Operations Management (long answer)

Question 1

What are the factors of Production

Answer 1

Land – For factories or materials
Labour – Employees
Capital – Money/finance
Enterprise – Managers

Question 2

Define Labour intensive Production

Answer 2

Labour-Intensive Production: A larger workforce is used than machinery to make goods. Usually done in countries with low wages so that it is more efficient (ex: SHEIN).

Question 3

Define Capital Intensive Production

Answer 3

Capital-Intensive Production: businesses use machinery rather than workers. Usually done in developed countries where the wages are high.

Question 4

What does Manufacturing Buisnesses have

Answer 4

Factory Manager - responsible for quality and quantity of products
Purchasing Manager – responsible for providing the required materials and equipment
Research and Development Manager – responsible for design and training of employees for new products

Question 5

Ways to increase Productivity

Answer 5

Improve factory layout to reduce time waste and raise efficiency
Introduce automation
Improve labour skills by training
Improve quality control
Improve employee motivation
Improve inventory control

Question 6

Benefits of increasing efficiency

Answer 6

More output compared to inputs.
Lower costs per unit (and therefore lower average cost)
For example, if the business has a limited workforce, raising their wages will increase motivation and, therefore, also increase productivity.

Question 7

Why do businesses hold inventory

Answer 7

To ensure enough inventory is available to satisfy sudden changes in demand.
Production and opportunity costs will also be high if inventory levels are high.

Question 8

How inventories can be managed

Answer 8

The business buys in inventory to fill its holding capacity, known as the maximum inventory level.
As resources are depleted, inventory levels drop. At this stage, reorders will be made so it reaches the business in time before it runs out.
Buffer Inventory Level: inventory held to deal with uncertainty in customer demand and deliveries of supplies.

Question 9

What are the types of Lean Production waste

Answer 9

Transportation - when the goods are being moved unnecessarily → fuel price, chance goods may get damaged
Overproduction - leads to high storage costs and possible damage to goods while in storage.
Overprocessing - when sophisticated machines are being used to do simple tasks
Waiting - when goods are not moving or being processed, waste occurs due to inefficiency
Motion - any action made by an employee that does not relate to the production of goods, wastes time
Unnecessary inventory
Defects - when goods have faults/defects that require them to be inspected/fixed, wastes time

Question 10

Advantages of Lean Production

Answer 10

Less storage costs
Quicker production
Better use of equipment
Less money tied up in inventory
Speed up production by cutting out processes
Improved health and safety lead to less time off work due to injuries.
No need to repair defects or provide replacement services for a dissatisfied customer.
All these save/reduce costs that lead to lower customer prices and increased business competitiveness and profit.

Question 11

Advantages of Kaizen

Answer 11

High productivity
Less space needed for production
Work in progress is low
Improved layout of the factory may lead to combining jobs. This will reduce labour demand.

Question 12

Advantages of Just In time

Answer 12

All this reduces the costs of holding inventory.
‘Warehouse‘ space is not needed, reducing costs.
The finished product is sold quickly so that money will return to business quickly. Helping cash slow.

Question 13

Advantages of Cell Production

Answer 13

High motivation due to improved morale of employees.
More production efficiency.
Employees feel more valued and are less likely to strike or cause disruption.

Question 14

What are the features of Job Production

Answer 14

Products are made specifically for the customer’s order
Each order is different

Question 15

What are the advantages of Job Production

Answer 15

Good for ‘one-off’ products
Meets the exact requirements of the customer
Varied work increases employee motivation
Ability to charge higher prices

Question 16

Disadvantages of Job Production

Answer 16

Often labour-intensive, expensive as highly skilled workers are needed
Production takes longer
Any errors made are expensive to fix
Materials are more expensive.
No possibility of purchasing economies of scale

Question 17

What are the features of Batch Production

Answer 17

A similar range of products is made in batches

Question 18

Advantages of Batch Production

Answer 18

Flexible work can change products easily
Gives some variety to worker’s jobs
More variety, more consumer choice
Production may not be affected to any grant extent if the machine breaks down

Question 19

Disadvantages of Job Production

Answer 19

Machines must be reset to do different batches
Semifinished products may need to be transported around (+ cost)
Need space for stocks of raw material
High work-in-progress inventory
Expensive and time-taking
Flow

Question 20

Advantages of Flow Production

Answer 20

High output, capital intensive, more efficient.
Costs are low therefore low prices, leading to high sales
It requires only relatively unskilled workers and some training, maybe needed.
There is no need for moving goods around (all made in the same place).
Automated production lines can operate 24*7.
Benefit from economies of scale

Question 21

Disadvantages of Flow Production

Answer 21

It is very boring for employees, leading to decreased motivation over time
High cost of inventory of output & raw materials
Capital costs for setting up production are very high.
If one machine breaks down, the whole production stops.

