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business a level > Topic 4 > Flashcards

Topic 4 Flashcards

1
Q

What is operations management

what is it concerned with

A
  • Refers to the administration of business practices to create the highest level of efficiency possible within an organisation
  • concerned with converting materials and labour into goods and services as efficiently as possible to maximise the profit of an organisation
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2
Q

examples of key operational objectives (4)

A
  • added value
  • cost
  • volume (capacity)
  • time
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3
Q

why is it valuable for a business to set clear operational
objectives

-what can it help a company achieve
-operations decisions and objectives will …
-helps what between functional areas
what can be reviewed and assessed
-how does it help staff

A
  • it can help a company achieve its overall corporate objectives
  • operations decisions and objectives will become focused in meeting these functional targets
  • helps coordination between functional areas
  • performance can be reviewed and assessed
  • motivates staff to meet objectives
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4
Q

what are the 4 internal influences on operational objectives

A
  • nature of product
  • availability of resources
  • other departments/ functional areas can be impacted because of what one department does
  • overall company objectives
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5
Q

what are the 5 external influences on operational objectives

A
  • competitors performance- setting operations targets in response to rivals actions
  • market conditions- trends, economy
  • demand for product (do we need to increase production)
  • changing customer needs
  • new technology
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6
Q

what is labour productivity (3)

A
  • a measure of efficiency
  • it measures the output of a firm in relation to labour inputs
  • output per worker in a certain time
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7
Q

what is efficiency concerned with

  • productivity
  • energy
  • pollution
A
  • producing as quickly as possible (productivity)
  • with the least possible amount of energy
  • causing the lowest possible pollution
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8
Q

formula for labour productivity

A

output per period (time)
__________________

number of employees

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9
Q

how can a business increase labour productivity

  • investment
  • improve the ability of …
  • motivation
  • extra …
A
  • increase investment in modern equipment/ technology
  • improve the ability/ skills of those at work (training, education)
  • improve employee motivation
  • add extra workers or machines
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10
Q

problems with increasing productivity

  • workers producing more
  • what may cause productive workers to suffer from
  • costs associated with the business
A
  • encouraging workers to provide more by offering bonuses and incentives for increased output could mean quality suffers
  • more productive workers may result in redundancies and lower morale
  • new technology is very expensive
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11
Q

what will businesses base their decisions about labour productivity on (2)

A

value added and efficiency

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12
Q

a key measurement of operational performance is …

A

unit cost

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13
Q

unit cost formula

A

total costs
________

number of
units

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14
Q

higher output per employee …

A

lower labour costs per unit (cheaper to make more)

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15
Q

higher productivity …

A

reduces labour costs

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16
Q

what is unit cost AKA

A

average cost and cost per unit

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17
Q

what is capacity utilisation

A

a measure of the extent to which the productive capacity of a business is being used. It can be defined as ‘The percentage of total capacity that is actually being achieved in a given period’

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18
Q

capacity utilisation formula

A

actual level of output
_________________
X 100
max possible output

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19
Q

what dies the max level of capacity depend on (3)

A

the quantity of:

  • buildings
  • machinery
  • labour however costs go up if these are not used
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20
Q

what is capacity utilisation often a measure of

A

productive efficiency

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21
Q

what falls as output rises

A

average production costs tend to fall as output rises- so higher utilisation reduces unit costs, making a business more competitive

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22
Q

what is the ideal level of capacity utilisation

A

-close to 100%

-

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23
Q

having a capacity utilisation close to 100%, spreads …

what does this boost

A

fixed costs as thinly as possible, boosting profit margins

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24
Q

if you have 100% capacity utilisation …

A

you can’t have more capacity

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25
Q

concerns with operating at 100% capacity (2)

A
  • if demand further rises you will have to tun customers away (rivals will benefit)
  • you will struggle to service machinery and train or retrain staff
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26
Q

what maybe is an ideal level of capacity utilisation

A

90%

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27
Q

why do businesses operate at less than 100% capacity utilisation- demand (3)

A

lower demand:

  • general reduction in overall market demand
  • loss of market share- capacity will fall (if new companies arrive etc)
  • seasonal variations in demand
28
Q

why do businesses operate at less than 100% capacity utilisation- (5)

  • increase in capacity
  • technology
  • slack
  • seasonal
  • inefficiency
A
  • increase in capacity not yet matched by increased demand (making more but there not being a high demand)
  • possibly new technology
  • provide some ‘slack’- extra stock
  • seasonal changes in demand
  • inefficiency e.g. being less competitive
29
Q

how could a firm with high capacity utilisation increase their capacity (4)

  • facilities resources
  • machines/ staff
  • productivity
  • sub…
A

possible strategies:

  • use facilities/ resources, more days/ times during working week
  • buy more machines/ hire more staff
  • increase productivity of workers and machines
  • subcontracting (hire a company to do some work for you)
30
Q

what are the 2 ways to get towards full capacity utilisation or deal with under utilisation

A
  • increase demand

- cut capacity

31
Q

what are the 2 ways to get towards full capacity utilisation or deal with under utilisation

increase demand (4 ways on how to)

A

-extra promotional spending
-price cutting
-reposition products (STP)
-launch new products
-

32
Q

what are the 2 ways to get towards full capacity utilisation or deal with under utilisation

cut capacity (3)

  • staff
  • premises
  • underlying cause
A
  • make staff redundant- however, motivation may suffer, trade unions may not be happy
  • move to a smaller premises
  • overall the best option to use depends on the underlying cause of the low capacity utilisation
33
Q

what does rationalisation mean

A

reorganising a business to increase efficiency. This often implies cutting capacity to increase the percentage of utilisation- means ‘get rid off’

34
Q

what can labour intensive production provide

  • opportunity for …
  • what will some people demand
A

an opportunity for small firms as they are able to charge high prices for premium goods and services
-some people will demand will always be able to afford unique products (job production- goods are tailored to their needs)

35
Q

what are the problems of labour intensive production (2)

A
  • labour costs are a high proportion of total costs (however you can reduce wages, outsource or make workers more productive to solve this problem)
  • management focuses on the cost of labour (possibly switch production to low cost countries)
36
Q

what is good about labour intensive production

  • flexible
  • low financial barriers
A
  • highly flexible- makes it possible for a small firm to compete with competition from large ones- however, if business gets too big, labour costs are too expensive and it may be useful to consider using machines as reduces unit costs
  • low financial barriers to entry- it is cheap to start up production
37
Q

problems with capital intensive production (3what )

  • costs
  • financial barriers
  • inflexible
A
  • large % of total costs are tied up in the fixed costs of purchasing and operating machinery (expensive)
  • high financial barriers to entry- hard for new firms to enter and compete (good thing)
  • can be inflexible- difficult to switch products or to tailor products to individual customers as you are making one product on a grand scale with specially adapted machines
38
Q

what is good about cost intensive production

A

-you may be able to produce in high cost countries (after paying for machines and not paying for labour= workers)

39
Q

what 3 targets do operations managers focus on

A
  • quality targets
  • capacity utilisation targets
  • unit cost targets (linked to productivity)
40
Q

what will the optimum mix of resources (humans- labour and capital) to achieve these targets- what does it depend on (3)

A
  • it depends on the type of business
  • competitors
  • size and type of market you are competing in and working with
41
Q

recap of examples of operational objectives (5)

A
  • costs
  • quality
  • speed of response and flexibility
  • dependability
  • added value
42
Q

to analyse operations performance we can use data linked to productivity and efficiency including … (4)

A
  • labour productivity
  • unit costs (average costs)
  • capacity
  • capacity utilisation
43
Q

formula for labour productivity

A

amount of units
____________

number of staff

44
Q

formula for labour cost per unit

A

units
_____
X staff
earnings

45
Q

what does lean production aim to do

A

cut costs by making the business more efficient and responsive to market needs

46
Q

what 3 things does the lean approach involve

-what would be the result of doing these 3 things

A
  • doing simple things well
  • doing things better
  • involving employees in the continuous process of improvement

and as a result … reducing waste

47
Q

why is lean production very important to become or remain competitive

A

because waste = costs

48
Q

What is a supply chain

A

The supply chain is the complete sequence if stages involved in transforming raw materials into finished goods and getting them into the hands of customers

49
Q

Supply chain management involves a business …?

