OPERATIONS Flashcards
Define quality
The ability of a product or service to meet customers expectations
What can customer interpretation of quality be influenced by?
Price
Brand
Customers personal expectations and experiences
What are things to consider when measuring the quality of a good?
Aesthetics Features (eg physical attributes) Core aspects (ie basic functions Added extras Augmented aspects (ie warranty)
What are things to consider when measuring the quality of a service?
Friendliness of staff
Speed of service
Efficiency of service
Appearance of environment
How can managing quality effectively give a business a competitive advantage?
Lower unit costs due to less waste
Positive brand image to consumer (through word of mouth)
Develop USP
Motivated workforce
Why is it difficult to improve quality?
Reluctant of employees to adapt to change or take an additional responsibility
Requires fin ace to invest in training and test and implement new systems
Once achieved must monitor and review regularly to ensure standards are being maintained
What are the two methods of managing quality?
Quality control
Quality assurance
What is meant by quality control?
Checking of a good or service before it is delivered to a customer
-at end of the process
Usually carried out by specialist inspector
What are advantages of quality control?
Quality monitored- reputation monitored
Stops faulty products reaching customer
Common problems can be identified- make changes (eg more training)
Inspector takes responsibility
What are disadvantages of quality control?
Takes responsibility away from operatives (may become demotivated)
Requires specialist/additional personnel (could be expensive to hire)
Wasteful- problems aren’t identified till the end (can’t make changes throughout)
What is quality assurance?
Checking of product or service at each stage of its production by each worker
-along production line
Relies upon self-checking
What are examples of recognised quality companies?
Red tractor (food standards)
ABTA travel
Toy and hobby
What are advantages quality assurance?
Spots faults early saving resources being wasted at next stage of production process (decrease waste costs)
Motivate workers as responsible for ensuring quality standards are met- due to empowerment
Increase reputation of business as less chance of faulty goods reaching customer
What are disadvantages of quality assurance?
Requires training and high levels of staff commitment (increase costs)
Can slow down production process and labour productivity leading to higher unit costs
Opportunity cost of managers time when initially implementing the systems and procedures
Define total quality management (TQM)
Creates quality through continuous improvement, development of systems and products and by creating an organisational culture of quality
What are the methods of achieving TQM?
Empowerment Monitoring Teamwork Quality chains Zero defects Benchmarking Quality circles
How does empowerment achieve TQM?
Process of enabling, by providing the necessary resources and skills, and allowing employees to take responsibility and show initiative
Employees accountable for quality of their own task
How does monitoring achieve TQM?
Process of measuring employee performance and ability to meet quality targets
Linked to rewards and sanctions
How does teamwork achieve TQM?
Give groups of employees responsibility for working together to ensure quality targets are achieved
Sense of belonging and accountability can increase motivation (Mayo)
How does quality chains achieve TQM?
Chain from supplier, production to customers and everyone in the business
Each level of chain should see themselves as ‘internal customers’ therefore everyone is is responsible for high quality
How does zero-defects achieve TQM?
Getting it right first time very time
Responsibility of each worker
Eliminates costs of error
How does benchmarking achieve TQM?
Process of identifying best practice, normally within industry
How does quality circles achieve TQM?
Informal group f workers who volunteer to meet on regular basis to discuss issues in workplace
Emphasis on improvement of quality
Increased employee participation leads to higher motivation
What are advantages of TQM?
Improved quality Improved productivity Motivated workforce (e.g. empowerment and teamwork) Reduced waste through zero defects Increased profitability
What are disadvantages of TQM?
Workers may lack self discipline (linked to theory X managers)
Senior management may lack patience- TQM not quick
Concentrating on reducing defects not meeting customer need s
What is a chain of production?
Various stages, from raw materials to finished products, that the goods pass before being sold to the customer
Links to primary, secondary and tertiary sector together and relies on interdependence of sectors
What is added value?
Difference between costs of inputs and the price customers are willing to pay for finished goods
Creates surpluses to pay wages and overheads
How does technology improve operational efficiency?
