operations management Flashcards
production def`
the process of converting inputs such as land, labour, and capital into saleable goods
primary sector def
firms whose business activity involves the extraction of natural resources.
secondary sector def
firms that process and manufacture goods from natural resources
tertiary sector def
firms that supply a service to consumers and other businesses
what is operations management
mangaging business resources throughout the production process so as to produce finished goods
productivity def
a measure of the efficency of inputs used in the production process, especially labour and capital.
labour productivity =
total output / number of production workers
what must operations management do
use resources in the most cost-effective way
produce the required output to meet consumer demand
meet the quality standard expected by consumers
how do you increase productivity of workers
improving the skill level of workers
improving the motivation of workers
introducing more automation/technology
improving quality of managment decisions
inventories def
the stock of raw materials, work -in-progress and finished goods held by a business
what do businesses hold stock of
raw materials and components
work in progress
finished goods
how does holding inventories add to a businesses costs
warehousing costs handling costs shrinkage costs insurance costs obsolescence
what is obsolescence
the business may not be able to sell out of date goods.
why do businesses hold inventories
- the production process needs raw materials or components. if these are not available when they’re needed production will stop and ouput will decrease
- if the business does not have finished goods in stock, then orders cannot be met and the business will lose sales. this could result in the loss of current and future sales.
- purchasing economies (bulk buying)
lean production def
the production of goods and services with the minimum waste of resources.
examples of lean production
Just in time inventory control
Kaizen
benfits of lean production
new products can be brought to the market more quickly
quality is improved
wastage of time and other resources is reduced or eliminated
the costs of holding inventories is eliminated
unit costs are reduced
what is Just in time inventory control
raw materials and components arrive from suppliers just as they are needed by the production process. as soon as finished goods leave the production process, they are delivered to the customer.
what is Kaizen
the approach gives all workers the opportunity to make suggestions about how to improve quality or productivity.
job production
the production of items one at a time
batch production
the production of goods in batches. each batch passes through one stage of production before then moving onto the next stage.
flow production
the production of very large quantities of identical goods using a continuously moving process.
capital intensive def
production process uses a high quantity of capital equipment compared with labour input.
what is CAD
computer aided design
what is CAM
computer aided manufacturing
fixed costs
costs that do not change with output
variable costs
costs that change in direct proportion to output
total cost
all the variable and fixed costs of producing the total output
total costs =
fixed costs + total variable costs
average costs
the cost of producing a single unit of output
example of fixed costs
rent, salaries, telephone bill - contract
example of variable costs
electricity, transport, wages - part time workers
average costs =
total cost / quantity produced
economies of scale
the reduction in average costs as a result of increasing the scale of operations
marketing economies
these economies exist because certain costs such as producing an advert can be spread over more units of output for a larger firm
purchasing economies
big multinational firms can get cheaper rates from suppliers as they buy in bulk at discounted prices
risk bearing economies
wider product ranges and more markets help to reduce the business risk; larher firms can invest in research an development projects
managerial economies
specialists such as accoutants can be employed to improve efficency through specialisation
financial economies
larger companies have easier access when raising money, banks are happy to lend at low interest rates because of the huge sums involved.
technical economies
larger factories invest more into machinery; this improved efficency and enables specialisation
diseconomies of scale
factors that cause average costs to rise as the scale of operations increases
problems for a business that has become too large
poor communication
demotivation of workers
poor control
reasons for breakeven charts
helps business decide how much to sell in order to make profit
helps business decide what the selling price should be
helps business gain loans from banks
limitations of break even charts
difficult to predict number of customers who will buy the firms products
changes in economy could cause demand for products/services to decrease
new competitors entering the market can lead to firms reducing the selling price to maintain market share.
break-even def
the level of output where revenue equals total costs, the business is making neither profit nor loss.
what is margin of safety
the difference between actual output and breakeven level of output
start up capital def
the capital needed by an entrepreneur when first starting a business
working capital def
the capital needed to finance the day to day running of the business
non-current fixed assets def
resources owned by a business which will be used for a period longer than a year, for example buildings or machinery
capital expenditure def
spending by a business on non-current assets such as machinery or buildings
long term fianance def
debt or equity used to finance the purchase of non-current assets or finance expansion plans. long-term debt is borrowing a business does not expect to repay in less than five years
short term finance def
loans or debt that a business expects to pay back within one year
quality def
ensuring a good or service that meets the needs and requirements of its consumer
quality standards def
the minimum acceptable standard of production or service acceptable to consumers
why is quality important
brand image keep customers and attact new ones reduce customer complaints and returns charge a premium price encourage wholesalers and retailers to stock the product lengthen product life cycles
quality control def
checking the quality of goods through inspection
quality assurance def
a sysem of setting agreed standards for every stage of production
infrastructure def
the basic facilities, services and installations needed for a business to function, e.g. water, power, transport links
quantative factors examples
cost of site availability and cost of labour transport costs market potential issues
qualitative factors examples
site
legal controls
infrastructure
ethical concerns
government incentives def
usually finance such as interest-free loans, or grants provided to a business to help when locating in a country or area of a country
why would businesses locate their operations to anothr country
/continent
growth
reduce production costs
locate production closer to market
lower labour costs
access to global makrets
avoid legal barriers and tarriffs
gov incentives
problems of locating operations in another continent
cultural differences
communication problems
ethical concerns
quality issues
