Section 3.4 - Operational Performance

Question 1

Operational Objectives

Answer 1

^^^ can help a company achieve its overall objectives; decisions focused on meeting these objectives.
Performance can be received and assessed.
- Quality (involve maintaining and improving levels of quality)
- Costs (may aim to cut costs when competing on price - cut fixed or variable costs)
- Flexibility (react to what customers want and flexible hours for employees)
- Efficiency (aim to make better use of resources - reduce cost and increase profit)
- Innovation (set R&D department innovation targets)
- Environment (e.g. cut carbon emissions)
- Speed of response (the speed at which a business can operate - closely linked with efficiency)
- Dependability (customers depend on business, business depends on supplier)

Question 2

Added value

Answer 2

Added value = sales revenue - cost of bought-in goods and services
^^^ can be achieved by increasing selling price or reducing cost of raw materials

Question 3

Internal factors

Answer 3

• nature of the product
• availability of resources
• other departments
• overall objectives

Question 4

External factors

Answer 4

• competitions performance
• market conditions
• demand for product
• changing customer needs
• new tech

Question 5

5 types of methods of production

Answer 5

• Job production (one-off items by skilled workers)
• flow production (mass production, continuous production line, division of labour)
• batch production (small batches, identical items)
• cell production (divided into a set of tasks)
• lean production (streamlined with minimal waste)

Question 6

Capacity Utilisation

Answer 6

Capacity - maximum output with the resources currently available, without buying any more fixed assets
^^^
depends on number of employees, tech, production process, and amount of investment.

Question 7

Capacity Utilisation - equation

Answer 7

capacity utilisation (%) = output / capacity x 100

Question 8

High capacity > low capacity, however 100% capacity has drawbacks:

Answer 8

> have to consider all operational objectives
may have to turn away potential customers; can’t increase output any more
machines on all the time - if it breaks down, can cause delays and no time for equipment maintenance
no margin of error
can’t temporarily increase output (seasonal demand)
output > demand = surplus stock

Question 9

Increasing capacity

Answer 9

> using facilities more of the working week
buy more machines (if they can afford)
increase staff levels in the long run
increasing productivity
temporary rise in demand = subcontract work (when a business uses another firm to do some work on its behalf)

Question 10

Under-utilisation

Answer 10

^^^ inefficient and increases unit costs

Equation:
Unit costs = total costs/units output

Can deal with in 2 ways:
1. try to increase demand (change marketing mix, subcontracting, etc.)
2. reduce capacity (closing part of production facilities - rationalisation, stopping overtimes, not replacing staff as they retire)

Question 11

Capacity utilisation - needs will change over time

Answer 11

• think about demand in the future as well as current
• planning capacity changes to match long-term changes in demand (market research; still an element of risk)
• short-term changes provide flexibility
• long-term solutions end up giving lower unit costs

Question 12

Increasing efficiency and productivity

Answer 12

Productivity definition:
The output per worker in a given time period

Efficiency definition:
Getting more output form given amounts of inputs; reducing waste and greater efficiency should decrease unit costs and increase profits

Question 13

Labour productivity

Answer 13

Definition:-
Measure how much employee produces

Equation:
Labour productivity = output per period / number of employee

Ways to increase labour productivity:
- improving worker motivation
- training
- new tech
^^^^ influences efficiency

Downfalls :
- encouraging by offering bonuses and incentives could mean quality suffers and more waste
- not planning on increasing capacity; training workers could end up in redundancies and job losses - lower morale
- new tech can be expensive

Question 14

Lean production

Answer 14

• efficient for of production; wastage at minimum
• can save money
• can help meet some operational objectives
  Examples:
  just-in-time, time based management and kaizen

Question 15

Just in time = stock levels very low

Answer 15

• aims to reduce waste of materials and products by having as little stock as possible
• based on efficient stock control
  Advantages:
  > storage costs are reduced
  > cash flow is improves
  > less waste
  > flexible
  Disadvantages:
  > customers can’t be supplied during production strikes
  > suppliers have to be reliable

Question 16

Time based management = companies have to be flexible

Answer 16

• reduce wasted time in production process
• compete on price, quality, and time - trying to be the fastest to get their product on the market
• depends on flexible production facilities
• effective communication between managers and production staff is essential; multi-skilled staff (training is important)
  Advantages:
  > reduces lead times
  > customer needs satisfied quicker; competitive advantage
  > machinery with more functions means a varied product range
  > drive innovation
  Disadvantages: