Operations Flashcards
Describe operations
Operations refers to the process of take raw materials (inputs) then transforming them (process) into finished goods (output)
Depending on the product or service there will be a different mixture of resources - labour, raw materials and machinery used in operations
What is the operating system?
The method of organising the resources to achieve the desired outcome is known as the OPERATING SYSTEM
Describe input
Buying the raw materials and hiring labour
Describe process
Converting raw materials into something useful through the use of machinery and other processes
Describe output
The finished product.
It is packaged and sent to customers (channel of distribution)
What does inventory refer to?
Raw Matrerials
Work in Progress (unfinished work)
Finished Goods
What is inventory management?
Inventory management is concerned with the sourcing and storage of raw materials (for secondary sector businesses) or supplies of finished goods for resale (for tertiary sector businesses).
What are the impacts to overstocking?
Supplies could go out of date if they are kept for too long.
Supplies could go out of fashion before they are used.
Too many supplies results in a risk of theft e.g. by staff or customers.
The business will have to pay for stockholding costs, such as insurance and security.
The opportunity cost of money being tied up in stock which could be better used elsewhere in the business.
What are the impacts of understocking?
The business may run out of stock and be unable to continue production or carry on selling.
The business will not benefit from bulk buying discounts due to making smaller orders.
There may be no stock to sell, resulting in a poor reputation and loss of customers.
There will be an increase in delivery costs since many smaller deliveries will need to be made.
There will be an increase in administration costs e.g. paying staff to browse for supplies, complete order forms, settle invoices etc.
How is an appropriate stock level set?
Managers need to decide:
- How much stock to keep on the premises
- How low the stock should get before re-ordering
- How much to re-order
Describe maximum (economic) stock level
This is the highest number of inventory (stock) that should be held at any time. This avoids the consequences of overstocking.
Depends on:
- Storage space available.
- Type of stock – perishable or not.
- Finance available – how much you can afford to buy at one time.
Describe minimum stock level
The least amount of stock which should be held.
Setting this level avoids the consequences of understocking.
Stock should not fall below this level because there is a risk that production might stop.
Also acts as a buffer to cope with unexpected demand.
Buffer inventory is inventory which is held as a reserve to allow for delays in delivery of ordered inventory
Describe the re-order level
The quantity at which more stock is ordered.
Computerised inventory systems link to EPOS and automatically reorder goods.
This avoids running out of stock.
Must take Lead Time into consideration.
Describe lead time
The time taken between an order being placed and stock arriving.
As short a lead time as possible allows the business to react to rush orders.
Describe the re-order quantity
The quantity of stock that is ordered to get back up to maximum level.
This ensures that the quantity ordered is not too great or too small.
The reorder level depends on
- Lead time
- The amount of stock already held
- If bulk buying discounts are available
- The maximum and minimum stock levels
Describe buffer inventory
This is usually set above the minimum inventory level and allows some stock to be available in case there are problems with deliveries.
Buffer inventory means that production does not have to stop.
What is the purpose of inventory control systems?
To anticipate running out of inventory before it happens
To ensure the production line will always be able to run if there is inventory
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 – better cashflow
To minimise the chance of inventory deteriorating
What are the advantages of EPOS and inventory management?
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 that is used at the till when a customer buys something is used in the warehouse which updates inventory levels with each sale.
Accurate and constant monitoring of stock levels allows for automatic reordering.
Highlights changes in demand from customers.
Highlights regional variations in inventory for head office.
Allows for decisions on slow-moving inventory or best sellers to be made quickly.
Is a deterrent to theft by staff as they know inventory levels are monitored closely.
What are the disadvantages of EPOS and inventory management?
Computerised systems will cost a lot of money to install and maintain.
Money and time need to be invested to train staff to operate the system efficiently.
Describe just in time
Alternative approach to inventory management.
The process of ordering supplies only when they are either required for production or when an order is placed by a customer, so it is done ‘Just in Time’
Used for ‘lean’ production techniques that increase efficiency and reduce wastage.
