Setting operational objectives Flashcards
1
Q
Cost and volume targets
A
- A business needs to ensure its operations are cost-effective
- Measure of cost-effectiveness = unit cost (average cost of producing one unit of a product)
- The business with the lowest unit cost can be more competitive by offering the lowest price, or making the highest profit at average industry price.
2
Q
Objectives relating to cost and volume
A
- Productivity and efficiency (eg: units per week or employees)
- Unit costs per item
- Contribution per unit (break-even analysis)
- Number of items to produce (per time period, or per machine etc)
3
Q
Quality
A
- Achieving or exceeding the require level of quality is also essential for a successful business.
4
Q
Measures of quality
A
- Scrap/defect rates: a measure of poor quality
- Reliability: how often something goes wrong, average lifetime use etc
- Customer satisfaction - measured by customer research
- Number/incidence of customer complaints
- Customer loyalty eg: percentage of repeat business
5
Q
Speed of response and flexibility
A
- Examines how effectively the assets of the business are being utilised, and how responsive the business can be to short-term or unexpected changes in demand.
6
Q
Objectives related to speed of response/flexibility
A
- Labour productivity eg: output per employee, units produced per production line, sales per shop
- Output per time period eg: potential output per week on a normal shift basis, potential output assuming certain levels of capacity utilisation
- Order lead times eg: the time taken between receiving and processing an order
7
Q
Environmental targets
A
- An increasingly focus of operational targets as businesses face more environmental legislation, and consumers increasingly base their buying decisions on firms that are environmentally responsible.
8
Q
Environmental targets examples
A
- Use of energy
- Proportion of production materials that are recycled
- Compliance with waste disposal regulations/proportion of waste to landfill
- Supplies of raw materials from sustainable sources
9
Q
Added value
A
- Equivalent to the increase in value that a business creates by undertaking the production process
- Added value = difference between the price of the finished product or service and the cost of inputs involved in making it
- Often measured by gross profit
10
Q
Internal influences on operations
A
- Corporate objectives - an operations objective should not conflict with a corporate objective
- Finance - profitability, cash flow, liquidity and availability of finance determine whether a business can afford to change operations.
- Human resources - productivity, training needs, quality, capacity of the workforce affect operations
- Marketing - if the product life cycle is short or other marketing elements are changed this could put pressure on operations
11
Q
External influences on operations
A
- Economic environment - changes in demand, higher interest rates, changes to exchange rates and government economic policies can all have an affect on operations
- Competitor efficiency flexibility - quicker, more efficient or better quality competitors will place pressure on operations
- Technological changes - especially in markets where product life cycles are short, innovation is rife and production processes are costly
- Legal and environmental change - greater regulation and legislation of the environment creates challenges for operational objectives eg: Health and Safety
12
Q
Importance of operational objectives
A
- Ensuring a business’ operational objectives are effective at meeting customer expectations will increase customer loyalty, as consistency will lead to a good reputation.
- Also if a business does this it will create a good brand image and attract new customers.
- A financial reason of good operational objectives is that it will make the business more efficient, which will lead to decreased costs
- Another reason is it will lead to increased sales due to better quality products
