the nature of operations chapter 23

Question 1

the production (transformational process) process

Answer 1

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

Question 2

the production (transformational process) process: Land

Answer 2

all businesses need somewhere to operate from. some businesses require large sites for the extraction of minerals or the manufacture of finished products

Question 3

the production (transformational process) process: Labour

Answer 3

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

Question 4

the production (transformational process) process: capital

Answer 4

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

Question 5

intellectual capital

Answer 5

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)

Question 6

the production (transformational process) process: enterprise

Answer 6

the decision making skills and risk taking qualities of entrepreneurs are essential for new business formation

Question 7

transformational process

Answer 7

an activity or group of activities that transforms one or ore inputs, adds value to them, and produces outputs for customers

Question 8

the stages of transformational process

Answer 8

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

Question 9

how operations can increase added value by effectively meaning

Answer 9

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

Question 10

aim of operations managers

Answer 10

to produce goods and services of the required quality, in the required quantity, at the time needed, in the most cost effective way

Question 11

factors of amount of value added to the inputs

Answer 11

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

Question 12

how can operations add value

Answer 12

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

Question 13

productivity

Answer 13

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

Question 14

level of production

Answer 14

the number of units produced during a time period. it is an absolute measure of quantity of output.

Question 15

production

Answer 15

the process that transforms inputs into outputs

Question 16

importance of productivity

Answer 16

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.

Question 17

measuring labour productivity

Answer 17

labour productivity (number of units per worker)=
total output in a given time period/total workers employed

Question 18

raising productivity

Answer 18

improve the training of employees to raise skill levels
improve worker motivation
purchase technologically advanced equipment
more effective management

Question 19

raising productivity: improve the training of employees to raise skill levels

Answer 19

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.

Question 20

raising productivity: improve worker motivation

Answer 20

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.

Question 21

raising productivity: purchase technologically advanced equipment

Answer 21

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.

Question 22

raising productivity: more effective management

Answer 22

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.

Question 23

why raising productivity does not guarantee success

Answer 23

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.

Question 24

efficiency

Answer 24

producing output at the highest ratio of output to input. measured by productivity.

Question 25

effectiveness

Answer 25

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

Question 26

importance of effectiveness

Answer 26

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.

Question 27

importance of effeciency

Answer 27

important because it determines the average cost of production.it means customers’ needs are being met

Question 28

sustainability of operations

Answer 28

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

Question 29

ways to operate sustainability

Answer 29

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

Question 30

why businesses are making operations more sustainable

Answer 30

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

Question 31

benefits of increasing sustainability

Answer 31

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

Question 32

limitations and costs of increasing sustainability

Answer 32

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?

Question 33

labour intensive

Answer 33

involving a high level of labour input compared with capital equipment

Question 34

capital intensive

Answer 34

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

Question 35

limitations of labour intensive promotions

Answer 35

low output levels
skilled, high paid workers required
product quality depends greatly on the skill and experience of each worker

Question 36

advantages of labour intensive production

Answer 36

interesting and varied work
low machine costs
one off designs meet customer requirements

Question 37

advantages of capital intensive production

Answer 37

economies of scale
consistent quality
low unit costs of production
the ability to supply the mass market

Question 38

limitations of capital intensity

Answer 38

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

Question 39

how to chose whether to choose labour intensive or capital intensive operations

Answer 39

the nature of the product and its brand image
the relative cost of labour and capital
business size and access to finance

Question 40

operations (production) methods

Answer 40

job production
batch production
flow production
mass customization

Question 41

operations (production) methods: job production

Answer 41

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.

Question 42

operations (production) methods: batch production

Answer 42

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.

Question 43

operations (production) methods: flow production

Answer 43

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.

Question 44

operations (production) methods: mass customization

Answer 44

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.

Question 45

limitations of job production

Answer 45

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.

Question 46

benefits of job production

Answer 46

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.

Question 47

benefits of batch production.

Answer 47

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.

Question 48

limitations of batch production

Answer 48

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.

Question 49

benefits of flow production

Answer 49

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.

Question 50

limitations of flow production

Answer 50

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.

Question 51

benefits of mass customisation

Answer 51

focused or differentiated marketing allows for higher added value. low unit costs are maintained with greater product choice.

Question 52

requirements for mass customization

Answer 52

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.

Question 53

requirements for batch production

Answer 53

labour and machines must be flexible to switch to making batches of other design

Question 54

requirements for flow production

Answer 54

specialized, expensive capital

high steady demand for standardized products

Question 55

requirements for job production

Answer 55

highly skilled workforce

Question 56

disadvantages of mass customisation

Answer 56

expensive product redesign may be needed to allow key components to be switched to allow variety

expensive flexible capital equipment needed

Question 57

factors that influence production method

Answer 57

size of market
the capital available
other resources
customers demand products

Question 58

factors that influence production method: size of market

Answer 58

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.

Question 59

factors that influence production method: the capital available

Answer 59

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.

Question 60

factors that influence production method: other resources

Answer 60

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.

Question 61

factors that influence production method: customers demand products

Answer 61

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

Question 62

problems of changing operations methods

Answer 62

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.

Question 63

problems that result from changing from job to batch production

Answer 63

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.

Question 64

problems that result from changing from job or batch to flow production

Answer 64

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.

Question 65

evaluation of operations methods

Answer 65

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.