Topic 4 - Decision Making To Improve Operational Performance Flashcards
1
Q
What are the four main functions of a business ?
A
marketing, operations, human resources and finance.
2
Q
To support the business’s overall objectives, what do each of the business functions or departments have to do ?
A
will have its own objectives which contribute to the wider objectives set for the business
3
Q
Why is it important that the objectives of each department are aligned to the business’s overall objectives ?
A
as if they are not, individual departments may not be contributing to the success of the overall business
4
Q
What are cost objectives ?
A
can be focussed on reducing or maintaining costs, for example fixed and variable costs
5
Q
What’s an example of cost objectives ?
A
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.
6
Q
What are quality objectives ?
A
can be focussed on improving or maintaining quality
7
Q
What’s an example of quality objectives ?
A
For example, Rolex prides itself on the quality of its products
8
Q
What are dependability objectives ?
A
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
9
Q
What’s an example of dependability objectives ?
A
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
10
Q
What are environmental objectives ?
A
can be focussed on the environment
11
Q
What’s an example of environmental objectives ?
A
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.
12
Q
What’s adding value ?
A
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.
13
Q
What’s an example of adding value ?
A
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.
14
Q
What are some examples of operational objectives?
A
Cost
Quality
Dependability
Environmental
Adding value
15
Q
What are the type of influences affecting a businesses decision making ?
A
internal or external
16
Q
The objectives of the three other business functions will influence the choice of what ?
A
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.
17
Q
How do products influence objectives ?
A
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.
18
Q
How does availability of internal resources influence operations objectives ?
A
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.
19
Q
How do technological advancements influence operational objectives?
A
Technological advancements influence the choice of operational objectives.
For example, developments in artificial intelligence may allow businesses to improve their production processes.
20
Q
How does change in customer tastes influence operational objectives ?
A
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
21
Q
How does Globalisation and competition influence the choice of operational objectives ?
A
For example, customers’ ability to purchase products directly from China places pressure on UK manufacturers to remain competitive.
22
Q
What do the operations department looks after ?
A
The production of the products that a business sells
23
Q
The operations department collects data about the production of products and this data can be used to support what different calculations ?
A
Labour productivity
Unit costs
Capacity utilisation
24
Q
What is labour productivity used for ?
A
to calculate how much an employee produces, which is particularly useful for labour-intensive businesses
25
How is labour productivity calculated ?
Labour productivity is the output per period of time divided by the number of employees in that period
26
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.
27
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
28
How is unit costs calculated?
Unit cost is total costs divided by units produced
29
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
30
Why are capacity calculations useful ?
Capacity calculations are useful for the operations department so that a business understands its maximum output level.
31
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.
32
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.
33
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.
34
What are the three types of operational data ?
Labour productivity = output per employee
Unit costs = cost per unit produced
Capacity = max output
35
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.
36
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.
37
What does capacity refer to ?
the maximum level of production possible using the resources available within the business
38
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
39
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
40
What is capacity utilisation ?
The proportion of total capacity being used by a business is known as its capacity utilisation
41
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.
42
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.
43
If a business needs to increase its capacity at short notice to take advantage of an increase in demand what is used ?
outsourcing
44
What is the benefit of outsourcing?
Outsourcing allows a business to increase its total capacity which may allow the business to meet increasing demand.
45
What is a negative of outsourcing?
Outsourcing can lead to quality issues if outsourcers do not take quality as seriously as the business.
46
If a coffee shop’s total capacity is 3,000 hot drinks per day, it will be unable to produce more than 3,000 hot drinks per day unless it does what ?
increases its capacity through staff training or further recruitment
47
If a coffee shop’s total capacity is 3,000 hot drinks per day, it will be unable to produce more than 3,000 hot drinks per day, it sells 1500 one day.
What is its capacity utilisation ?
Selling 1,500 hot drinks per day would give the business a capacity utilisation of 50% if total capacity is 3,000 hot drinks
48
What is productivity ?
Productivity refers to the number of units produced by an employee in a certain period of time.
49
What does efficiency refer to ?
the ability of employees to increase their output from a fixed amount of inputs, like raw materials
50
What is lean production ?
Efficiency can be improved using lean production:
Lean production minimises waste so increases efficiency
51
How can McDonald’s use lean production to increase efficiency?
For example, if McDonalds redesigned their restaurant so that staff had less distance to walk between cooking appliances in the kitchen, time wastage will be reduced which improves efficiency and therefore productivity.
52
What is JIT (just in time) ?
Just in Time is a form of lean production. Just in time involves businesses only ordering supplies when they are needed, and therefore reduces waste.
For example, a restaurant may only place its seafood order when it has confirmed orders from customers and this reduced food wastage.
53
What is the disadvantage of JIT ?
Just in Time means that businesses will have no spare stock to respond to an unexpected customer order which may affect customer satisfaction.
54
What is a capital intensive business ?
Capital intensive businesses are businesses that mainly rely on the use of capital, or machinery, in the production of goods and services
55
What is a labour intensive business ?
Labour intensive businesses are those which mainly rely on the use of human labour in the production of goods and services.
56
What’s an advantage of a capital intensive business ?
Capital intensive production can be cheaper than labour-intensive production in the long-term
57
What is a disadvantage of a capital intensive business?
Capital intensive production can require businesses to commit to high start-up costs as machinery is purchased.
58
What is an advantage of labour intensive production?
Labour-intensive production increases operational flexibility as people can be reassigned to different projects or retrained to complete different tasks.
59
What’s an example of a labour intensive business?
For example, Asda relies on labour intensive approaches as its supermarkets are maintained and stocked using human labour.
60
Which type of production is cheaper in the long term if there are lots of units produced?
Capital intensive production
61
What are ways technology can be used to increase a businesses efficiency ?
Computer aided design
Computer aided manufacturer
E-commerce
62
How can Computer aided design (CAD) be used to increase a businesses efficiency ?
as businesses can use technology to create and amend designs instead of doing these manually - keep changing prototypes online
63
How can Computer aided manufacture (CAM) be used to increase a businesses efficiency ?
businesses can use CAD and CAM to create products.
64
How can e-commerce be used to increase a businesses efficiency ?
E-commerce and email systems can increase efficiency as administrative tasks can be completed more quickly than they could using paper-based systems.
65
How is Boeing an example of how CAD and CAM help efficiency?
Boeing can use CAD and CAM to design and manufacture engine parts for its planes which is quicker than creating designs by hand.
66
What is the importance of quality ?
The two main aspects of a product or service that customers use to make decisions are price and quality. Quality is therefore important for a business that wants to be profitable and compete with rivals (competitors)
67
What are some factors that determine quality?
The quality of the materials that are used.
The quality of the production process.
The style of a product.
The durability, speed and quality of a service.
68
Why is the quality important for customers ?
When customers buy a product they have expectations about the quality of the product and service.
For businesses that produce goods, the goods need to be of a certain quality. The product should not break after one use (unless it is a disposable item) and it should be fit for purpose.
For businesses that provide a service, a customer will have expectations about the benefits of the service and the time it will take for it to be completed.
69
Why is good quality customer service important ?
For all businesses, it is important to have good quality customer service. If a business fails to deliver a good quality of customer service, customers may buy products and services from competitors instead.
70
What are issues if you have poor quality good or services ?
If a customer is unhappy with a good or service then they may be able to return it for a refund. This often means that a product is wasted and the costs of processing a return may be high.
Businesses like Asos offer free 28 day returns for customers. This is likely to be one of Asos’ largest costs.
In 2016, the Financial Times reported that it cost retailers £60bn each year to process customer returns
Customers who think a business does not deliver high quality products or services are less likely to purchase from that business again.
A product may be found to be unsafe for use or may violate legal requirements. A business may be forced to recall all products like this.
In 2015, Volkswagen was found to have cars that exceeded the legal limit for emissions. This meant they had to recall 11 million cars worldwide at a great cost to the business.
71
What are two ways a company can measure quality ?
Customer feedback
Customer surveys
72
How does customer feedback help a business measure quality ?
Getting reviews from customers is a common way that firms measure the quality of a product or service.
For example, sites like Airbnb ask people who stay in properties listed on the website to rate them afterward.
TripAdvisor collects reviews from customers and some restaurants now have hand-held technology to allow people to review their experience instantly.
73
How do customer surveys help a business measure quality ?
Firms will sometimes do more detailed customer surveys, asking them about their experience with the good or service.
Using customer surveys, businesses can find out if there are quality problems in any of their products.
74
How do businesses identify quality ?
Customer service and complaints
Check quality in production process
75
How does customer service and complaints help a business identify quality ?
Customer service is a common way for businesses to identify problems that they have with their product.
Customer service is beneficial because it helps businesses to correct an issue that the business has not yet identified.
There are monetary costs and reputation costs from having dissatisfied customers.
76
How do quality checks in the production process help a business identify quality ?
Businesses can check the raw materials from the suppliers, take random samples of products that are in the middle of being produced (made) and take random samples of finished products.
It can be expensive to do this checking, but it means that defects are spotted before they reach customers. It also may stop a business bearing the costs involved in processing returns.
77
Why did Andy Grove, former CEO of Intel and management thought leader, advocated finding problems with a product or raw materials at the 'lowest value add stage' or as early in the production process as possible?
This is because it is cheaper to fix problems at this stage.
78
What is total quantity management?
Total Quality Management (TQM) is a set of management principles that places quality at the heart of everything a business does
79
In TQM why is quality focus important?
TQM is a culture of quality that ensures quality in production, sales and after-sales customer service.
80
In TQM why is customer feedback important?
TQM values customer feedback highly in order to keep improving the product.
Through this, the organisation aims to keep improving and producing products of the highest standard to give customers the best experience possible.
81
What is issue of TQM ?
TQM is often very beneficial for an organisation, but it can be expensive. It can mean training the employees in the principles and making sure they embrace the culture.
Businesses like Casper mattresses offer a free 100 night trial on their products because they are confident that their product quality is good and that consumers will like their mattresses
82
What is the main reason companies use Total Quality Management?
To achieve a high customer satisfaction
83
What are the benefits of maintaining high quality ?
Image/reputation
Higher prices
Avoid product recalls
84
How is Image/reputation a benefit of higher quality ?
When customers are satisfied with a product’s quality, they view the business and the brand as being a high quality brand.
This positive reputation can win more customers and let the business charge a higher price.
85
How is higher price a benefit of high quality ?
Having a high quality product means that a business is able to charge customers more for the product.
Customers are often willing to pay a premium for a good product. Consumers pay a lot of money for Apple products like the MacBook laptop computer and the iPhone because they are perceived as very high quality.
Being able to charge a higher price means a business is able to earn more profit (providing the costs of TQM aren’t too much).
86
What are some costs of maintaining high quality products ?
Provision of services - Providing services like customer service to ensure high quality will cost the business money.
Staff training - It costs businesses money to train employees and get them to embrace a culture of quality (TQM).
Inspection costs - There are costs associated with inspecting and identifying quality problems throughout the production process.
87
Taiichi Ohno is considered as the father of the Toyota Production System.
What was his aim ?
He described the main aim of the system as reducing the time it took for a customer to place an order and for Toyota to collect the cash.
The best way to do this was to remove all non-value add things that he defined as waste. It took 12 years for Ohno to roll the system out across the whole of Toyota.
A push method of production involves demand forecasting, inventory storage and planned production levels. A pull method involves withdrawing whatever is produced at the previous stage of production when it is needed.
88
Why did the Toyota Production System Emerge?
In 1973, there was an oil crisis that meant fewer people wanted to buy cars. Therefore Toyota had to become more efficient at producing cars in small volume (in small production runs).
89
What is push production ?
A push method of production involves demand forecasting, inventory storage and planned production levels.
90
What is pull production ?
A pull method involves withdrawing whatever is produced at the previous stage of production when it is needed.
91
What production method did Toyota use ?
Lean production -> pull production -> kiazen
92
Ohno identified many sources of waste in Toyota's factories
What does Ohno call waste ?
'all elements that increase cost without adding value'
93
According to Ohno what are some sources of waste ?
Overproduction
Waiting time
Transportation
Time on production line
People movement
Defective products
94
How many years did it take Ohno to roll out the system across Toyota?
12 years
95
Why is the operational objective flexibility important ?
flexibility allows businesses to respond to changes in demand with little notice
96
How do businesses improve flexibility through mass customisation ?
A business can improve its flexibility by using mass customisation. Mass customisation is an approach to production which involves products being made in mass, to achieve lower unit costs, with a final process which allows for customisation.
Mass customisation allows business to respond to customer needs through customising products requested by customers.
97
What is the operational objective of the speed important?
because the ability to meet customers’ expectations in terms of the time taken to produce and distribute a product can contribute to customer satisfaction.
A business can improve its speed of response by focussing on efficiency during the production process as increased efficiency and productivity will allow businesses to produce and therefore distribute products more quickly.
98
Why is the operational objective dependability important ?
because customers trust reliable businesses which can fulfill orders when they are placed. A business can improve its dependability by ensuring it uses reliable suppliers which it can trust.
For example, a supermarket using a reliable supplier of milk will increase its dependability as it can ensure it always has milk available to customers.
99
What is mass customisation?
Mass customisation involves mass producing the standardised parts of products before customising individual components afterwards
100
How does outsourcing help manage supply ?
Supply can be increased through outsourcing work which increases output.
101
How does hiring flexible workers help manage supply ?
Supply can be increased using part-time and temporary workers who can support the business flexibly when demand increases.
Many farms hire strawberry pickers as seasonal workers
102
How does minimising wage help manage supply ?
Supply can be increased through using a producing to order approach which minimises waste and ensure the availability of raw materials to create products in demand.
103
Does outsourcing usually increase or decrease a business' ability to grow its production?
Increase
104
What is an inventory ?
a list of all the stock that is held by a business
105
What are influences on amount of inventory held ?
Inventory control charts can be used to show a business its maximum stock level
re-order level
lead time
buffer stock
106
What does an inventory control diagram show ?
the maximum stock level that a business is willing to operate at.
the re-order level which is the point at which further stock is ordered.
the buffer stock which is the spare stock a business holds in case there is an unexpected increase in demand.
the lead time which is the time taken for the stock to arrive after it is ordered.
107
What is outsourcing?
Outsourcing is when a business uses another business to make part of its product or provide part of its service
108
What’s an advantage of outsourcing?
Outsourcing can provide cost savings because a third-party business may be able to create or produce a product or service at a lower cost than the original business
109
What are the disadvantages of outsourcing?
Outsourcing can lead to quality problems if the business that wins the outsourcing contract does not uphold the same quality standards.
The business may lose its influence on quality control.
