unit 4 Flashcards
what is operations management
the management of processes, activities and decisions relating to the way goods and services are produced and delivered
what is the transformation process
where value is added
what are the key types of operational objectives
profit
quality
efficiency+flexibility
environmental
equation for unit cost
total costs/total units
examples of cost and volume objectives
productivity and efficiency
units costs per item
contribution per unit
number of items to produce (per time period, or per machine)
what is a benefit of a business developing a reputation for high quality
creates an advantage over its competitors
what are some examples of possible business objectives
0 defect rates
reliability
customer loyalty
examples of efficiency and flexibility objectives
labour productivity
output per time period
capacity utilisation
order lead times
examples of environmental objectives
use of energy efficiency
proportion of production or packaging materials that are recycled
compliance with waste disposal regulation
what is the difference between invention and innovation
invention is the formulation of new ideas for products or processes where’s innovation is practical application of new inventions into marketable products or services
what are the types of innovation
product innovation- launching new or improved products on to the market
process innovation- finding better or more efficient ways of producing existing products, or delivering existing services.
what are the benefits of process innovation
reduced costs
improved quality
more responsive customer service
greater flexibility
higher profits
what are corporate objectives
the most important internal influence and should not conflict
what is finance
The financial position of the business directly affects the choices available
what is Human Resources
the quality and capacity of the workforce is a key factor in affecting operational objectives- the level of training provided
what are marketing issues in relation to operational objectives
The nature of the product determines the operational set-up. Regular changes to the marketing mix- particularly product-may place strains on operations, particularly if production is relatively inflexible
average cost per unit calc
total production cost in period/total output in period
why do economies of scale arise
when units costs fall as output increases
what is purchasing economies in internal economies of scale
Buying in greater quantities usually results in a lower price
what is technical internal economies of scale
Use of specialist equipment or precesses to boost productivity
what is marketing in relation to internal economies of scale
spreading a fixed marketing spread over a larger range of products, markets and customers
what is network in relation to internal economies of scale
Adding extra customers or users to a network that is already established
what is financial in relation to internal economies of scale
Larger firms benefit from access to more cheaper finance- as they pose less risk.
what are examples of external economies of scale
University research department helping to fund research
Transport networks lower logistics cost
What are diseconomies of scale
occurs when average costs rise when a business gets too big. Occurs due to coordination problems, communication problems and alienation and demotivation of staff.
what is labour intensive
Production relies on using labour resources e.g hairdressing
what is capital intensive
production relies on using capital resources e.g car manufacturing
benefits and drawbacks of capital intensity
+ greater opportunities for economies of scale
+ potential for significantly better productivity
+ better quality + speed
+lower labour cost
- significant investment
- potential for loss of competitiveness due to obsolescence
- May generate resistance to change from labour force
benefits and drawbacks of labour intensity
+ cost lower
+labour is a flexible resource- through multi-skilling and training
+ Labour at the heart of the production process- can help continuous improvement
- greater risk of problems
-potentially high cost of labour turnover
- Need for continuous investment in training
what is TQM
A core definition of total quality management (TQM) describes a management approach to long-term success through customer satisfaction. In a TQM effort, all members of an organization participate in improving processes, products, services, and the culture in which they work.
what is capacity
the capacity of a business is a measure of how much output it can achieve in a given period
is capacity dynamic and how
yes
capacity can change
e.g when a machine is having maintenance, capacity is reduced
capacity needs to take account of seasons.g chocolate factories- easter eggs in easter.
what is capacity utilisation
The proportion of a business’ capacity that is actually being used over a specific period
what is the capacity Utilisation Formula
actual level of output/potential possible output x 100
why does capacity utilisation matters
useful measure of productive efficiency
higher utilisation can reduce unit costs
what are the key costs of capacity
equipment
facilities
labour
why do most businesses operate below capacity
lower than expected market demand
a loss of market share
seasonal variations in demand
recent increase in capacity
what are the dangers of operating at low capacity utilisation
high unit costs- impact on competitiveness
less likely to reach break even output
capital tied up in under-utilized assets
what is sub contract
hiring another company to do work for you
what are the problems of working at high capacity
negative effect on quality
employees suffer- high pressure
loss of sales
What is labour productivity
The output per employee
formula: output per period/ no. of employees.
