Operational management Flashcards
What is operations management?
Describes the activities, decisions, and responsibilities of managing production and delivery of products and services.
What are the operations management decisions?
Level of output a business needs to produce
Range of products the business wants to offer
How best to produce the good/service (labour or capital intensive)
How best to provide the good/service to the customer
How much of a process managers want to provide itself and how much they want to use suppliers
What is the difference between labour intensive and capital intensive?
High amount of labour is used in the production process while high amount of capital is invested in the production process.
What are the key features of labour intensive processes?
Labour costs higher than capital costs
Costs are mainly variable
Labour supply (quantity and quality) and cost are key
e.g. hotels, restaurants, hairdressing
What are the key features of capital intensive processes?
Capital costs higher than labour costs
Costs are mainly fixed (including depreciation)
Significant investment often required e.g automation but with longer term benefits on unit costs
e.g. oil extraction, car manufacturing, pharmaceutical production
What must operations mangers ensure?
Effective methods of production
Effective use of workforce
Waste is minimised
What are the operational objectives?
Costs
Quality
Environment
Dependability
Speed of response
Flexibility
What is cost minimisation?
A financial strategy that aims to achieve the most cost-effective way of delivering goods and services to the required level of quality.
What are the benefits of cost minimisation?
Competitive advantage
Revenue increases
Reinvestment of saved costs (long-term)
Improved cash flow
What are the drawbacks of cost minimisation?
Slower production
Reduced quality resulting in dissatisfied customers
Lack of motivation from employees
Decreased labour productivity
Lower production/ reduced output
Potential loss of jobs
Cost of switching suppliers/ methods of production
What may happen if a business is too aggressive with cost minimisation?
The business can be left with insufficient capacity to handle unexpected or short-term increase in demand.
Cost reduction by one department may surprise/annoy other functions if they are not properly communicated and coordinated.
How can costs be reduced in a well-established business?
Eliminating waste and avoiding duplication
Simplifying processes and procedures
Outsourcing non-care activities e.g. transaction processing
Negotiating better pricing with suppliers
Improving communication
What are the relevant objectives of efficiency and flexibility?
Labour productivity (e.g. output per employee)
Output per time period (e.g. potential output per week on a normal shift basis)
Capacity utilisation: the proportion of potential output actually being achieved.
Order lead times (e.g. the time taken between receiving and processing an order.)
What is quality significant?
Customers are more knowledgeable, demanding and so prepared to complain about poor quality, and able to share information through images and reviews online via social media.
How could a business measure its rate of quality?
Scrap/defect rate: a measure of poor quality
Reliability- how often something goes wrong; average lifetime uses etc.
Customer satisfaction- measured by customer research
Number/incidence of customer complaints
Customer loyalty (% of repeat business)
% of online order and/or correct delivery
Why is environmental an increasingly important focus of operational targets?
Businesses face more stringent environmental legislation.
Customers increasingly base their buying decisions on firms that take environmental responsibility seriously e.g. reducing water pollution.
What is dependability?
Ability to be able to deliver on time
What things could prevent dependability from being met?
Availability of drivers
Traffic/accidents
Why is the speed of response significant?
Businesses may compete by providing their goods and services faster than their competitors.
What is the formula for added value?
Sales revenue - the cost of bought (in materials, components and services)
How can value be added?
Add product features/benefits
Build a brand
Deliver excellent customer service
Be efficient
What are the benefits of adding value?
Charge a higher price
Differentiates you from the competition
Protects against the action of competitors
More focused on your target market
What is innovation?
Putting a new idea/approach into action
What is product innovation?
Launching new or improved products/services into the market
What is process innovation?
Finding better or more efficient ways of producing existing products, or delivering existing services.
What are the benefits of product innovation?
Enhanced reputation as an innovative company
Improved public relations
Increased market share
Higher prices and profitability
Increased added value
Opportunity to build early customer loyalty
What are the benefits of process innovation?
Reduced costs
Improved quality
More responsive customer services
Greater flexibility
Higher profits
What are the internal influences on operational objectives?
Corporate objectives - an operational objective should not conflict with a corporate objective
Finance
Human resources (workforce)
Marketing issues - regular changes to the marketing mix may place strains on operations.
What are the external influences on operational objectives?
Economic environment
Competitor efficiency flexibility
Technological change
Legal and environmental change
What is the formula for labour productivity?
Output per time period or (total output) / number of employees
What is the formula for unit costs (average costs)?
Total cost of production / number of units of output produced
What are unit costs significant?
Influences the price a business can charge and still make a profit
What is capacity of a business?
Measure of how much output it can potentially achieve in a given period.
e.g. a fats-food outlet may be able to serve 1000 customers per hour
What is capacity utilisation?
% of a business’ capacity that is actually being used over a specific period of time.
What is the formula for capacity utilisation?
Actual level of output / Maximum possible output x100
Why does capacity utilisation matter?
Useful measure of productivity- measures whether there are unused resources.
Average production costs tend to fall as output rises so higher utilisation can reduce unit costs, making a business more competitive.
Minimise unit costs
What are examples of the cost of capacity?
Equipment e.g. a production line
Facilities e.g. building rent insurances
Labour e.g. wages and salaries of employees involved in production/delivering the service
Why do most businesses operate below capacity?
Lower than expected market demand e.g. a change in consumer tastes.
A loss of market share e.g. competitors gain customers.
Seasonal variants in demand e.g. whether changes lead to lower demand.
Recent increase in capacity e.g. a new production line added.
Maintenance and repair programs e.g. capacity is temporally unavailable.
What are the dangers of operating at a low capacity utilisation?
Higher unit costs - impacts on competitiveness
Less likely to reach breakeven output especially if fixed costs are high.
Capital is tied up in underutilised assets such as machinery, and factories.
What are the problems in working at high capacity?
Negative effect on quality because production is rushed and there is less time for quality control.
Employees suffer because of added workload and stress and de-motivation is sustained too long.
Loss of sales because businesses are unable to meet sudden or unexpected increase in demand and production equipment may require repair.
What does efficiency measure?
How well inputs are used to generate output. If a process becomes more efficient it uses fewer inputs to produce a given output and the unit cost should fall.
