the nature of operations chapter 23 Flashcards
the production (transformational process) process
operations or operations management is concerned with the use of resources called inputs(factors of production) to provide outputs in the form of goods and services
the production (transformational process) process: Land
all businesses need somewhere to operate from. some businesses require large sites for the extraction of minerals or the manufacture of finished products
the production (transformational process) process: Labour
all business activity require some labour input. this can be the manual labour of a gardener or the mental skills of a research scientist. the quality of the labour input will have a significant impact on the operational success of a business. the effectiveness of labour can usually be improved by training in specific skills, although trained workers will become sought after by other businesses and may leave
the production (transformational process) process: capital
this refers to the tools, machinery, computers and other equipment that businesses use to produce the goods an services they sell. intellectual capital is becoming increasingly important too in knowledge-based economies. efficient operations often depend on capital equipment and, in competitive markets, the more productive and advanced the capital, the greater the chance of business success
intellectual capital
the intangible capital of a business that includes human capital (well trained and skilled employees), structural capital (databases and information systems) and relational capital (good links with suppliers and customers)
the production (transformational process) process: enterprise
the decision making skills and risk taking qualities of entrepreneurs are essential for new business formation
transformational process
an activity or group of activities that transforms one or ore inputs, adds value to them, and produces outputs for customers
the stages of transformational process
the starting points of this process are the factors of production or inputs. these are converted, by an operations department, into outputs. this process applies to both manufacturing and service industries. by production, we mean the making of tangible goods, such as computers, and the provision of intangible services. the aim, in all cases, is to achieve added value. this means selling the finished products for a higher value than the cost of the inputs
how operations can increase added value by effectively meaning
efficiency of production: keeping cost as low as possible will help to give competitive advantage
quality: the goods or services must be suitable for the purpose intended
flexibility and innovation: the need to develop and adapt to new processes and new products is increasingly important in today’s dynamic business environment
aim of operations managers
to produce goods and services of the required quality, in the required quantity, at the time needed, in the most cost effective way
factors of amount of value added to the inputs
the design of the product: does this allow for economic manufacture, while appearing to have quality features that will enable a high price to be charged
the efficiency of operations: by reducing waste, the operations department will increase the value added by the production process. increasing productivity will reduce costs per unit and this will increase added value if customer prices remain unchanged
branding to encourage consumers to pay more for the product than the cost of the inputs: effective branding leads consumers to pay prices much greater than the input costs
how can operations add value
reducing production costs through increased efficiency
producing quality goods that meet customer expectations
ensuring production is flexible so that changing consumer tastes can be satisfied
productivity
the ratio pf outputs to inputs during production. it is not the same as level of production. it is a relative measure and is concerned with how efficiently inputs are converted into outputs
level of production
the number of units produced during a time period. it is an absolute measure of quantity of output.
production
the process that transforms inputs into outputs
importance of productivity
Productivity is important because it is one of the main factors that determine the competitiveness of a business. Raising the level of productivity will reduce the average cost of making each unit of output. This lower cost might allow the business to reduce prices to customers. It is important to be able to measure productivity levels.
measuring labour productivity
labour productivity (number of units per worker)=
total output in a given time period/total workers employed
raising productivity
improve the training of employees to raise skill levels
improve worker motivation
purchase technologically advanced equipment
more effective management
raising productivity: improve the training of employees to raise skill levels
Employees with higher skill levels and more flexible skills should be more productive. However, training can be expensive and time-consuming. and highly qualified workers could leave to join another business.
raising productivity: improve worker motivation
Using appropriate financial and non-financial methods of motivation should encourage employees to work more efficiently. Non-financial methods in particular could be used as they will not increase labour costs. Therefore, any resulting increase in labour productivity will lead to lower average costs of production.
raising productivity: purchase technologically advanced equipment
Modern machinery - from office computers to robot-controlled production machines - should allow increased output with fewer workers. High-cost investment will only be worthwhile if high output levels can be maintained. In addition, workers may need to be retrained and there may be genuine fear about lost jobs and reduced security of employment.
raising productivity: more effective management
Ineffective management can reduce the overall productivity of a business. Failure to purchase the correct materials, poor maintenance schedules for machines or demotivating methods of employee management are just some examples of this. More efficient operations and people management could go a long way towards improving productivity levels.
why raising productivity does not guarantee success
If the product is unpopular with consumers, it may not sell profitably no matter how efficiently it is made.
