Topic 4 - Decision Making To Improve Operational Performance Flashcards
What are the four main functions of a business ?
marketing, operations, human resources and finance.
To support the business’s overall objectives, what do each of the business functions or departments have to do ?
will have its own objectives which contribute to the wider objectives set for the business
Why is it important that the objectives of each department are aligned to the business’s overall objectives ?
as if they are not, individual departments may not be contributing to the success of the overall business
What are cost objectives ?
can be focussed on reducing or maintaining costs, for example fixed and variable costs
What’s an example of cost objectives ?
A value retailer such as Poundland may try to reduce the variable costs of its products by reducing the amount of packaging used. This objective is likely to be important to all businesses which compete on price.
What are quality objectives ?
can be focussed on improving or maintaining quality
What’s an example of quality objectives ?
For example, Rolex prides itself on the quality of its products
What are dependability objectives ?
If a business is dependable, customers trust the business as they value reliability and this allows the business to attract customers and increase its selling prices
What’s an example of dependability objectives ?
For example, if a retailer is running low on stock, they may pay a manufacturer to distribute a product directly to the customer so that their supply remains stable and customer needs are met
What are environmental objectives ?
can be focussed on the environment
What’s an example of environmental objectives ?
For example, Amazon has created a piece of software which determines the most appropriate size box for packaging to reduce waste and their impact on the environment.
What’s adding value ?
Operations objectives can be focussed on added value. Added value occurs when businesses convert raw materials into a finished product and in doing so create a product which can be sold at a greater price than the cost of the individual components or materials used to make the product.
What’s an example of adding value ?
For example, the actual components and materials used to create an Apple iPhone are worth much less than the purchase price of the product, as value is added because of Apple’s reputation as a manufacturer of smart phones.
What are some examples of operational objectives?
Cost
Quality
Dependability
Environmental
Adding value
What are the type of influences affecting a businesses decision making ?
internal or external
The objectives of the three other business functions will influence the choice of what ?
choice of operational objectives
For example, if the operational objectives are focussed on flexibility and require the recruitment of additional temporary staff for the festive period, the human resources department will need to support this through their responsibility for overseeing recruitment.
How do products influence objectives ?
The type of product or service produced will influence the choice of operational objectives.
For example, if the product or service produced is sold competitively on the basis of price, objectives to reduce costs may be appropriate.
How does availability of internal resources influence operations objectives ?
The availability of internal resources such as capital and labour can influence the choice of operational objectives.
For example, if there is a shortage of employees, it would be difficult to increase the speed of response and the business’ ability to increase its production levels.
How do technological advancements influence operational objectives?
Technological advancements influence the choice of operational objectives.
For example, developments in artificial intelligence may allow businesses to improve their production processes.
How does change in customer tastes influence operational objectives ?
Changing customer tastes, needs and preferences influence the choice of operational objectives.
For example, when customers demanded healthier meals, McDonalds introduced a range of healthier menu alternatives
How does Globalisation and competition influence the choice of operational objectives ?
For example, customers’ ability to purchase products directly from China places pressure on UK manufacturers to remain competitive.
What do the operations department looks after ?
The production of the products that a business sells
The operations department collects data about the production of products and this data can be used to support what different calculations ?
Labour productivity
Unit costs
Capacity utilisation
What is labour productivity used for ?
to calculate how much an employee produces, which is particularly useful for labour-intensive businesses
How is labour productivity calculated ?
Labour productivity is the output per period of time divided by the number of employees in that period
a takeaway produced 3,000 meals in one week and had 7 full-time staff, what’s the labour productivity?
labour productivity is 3,000 divided by 7, which gives 428.6 meals per employee per week.
This can be compared to previous years and competitor data to assess performance and inform target setting.
What is unit cost used for ?
Unit cost calculations are useful for the operations department because unit cost figures can be used to compare the production cost per unit against other departments, competitors or between years
How is unit costs calculated?
Unit cost is total costs divided by units produced
if a clothing factory created 3,500 t-shirts at a total cost of £10,500, calculate the unit cost
unit cost is £10,500 divided by 3,500 units which gives a unit cost of £3. This can be compared to previous years and competitor data to assess performance and inform target setting
Why are capacity calculations useful ?
Capacity calculations are useful for the operations department so that a business understands its maximum output level.
Why are capacity utilisation calculations useful ?
for the operations department so that a business can work out what percentage of its maximum output is actually being used.
How do you solve capacity utilisation ?
Capacity utilisation is the total output divided by total capacity multiplied by 100 as it expressed as a percentage.
if a football stadium had 9,500 seats and only 7,500 seats were occupied, what’s the capacity utilisation ?
capacity utilisation is 7,500 / 9,500 × 100 which gives 78.95%. A business may aim to increase its capacity utilisation to spread its fixed costs over more units, however, it is unlikely to aim for 100% as this would remove any flexibility to accept special orders or for mistakes made.
What are the three types of operational data ?
Labour productivity = output per employee
Unit costs = cost per unit produced
Capacity = max output
What’s are the problem of operations data ?
Problem 1: This operations data may only apply to businesses that produce physical products.
If you look at Snapchat, or Seneca, how do you work out what the ‘capacity’ of output is?
Cloud computing means that the number of users of a service can scale in the instant. This means that ‘capacity’ can be whatever it needs to be.
Problem 2: Free services and the internet
Google Search is a free service. Google makes money selling ads above the search results that appear on its page.
Labour productivity for Google could be measured using output per worker. However, the same software developers and marketers are doing the same work, regardless of whether Google makes $1bn in revenue or $100bn in revenue. Therefore, is labour productivity a good metric? The same applies to unit cost.
With the internet, traditional operations data, may be a lot less useful.
How might a quality assurance approach impact McVities biscuit factories?
Explain quality and QA
Quality describes whether the product meets the expectations of customers and there are many aspects on which this can be judged, including design, functionality, and durability. Businesses adopt different methods to ensure quality in their products. Quality control focuses on a small number of employees inspecting the product at the end of the production line, whereas, all employees are responsible for quality assurance as it seeks to improve the processes with the aim to get perfect quality first time.
Explain impact on Human Resources
Quality assurance gives responsibility to employees to ensure the quality of the products, rather than an inspector checking on them which can promote a negative culture between management and employees. This responsibility and sense of ownership are particularly important for job satisfaction for the job roles in factories, as often this is repetitive and low skilled work. Therefore, not only does quality assurance ensure the quality of the products is good enough at every stage, but it could also improve job satisfaction and staff morale.
Explain impact on Finances
By ensuring quality at each stage, employees can identify products that do not meet the quality standards much sooner than with a quality control approach. The products can then be broken down and reused or discarded. There is a better chance that the materials can be reused if the fault is spotted sooner. This results in lower costs for the business as they have a better chance of reusing materials and have not wasted time and money by allowing a faulty product to go all the way through the production process.
What does capacity refer to ?
the maximum level of production possible using the resources available within the business
What is the importance of capacity ?
A business must understand its capacity to make sure that it does not commit to more orders than it can fulfil within a certain time period
How does productivity affect capacity of a business ?
Increasing the number of, or productivity levels of staff and investing in technology can help a business to increase its total capacity
What is capacity utilisation ?
The proportion of total capacity being used by a business is known as its capacity utilisation
Why do businesses aim to increase their capacity utilisation
As this will mean that fixed costs can be spread out over a greater number of units.
What is the disadvantage of 100% capacity utilisation ?
Having capacity utilisation of 100% means the business cannot respond to additional or special orders made at short notice as they do not have any further capacity to produce these products.
If a business needs to increase its capacity at short notice to take advantage of an increase in demand what is used ?
outsourcing
