Section 4 - Operations management (Chap 18 - 21) - stocks, production productivity, costs, break even, EOS, quality production Flashcards
what does operations management do
-process input to give output
-has multiple manager in charge of different things
labor/ capital productivity formula (humans/ machines)
output/ no. humans/ machines
productivity formula
no. output/ no. input
what do manufacturing businesses have typically
-factory manager - responsible for no. & quality of products
-purchasing manager - provides materials
-research & development manager - responsible for design & testing of new products
define production
making products/ services
labor productivity formula
no. output/ no. employees
define productivtiy
-how efficiently products are made
ways to increase productivity
-improve quality control to reduce waste
-employee motivation
-new technology
-use machines instead of people
-train staff to be more efficient
-improve inventory control
what happens when too less/ more inventory
less:
-run out of stocks
-no production
-waste money
more:
-storage & security cost up
-shelf life - lead to wastage
-money spent at first
define stocks
resources needed to make goods/ provide service
3 types of stocks
-raw materials: basic form
-work in progress: some work done
-finished goods: final product
define stock chart
chart used to help maintain stocks
how does stock chart work
-quantity over time
-max, reorder & min. level where stocks should not go over/ below max & min.
ideally:
-start at max level and slowly go down
-once below reorder level, order stocks again
-when min. level (buffer inventory), restocks come
-line down is usage of stocks
-line up is restocks
define buffer inventory
stocks held for uncertain delivery of supply or customer demands
types of waste in produciton
-overproduction - storage cost, possible damage
-waiting - good’s aren’t being processed
-transport - moving goods around
-unnecessary inventory - takes up space
-motion - action by employee wastes time
-over processing - machine for simple tasks
-defects - waste time inspecting product
define lean production
-producing goods using fewer resources without dropping quality
define buffer inventory
stocks held to deal with uncertain deliveries of supply & customer demand
ways to do lean production & what they cause
-cut down wastage
-store less raw materials
-better use of equipment
-use each resource to the max
-practice kaizen
-practice just in time
cause:
-more efficiency
-less cost
-more saving
define just in time
-a method to avoid keeping large stocks of raw materials & finished goods
-save money & space
define kaizen
continuous improvement by reducing waste
ways to do kaizen & what they cause
-don’t have too many goods which won’t be sold on time = no loss
-get supplies right on time = no loss
-less holidays for workers = more efficiency
-no expensive machine for simple tasks = better us of materials
-no faulty products = save time to fix them
-eg. reduce time for workers to walk btw jobs
ways to do just in time & what they cause
-buy raw materials only when needed
-make product just in time to give to customer
cause:
-no cost to hold stocks
-warehouse space not needed = less cost
-product sold quickly, money comes back, better cash flow
note: rationalize stocks depending on price & frequency of use
define cell production
-where groups of people work together in cells to produce the final product
-promotes healthy rivalry
-motivates = more efficient, less likely for strike
3 method of production
-job production
-batch production
-flow production
define job production & eg.
-making 1 product at a time
eg. houses, tailors
advantages of job production
-for customized products - can charge high price
-product meets exact requirement of customer
-more varied tasks for workers = more motivation
disadvantages of job production
-need skilled workers = more cost
-labor intensive = expensive
-takes long time
-errors can be expensive
-materials specifically bought = high cost
define batch production & eg.
