unit 4 Flashcards
what is operations management
the management of processes relating to the way goods are produced
what is transformation process
what happens inside the business and where value is added
key types of operational objectives
cost and volume
quality
efficiency and flexibility
environmental
what is traditional measure of cost-effectiveness
unit cost
why is a business with lower unit cost stronger
offer lowest price
make higher profit margin
examples of cost volume objectives
unit cost per item
productivity & efficiency
number of items to produce
possible quality objectives
zero/defect rates
reliability (how often something goes wrong)
customer satisfaction
number of complaints
customer loyalty
percentage of on the delivery
efficiency & flexibility objectives
look how efficient the assets of the business are being utilised
measure how responsive the business can be to short-term or unexpected changes in demand
examples of efficiency & flexibility objectives
labour productivity (output per employee)
output per time period (potential output)
capacity utilisation (output actually being achieved)
order lead times (time between receiving and processing order)
examples of environmental objectives
use engird efficiently
packaging recycled
supplies Fromm sustainable sources
importance of innovation
putting new idea into action
described as ‘the commercially successful exploitation of ideas’
invention
formulation of new ideas for products or processes
inovation
practical application of new inventions into marketable products
product innovation
launching new or improved products on market
process innovation
finding better ways pf producing existing products
‘first mover advantage’
higher price/profit
added value
increase market share
enhanced reputation
benefits of process innovation
reduced costs
improved quality
higher profits
more customer service
internal influences on operational objectivos
finance
HR
marketing
external factors on operational objectives
PESTLE
average cost formula
total production costs/total output in period
why do economies of scale arise
when unit costs fall as output increases
internal economic scale
arise from increased output of the business itself
external economic scale
occur within an industry: i.e. all competitors benefit
what are internal economies of scale
purchasing economies
technical
marketing
network
financial
purchasing economies
buying on greater quantities usually results in a lower price (bulk)
technical
use of specialist equipment or processes to boost productivity (machines, IT)
marketing
spreading a fixed marketing spend over a larger range of products, markers and customers
network
adding extra customers or uses to a network that is already established (mobile phones, Netflix)
financial
larger firms benefit from access to more and cheaper finance - as they pose less risk
why does diseconomies of scale happen
this occurs when average costs rise when a business gets too big
coordination problems
communication problems
alienation and demotivation
what is labour intensive
production relies on using labour resources
what is capital intensive
production relies on using capital resources
examples of labour intensive
hotels & restaurants
hairdressing
fruit farming
coal mining
examples of capital intensive
oil extraction
car manufacturing
transport infrastructure
labour intensive unit cost
- labour costs higher than capital costs
- mainly variable = lower break even
output - benefit if able to source low cost labour
capital intensive unit cost
- cost higher than labour costs
- mainly fixed = higher break even output
- benefit if they can access low cost, long
term finance
benefits of capital intensity
- better opportunities for economies of
scale - much better productivity
- better quality
- quicker
- lower labour costs
disadvantages of capital intensity
- significant investment
- might lose competitiveness due to not
being needed (obsolescence) - may generate resistance to change from
labour force
benefits of labour intensity
- unit costs may be low in wage locations
- labour is flexible resource - through
multi-skilling and training - labour at the heart of the production
process - can help continuous
improvement
disadvantages of labour intensity
- greater risk of problems with
employee/employer relationship - potentially high costs of labour turnover
- need for continuous investment in
training
what does capacity mean
a measure of how much output it can achieve in a given period
examples of capacity
- a football stadium
- call centre how many calls a day
- fast food people served per hour
why can capacity change
- machine is having maintenance,
capacity reduced - linked to labour, working more hours
more output
what other factor does capacity need to account
- seasons
- chocolate eggs
- ice creams
what does capacity utilisation mean
percentage of a business capacity that is actually being used over a specific time
calculation for capacity utilisation
potential possible output
why is capacity utilisation matters
- useful measure of productive efficiency since it
measures wether if they are unused - higher utilisation reduces unit cost
- high level of capacity needed if business has high
breakeven output due to fixed costs
key costs of capacity
-equipment
- facilities
- labour
reasons most businesses operate below capacity and why
- lower ten expected market demand (change in
taste) - loss of market share (competitors gain customers)
- seasonal variation in demand (weather changes)
- recent increase in capacity (new production
added) - maintenance and repair programmes (capacity
temporarily unavailable)
dangers of operation at low capacity utilisation
- high unit costs - impact on competitiveness
- less likely to reach break even output
- capital tied up in underutilised assets
can a business work at more then 100% capacity utilisation and why
- possible in short term
- increase workforce hours
- sub-contract some production activities
- reduce time spent maintain production
equipment
problems with working at high capacity
- negative effect on quality
- employees suffer
- loss of sales
what is better high or low capacity
high as its better efficiency
why is flexibility of capacity important
ability to adjust to meet changes in demand
what is labour productivity
the output per employee
labour productivity formula
no. of employees
why is labour productivity important
significant cost of production
what does labour productivity help reduce
unit cost
why is labour productivity good for competition
competitive advantage as it allows lower prices
definition of quality
product or service is of good quality if it meets the needs & expectations of the customer
some measures of qualities that are tangible
- reliability
- functions & features
- support levels & standards
- cost of ownership (repairs)
some measures of qualities that are intangible
- brand image
- exclusiveness
- market reputation
why is quality important in a business
- markets are highly competitive: due to
customers being more knowledgeable
& demanding - prepared to complain about quality
able to share quality art poor food
business benefits of greater quality
- customer satisfaction
- repeat purchase
- customer recommendation
- lower marketing costs
- higher customer loyalty
what does quality include other then the product itself
- customer experience
- buying process
- product reliability
- cost of ownership
how would you judge the quality of a restaurant
- service
- food
- ambience
examples of poor quality
- produc fails
- product doesn’t perform as promised
- product delivered late
- poor instructions
- unresponsive customer service
what are the costs of poor quality to a business
- lose customers
- remaking product
- replace product
- wasted materials
how might good/poor quality be measured
- customer service ratings
- product returns
- warranty claims
- waste levels in production
- levels of repeat nosiness
- market surveys
- profit margin
methods of improving quality
- training and motivating
- understanding customers expectation
- use technology
- work closely with suppliers
- quality control
- quality insurance
advantages of quality control
- can be monitored
- stops faulty products going to customer
- problems are identified
- inspector takes responsibility
disadvantages of quality control
- takes responsibility away from operatives
- requires specialist/additional personnel
- problems only identified at end of process
- scale waste levels may be high
what is quality control
process through which a business seeks to ensure that product quality is maintained or improved
what is quality assurance
checking of product or service at each stage of its production (as it travels along a production line
advantages of quality assurance
- spots any faults early saving resources to not be
wasted - motivates workers
- aims to achieve an objective of 0 defects
-enhance reputation
disadvantages of quality assurance
- requires staff training
- slow down production process +
labour - can lead to higher costs
- demotivate workers
what is a supplier
a business or individual that provides goods and services to another business
what is a supply chain
network between a company and its suppliers to produce and distribute a specific product
(steps it goes through to get to consumer)
why are suppliers important
- suppliers determine many of the costs
- closely linked to product quality
- important source of finance to a
business - firms that use lean production
techniques need relationships
what characteristic would make an effective supplier
- good value for money
- good quality
- are they reliable
- good communication
- are they financially secure
- can they handle your capacity
how can supplier influences performance
- lower purchase costs
- better quality
- improved customer service
- increased productivity
- more flexible capacity
what is trade credit
firm buys goods and services from a supplier and pays for them later
definition of inventory
raw materials, work-in-progress and finished goods held by a firm
three main types of inventory
- raw materials & components
- work in progress
- finished goods
what are raw materials & components
- bought from suppliers
- used in production process
- (parts/ingredients)
what is work in progress
- semi or part-finished production
- (construction projects)
what are finished goods
- completed products ready for sale or
distribution - (products on shop shelves, goods in
warehouse)
key reasons to hold inventory
- satisfy customer demand
- allow efficient production
- allow for seasonal changes
- precaution against delays
- enable production
main influences on amount of inventory held
- satisfy demand
- need to manage working capital
- risk of inventory losing value
