Management of Operations Flashcards
Describe the role of operations
The Operations department has many roles to play in the running of the business, including
▪Dealing with suppliers of raw materials
▪Inventory management
▪Choosing a suitable method of production
▪Measuring quality
▪Storage and distribution of the final product
▪Ethical and environmental operations
Describe the operating system
Organisation of raw materials, labour and machines is essential to guarantee a successful product which is produced efficiently.
The method of organising the resources to achieve this is known as an operating system and has 3 stages
What are the 3 stages of the operating system?
Input
Process
Output
Describe input
The raw materials needed for creating a good or service are gathered and stored.
This involves choosing suitable suppliers and having an efficient system of inventory control.
Describe process
During this stage, resources gathered in the input stage are used to create a new good or service.
At any point in time there will be goods partially finished (work-in-progress) and finished goods.
This involves choosing an ethical method of production and ensuring good quality products are produced.
Describe output
Finished goods are stored and distributed to customers.
This involves inventory control (making sure there are enough items available to meet demand), and
Organisation of distribution (how will the finished products get to the consumer)
What are suppliers?
Buying raw materials or inventory from suppliers is known as purchasing.
An important part of purchasing is picking a suitable supplier to buy materials from.
There are different factors that will influence which supplier is chosen, just as if you were deciding to buy something from a shop you would take different things into account.
These factors are called the Purchasing Mix.
What is the purchasing mix?
Price Quality Quantity Lead Time Reliability/Reputation Location Credit Terms Storage Space
What do the prices of raw materials mean?
The price charged by a supplier to purchase raw materials.
Are discounts available for repeat purchases?
Is it value for money – quality v price
Why are the prices of raw materials important?
Costs need to be kept as low as possible to make a profit.
Low costs will improve the cash flow of a business
What does the quality of raw materials mean?
How good the raw materials are.
Are they of the required standard for the goods the business is producing
Why is the quality of raw materials important?
Without high quality raw materials, the finished product will not be of a high quality.
Low quality raw materials could result in higher wastage.
What does the quantity of raw materials mean?
The amount of raw materials/ inventory required.
Why is the quantity of raw materials important?
There needs to be enough raw materials available to allow production to continue but not too much otherwise this can be expensive for storage.
Correct quantities of raw materials are required to satisfy customer demand.
What does the lead time of raw materials mean?
The time from the order being placed to receiving the raw materials
Can the supplier deliver on the agreed date?
Why is the lead time of raw materials important?
Some raw materials need to be used quickly e.g. fresh food or they might go off.
If delivery is late, production might have to stop, which is costly
What does the location of raw materials mean?
Where the supplier is located, e.g. which town or city and how far away it is
Why is the location of raw materials important?
The further away the supplier is, the longer the raw materials will take to be delivered.
The cost of transporting products has to be considered
What does the Reliability/Reputation of raw materials mean?
Reliability - will the supplier deliver when they say they will?
Reputation - what do other people think of the supplier.
Why is the Reliability/Reputation of raw materials important?
If the supplier does not deliver on time, this might cause production to stop and staff being paid for ‘idle time’.
Late delivery can mean customers might not get their order on time and result in order cancellation.
Suppliers with a good reputation are likely to get more business compared to one that has a poor reputation.
What does the Storage Space of raw materials mean?
How much space the business has in a warehouse to hold the raw materials until they are needed.
Why is the Storage Space of raw materials important?
Raw materials might be wasted if they cannot be stored in the correct place
Storage cost (e.g. insurance) can be expensive.
What does the Credit Terms of raw materials mean?
Can materials be purchased now and paid for later?
How much time will be given to pay e.g. 28 days.
Why is the Credit Terms of raw materials important?
Credit terms allow the business to sell their products before having to pay the supplier for the materials.
Cash flow is improved
Describe inventory
Inventory is the materials held by a business in order to produce the product being sold to the customer.
What are the 3 categories of inventory?
Raw materials (input)
Work in progress (process)
Finished goods (output)
Describe inventory management
Inventory is expensive so methods must be used to ensure that costs of holding inventory are managed while ensuring enough inventory is available for production when needed
Businesses must avoid the problems of having too much inventory, called overstocking and the problems of not having sufficient inventory, called understocking.
What are the costs of inventory?
Renting/paying for warehouses Electricity and lighting costs Security Insurance Staff wages
What are the risks of inventory?
Theft
Damaged if not stored correctly
Perishable items might go off e.g. flowers, fruit and veg
Fashion items might go out of fashion (SOCIAL FACTORS!)