-products of same batch made in limited quantity
eg. bakeries, clothes
advantages of batch production
-production can change from 1 product to another
-variety for workers = motivation
-variety consumer choices
disadvantages of batch production
-expensive
-machines reset btw production = delay in production
-need warehouse space for stocks
-quality may differ from batch to batch
-if quality is bad: recall products with batch no. compensate, loss of money & reputation
define flow production
-producing the same product in unlimited quantities
-eg. cars, food
advantages of flow production
-high output
-low cost = low prices = high sales
-capital intensive = low labor cost, more efficiency
-capital intensive = unskilled workers, little training
-operate 24/7 = more output
-consistent quality
disadvantages of flow production
-demotivation for workers
-need lots of stock storage
-production line set up is expensive
-if a machine breaks down, production line stops
-needs a huge demand for product
-little variety in products
factors affecting production choice
-nature of product = type of product/ service
-nature of demand = high demand, batch/ flow production
-size of market = bigger market, bath/ flow production
-size of business = how much money business wants to invest
types of technology in production
-Automation: comp. control production process, few workers oversee process
efficient, more precise, training workers cost
-Mechanization: machines in factory operated by humans
use machine to do dangerous tasks, training workers cost, 24/7, accurate machines
-CAD: Comp. Aided Design - designing products done through comp. eg. software
expensive, for detailed technical drawings
-CAM: Comp. Aided manufacturing - comp. controls factory machines
expensive
-CIM: Comp. Integrated manufacturing - CAD linked to CAM
types of technology in payments
-EPOS: Electronic Point of Scale - in checkouts
product detail & payment goes to database of things bought
print receipts
-EFTPOS: Electronic Funds Transfer at Point of Sale eg. credit car, QR code
online money in bank transferred after payment by swiping card
-Contactless payment:
paying without pressing buttons for small amounts of money
fast, easy
advantages of technology in production/ services
-more efficient, more output, more productivity
-less workers, can lower prices
-less expensive in long run
-training will make workers skilled = motivated workers
-better and consistent quality
-safer workers
-better com. with comp.
disadvantages of technology in production/ services
-initially expensive
-unemployment
-demotivation
-training workers cost money
-bad for environment
-tech. gets outdated quickly
-cyber attacks
-maintenance
define revenue & formula
-money from selling goods/ services
units sold x selling prices
note:
fc = fixed cost
vc = variable cost
EOS = economies of sclae
formula for profit
-revenue - total cost
-margin of safety x unit contribution
define variable cost & formula
cost that varies directly with no. items sold
no. units x vc per unit
eg. textbooks for students, raw materials
define fixed cost
cost that doesn’t change with no. items sold
eg. rent, electricity, worker salary
define total cost & formula
-fc and vc combined
-fixed cost + variable cost
-avg cost x output
uses of break even graph
-can set on a selling price
-can choose to lower costs
-choose to stop making a product
-helps determine location of business
-can know when to accept bargains
goals for selling price
-make it low but cannot be below fixed cost
-don’t change quality
define avg cost for each unit & formula
-total cost divided by no. output
total cost/ units sold
uses of finding cost data
-set prices that is not a loss
-stop or continue production of a product
-decide on location of business
how to draw break even graph
need:
-fc
-vc
-total cost
-total revenue
-units sold
-x = units of production
-y = cost & revenue
-fc; flat line
-vc; uniform line from 0
-total cost; line from fc
-sales revenue ; uniform line from 0
-break even point; intersection btw sales revenue & total cost - above = area of profit/ below = area of loss
-break even level of output = output below break even point
-margin of safety = break even level of output to units sold
-STOP THE GRAPH AT THE NO. OF OUTPUT
define contribution & formula
-value added to product
-vc + profit
(not profit)
unit contribution:
-selling price - variable cost per unit
why & when should you accept bargains
-offered price> fc = accept
-offered price< fc = decline
-to remove stocks
goals for fixed & variable cost
-keep fixed cost as low as possible = lower prices = more profit
-keep variable cost same = quality don’t go down
define Economics of scale EOS
-factors that led to a lower avg cost as business grows
(making more units with the same amount of fct)
benefits:
-can bargain with raw materials
-unit cost is lower
define Diseconomies of scale DisEOS
-factors that led to a higher avg cost as business grows
how to draw EOS graph
-x = output
-y = unit cost
-EOS = line goes down
-DIsEOC = line goes up; when fc increases = unit cost increases
advantages of break even graphs
-find is expected profit/ loss
-redrawing graph shows impact of business decisions
-set on selling price
-show margin of safety
-choose to stop making a product
-helps determine location of business
-can know when to accept bargains
disadvantages of break even graphs
-assumes all goods are sold
-fc is only constant if scale of production doesn’t change
-assumes that cost & revenues can be drawn in a straight line
-focuses on break even point of production than other aspects of business
-assumes selling price is constant
define margin of safety & formula
-no. units that exceed break even level of output
no. units sold - break even point level of output
factors of EOS for big businesses
1) purchasing economies
-buying bulk = discounts & bargaining
-buy directly from manufacturers = cheaper
2) marketing economics
-use same add worldwide
-have own delivery trucks than relying on others
3) financial economics
-easier for business to get loans or sell shares; less risky for banks = low interest rate = low avg cost
4) managing economics
-hire experts to manage business
5) technical economics
-invest in machines & technology = produce high output with less avg cost
factors of DisEOS for big businesses
1) poor communication = low efficiency/ high avg cost
-hard to com. with big business
-mis com.