A

Managing its relations with its suppliers. This will have an impact on costs, quality, speed on response and flexibility

50
Q

What are the 7 influences on the choice of suppliers

A
  • cost
  • quality
  • reliability
  • frequency (how often will they need to deliver?)
  • flexibility (can they cope with varying orders?) (do they have a short lead time?)
  • payment terms (credit?)
  • location
51
Q

What are the 2 approaches of managing a supply chain efficiently

A
  • be in a position of power: tell suppliers what what you want on your terms, threaten to go elsewhere if you don’t get what you want
  • build long term positive relationships with suppliers: work together on new product development, strong relationships allow flexibility, sharing info can improve efficiency
52
Q

How can effective supply chain management improve competitiveness? (2)

A
  • providing BETTER QUALITY products which may differentiate it from competitors
  • stocking the right products in store, not running out and providing more choice and benefits for customers
53
Q

Matching supply to demand

Many factors can cause sales levels (demand) to fluctuate including:

A
  • fashion
  • temperature and weather(seasonal demand)
  • marketing activity
  • competitors actions
54
Q

Advantages of matching production to sales (3)

A
  • minimal inventory (stock) levels- so little cash is tied up
  • no risk of overproduction (no unsold stock if sales are disappointing
  • products are freshly made so quality is good
55
Q

Advantages of having a constant production level (3)

A
  • stable production so factory usage is high (lower fixed costs per unit)
  • workers fully utilised year round so labour costs per unit are kept low
  • enter peak seasons with high buffer stock, so customers will be supplied
56
Q

What are the other 3 ways ti match supply to demand

A
  • outsourcing or subcontracting
  • hiring temporary and part time staff
  • producing to order (including mass customisation)
57
Q

Too much inventory can lead to … (5)

A
  • opportunity costs- you can’t use that money elsewhere as your cash is tied up in stock
  • cash flow problems
  • increased storage stocks
  • increased finance costs (may need to get a loan or overdraft)
  • increased stock wastage
58
Q

Holding too little inventory could mean … (3)

A
  • lost orders- if not enough goods to sell- customers may go to competition
  • worker downtime
  • loss of the firms reputation and any goodwill it has built up
59
Q

What 5 things do we need to remember about buffer stock

A
  • need spare stock
  • re-order level
  • re-order quantity
  • lead time
  • must never run out of stock
60
Q

What is buffer stock AKA

A

Just in case stock- a minimum level of stock (spare stock)

61
Q

What does the amount of buffer stock depend on (4)

A
  • The storage space available
  • the kind of product (e.g. is it perishable like food)
  • the rate at which stocks are used up
  • lead time
62
Q

What does lead time mean

A

The time it takes goods to arrive after ordering them from the supplier

63
Q

The longer the lead time …

A

The more buffer stock you need to hold

64
Q

What is the re-order level formula

A

Lead time (in days) X average daily usage + buffer stock level

65
Q

Advantages of JIT (5)

  • lower stock
  • obtained when needed
  • perishing
  • avoids …
  • less time …
A
  • lower stock holding means a reduction in storage space which saves rent and insurance costs
  • as stock is only obtained when it is needed, less working capital is tied up in stock
  • there is less likelihood of stock perishing, become obsolete or out of date
  • avoids the build-up of unsold finished product that can occur with sudden changes in demand
  • less time is spent on checking and re-working the product of others as the emphasis is on getting the work right first time
66
Q

Disadvantages of JIT

  • mistakes
  • reliant on suppliers
  • bulk buying
  • no spare products
A
  • there is little room for mistakes as minimal stock is kept for re-working faulty product
  • production is very reliant on suppliers and if stock is not delivered on time, the whole production schedule can be delayed
  • lack of bulk buying can mean higher unit costs- lack of economies of scale
  • there is no spare finished product available to meet unexpected orders, because all product is made to meet actual orders- however, JIT is a very responsive method of production

business a level (13 decks)

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