usually expressed as a quantity per employee
why is labour productivity important
significant cost of production
improvements in labour productivity helps to reduce unit costs.
may be a crucial source of competitive advantage where product are standardised- allowing lower prices.
what are the factors affecting labour productivity
working conditions
pay and incentives
leadership style, motivation
job design
skills of the workforce
equipment
what are the ways to improve labour productivity
offer incentives, bonuses
democratic leadership style- motivation
develop, acquire specialist equipment
training
what is quality
A product or service is of good quality if it meets the needs and expectations of the customer.
intangible measures of quality
market reputation
brand image
exclusiveness
tangible measures of quality
reliability
functions and features
support levels and standards
cost of ownership
why is quality important in business
markets are highly competitive: due to customers being more knowledgeable and demanding
- prepared to complain about quality
-able to share quality art poor
benefits of greater quality
-customer satisfaction
-repeat purchase
-customer recommendation
-lower marketing costs
-higher customer loyalty
also helps to differentiate businesses products from its competition.
what are examples of poor quality
product fails
product does not perform as promised
product is delivered late
poor instructions for use
unresponsive customer service
what are the costs of Poor quality
lost customers
cost of reworking or remaking products
costs of replacement or refunds
wasted materials
examples of poor quality
Mattel recalls 19 million toys supplied from china- cost 30mil
ways of improving quality
-trainingf and motivating
-understanding customers expectation
-use tech
-work closely with suppliers
-quality control
-quality assurance
what is quality control
The checking of a good or service before it is delivered to a customer
at the end of the process
advantages of quality control
quality can be monitored
stops faulty products reaching the customer
common problems can be identifies
inspector takes responsibility
what are the disadvantages of quality control
Takes responsibility away from operatives
requires specialist/additional personnel
problems only identified at end of process
what quality assurance
The checking of a product or service at each stage of its production e.g as it travels along the production line
relies upon self checking
advantages of quality assurance
-spots any faults early saving resources being wasted at the next stage of the production process.
-Motivates workers whoa re responsible for ensuring quality standards are met.
-Aims to achieve an objective of 0 defects
-enhances the reputation of the business as less chance of faulty goods reaching the end customer
disadvantages of quality assurance
Requires staff training and high levels of staff commitment
-Can slow down the production process and labour productivity leading to higher unit costs.
-may demotivate workers who feel under pressure.
what is a supplier
A business or individual that provides goods and services to another business.
why are suppliers important
-Suppliers determine many of the costs of a business (e.g. raw materials, distribution)
- suppliers are closely linked to product quality
-suppliers can be important source of finance to a business (trade credit)
what makes an effective supplier
Price
quality
reliability
communication
Financially secure
capacity
what is a supply chain
a network between a company and its suppliers to distribute a specific product, and the supply chain represents the steps it takes to get the product or service to the customer.
what are strategy supplier
business cannot succeed without maintaining an effective supplier relationship.
Those goods and services are crucial to business success.
how will suppliers influence performance
-Lower purchase costs- better prices from suppliers lower the costs of a business
-better quality- crucial for a business to satisfy customers
-improved customer service- fewer late deliveries
-increased productivity
-more flexible capacity
what is trade credit
where a business buys goods and services from a supplier and pays for them later
what is inventory
the raw materials, work-in- progress and finished goods held by a firm to enable production and meet customer demand.
what are the three main types of inventory
Raw materials and components
work in progress
finished goods.
what are raw materials and components
Bought from suppliers , used in production process e.g arts for assembly or ingredients.
what is work in progress inventory
semi or part- finished production e.g construction projects
what are finished goods
completed products ready for sale or distribution e.g products on supermarket shelves; goods in the Amazon warehouses
what are the key reasons to hold inventory
enable production to take place
-satisfy customer demand
-precaution against delays from suppliers
-allow efficient production
-allow for seasonal changes
what are the main influences on amount of inventory held
need to satisfy demand
need to manage working capital
risk of inventory loosing value
what is the cost of storage on the costs of holding inventories
more inventories require large storage space and possibly extra employees and equipment to control and handle them.