- information technology
- automation
- design technology
- robotics
What are examples of internal information technology?
Interdepartmental
Order processing
-e.g. waiters using hand devices to transfer orders to the kitchen
Quality data
-e.g. telling production workers about number of defects
What are examples of external information technology?
Working with suppliers
-using electronic data interchange to process orders
Sourcing suppliers
-growth of the internet to find new suppliers
Tracking of supply chain
Define automation
The use of machines to control processes (e.g. stock central, production line)
What is computer aided manufacturing?
CAM
Use technology to control aspects of the production line
What is stock central?
More accurate predictions of stock usage through statistical analysis
Automatic control of stock levels and reordering
Retailers use EPOS (electronic point of sale)
-barcodes
-scanners
-database
Define design technology
The use of computers in the design of developing a product
-CAD (computer aided design)
-used in may professions including architecture
Designs can be easily altered
Define robotics
The programming of robots to carry put tasks more traditionally completed by humans
E.g:
-production processes (e.g. sterilising bottles)
-logistics (packaging)
-quality assurance (e.g. weighing and testing)
What are advantages of using technology?
Save money
Better quality
More efficient production
Safer
What are disadvantages of using technology?
Lacks expertise
Unforeseen expenses- breakdown costs etc
Define ‘job’ as a method of production
One single item produced from start to finish without much chance of a repeat order
- likely to be one off
- skilled workers required
- e.g. wedding cakes, extensions
What are pros of ‘job’?
Flexible
Motivated workers by variety of tasks
Simplified organisation as one job at a time
What are cons of using ‘job’?
Higher labour costs due to specialised staff Expensive to set up -variety of tools -machines required Long time to produce
Define batch production
Large quantities of identical products are produced, which can then be altered which satisfy demand
- loses individuality of product
- efficiency gains over larger output (economies of scale)
what are pros of batch production?
Flexibility- batch can be changed
Decreased need for skilled employees as workers can focus on one action
Stocks of partially finished goods can be stored, which will help respond to quickly respond to change sin demand
What are cons of batch production?
High set up costs fr machinery
Workforce less motivate as repeat operations may cause boredom
Small batches still have high unit costs
Define flow production
Continuous manufacturing where products pass from one operation to the next
Usually mechanised process
What are pros of flow production?
Increased productivity as machinery not subject to labour laws
Gain from economies of scale
Low labour costs
What are cons of flow production?
Very high set up costs
Breakdowns are very costly
Regular need for inspection of machinery
Define productivity
A measure of the efficiency with which firms turns production inputs into outputs
Whats the formula for labour productivity?
Total output/total number of workers
How do changes to the workforce improve productivity?
Division of labour
Motivating workforce
Reduced absenteeism
Increased training to create multi-skilled employees
How do changes to the production process improve productivity?
Improve technology
Increase scale of production
Standardisation of process
Why may there be difficulties in increasing labour productivity?
May impact negatively on quality and customer satisfaction -damage long term rep -increase waste affecting unit costs Employees job satisfaction -working harder for same pay
Define capacity
Maximum amount of output achievable if all resources are fully utilised
A business will aim to match capacity to demand
What is the formula for capacity utilisation?
Actual production/potential production x100
What are methods of utilising capacity efficiently?
Under-utilisation
Over-utilisation
Describe under-utilisation
Increase demand
Downsize (e.g. sell off assets)
Lease any spare capacity
Describe over-utilisation
Decrease demand
Outsource parts of the business operations (get another company to do some production)
Increase capacity by investing in more resources
Define lean production
Refers to a range of operational practises associated with or inspired by Japanese manufacturing firms designed to reduce waste and maximise efficiency
What does LP consist of?
- Kaizen
- Just in time
- Time based management
- Cell production
Describe Kaizen as a component of Lp
A system that concentrates on small, but frequent, improvements in every aspect of the production process
- all members of workforce involved
- requires highly motivated and committed workforce
Describe just in time as a component of LP
A stock ordering system that involves deliveries taking place just as stocks are required and therefore eliminates the storage of stocks
When is JIT appropriate?
