section 4 Flashcards
production
the effective management of resources in producing goods and services
role of operations department
Use the resources in a cost-effective and efficient manner
Manage inventory effectively
Produce the required output to meet customer demands
Productivity
measure of the efficiency of inputs used in the production process over a period of time
ways to increase productivity and efficiency
improving labour skills by training them so they work more productively and waste lesser resources
introducing automation so that production is faster and error-free
improve employee motivation so that they will be willing to produce more and efficiently
improved quality control and assurance systems to ensure that there are no wastage of resources
buffer inventory level
level of inventory the business should hold at the very minimum to satisfy customer demand at all times
lead time
The time it takes for the reorder supply to arrive
lean production
Lean production refers to the various techniques a firm can adopt to reduce wastage and increase efficiency/productivity.
Seven types of waste that can occur in a firm
overproduction
waiting
transportation
unnecessary inventory
motion
over-processing
defects
benefits of lean production
less storage of raw materials, components and finished
goods- less money and time tied up in inventory
quicker production of goods and services
no need to repair faulty goods- leads to good customer satisfaction
ultimately, costs will lower, which helps reduce prices, making the business more competitive and earn higher profits as well
Kaizen
aims to increase efficiency and reduce wastage by getting workers to get together in small groups and discuss problems and suggest solutions
advantages of kaizen
increased productivity
reduced amount of space need for the production process
work in progress reduced
Just in Time JIT
eliminates the need to hold any kind of inventory by ensuring that supplies arrive just in time they are needed for production
Benefits of JIT
Reduces cost of holding inventory
Warehouse space is not needed any more, so more space is available for other uses
Finished goods are immediately sold off, so cash flows in quickly
Cell Production
production line is divided into separate, self-contained units each making a part of the finished good. This works because it improves worker morale when they are put into teams and concentrate on one part alone.
job production
products are made specifically to order, customized for each customer
Batch Production
similar products are made in batches or blocks. A small quantity of one product is made, then a small quantity of another
Flow Production
large quantities of products are produced in a continuous process on the production line
Job Production advantages
The product meets the exact requirement of the customer
Workers will have more varied jobs as each order is different, improving morale
very flexible method of production
Job Production disadvantages
Skilled labour will often be required which is expensive
Costs are higher for job production firms because they are usually labour-intensive
Production often takes a long time
Since they are made to order, any errors may be expensive to fix
Batch Production advantages
flexible way of working- production can be easily switched between products
Gives some variety to workers
More variety means more consumer choice
Even if one product’s machinery breaks down, other products can still be made
Batch Production disadvantages
Can be expensive since finished and semi-finished goods will need moving about
Machines have to be reset between production batches which delays production
Flow Production advantages
Costs are low in the long run and so prices can be kept low
Can benefit from economies of scale in purchasing
Automated production lines can run 24×7
Goods are produced quickly and cheaply
flow production disadvantages
A very boring system for the workers, leads to low job satisfaction and motivation
Lots of raw materials and finished goods need to be held in inventory- this is expensive
Capital cost of setting up the flow line is very high
Factors that affect which production method to use
nature of product
nature of demand
size of market
size of business
Automation
equipment used in the factory is controlled by computers to carry out mechanical processes, such as spray painting a car body.
Mechanization
production is done by machines but is operated by people
CAD (computer aided designing)
a computer software that draws items being designed more quickly and allows them to be rotated, zoomed in and viewed from all angles
CAM (computer aided manufacturing)
computers monitor the production process and controls machines and robots-similar to automation
CIM (computer integrated manufacturing)
the integration of CAD and CAM. The computers that design the product using CAD is connected to the CAM software to directly produce the physical design.
EPOS (electronic point-of-sale)
used at checkouts/tills where operator scans the bar-code of each item bought by the customer individually. The item details and price appear on screen and are printed in the receipt. They can also automatically update and reorder stock as items are bought.
EFTPOS (electronic funds transfer at point-of-sale)
the electronic cash register at the till will be connected to the retailer’s main computer and different banks - credit cards etc
Advantages of technology in production
Greater productivity
Greater job satisfaction among workers as boring, routine jobs are done by machines
Better quality products
Quicker communication and less paperwork
Disadvantages of technology in production
Unemployment rises as machines and computers replace human labour
Expensive to set up
New technology quickly becomes outdated and frequent updating of systems will be needed- this is expensive and time-consuming.