Technological items might go out of date
Describe ordering inventory
Before deciding on the amount of inventory to be purchased the following factors must be considered;
Level of inventory currently held
Time taken for new inventory to be ordered and delivered (lead time)
Amount of raw materials to be used in this period
Storage space available and cost of storage
Describe overstocking
Overstocking means that a business has purchased MORE inventory than it needs and so will face problems
What is cash flow?
Simply put it is the total amount of money being transferred into and out of a business.
Describe understocking
Understocking means that a business has NOT bought in enough inventory to continue with its ordinary activities and so will face issues
Describe inventory control
Once a business has decided how much inventory to hold (to prevent over or under stocking), then it will have to make sure that inventory is re-ordered when necessary and is looked after to prevent wastage or theft.
Businesses will do this through a process known as INVENTORY CONTROL.
Describe maximum (economic) inventory level
This is the highest level of stock that should be held at any time.
It minimises the cost of storing extra inventory (i.e. avoids overstocking.
Setting this level depends on: o Storage space available. o Type of stock – perishable or not. o Finance available – how much you can afford to buy at one time. o Security measures available.
Describe minimum inventory level
This is the lowest level of inventory that a business should store
It will ensure that business avoid understocking
Inventory should not fall below this level because there is a risk that production might stop
Also acts as buffer inventory.
Buffer inventory is inventory which is held as a reserve to allow for delays in delivery or for managing unexpected demand.
Describe re-order level
This is set between the maximum and minimum inventory levels.
This is the level at which more inventory is ordered and will return inventory to maximum level.
Must take lead time into consideration.
This level will ensure the business avoids running out of inventory.
Some inventory systems are linked to the EPOS and automatically re-order goods.
Describe re-order quantity
This is the quantity of inventory that has to be ordered to bring levels back to the maximum inventory level at the time the inventory arrives.
The reorder quantity is automatically ordered when the reorder level is reached.
Identifying the correct reorder quantity will avoid overstocking and understocking.
Describe lead time
This is the time taken between an order being placed and inventory arriving at the business.
As short a lead time as possible allows the business to react to rush orders.
Describe the purpose of inventory control
To anticipate running out of inventory before it happens.
To ensure that production is not delayed/stopped.
To ensure that customers orders are not delayed through lack of inventory.
To reduce costs – security, insurance and more storage.
To minimise money tied up in inventory.
To minimise the chance of inventory deteriorating.
Describe manual inventory control
A manual inventory system is updated, maintained and controlled without using a technical system.
This means the business updates the inventory by physically counting the inventory items on a frequent basis.
Describe computerised inventory control
Many business now use a computerised system to manage inventory rather than a manual system due to the following advantages:
Quick and accurate calculations.
Wage savings as computers can replace staff.
Computers can remind staff when to reorder.
Automatic reordering prevents human error.
Describes barcodes and EPOS systems
Bar codes allows all inventory to be tracked electronically from the moment it arrives in the business until it is delivered to the customer
The same EPOS equipment used at the till when a customer buys something is used in the warehouse and inventory levels are updated with each sale
Can highlight changes
in demand from customers
Can highlight regional variations in inventory for head office.
Allows for decisions on slow-moving inventory or best sellers to be made quickly.
Keep a history of past
inventory levels.
Predict the inventory levels required based on previous sales patterns.
Describe methods of production
All the raw materials needed for a product need to be at the right place at the right time.
What are the methods of production?
Job
Batch
Flow
Describe job production
Involves producing unique, one-off products.
Products are made to order, one job is done at a time from start to finish then another ‘job’ is started.
Very labour intensive, people making these are very skilled e.g.
Wedding dress/Prom dress
Bridge
A tattoo
What are the advantages of job production?
Customers exact demands can be met – increased satisfaction
High prices can be charged as products are unique and skilled labour
Designs can be changed during production
Motivating as employees are involved in the whole process
What are the disadvantages of job production?
Specialist tools or equipment may be needed
Higher wage costs as skilled labour
Products can take a long time to make
Bulk purchases of inventory are not always possible – no economies of scale
Describe batch production
A group of products (known as a batch) are made together at the same time.
Each product WITHIN a batch is identical.
Different ingredients can be used for different batches, making them slightly different
The machines that were used are cleaned and another batch of another flavour will be made.
Often uses lots of capital equipment - this means it is known as a capital intensive method of production
Very common in the food industry, for example
Dairy Milk, Dairy Milk Oreo
What are the advantages of batch production?
Batches can be changed to suit customer requirements
Cost savings can be made compared to job production as workers are lower skilled
Materials bought in bulk – economies of scale/discounts
Using machinery means larger number of products can be made
What are the disadvantages of batch production?
Resources (such as equipment and employees) may have nothing to do between each batch
A fault in one item can lead to the whole batch being wasted
Describe flow production
Flow production involves identical products being made on an assembly line.
The product is made in stages, with parts being added as it moves along the assembly line.
The final product will be completed by the time it reaches the end of the production line.
Commonly used in factories and used for mass production – a standard product is being produced.
Capital intensive – highly automated production.
For example
Cars, iPhones, Computers
What are the advantages of flow production?
Large quantities of identical products can be made
Consistency and quality
Economies of scale e.g. the business can buy in bulk and obtain discounts so that cost of production per unit falls as output increases.
Machinery can be used 24/7 – more efficient
What are the disadvantages of flow production?
Products cannot be made to customers individual requirements
A fault or breakdown in one part of production line could stop production process
Repetitive work can be demotivating for employees
Describe product type
If a product is to be a “one off” (e.g. custom jewellery) then this suits Job production due to the high skill levels and flexibility of staff.
On the other hand, “standardised” products (e.g. vacuum cleaners) can be made using Flow production as variety and flexibility are not needed.
Describe labour and capital intensive
The amount of machinery/equipment and labour used in making a product will determine whether or not it is labour or capital intensive.
o A product made mainly using human effort is labour intensive
o A product made mainly using machinery/equipment is capital intensive
What are the advantages of labour intensive?
No need to purchase expensive equipment
One-off and unique products can be made easily
Employees can be creative and use their own initiative
What are the disadvantages of labour intensive?
It is expensive and takes time to recruit, select and train new employees
Employees require specialist skills, which can take time to learn
The quality of the work can vary, depending on who is making it
Describe capital intensive production
Capital intensive is when products are mainly produced by machines and robots, meaning the initial outlay and maintenance, will be very high. Capital intensive production can be either mechanised or automated
Describe Mechanised production
Mechanised production is when the production process requires both machinery and humans. Machines are required to carry out most of the work although they are operated and controlled by humans.
Describe Automated production
Automated productions is when the production process is mainly carried out by machinery/robots and is mostly controlled by computers. Human input is limited in automated production.
What are the advantages of capital intensive production?
Machinery can work 24/7
Quality is consistent as products are made of a standardised quality
Lower wage costs as fewer employees need to be paid
Employees are usually less skilled compared with labour intensive production
Suitable for large scale production of identical items e.g. Coca Cola
What are the disadvantages of capital intensive production?
Machinery and equipment is expensive to purchase and maintain
Individual customer requirements cannot be met
Breakdowns can cause production to stop
Why is quality important?
Poor quality goods can result in customers returning their purchases, causing a loss in sales and increase in complaints.
The highest quality goods can be sold for premium prices – increase in profits
Customers are more likely to make repeat purchases - loyal customers
A good reputation is gained, which will encourage new customers – business growth
Wastage is reduced
What methods are used to ensure quality?
High Quality Inputs
- Materials
- Employees
- Equipment
Quality Control
Quality Assurance
Quality Circles
Benchmarking
Mystery Shopper
Describe quality inputs - trained staff
Having highly trained staff is essential:
Fewer errors will be made as employees know what they are doing
Less wastage
Improves the image and reputation as customer is satisfied
Reduces the risk of accidents happening
However;
It is very costly and time consuming to train staff
Output and production can be lost while employees are being trained
Describe quality inputs - raw materials
Ensuring the best quality raw materials are used;
o The business uses quality inputs to ensure quality outputs (products)
o Quality raw materials are expensive to buy – decrease in profit and customer may be put off
Describe quality inputs - maintained equipment
Ensuring that machinery/equipment is up-to-date
Fully maintained so that it works efficiently
Prevents production being disrupted
Describe quality control
This is the most basic method of ensuring quality. It involves inspecting raw materials and/or finished goods to check they are of an acceptable standard and quality.
“Closing the door after the horse has bolted”
Describe quality assurance
The aim is to achieve quality by designing every process to get the product ‘right first time every time’, prevent mistakes happening and minimise waste.
By checking quality at various stages of the manufacturing process wastage and scrap are minimised. Consequently, in most businesses’ quality assurance has replaced quality control.
“Prevention is better than cure”
Describe quality circles
A quality circle is a group of employees and managers that meet regularly to discuss issues in the production process. Problems are identified and suggestions made to resolve problems.
The idea of quality circles originated in Japan, with Toyota Motor Company and is based on two key principles:
o No-one in the production process knows more about the problems that might arise than the shop floor workers
o Workers will appreciate and be motivated by the opportunity to use their knowledge and skills alongside management in a problem-solving environment.
Describe benchmarking
Benchmarking is a process of quality assurance that uses the best performers in a particular industry to set standards for others to meet – “best practice”.
Businesses in the same sector can compare their performance to the market leader. The business will then aim for these quality standards (best practice) with its own products, aiming to achieve an equal standard or exceed it
Describe mystery shopper
People are employed, either by the business or through an agency, to purchase products, ask questions, register complaints or behave in a certain way. They provide feedback to the business which is used to improve their operations. Used extensively in retail and catering industries.
They will anonymously evaluate: o Customer experience o Operational efficiency o Employee integrity o Use of merchandising o Service/Product quality
What Does it Mean to be Ethical and Environmental?
Businesses have to be SOCIALLY RESPONSIBLE.
This means that they will be seen in a positive way by not harming the local environment and community.
Why is it important to be Ethical and Environmental?
Consumers are well informed about the environment nowadays and will not buy products which have been made in a way that is unfair to staff or which misuses or damages the Earth’s resources.
This means that more and more businesses are trying to make sure that their production process is not wasteful by reducing, reusing and recycling.
How can you be Environmentally Responsible?
Minimising packaging
Recycling where possible
Minimising waste
Preventing pollution
Describe minimising packaging
Businesses use packaging to help preserve their product, transport it, protect it from damage and to attract customers.
To help the environment and reduce costs most businesses aim to reduce the amount of packaging they use.
What are the advantages of minimising packaging
The business will gain a positive reputation with customers, employees, pressure groups and media.
Saves on costs of production – less plastic etc will be needed. Money can be used elsewhere in the business.
Can gain a competitive edge
What are the disadvantages of minimising packaging
New procedures will have to be adapted which involved training staff and this can be very time-consuming and costly.
Customers may not think the product is as good e.g. Sure compressed deodorant.
Some products require a lot of packing to ensure safe transportation
Describe recycling
This is when a business is taking used materials such as glass, paper, metal and plastic and are processing them into new products.
Business can also encourage employees to put rubbish in appropriately coloured bins.
As consumers are becoming more aware of the environment and want to purchase from businesses who care about the environment.
As a result many businesses are now telling us all the time what they are doing.
What are the advantages of recycling
Items can be reused to make new products – Barr glass bottles
Limits the items ending up in landfills
Improves the image of an organisation
Can give a competitive edge
(Watch Repetition)
What are the disadvantages of recycling
Need to be sorted into different categories which takes time e.g. glass, paper, metal etc
Customers may think the product is not as good and might not be willing to buy.
Can be expensive to buy recycling bins etc.
Describe minimising waste
Businesses can try to minimise waste by:
o Ensuring employees are properly trained, this will reduce mistakes and subsequently waste.
o Keep machinery in good condition and ensure it is well maintained.
o Not overstocking of products and raw materials – especially perishable items
What are the advantages of minimising waste
It will reduce the production costs for the business – no waste of material or employee time
Reduced costs in stockroom if business is not overstocking
Business will gain a good reputation
What are the disadvantages of minimising waste
Staff training will be required and this is very costly and time consuming.
When staff are being trained there is no output.
Describe preventing pollution
Businesses can prevent pollution by:
Minimising the use of materials in production (e.g. fuel and chemicals).
Disposing of any potentially harmful chemicals or products in the most environmentally friendly way.
Using ‘renewable’ energy such as solar panel or wind turbines instead of oil and gas
Using electric vehicles for deliveries or company cars
Describe ethical operations
Ethical operations is doing what is morally right and is more than is required by law.
Law is about what is legal and illegal.
Working ethically means doing the right thing and acting a way that is both fair and honest to all stakeholders.
Many consumers nowadays will not buy products which have been made in a way that is unfair to staff or which misuses or damages the Earth’s resources.
What are the advantages of ethical operations
Customers are more likely to return to the business - increased profit and sales
Improved business image e.g. awards can be given
Encourage new customers to buy their products instead of competitions - increase market share
Makes employees want to stay with the business - reduces staff turnover
Attract more employees wanting to work for the business
What are the disadvantages of ethical operations
Cost of sourcing materials from ethical suppliers can be higher - decrease in profit
Higher prices may be charged for products and some customers might be put off by this – lower sales and profits
Paying living wage is higher than minimum wage – financial impact less profit
How can a business be ethically responsible?
Paying living wages
Having high farm standards
Not using child labour
Describe Paying living wages
Ensuring staff are paid more than the national minimum wage
Using suppliers who pay a living wage
Describe Having high farm standards
Using suppliers which have high standards and follow legislation
Ensures people and animals are treated fairly
Describe Not using child labour
This means to not exploit children through any form that deprives them of their childhood.
Describe Fairtrade
Fairtrade is an organised social movement and market-based approach that aims to ensure producers in developing countries receive fair payment for the goods they supply.
Businesses that meet the Fairtrade Foundation standards are identified using the Fairtrade Mark e.g. Cadbury