Greater effort from workers to increase productivity could lead to demands for higher wages. This will lead to higher costs, which may cancel out the impact of productivity gains.
Workers may resist measures to raise productivity. A 20% increase in labour productivity may lead to job losses if sales do not increase too. There could be industrial disputes.
The quality of the management determines the success of a policy to increase productivity. If the culture of management is to involve the workforce and seek their views, then productivity improvements are likely to be greater and accepted by workers.
There is a difference between efficiency, as measured by productivity, and effectiveness.
efficiency
producing output at the highest ratio of output to input. measured by productivity.
effectiveness
meeting the objectives of the business by using inputs productively to meet customers’ needs. only achieved if the customers needs are met. about not wasting inputs and putting them to productive use to achieve the objectives of the business
importance of effectiveness
for the long term future of any business, satisfying customers needs profitably is much more important than just producing at the lowest possible unit cost.
importance of effeciency
important because it determines the average cost of production.it means customers’ needs are being met
sustainability of operations
business operation that can be maintained in the long term. key business issues of the twenty-first century. growing global concern about pollution and climate change has put pressure on businesses to clean up their operations. businesses are becoming increasingly focused on it
ways to operate sustainability
reducing energy use and carbon emissions
reducing the use of plastic and other non-biodegradable materials
using recycled materials
manufacturing products that are recyclable
reducing waste from operation
buying from suppliers who use sustainable materials and processes
why businesses are making operations more sustainable
businesses must comply with stricter laws on environmental issues
pressure group activity exposes the most environmentally damaging businesses and operations
businesses need to fulfil senior managers’ commitments on corporate responsibility
sustainable operations gain positive publicity, which is good for public relations
more sales are likely as consumers prefer greener and more sustainable products
benefits of increasing sustainability
reducing energy can reduce energy costs
reducing use of plastic and non biodegradable materials will attract more demand from green consumers
using recycled materials reduces demand for newly produced raw materials. this may reduce the price of them
making recyclable products the cost of waste disposal
reducing waste from operations will also reduce production costs
buying from sustainable suppliers helps to ensure that operations are sustainable and minimizes the risk of bad publicity
limitations and costs of increasing sustainability
Increasing sustainability might require capital investment (e.g. in solar panels).
More environmentally friendly materials could cost more and may not protect and preserve goods as effectively as plastic.
Recycled materials might need to be cleaned or processed before use.
Development of recyclable products can be expensive and time-consuming.
Increasing sustainability might need investment in worker
training and more accurate equipment.
Supplies from sustainable sources might be more expensive than from unsustainable sources so costs might rise - is low cost or reputation more important?
labour intensive
involving a high level of labour input compared with capital equipment
capital intensive
involving a high quantity of capital equipment compared with labour input. many industries that supply mass produced goods are capital intensive. this is because of the nature of the production involved. other businesses decide to be capital intensive even though labour intensive production is still possible. the limitations of capital intensive production are unlikely to slow the trend towards this approach. however, for as long as consumers are prepared to pay for traditional craft made goods that create a sense of distinction, then labour intensive methods will remain profitable for businesses in certain industries
limitations of labour intensive promotions
low output levels
skilled, high paid workers required
product quality depends greatly on the skill and experience of each worker
advantages of labour intensive production
interesting and varied work
low machine costs
one off designs meet customer requirements
advantages of capital intensive production
economies of scale
consistent quality
low unit costs of production
the ability to supply the mass market
limitations of capital intensity
high fixed costs
cost of financing equipment
high maintenance costs and the need for skilled workers to do repairs
the quick pace of technological change, which can make the latest production equipment and computer systems obsolete and relatively inefficient
how to chose whether to choose labour intensive or capital intensive operations
the nature of the product and its brand image
the relative cost of labour and capital
business size and access to finance
operations (production) methods
job production
batch production
flow production
mass customization
operations (production) methods: job production
the production of a one-off item specially designed for the customer. In order to be called job production, each individual product has to be completed before the next product is started. Thus, at any one time, there is only one product being made. Job production enables specialized products to be made. It is usually labour intensive.
operations (production) methods: batch production
the production of a limited number of identical products - each item in the batch passes through one stage of production before passing on to the next stage.
operations (production) methods: flow production
the production of items in a continually moving process. suits industries where the demand for the product is high and consistent. It also suits the production of large numbers of a standardized item. This is why it is often referred to as mass production.
operations (production) methods: mass customization
the use of flexible computer aided technology on production lines to make products that meet individual customers’ requirements for customized products. most important production method in industries where customers demand competitive prices and product variations or customization. combines advanced flexible computer-controlled technology and multi-skilled workers. uses production lines to make a range of products with variations at high volume. This allows the business to move away from the mass-marketing approach with high output of identical products.
limitations of job production
Job production is often expensive.