costs of holding inventories
- cost of storage
- interest costs
- obsolescence risk
- stockout costs
why use inventory control charts
overall objective of inventory control is to maintain inventory levels to that the total costs of holding inventories is minimised
key parts of an inventory control chart
- maximum level
- re-order level
- lead time
- minimum inventory level
- buffer stock
factors affecting when/how much inventory to re-order
- lead time from the supplier
- implications of running out
- demand for the product
advantages of low inventory levels
- holding costs
- lower risk of obsolescence
- consistent with operating ‘lean’
advantages of high inventory levels
- fully supplied - no delays
- handle unexpected changes in demand or need for higher output
- less likely of out of stock
concept of just in time
- inventory required for production
arrives just as it is needed - lean production = minimal capital tied
up in inventories
implications
- no need for buffer stocks
- stock holding costs are minimised
- lead times are very short
- highly reliable suppliers, IT systems
importance of reducing waste cost
less waste means lower costs, which is an essential part of any business being competitive
what is over-production
making more than is needed - leads to excess stocks
what is waiting time
equipment + people standing idle waiting for. production process to be completed or resources to arrive
what is transport
moving resources (people, materials) around unnecessarily
what is stocks
often held as an acceptable buffer, but shouldn’t be excessive
what is motion
a worker who appears busy but is not actually adding any value
what is defects
output that doesn’t reach the required quality standard - often a significant cost to an uncompetitive business
what is time based management
time-based management is a general approach that recognises the importance of time and seeks to reduce the level of wasted time in the production process
what is simultaneous engineering
a project management approach that helps business develop an launch new products more quickly. all of the areas involved in a project are planned together (IT+ marketing). everything os considered simultaneously rather then separately
what is cell production
form of team working where production processes are split into cells. each cell is responsible for a complete unit of work which they then pass onto the next stage creating internal customers and supplier team peking where production processes
what is just-in-time
JIT aims ensure that inputs into the production process only arrive when they are needed. implemented successfully, stock levels of raw materials, components, work in progress and finished goods can be kept to a minimum
what is lean production
organising production and operations to minimise waste
what is cell production
form of team working that helps ensure worker commitment, as each cell is responsible for a complete unit of work
what is JIT
JIT a manufacturing system I which materials or components are delivered immediately before they are required in production
what reward do you get for land
rent
what reward do you get for labour
wages
what reward do you get for capital
intrest
what reward do you get for enterprise
profit
what is capital intensive
uses machinery in production
what is labour intensive
uses high proportion of labour (tertiary sector)
advantages of capital intensive
- increased productivity
- improved quality and
speed - reduced labour costs
- economies of scale
disadvantages of capital intensive
- high investment outlay
- lack of human initiative
- greater resistance to
change by workforce
advantages of labour insensitive
- cheaper, low wage
locations - workforce can adapt to
change - improvement through
workforce - government funding to
protect jobs
disadvantages of labour insensitive
- industrial relations can
be a problem (strikes) - lack of skilled workers in
some industries - HRM costs can be high
(recruitment, selection,
training)
what is outsourcing
practise of using the services of other organisation to complete all or parts of the manufacturing process
what are the values of outsourcing
- provides flexibility in supply
- increase capacity without high capital
expenditure - can buy in expertise
what are temporary employees
contacted to work for a business for a specified period of time
what are part time employees
contracted to work less hours than a full time employee
benefits of using temporary and part time workers
- flexible work force
- better able to match supply to
demand - not tied into paying workers when
they aren’t being used to full potential
issues with temporary and part time workers
- recruitment+training costs are high
- may be transient
- may lack commitment
what will the amount of stock held will depend upon
- the business’ attitude to risk
- importance of speed of response as
an operational objective - speed of change within the market
- nature of the product (perishable)
what does flexibility mean
- ability to respond to change
- meet increase/decrease in demand
- seasonal/fashion
how can flexibility be improved
- managing inventory and supply chain
management - good relationship with suppliers
- JIT operations
- technology to quickly re-order levels
what is mass customisation
- offering individual tailored goods or
services to customers on a large scale
