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business > Unit 4 > Flashcards

Unit 4 Flashcards

1
Q

Key Types of Operational Objectives

A

-COSTS (unit costs/fixed C /productivity)

-QUALITY (customer service)

-SPEED FLEXIBILITY (labour p/capacityU/lead times)

-DEPENDABILITY (maintenance costs)

-ENVIRONMENTAL (waste management, recycling)

-ADDED VALUE (gross profit/unit costs)

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2
Q

What is Labour Productivity?

A

Labour productivity is concerned with the volume of output (units) or value produced by each employee

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3
Q

Why Labour Productivity Matters

A

-In order to remain competitive, a business needs to keep its unit costs down

-Business efficiency and profitability are closely linked to productive use of labour

-labour costs are a significant part of total costs

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4
Q

Factors Influencing Labour Productivity

A

-Extent to which the workforce is trained and supported

-Skills, ability and motivation of the workforce

-Extent and quality of fixed assets (e.g. equipment, IT systems)

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5
Q

Calculating Labour Productivity

A

Output in period (units)
—————————————-
Number of employees at work

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6
Q

Ways to Improve Labour Productivity

A

-Invest in employee training

-Improve working conditions

-Invest in capital equipment (automation + computerisation)

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7
Q

Potential Problems When Trying to
Increase Labour Productivity

A

-Employees may demand higher pay for their improved productivity

-Potential for employee resistance - depending on the methods used (e.g. introduction of new technology)

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8
Q

Economies of Scale

A

Economies of scale arise when unit costs fall as output increases

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9
Q

Average cost per unit calculation

A

Total production costs in period (£)
————————————————-
Total output in period (units)

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10
Q

Internal v External Economies of Scale

A

Internal
-Arise from the increased output of the business itself

External
-Occur within an industry: i.e. all competitors benefit

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11
Q

What is Capacity Utilisation?

A

The proportion (percentage) of a business’ capacity that is actually being used over a specific period

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12
Q

Capacity Utilisation Formula

A

Actual Level of Output (units)
———————————————- × 100
Maximum Possible Output (units)

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13
Q

Why Capacity Utilisation Matters

A

-Average production costs tend to fall as output rises - so higher utilisation can reduce unit costs, making a business more competitive

-Businesses usually aim to produce as close to full capacity (100% utilisation) as possible in order to minimise unit costs

-A high level of capacity utilisation is required if a business has a high break-even output due to significant fixed costs of production

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14
Q

The Costs of Capacity

A

• Equipment: e.g. production line

• Facilities: e.g. building rent, insurance

• Labour: wages and salaries of employees involved in production or delivering a service

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15
Q

Why Most Businesses Operate Below
Capacity

A

-Lower than expected market demand
(A change in customer tastes)

-A loss of market share
(Competitors gain customers)

-Seasonal variations in demand
(Weather changes lead to lower demand)

-Recent increase in capacity
(A new production line has been added)

-Maintenance and repair programmes
(Capacity is temporarily unavailable)

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16
Q

Dangers of Operating at Low Capacity Utilisation

A

• Higher unit costs - impact on competitiveness

• Less likely to reach breakeven output

• Capital tied up in under-utilised assets

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17
Q

Problems Working at High Capacity

A

-Negative effect on quality
(Production is rushed Less time for quality control)

-Employees suffer
(Added workloads & stress, De-motivating if sustained for too long)

-Loss of sales
(Less able to meet sudden or unexpected increases in demand)

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18
Q

What is Lean Production?

A

Approaches to management that focus on cutting out waste, whilst ensuring quality

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19
Q

Lean Production in Summary

A

• Doing the simple things well

• Doing things better

• Involving employees in the continuous process of improvement …and as a result, avoiding waste, thereby reducing costs

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20
Q

Examples of Waste in Business

A

-Over-production
(Making more than is needed - leads to excess stocks)

-Waiting time
(Equipment and people standing idle waiting for a production process to be completed or resources to arrive)

-Stocks
(Often held as an acceptable buffer, but should not be excessive)

-Defects
(Output that does not reach the required quality standard - often a significant cost to an uncompetitive business)

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21
Q

Effective lean production requires…

A

• Good relations with suppliers

• Committed, skilled and motivated employees

• Trust between management and employees

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22
Q

Time-based Management

A

An general approach that recognises the importance of time and seeks to reduce the level of wasted time in the production processes of a business

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23
Q

Requirements for time-based management

A

• Flexible production methods
-Able to change products quickly
-Can change production volumes / runs

• Trained employees
-Multi-skilled staff
- Trust between workers and managers

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24
Q

Just-In-Time (JIT)

A

Just-in-time (“JIT”) aims to ensure that inputs into the production process only arrive when they are needed

25
Q

How JIT Works

A

• Based on a “pull” system of production - customer orders determine what is produced

• Requires complex production scheduling - achieved using specialist software to connect production with suppliers

• Supplies delivered to production only when needed

• Requires close cooperation with reliable suppliers

26
Q

Benefits of JIT

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

-Less likelihood of stock perishing, becoming obsolete or out of date

-Less time spent on checking and reworking production as the emphasis is on getting the work right first time

27
Q

Drawbacks of JIT

A

-There is little room for mistakes as minimal stock is kept for re-working faulty product

-Production is highly reliant on suppliers and if stock is not delivered on time, the whole production schedule can be delayed

