-Buffer level: minimum level of stock
-Re-order level: the level at which business needs to order again
-Lead time: how long it takes to deliver
-Re-order quantity: amount re-ordered