Question 22

What are the factors influencing Production method to choose

Answer 22

Nature of Product - if unique or individual service, job production can be used.
Size of Market - if demand increases and more products can be sold but not in large quantities, batch production will be used. International market, flow production.
Nature of Demand - if large and fairly steady demand, e.g. soap powder flow production, can be used.
The size of the Business - if the business is small and doesn’t have access to large funds, job production can be used.

Question 23

Define Automation

Answer 23

Equipment in a factory is controlled by a computer to perform mechanical processes (i.e., painting a car). Only workers are to ensure it runs smoothly.

Question 24

Define Mechanisation

Answer 24

production is done by machines but operated by people. Used to do difficult, precise or dangerous tasks. Work 24/7, quicker and more accurate

Question 25

Define (CAD) Computer aided learning

Answer 25

software that helps design or re-style products quickly, allows technical sketches to be very detailed

Question 26

Define (CAD) Computer aided Manufacturing

Answer 26

when computers monitor production and control machines/robots

Question 27

Define (CIM) Computer integrated Manufacturing

Answer 27

when software that designs the products is integrated with the machines that produce (CAM + CAD).

Question 28

Define EPOS

Answer 28

EPOS (Electronic Point of Sale): used at checkouts, where barcodes are scanned and displayed on the receipt. The inventory is automatically changed and reordered when the reorder level is reached.

Question 29

Define ETPOS

Answer 29

EFTPOS (Electronic Funds Transfer Point of Sale): it is where an electronic cash register is connected to the retailer’s bank accounts, and the money is directly transferred when the shopper’s bank info is entered.

Question 30

Advantages of Using Technology

Answer 30

Productivity is greater as new, more effective methods are used, reducing average costs
Greater job satisfaction stimulates workers.
More skilled workers may be needed to use and maintain the new technology. Therefore, motivation and work quality will increase as training is provided to existing employees
Better quality products
Quick communication and reduced paperwork, increasing profitability.
The use of IT is much greater and results in better and quicker decision-making.
New ‘high-tech’ products are introduced as technology makes completely new products available.

Question 31

Disadvantages of using Technology

Answer 31

Unemployment could rise.
It is expensive to invest in new technology; this increases the risk as more products would need to be sold to cover the cost.
Employees may be unhappy with the change.
New technology is constantly changing and becoming outdated quickly; thus, businesses must replace technology to remain competitive.

Question 32

What are the usage of Cost Data

Answer 32

Helps manager set prices
Deciding whether to stop production or continue.
Deciding the best location.
It helps managers to make decisions.
It is needed to calculate profit and loss.

Question 33

Define Purchasing Economies

Answer 33

When a business buys in bulk, it tends to receive discounts, decreasing the price of each good.

Question 34

Define Marketing and Selling Economies

Answer 34

When the company advertises for goods, it will pay the same amount to advertise a greater number. Therefore, when marketing for a higher output, unit costs fall, decreasing ATC.

Question 35

Define Finanicial Economies

Answer 35

Banks tend to lend to larger companies with low-interest rates, as they borrow high amounts and their collateral value is high.

Question 36

Define Mangerial Economies

Answer 36

Large firms have opportunities to employ specialists who will help reduce wastage and increase efficiency and productivity
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Question 37

Define Technical Economies

Answer 37

More capital to invest in newer, more efficient technology and specialist equipment.

Question 38

Benefits of Break Even Charts

Answer 38

Managers can read off the graph if the company expects profit or loss and can see how much profit/loss they will have at any level of output
They can attempt different scenarios and see the impact it will have on the profit or loss of the business. It lets managers try out different possibilities to determine which is the best. (i.e. increasing the selling price, increasing production)
It can show the SAFETY MARGIN – the number of sales exceeds the break-even point. For example, if a business’ break-even point is at 1000 units, and they’re producing 1500 units, their safety margin is 1500 – 1000 = 500.

Question 40

Limitations of Break even charts

Answer 40

Break-even charts assume that all products made will be sold. It does not show the possibility that inventories may build up if they are not sold
Fixed costs only stay the same if the scale of production stays the same (doubling the output will also increase the fixed cost because they must need a bigger factory, more machinery, labour, etc.)
Break-even charts assume that costs and revenues can be drawn with straight lines, which doesn’t happen in real life.
It assumes costs and revenue increase at a constant rate.

Question 41

Advantages of Quality Control

Answer 41

Eliminates faults/errors before the customer receives a product or service.
Less training is required for the workers.

Question 42

Disadvantages of Quality Control

Answer 42

It is expensive, as employees need to be paid to check the product or service.
Identifies the fault but not how and why it occurred, so it is difficult to remove the problem.
Increased costs if products have to be scrapped or reworked or service repeated.

Question 43

Advantages of Quality Assurance

Answer 43

Eliminates faults/errors before the customer receives a product or service.
Fewer customer complaints.
Reduced costs if products don’t have to be scrapped or reworked or service repeated.

Question 44

Disadvantages of Quality Assurance

Answer 44

It is expensive to train employees to check products.
Relies on employees following instructions of the standards set by the business.