It can take a long time to complete each unit.
The labour force also needs to be highly skilled and this is not always easy to achieve.
benefits of job production
Job production can be slow but rewarding for the workers involved.
tends to be motivating for workers, because they produce the whole product and can take pride in it.
benefits of batch production.
allows firms to use division of labour.
It enables some economies of scale if the batch is large enough.
It allows each individual batch to be specifically matched to the demand.
The design and composition of batches can often be easily altered.
limitations of batch production
batch production tends to have high levels of work-in-progress inventory at each stage of the production process.
The work may well be boring and demotivating for the workers.
If batches are small, then unit costs are likely to remain high.
There is often a need to clean and adjust machinery after each batch has passed through.
benefits of flow production
capable of producing large quantities of output in a relatively short time.
Labour costs are low because much of the process is mechanized.
There is little physical handling of the products.
The constant output rate should make the planning of inputs relatively simple.
This makes inventory control easier and minimizes inventory levels.
Quality tends to be consistent and high.
It is easy to check the quality of products at various points throughout the process.
limitations of flow production
the high initial set-up cost of high-technology production line equipment. This cost cannot be justified if demand is low.
the work involved tends to be boring, demotivating and repetitive.
benefits of mass customisation
focused or differentiated marketing allows for higher added value. low unit costs are maintained with greater product choice.
requirements for mass customization
advanced and flexible capital equipment
skilled and well-trained workers to operate this machinery
many common components
suppliers able to supply variations on parts and components.
requirements for batch production
labour and machines must be flexible to switch to making batches of other design
requirements for flow production
specialized, expensive capital
high steady demand for standardized products
requirements for job production
highly skilled workforce
disadvantages of mass customisation
expensive product redesign may be needed to allow key components to be switched to allow variety
expensive flexible capital equipment needed
factors that influence production method
size of market
the capital available
other resources
customers demand products
factors that influence production method: size of market
If the market is very small, job production is likely to be used. Flow production is most efficient when the market for similar or identical products is large and consistent throughout the year. If mass production is used in this way, then mass-marketing methods have to be adopted to sell the high output levels. Even in a market for mass-produced items there are market niches. These allow smaller manufacturers to survive by making one-off products. If the market demands a large number of units, but at different times of the year, then batch production might be most appropriate.
factors that influence production method: the capital available
A purpose-built flow production line is difficult and expensive to construct. Small firms are unlikely to be able to afford this type of investment and are more likely to use job or batch production.
factors that influence production method: other resources
Large-scale flow production often requires a supply of relatively unskilled workers and a large, flat area of land. Job production needs skilled craftspeople. If any of these resources are unavailable, or limited in supply, then the production method may have to be adapted to suit the available resources, depending on market size.
factors that influence production method: customers demand products
If firms want the cost advantages of high volumes combined with the ability to make slightly different products for different markets, then mass customization is most appropriate. Technology gives businesses the flexibility to produce a variety of models from one basic design and production process
problems of changing operations methods
Businesses may need to change the method used to produce goods and services. This might be because of increasing demand, leading to a need to increase output. It could also result from an increase in labour costs for skilled job production employees, making a switch to a more capital intensive flow production method more economic.
problems that result from changing from job to batch production
The cost of equipment needed to handle large numbers in each batch may be too high.
Additional working capital is needed to finance work
in-progress inventory. There is a risk of worker demotivation as there is less need for an individual’s craft skills.
problems that result from changing from job or batch to flow production
The cost of capital equipment needed for flow production may be too high.
Employee training needs to be flexible and multi skilled. If this approach is not adopted, then workers may end up on one boring repetitive task and become demotivated.
Accurate estimates of future demand are needed to ensure that output matches demand.
evaluation of operations methods
The traditional differences between these operations methods are becoming much less obvious. Many complex products, such as computers and industrial engines, can be adapted to meet different consumers’ wide range of requirements. The flexibility offered by technology to large businesses could put at risk the survival of small firms that exploit small market niches with hand-built or specialized products. However, there is always likely to be a demand from increasingly wealthy consumers for original and specialist products. So, small firms with non-mass-production methods will still thrive in these market segments.