what is interest costs in the costs of holding inventory
holding inventories means tying up capital on which the business may be paying interest
what is obsolescence risk in the costs of holding inventories
the longer inventories are held , the greater is the risk that they will become obsolete.- unusable or not capable of being sold
what is stock out costs in the costs of holding inventories
a stock out happens if a business runs out of inventory. This can result in: Lost sales and customer goodwill
- cost of production stoppages or delays
- extra costs of urgent, replacement orders.
why would a business use inventory control charts
to maintain inventory levels to that the total costs of holding inventories is minimised.
what is the maximum level on a inventory control chart
the max level of inventory a business can or wants to hold
what is the re-order level of an inventory control chart
acts as a trigger point, so that when inventory falls to this level, the next supplier order should be placed.
what is the lead time of an inventory control chart
the amount of time between placing the order and receiving the inventory
what is the minimum inventory level
the minimum amount of product the business would want to hold in stock.
Assuming the minimum stock level is more than zero, this is known as buffer stock.
what is buffer stock
An amount of inventory held as a contingency in case of unexpected orders so that such orders can be met in case of any delays from suppliers.
what are the factors affecting /when how much inventory to re-order
lead-time from the supplier
- how long it takes for the supplier t deliver the order
-higher lead times may require a higher re-order level.
implications of running out (stock-outs).
- if stock-outs are very damaging, then have a high re-order level and quantity.
demand for the product
- Higher demand normally means higher re-order levels.
what are the advantages of low inventory levels
lower inventory holding costs
lower risk of inventory obsolescence
consistent with operating ‘lean’
what are the advantages of operating at high inventory levels
production fully supplied- no delays
better able to handle unexpected changes in demand or need for higher output
less likelihood of ‘stock-outs’
what is just-in-time
-inventory required for production arrives just as it is needed
what is lean production
minimal capital tied up in inventories
what is the importance of reducing waste
less waste means lower costs, which is an essential part of any business being competative.
what are the different types of waste
-overproduction
-waiting time
-transport
-stocks
-motion
-defects
what is over-production
making more than is needed- leads to excess stocks
what is waiting time
equipment and people standing idle waiting for a production process to be completed to resources to arrive.
what is transport
moving resources (people, materials) around unnecessary
what are stocks in relation to waste
often held as an acceptable buffer, but should not be excessive
what is motion in relation to waste
A worker who appears busy but is not actually adding any value
what is defects in relation to waste
output that does not reach the required quality standard- often a significant cost to an uncompetitive business.
what is time-based management
a feral approach that recognises the importance of time and seeks to reduce the level of wasted time in the production processes
what is simultaneous engineering
a project management approach that helps businesses develop and launch new products more quickly. All of the areas involved in a project are planned together.
what are the main benefits of success fun simultaneous engineering
-new product is brought to the market much more quickly
-Business may be able to charge a premium price that will give a better profit margin and help recoup R and D costs.
-A greater sense of involvement across business functions improves staff commitment to the project
-can be a source of competitive advantage for the firm if it can get a reliable new product into the market and build brand loyalty before its competitors.
what is cell production
a 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 suppliers.
what are the potential benefits of cell production
-closeness of cell members should improve communication, avoiding confusion arising from misunderstood or non-received messages.
-workers become multi skilled and more adaptable to the future needs of a business
-greater worker motivation, arising from variety of work, team working and more responsibility.
-quality improvements
what are the downsides of using cell production
-workers can feel as if they are constantly pushed
-The business may have to invest in new materials and ordering systems
-may not allow businesses to use its machinery as intensively
what are the key features of Just in time (JIT)
customer orders determine what is produced
-required complex production scheduling
-requires close cooperation with high-quality suppliers
advantages of JIT
-lower stocks means a reduction in storage space saving rent and insurance costs
-less working capital is tied up in stock
-less likelihood of stock perishing
disadvantages of JIT
-little room for mistakes as minimal stock is kept for re-working faulty products
-production is highly reliant on suppliers
- no spare finished product available.
what reward do you get for labour
wages
what reward do you get for capital
interest
what reward do you get for enterprise
profit
what reward do you get for land
rent
what is capital intensive
which uses a relatively high proportion of capital such as machinery in the production of a good or service.