-There is no spare finished product available to meet unexpected orders, because all product is made to meet actual orders

-A need for complex, specialist stock systems

28
Q

Kaizen

A

Kaizen (or ‘continuous improvement) is an approach of constantly introducing small incremental changes in a business in order to improve quality and/or efficiency

29
Q

LABOUR INTENSIVE PROCESSES

A

KEY FEATURES
• Labour costs higher than capital costs
• Costs are mainly variable
• Labour supply (quantity & quality) and cost are key issues

E.g hotels/restaurants

30
Q

CAPITAL INTENSIVE PROCESSES

A

KEY FEATURES
• Capital costs higher than labour costs
•Costs are mainly fixed (including depreciation)
• Significant investment often required (e.g. automation)
but with longer-term benefits on unit costs

E.g Oil extraction & refining/Car manufacturing

31
Q

What Do We Mean by Quality?

A

A product or service is of good quality if it meets the needs & expectations of the customer

32
Q

Why Quality is so Important in Business

A

• Markets are highly competitive:
customers are more
-Knowledgeable & demanding
- Prepared to complain about poor quality
- Able to share information about poor quality (e.g. via email & social networking)

• If a business can develop a reputation for high quality, then it may be able to create an advantage over its competitors

33
Q

Business Benefits of Greater Quality

A

-Customer satisfaction
-Higher customer loyalty
-Repeat Purchase
-Lower Marketing Costs
-Customer Recommendation

34
Q

Two Main Approaches to Quality Management

A

Quality CONTROL
• Based on inspection
• Takes defects out

Quality ASSURANCE
• Based on processes
• Builds quality in

35
Q

Definition: Quality Assurance

A

The processes that ensure production quality meets the requirements of customers

36
Q

Quality Assurance v Quality Control

A
37
Q

Kaizen

A

• Another kind of quality assurance
• Based on concept / culture of continuous improvement
• Encourages employees to engage fully with finding ways to improve quality processes

38
Q

Definition of Quality Control

A

The process of inspecting products to ensure that they meet the required quality standards

39
Q

Business Benefits of Quality Control

A

• Minimise disruption to production
• Applies a consistent standard to quality

40
Q

Some Problems with Quality Inspection

A

• Costly

• Often at the end of the production process - i.e. potentially too late

• Inconsistent inspections

• Often not compatible with modern production systems

• Done by inspectors rather than workers themselves

41
Q

Costs of Poor Quality

A

• Cost of reworking or remaking product

• Costs of replacements or refunds

• Wasted materials

• Lost customers (expensive to replace - and they may tell others about their bad experience)

42
Q

How Poor Quality Damages Competitiveness

A

• Financial costs (e.g. compensation)
• Lost customer loyalty
• Damaged business reputation
• Need for greater controls and checks
• Competitors take advantage

43
Q

What is Outsourcing?

A

Delegating one or more business processes to an external provider, who then owns, manages and administers the selected processes to an agreed standard

44
Q

Benefits of Outsourcing

A

• Access specialist suppliers with greater capabilities and higher quality

•Reduce costs if outsourcing supplier is able to provide at lower cost (e.g. through economies of scale)

• Focuses the business on its core activities - where it can
“add value”

-Makes operations more flexible - e.g. easier to change capacity when needed

45
Q

Drawbacks of Outsourcing

A

• Risk that outsourcing supplier will fail to meet quality standards or otherwise not deliver

• Potential loss of expertise from the business

• No guarantee that costs will be lower

46
Q

What is Producing to Order?

A

Producing to order is an approach to production where the production of an item begins only after a customer order is received

47
Q

Benefits and Drawbacks of Producing to Order

A

BENEFITS
-Lower levels of finished goods in
inventory = lower inventory
holding costs & less risk of obsolescence

-Greater customer satisfaction = customers get what they want

DRAWBACKS
Capacity to produce to order may be limited; although mass customisation is automated, it doesn’t work for all products

It may be difficult to handle sudden or unexpected increases in demand

48
Q

What are Stocks?

A

Stocks represent the raw materials, work-in-progress and finished goods held by a firm to enable production and meet customer demand

3 main types:
-Raw Materials &Components
-Work in Progress
-Finished Goods

49
Q

Key Reasons to Hold Stock

A

-Enable Production to Take Place

-Satisfy Customer Demand

-Precaution Against Delays from Suppliers

-Allow Efficient Production

-Allow for Seasonal Changes

-Provide a Buffer between Production
Processes

50
Q

Main Influences on Amount of Stock Held

A

Need to satisfy demand

• Failure to have goods available for sale is very costly
• Demand may be seasonal or unpredictable

Need to manage working capital

• Holding stocks ties up cash in working capital
• There is an opportunity cost associated with stock holding

Risk of stock losing value

• Longer stocks are held, the greater risk that they cannot be used or sold

51
Q

The Costs of Holding Stocks

A
52
Q

Why Use Stock Control Charts?

A

The overall objective of stock control is to maintain stock levels to that the total costs of holding stocks is minimised

53
Q

Key Parts of a Stock Control Chart

A
54
Q

Example of stock control chart

A
55
Q

Factors Affecting When / How
Much Stock to Re-order

A
56
Q

Advantages of Low and High Stock Levels

A
57
Q

Internal Influences on Operational Objectives

A
58
Q

External Influences on Operational Objectives

A

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