Good relationship with supplier
Reliable production technique to avoid bottlenecks
Close relationship with customer
What are the three ways stocks can be held?
Raw materials
Work in progress
Finished goods
What are benefits of holding stocks?
Less costs in holding stocks
Less working capital required
Less obsolete or ruined stock
Lower associated costs (e.g. security and insurance)
What are difficulties with holding stocks?
Little room for error
Very reliant on suppliers
Unexpected orders harder to meet
High initial set up costs
Define cell production
Form of flow production whereby the production line is split into series of self-contained groups
- depends on staff being welcoming trained
- each member of the cell works as a team to achieve goals and ensure quality standards are met
Define time based management
A technique that recognises the importance and cost of time
- seek to reduce time wasted in production process and reduce time taken to produce a good or service
- requires flexibility in all resources including machinery and staff
What are benefits of implementing LP?
Cuts stock levels
Shortens delivery time- improved rep
Defects per machine/person drops- improved image, customer loyalty
Finds waste saving measures- decrease costs- could increase R&D or cut prices for competitiveness
What are problems with implementing LP?
External factors/exogenous shocks (e.g. traffic, snow, etc)
Good relationship with suppliers is often difficult to cultivate
Costly to implement particularly with small firms
Cultural change is long term
What are problems with LP philosophy?
Focuses on production at expenses of other areas
Lp produced goods to demand rather than anticipating the future needs of consumers
Commitment needed at all levels and without the pressurised environment could lead to high staff turnover
Assumes workers are theory Y
What are the roles of the purchasing department?
- ensure correct levels of stocks to meet the needs of the production department
- ensure stocks bought are of a sufficient quality and deal with returns of those that are not
- ensure stock is bought at a competitive price
- ensure stocks delivered to correct location
- ensure stock ration occurs
How does price affect your choice in supplier?
Strive to keep unit costs low
As result, can pass on cost savings to customers in form of lower prices, or enjoy high profit margins
Important not to jeapordise quality
How does payment terms affect choice in supplier?
Vary dependent upon the relative sizes of the firms and also nature of product or service
Payments can be upon delivery, pre-agreed credit terms, payment plan, etc
How does quality affect choice of supplier?
Has direct effect on quality of finished product
May impact operational efficiency- need to rework damaged goods
How does capacity/reliability affect choice of supplier?
Supplier may not be able to meet demand
May not be able to deliver on time
What are examples of types of stocks?
Raw materials
Partly finished goods
Finished goods
Service stocks (e.g. stationery parts)
What are results of too much stock?
Tying up cash in stock- opportunity costs and costs including warehousing, insurance, security, etc
Potential loss in value of stock
Potential risk of being left with unsellable stock- demand drop off, seasonality, etc
What are the results of a lack in stock?
Unfulfilled demand- loss of sales, loss of customers as cannot meet orders
Customer loyalty ruined, reputation affected
Increased pressure on workers when stock finally arrives
Subcontracting to another business therefore losing control over quality
Define maximum stock level
Maximum amount of stock a business would wish to hold
The amount of stock a warehouse can hold
Define re-order level
This acts as a trigger point, so that when stocks fall to this level, the next order should be placed
Define lead-time
Amount of time between placing the order and receiving the stock
Define minimum stock level
Minimum amount of product the business would want to hold in stock
Define buffer stock
AN amount pf stock held as contingency in case of unexpected orders so that such orders can be met and in case of any delays from suppliers
why are stock control charts unlikely to represent real life?
Orders may be later than expected
Stocks may be used more quickly than expected
Possible machine breaks which will halt production
Stocks may last longer than expected
Cash flow problems may limit stock orders
Firms may expect shortages so buy more now
Desc rice the theory of just in case
A stock ordering system that involves a large buffer stock of items just in case an order comes in
Commonly used in manufacturing where companies are less efficient
What are key features of just in case?