-com. break downs
2) lack of motivation = low efficiency
-too many workers = feel under valued
-don’t understand people personally
3) weak coordination
-too many things happening = don’t know what’s going on
-need more coordinators = more fc
define break even level of output
no. units that must be sold for total cost = total revenue
-total fc/ unit contribution
define break even point & formula
-when total cost = total revenue ( no profit or loss)
fc/ unit contribution
define break even charts
-chart that shows cost & revenue change with sales & break even level of output
benefits of good quality
-easier to get customers
-creates brand image
-brand loyalty
-better reputation
-more sales, more profits
result of bad quality
-customers go to competitors
-defect products need to be fixed
-bad reputation
-sued
ways to maintain quality
-quality control
-quality assurance
define quality
producing good service/ goods that meet customer expectations
define quality control & how does it work
-checks defects in products at the end of production by an inspector
-picks samples to check on
advantages & disadvantages of quality control
advantage:;
-stop customers from getting defect products
-less training for workers
disadvantages:
-expensive = need to pay for inspectors
-high cost if need to redo products
-allows defect products to be made already
-picks a sample amount to check = assumes about other products
define quality assurance & how does it work
-checks defects in product in every stage of production
-everybody checks
advantages & disadvantages of quality assurance
advantages:
-stop defect products from getting to next stage of production
-less customer complaints
-less cost if products don’t need to be redone
disadvantages:
-time consuming
-expensive to train workers to check
-workers need to be committed to standard set2
define Total quality management (TQM)
-continuous improvement of products to get good quality products at every stage
-aim: 0 defected products
-everyone thinks about quality
advantages & disadvantages of Total quality management
advantages
-everyone focuses on quality
-stop customers from getting defect products
-no customer complaints
-less cost = no redo of products
-less waste
-more efficient
disadvantages:
-expensive
-everyone has to follow TQM & be accountable for it
define quality standards
-product has to match a certain quality that gov. specifies
-if gov. inspector thinks it is acceptable, product can have a logo saying it it approved by gov.
define quality circles
-workers are in charge of quality & meet regularly to discuss problems & find solutions
note: add formula in definition & apply context to Q
note: DO NOT GO OVER THE OUTPUT LINE FOR BREAK EVEN GRAPH
factors when choosing the physical location of a manufacturing business
1) availability of raw materials - need a good supply
2) availability of labor
3) market - needs people to buy, else have to transport goods
4) Gov. influence - can hinder or help eg. low taxes, grants
5) transport & communication - need to distribute goods & infrastructure, internet for com.s
6) climate of place
what is infrastructure
-things the business needs to operate
eg. banks, power, internet (customer service/ website)
factors when choosing the physical location of a service business
1) market - needs a lot of people to visit the store
2) technology
3) labor - skilled workers
4) competition
5) cost - closer to the city where most customers are, higher the rent
6) personal prefrences
factors when choosing the physical location of a retail business
1) parking for customers
2) availability of premises of building - area of building
3) access for delivering trucks - good roads, vehicles
4) security - crime free area
5) legislation - laws of the country
factors when choosing the physical location in another country
1) Overseas market
2) cheaper methods of production - labor & raw materials
3) Rent & taxes
4) trade barriers - not allowing free trade (tariffs & Quota)
what is a retail store
where goods & services are sold to customers
examples of trade barriers
1) tariffs - tax when importing goods
2) Quota - physical restrictions on how much goods you can import