What are the advantages of just in time?
Allows production to be lean i.e. no wastage as all stock is used for production.
No money is tied up in stock, improving cash flow and working capital.
No warehouse is required, saving costs.
The business is more responsive to changing external factors.
What are the disadvantages of just in time?
If deliveries are late then the business will face the negative consequences of understocking.
Requires excellent relationships with suppliers to work effectively, which can take time to develop.
Relies on a good infrastructure between the business and suppliers e.g. roads
No room for error in production.
Describe storage and warehousing
Includes centralised and decentralised storage
Stock warehouses and storage areas need to have the right conditions so that stock is not damaged.
When a business sets up a warehouse (rents, buys or builds) they must ensure the following conditions:
- Well lit, dry and well ventilated
- A system should be used for booking stock in and out of the warehouse
- Stock should be on a first in, first out basis
- Accurate records should be kept of stock levels
- Warehouse space should be given to stock items
- All shelves and storage areas should be labelled for easy access and for locating stock
- Appropriate conditions – refrigerated etc
Describe centralised storage
Centralised storage involves storing inventory in one central location in a large, purpose built warehouse. E.g. Amazon in Dunfermline
What are the advantages of centralised storage?
Specialist staff are employed, which improves the speed of stock handling and security.
Centralised warehouses can store huge amounts of stock, benefiting from economies of scale.
The same procedures for issuing inventory are used across the organisation, improving consistency.
It may be cheaper to store inventory in one large warehouse than the total cost of many smaller on-site storerooms.
Centralised warehouses are often located close to infrastructure e.g. motorway networks or rail cargo terminals.
What are the disadvantages of centralised storage?
Inventory has to be delivered to each division or department, causing delays.
Specialist staff need to be employed, increasing wage costs.
Specialist equipment needs to be purchased and maintained.
Inventory usage levels and needs are unclear, as divisions need to communicate with the warehouse.
The use of centralised warehousing has declined due to more efficient inventory systems such as JIT, sourcing directly from the supplier.
Describe decentralised storage
Decentralised storage involves storing inventory in many different locations in smaller warehouses or store rooms.
Each branch or department is responsible for ordering and maintaining its inventory e.g. a retail outlets stockroom
What are the advantages of decentralised storage?
Inventory is always close at hand when needed for production or to sell to customers.
Smaller, more local warehouses are more responsive to local needs.
Inventory usage reflects production as it is stored locally.
Smaller amounts of inventory reduce the likelihood of experiencing the negative consequences of overstocking.
What are the disadvantages of decentralised storage?
Can lead to wastage or theft of stock as security tends to be poorer than in centralised storage facilities.
Lack of specialist staff can lead to inventory control being inefficient.
Each division may handle inventory differently, leading to inconsistency and problems being more difficult to identify for senior management.
Smaller amounts of inventory result in negative consequences of understocking.
Describe the logistics management of inventory
Is the process of dealing with the whole order from start to finish
The main functions of a logistics manager is to organise and plan:
- Purchasing
- Warehousing/storage
- Inventory management
- Distribution–road, rail, air or sea?
Ensures that the right goods are in the right place in the right quantities at the right time to be sold.
What is the role of logistics management of inventory?
Planning inventory required using production and sales budgets.
Organising the resources needed for logistics, including warehouse equipment and staff.
Commanding warehouse staff to carry out tasks.
Co-ordinating the supply chain, channels and methods of distribution so that deliveries are made on time.
Controlling the quality, quantity, cost and efficiency of the movement and storage of inventory.
Delegating inventory procedures to decentralised warehouses.
Motivating other members of their team.
What are the advantages of road?
Cheaper than other methods such as planes because…
Delivery can be quicker than other methods because…
Customer receives product right to their door
Refrigerated vehicles can be used to transport perishable goods
Can depart at any time 24 hours
What are the disadvantages of road?