The re-order level is often very high
The lead time can be much longer
Buffer stock is large
When is JIC appropriate?
If stock is non-perishable- food that can be stored for a long time
Where stock holding costs are low- could be small items or minimal value
When orders are impromptu and are needed urgently
What are advantages of JIC?
Can meet sudden increase in demand as have spare stock
Lower risk if there are problems with supplier
Buy bigger quantise and may get price reductions; less transport costs as less deliveries
What are disadvantages of JIC?
Holding stock that might go out of date or need to have price reduced to sell
Higher stock holding costs
Define innovation
When a new idea or invention is launched onto the market normally with a view for. a competitive gain
What are the two ways of innovation?
- product- occurs through adapting a product that already exists or developing a brand-new product
- process- changing a process of production that already exists or putting into practise a brand-new production process
What is innovation the result of?
R+D
-which is the scientific research and technological development of new products and processes
What is the purpose if innovation?
Firms cannot afford to stand still in competitive markets-todays innovation are tomorrows cash cows and stars
A firm that comes up with the right innovation can guarantee future income if its protected by a patent
Although expensive, the alternative of losing future markets might be worse
What are possible risks involved in innovation?
Firms can make substantial losses if innovation fails
Other companies are likely to react with their own innovations
Legal implications often arise with other firms questioning whether the product is really an innovation
What are pros of innovation?
Creates USP for the product
Less competition due to patent
More efficient and cost-effective production process
Likely to be a premium product with high prices
What are cons of innovation?
Can be very costly in R+D stages and there a drain on resources
For all innovations there is an opportunity costs
Few innovations see light of day so the firm is effectively financing waste
Define research
The inquiry and discovery of new ideas e.g. lab research, product evaluation, etc
Define development
Changing ideas into commercial products
What is the design and development process?
- identification of problem
- research
- development of new ideas and solutions to solve the problem
- development of prototypes
- final design
- testing
- manufacturing and launching
What us the purpose of R+D?
Solving problems Product development Reducing production costs Developing raw materials Reducing environmental damage
What are benefits of R+D?
Competitive advantage
-new product or materials- particularly if protected by patents
New production technique
-e.g. CAD/CAM- can be safer, cleaner, higher levels of productivity
Image (USP)
Motivation
-satisfies higher order needs such as esteem
Consumer benefits
-more choice potentially lower prices
What are drawbacks of R+D?
Cost
-R+D expensive, opportunity costs
Requires increased scale of production
Likelihood of negative cash flow in short run to fund ‘problem child’ products
New ideas potentially open for competition to copy
What does the success of R+D depend on?
Nature of industry- some industries require more (e.g. car industry)
Competitors reactions
Whether a firm ca protect their inventions in some way (e.g. patent)
Money and time available
Skills of workforce carrying out R+D
Short term costs with potential long-term rewards
Why do small firms survive?
Nice market
Flexibility in hours
Local
Lower costs/ barriers of entry
How can you measure the size of a company?
- sales turnover
- number of employees
-micro= max 9
-small= max 49
-medium= max 249
-large= 250+
Profit
Amount of capital employed (return on shareholders investments
Market share
Market capitalisation
What are problems with market capitalisation being a method measuring the size of a company?
- share prices changes all the time (demand may fluctuate)
2. method only applies to PLCs
Why do firms need to grow?
Survival (staying small means costs are too high, essential to avid takeovers)
Increase profitability
Gain market share (monopolies= 25% market share)
Reduce risk (diversifying allows risk to be spread across numerous products- multiple product lines to fall back on if failure occurs)
Define economies of scale
Occur when there is a fall in average costs as the sales of production increase (when business grows)
What is the formula for average costs?
Total costs/output
What are internal economies of scale?
Occur when an individual firm grows in size (increase output) and so benefits from lower average costs
Affects one business
What are the types of internal EOS?
- risk bearing
- financial
- marketing
- technical
- managerial
- purchasing
