Operations Management

Question 1

What is added value?

Answer 1

The difference between the actual price charged for a product or service and the actual cost of all the components and assembly of the product or service.

Question 2

What is the added value if the cost of inputs on a product is £12, and the selling price is £20?

Answer 2

£8

Question 3

What is the advantages of increasing added value?

Answer 3

Being able to charge a higher price and therefore a high level of profit
The higher price may enhance the image of the product or service
It may enable the business to target its chosen market easier.

Question 4

What are the disadvantages of increasing price to result in a increased added value?

Answer 4

It is not guaranteed that the cost of adding value can be recouped by increasing the price
It could affect the elasticity if its in a highly competitive market.
The amount of competition may make it harder to increase the price to increase the added value.

Question 5

What are the four different production methods?

Answer 5

Job Production, Flow Production, Batch Production, Cell Production

Question 6

What is job production and give an example.

Answer 6

This involves producing a single product or item. This is usually a bespoke item that is a one-off. Job production is usually performed by small local businesses, e.g. For a wedding flowers are requested to be a certain order and arrangement with the correct colours.

Question 7

What are the benefits of job production?

Answer 7

It can meet the customer needs exactly
The quality is usually high, as its usually only one item being produced
Little stock is tied up, resulting in less stock being wasted
Easier to add value, to increase profits.

Question 8

What are the disadvantages of job production?

Answer 8

Cannot benefit from economies of scale.
High costs of production
Hard to find highly skilled staff required for job production, very expensive to pay.
Can take a long time.

Question 9

What is batch production?

Answer 9

Batch production is used when there is a set procedure and stages that the production process needs to go through in order to create a product. One process has to be completed before the next stage of the production process can be started.

Question 10

What are the benefits of batch production?

Answer 10

The system is able to produce in the larger quantities than job production.
There may be some economies of scale.
Batch production is faster than job production
More flexible than flow production

Question 11

What are the limitations of batch production?

Answer 11

As the level of production is higher than, more stock needs to be held, adding to the cash outflows of the business.
Storage space may need to be required for the products waiting to go into the next batch may be needed.
Repeated process generally, reducing the motivation of the work force, as there is no variation in production.

Question 12

What is flow production?

Answer 12

Flow production provides a continuous process utilising a conveyor-belt approach, whereby the product is assembled on a production line with employees undertaking specific repetitive tasks for each stage of the processes.

Question 13

What are the benefits of flow production?

Answer 13

The business is able to gain the benefits from economies of scale and therefore reduce the unit cost of production.
Due to large scale production the business can benefit from division of labour(Specialisation)
The business can produce a standardised product in very large numbers much more quickly than other methods of production.

Question 14

What are the limitations of flow production?

Answer 14

Initial set up costs are very high because of the cost of the automated system.
It lacks the flexibility to produce a wide range of products.
There will be a large amount of stock in terms of work-in-progress.
If one piece of the line stops the whole line has to stop, halting productivity greatly.

Question 15

What is cell production?

Answer 15

It is the production system that has employees working in teams, who are responsible for the whole of the production process for a given product.

Question 16

What are the advantages of cell production?

Answer 16

As the employees are responsible for the work within their own cell, there is an incentive to ensure that the quality of the work is high. Reducing wastage rates.
There are opportunities for job rotation, allowing them to learn new skills.
It allows employees to set their own pace of work.

Question 17

What is division of labour? (Specialisation)

Answer 17

This occurs when a job or task is broken down into separate tasks. This will make the task easier to perform and therefore quicker and cheaper to train and operative to perform the specific task. Once the task has been learnt the operative ought to be able to perform this task more quickly and therefore increase the productivity rate.

Question 18

What are the benefits of operating at full capacity?

Answer 18

As capacity utilsation increases the average unit cost will fall as the cost will be spread across more sales.
Less wastage of resources
Profits increase as a result of falling unit costs
Stakeholders will view full capacity in a positive way.

Question 19

What are the disadvantages of operating at full capacity?

Answer 19

There is limited opportunity for maintenance and therefore the consequences of any breakdown will mean downtime.
Any additional orders will either be impossible or will require significant extra cost

Question 20

What are the three types of stock?

Answer 20

Raw materials, Work in progress, finished goods

Question 21

What are raw materials?

Answer 21

This is stock that includes all the raw materials or components that are needed to produce a finished good such as steel for cars.

Question 22

What are Work-in-progress goods?

Answer 22

This includes the raw materials and components that are partly assembled or used to produce the finished good. At any one time much of the stock may have already been used in the production process, but it is not as yet a finished product that consumers would be willing to be.

Question 23

What are Finished goods?

Answer 23

This is the completed product that has yet to be delivered to the consumer. Some products are stored and then delivered. How much stock will be in this form will depend upon the nature of the product and the size of a given order.

Question 24

What are the benefits of holding stock?

Answer 24

Satisfying demand
Copying with fluctuations in demand
Buffer stock to meet late deliveries
Cost savings due to economies of scale purchases

Question 25

What are the costs of holding stock and inventory?

Answer 25

Storage costs
Opportunity costs
Depreciation costs
Security costs
Administrative costs
Insurance costs

Question 26

What are the key features of a stock control diagram?

Answer 26

Maximum and Minimum stock, lead time, re-order level, buffer stock

Question 27

What is lead time on a stock control diagram?

Answer 27

The amount of time it takes from the reorder is ordered until the stock is arrived.

Question 28

What is the buffer stock on a stock control diagram?

Answer 28

The amount of stock between 0 and the minimum levle

Question 29

What is the formula for average stock level

Answer 29

Maximum stock level + minimum stock level/2