It is not suitable for all products – large items
Not as environmentally friendly as other methods – carbon emissions
Traffic congestion can cause delays
Restrictions to the number of hours a lorry driver can work
Petrol prices increases makes this more expensive
What are the advantages of rail?
Large products can be transported easily be freight
No traffic to get stuck in
It is often faster than by road
It is more environmentally friendly than road
What are the disadvantages of rail?
There may not be a train station nearby so deliveries can be restricted
Rail services can be disrupted – technical difficulties or rail track issues
It is not suitable in rural areas with no rail network
Specialist rail-freight terminals are required
What are the advantages of air?
Products can be transported across the world quickly
Ideal for long distance and more remote locations
What are the disadvantages of air?
Very costly in comparison to other methods
Large items cannot be transported easily
The airport is not the final destination so often still requires road transport for the final delivery
Not environmentally friendly
What are the advantages of sea?
Large items can be transported worldwide
Less expensive than air for large loads
Good for items that have a long shelf life
What are the disadvantages of sea?
Slower method than others meaning longer delivery times
The dock is not the final destination so could incur road haulage costs
What factors do businesses need to take into account before choosing a method of distribution?
The product being sold - if the product is flowers it needs to be a fast method with appropriate facility to transport flowers.
The finance available within the organisation - if there is limited finance available then this will affect the choice of channels.
The image of the product - if the image is of a high quality product this will affect the channel that the organisation chooses.
The reliability of the other companies in the chain. Legal restrictions.
Where the product is in the life cycle.
The organisation’s own distribution capabilities. Durability of the product.
Describe labour intensive production
This is where a business uses a larger proportion of human input than machinery in the production process.
Suitable where the product require craftsmanship or special expertise.
Suitable where the production process requires flexibility and the ability to think/problem solve.
Most common in job production
What are the advantages of labour intensive production?
Some workers are highly skilled or offer expert craftsmanship
Lower start-up costs as there is no need to buy expensive machinery.
One off products can easily be produced
Employees can use their own initiative and creativity when required.
What are the disadvantages of labour intensive production?
Recruitment, training and wage costs can be high
Accuracy of work can vary from one person to another.
High risk of human error resulting in waste and faulty products
Labour might only be suitable for small scale production, can’t mass produce
Staff illness or absence can impact production and orders might not be made.
Describe capital intensive production
This is where the production process relies more on machinery and equipment relative to human input.
Suitable where the cost of machinery is cheap compared to labour.
Capital Intensive production can use either automation or mechanisation.
Suitable for repetitive processes where a standard product is being produced (FLOW PRODUCTION)
- Large scale production is required
- High and consistent quality is required
- The product is more easily produced by machines than labour
What are the advantages of capital intensive production?
Machinery can operate 24/7 so production can keep going 24/7
Machines are more efficient and produce products quicker than human workforce
Quality and accuracy will be standardised as it is programmed into the machine
Can produce a high volume of products.
What are the disadvantages of capital intensive production?
Expensive to set-up and maintain.
Production time is lost if machines break down.
Worker motivation is low if doing repetitive tasks.
Individual customer specifications cannot be met as machines only produce standard products
What are the advantages of using skilled workers?
Niche market can be created and higher prices charged because the product is made by skilled workers. E.g. Chanel, Louis Vuitton
They are experienced and can spot mistakes quickly.
They pay attention to detail.
Machines are expensive and money need to purchase and maintain them.
Skilled workers can adapt to changing needs of customers.
Personal touch – customers like to deal with people and talk to them rather than machines.
What are the disadvantages of using skilled workers?
Skilled workers take their time – machines are faster.
Skilled workers are expensive to pay.
Mistakes made by skilled workers can be costly.
They cannot work long hours – machines 24/7
Workers need motivated and supervised
Machines do not get sick or need time off.
Workers need safe and fair working conditions.
Skilled workers need higher wages then semi- skilled machine operators.