Employees may take time to adjust to new technology or even resist it as their work practices change.
Fixed Costs
costs that do not vary with output
Variable Costs
directly vary with the output
uses of cost data
to set prices
deciding wether to stop production or continue
deciding on the location
Economies of scale
the factors that lead to a reduction in average costs as a business increases in size
5 economies of scale
purchasing
marketing
managerial
technical
financial
Diseconomies of scale
he factors that lead to an increase the average costs of a business as it grows beyond a certain size
3 diseconomies of scale
poor communication
lack of commitment from employees
weak coordination
Break-even level of output
the output at which total revenue = total costs
(neither a profit nor loss is made, all costs are covered).
draw a break even chart
google it
Advantages of break-even charts
Managers can look at the graph to find out the profit or loss at each level of output
Managers can change the costs and revenues and redraw the graph to see how that would affect profit and loss, for example, if the selling price is increased or variable cost is reduced.
Limitations of break-even charts
They are constructed assuming that all units being produced are sold. In practice, there are always inventory of finished goods. Not everything produced is sold off.
Fixed costs may not always be fixed if the scale of production changes.
Quality
to produce a good or service which meets customer expectations
importance of quality
establishes a brand image
builds brand loyalty
maintains good reputation
increase sales
attract new customers
what will happen if there’s no quality?
lose customers to other brands
have to replace faulty products and repeat poor service, increasing costs
bad reputation leading to low sales and profits
Quality Control
advantages
disadvantages
checking for quality at the end of the production process
Eliminates the fault or defect before the customer receives it, so better customer satisfaction
Not much training required for conducting this quality check
Still expensive to hire employees to check for quality
Quality control may find faults and errors but doesn’t find out why the fault has occurred, so the it’s difficult to solve the problem
if product has to be replaced and reworked, then it is very expensive for the firm
Quality Assurance
advantages
disadvantages
checking for quality throughout the production process of a good or service
Eliminates the fault or defect before the customer receives it, so better customer satisfaction
Since each stage of production is checked for quality, faults and errors can be easily identified and solved
Expensive to carry out since quality checks have to be carried throughout the entire process, which will require manpower and appropriate technology at every stage.
employees might not follow the standards or protocols very well and the firm will have to ensure this doesn’t happen
Total Quality Management (TQM)
advantages
disadvantages
continuous improvement of products and production processes by focusing on quality at each stage of production
workers come together and discuss issues and solutions, to reduce waste ensure zero defects.
eliminates all faults before the product gets to the final customer
no customer complaints and so improved brand image
products don’t have to be scrapped or reworked, so lesser costs
waste is removed and efficiency is improved
Expensive to train employees all employees
Relies on all employees following TQM– they have to be motivated enough to follow the policy
How can customers be assured of the quality of a product or service?
They can look for a quality mark on the product like ISO (International Organization for Standardization). The business with these quality marks would have followed certain quality procedures to keep the quality mark.
For services, a good reputation and positive customer reviews are good indicators of the service’s quality.
why is location important
important because it can affect the firm’s costs, profits, efficiency and the market base it reaches out to
Factors that affect the location decisions of a MANUFACTURING firm
Production Method- large or small scale - bigger or smaller area needed
Market
Raw Materials/Components- factories may need to be located close to where raw materials can be acquired eg. fruits
External economies
Availability of labour
Government Influence
Transport & Communication infrastructure
Power and water supply
climate
Factors that affect the location decisions of a SERVICE-sector firm
Customers - near customers
technology - don’t need to be near customer because they can provide services over the phone etc
personal preference of owners
availability of labour
climate
near to other businesses
ren/taxes
Factors that affect the location decisions of a RETAILING firm
Shoppers
nearby shops
customer parking
rent/taxes
Availability of suitable vacant premises
Security
Access to delivery vehicles
Why do businesses locate in different countries?
New markets overseas.
Cheaper or new raw materials available in other countries.
Cheaper and/or skilled workers are available overseas.
Rent/ taxes are lower..
Availability of government grants and other incentives
role of legal controls on location decisions
to encourage businesses to set up and expand in areas of high unemployment and under-development. Grants and subsidies can be given to businesses that set up in such areas.
to discourage firms from setting in areas of that are overcrowded or renowned for natural beauty. Planning restrictions can be put into place to do so.
