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.