Question 45

Advantages of Total Quality Management

Answer 45

Quality is built into each part of the production. It becomes a habit for the employees.
Eliminates virtually all faults/errors before the customers receive them.
No customer complaints, so the brand image is improved.

No customer complaints, so the brand image is improved.
Waste is removed, and efficiency increases, which means less money is wasted (higher profits).

Question 46

Disadvantages of Total Quality Management

Answer 46

It is expensive to train all employees.
Relies on employees following the ideology of TQM.

Question 47

Factors which affect the location of Manufacturing Buisness (1)

Answer 47

Job Production: the business will be small and won’t have much effect on competitors there. The location of suppliers won’t affect much on the business. Ex. A small jewellery business.
If there is large-scale production, then competitors in that area will be highly affected, and the business will prefer closer suppliers as raw materials will be huge. Transportation costs may be high if the supplier is too far.
Market
When a product is heavier than its raw materials, businesses decide to locate its factory near the markets rather than the supplier, as a business will find it much cheaper due to transportation costs.
Due to advances in transportation facilities, the distances between factories and markets of heavy products don’t play a vital role.
Perishable products need to be delivered quickly.

Question 48

Factors which affect the location of Manufacturing Buisness (2)

Answer 48

Raw Materials/Components
Transportation costs will be high if goods and raw materials are very heavy. Then, a company may want its factory to be located near the supplier.

External economies of scale
When two firms support each other or work together, they will be able to respond quickly to any important decisions to be made or any breakdowns.

Availability of Labour
Every manufacturing business requires labour.
If a business requires only skilled labour, it will try to locate near a place where people with various skills live.
If a business requires unskilled labour, it will be located where wage rates are low and unemployment is high.

Question 49

Factors which affect the location of Manufacturing Buisness (3)

Answer 49

Government Influence
When a government wants to encourage businesses to locate in a particular area, it will offer state–funded grants to encourage firms to move there.
High unemployed areas may provide grants to businesses to locate there.
Transport and Communication
Businesses need to be closer to transport systems.
Exported products, ability to reduce transport costs.
Reduces time taken.
Power and water supply
Availability of power is very important.
Some businesses need to have reliable power sources to continue production.
Some production processes require a reliable water

Question 50

Factors that influence the choice of location of a SERVICE SECTOR business:

Answer 50

Customers
Services which require direct contact, must be located near the customers.
Services where personal contact isn’t required, location doesn’t affect.
Technology
Technology has allowed e-commerce, so location doesn’t play a vital role.
Personal preference of owners.
Availability of labour
If a business is labour-intensive, it must be located where labour is easily found, like towns and cities.
Climate
Near to other businesses
Some services/ businesses serve large companies and so should be able to reach them immediately; therefore, they must located closer to them.
Rent/ taxes
If services don’t require personal contact, they can be located in places with lower rents and tax rates.

Question 51

Factors that influence the choice of location of a RETAILING business:

Answer 51

Shoppers
Retailers want popular areas as they attract customers.
It depends on the type of product.
Expensive – a place where high-income people live or visit regularly.
Nearby shops
Being located near a frequently visited shop means people may shop in between while visiting other shops.
A place with high competition attracts more customers as they have greater choice.
Customer parking availability/ nearby
Convenient and nearby parking lots will encourage people to visit your shop.
Availability of suitable vacant premises
If a proper location isn’t available, a company can’t locate there.
Access to the delivery vehicle
Businesses try to find places near transport businesses to gain easy access to delivery vehicles.
Rent/ taxes
Popular area, high demand, and high rent.
Less popular, low demand, low rent.
Security
A place prone to theft may reduce a business’s chances to locate there.
Insurance companies may not insure such companies.
Legislation
Some countries may have laws restricting trade in some parts.

Question 52

Factors influencing the decision of which country to locate operations in:

Answer 52

New market overseas - when a business sees an increase in sales overseas, it may decide to move/relocate there instead of transporting products there.

Cheaper Source of material – if the raw material runs out, the business must either bring in alternative supplies from somewhere else or relocate to a new country with these raw materials, it also might be cheaper than transporting it.

Difficulties with the labour force and wage costs – if the business is located in a country where wages keep rising, it may be more profitable to relocate to a country with lower wages.

Rents/taxes considerations – if other costs such as rent or taxes increase, this might cause businesses to relocate to countries where it is lower.

Availability of government grants and other incentives - If governments want to increase foreign investment and job opportunities, they will provide grants, subsidies, and lower taxes.
They may do this to provide new skills and increase employment.
Trade and tariff barriers – If trade barriers are high, the business’s chance of locating there would reduce costs.

Question 53

The Role of Legal Controls on Location Decisions

Answer 53

Reasons the government influences these location decisions:
To encourage businesses to set up and expand in areas of high employment.
To discourage firms from locating in overcrowded areas or on sites with natural beauty.
Two types of measures used by the government to influence where firms are located:
Planning regulations (legally restrict business activity from certain areas).
Government grants or subsidies encourage them to locate in undeveloped areas