Unit 4 Flashcards
Operational management
What is the operations function?
The operations function of a business is responsible for the actual production of goods and services.
- It involves managing the process of transforming inputs into outputs.
What is operations management?
- Converts resources and labour (inputs) into goods and services (outputs) = added value
- In simple terms, the physical requirements necessary to produce a good/service.
Explain the important concept of added value in the operations process
This means that the value of the final output (product or service) will be greater than the value of all the imputed inputs added together.
- Adding value enables a profit to be made and is likely to be an operational target.
What is the importance of operations for a business?
Effectively managing operations allows a business to:
- Meet the demand for its products and services.
- Add value to its products.
- Control costs of production.
- Guarantee the right level of quality and service.
- Adapt to the needs of customers.
- Enable a business to meet its ethical &/or environmental objectives.
What are the 4 factors of production?
- Land
- Labour
- Capital
- Entrepreneurship
What is the transformation process?
The conversion of a firm’s inputs into outputs that reach the customer and adds value. Can be categorised as:
- Manufacture - the physical creation of products (e.g. cars)
- Transport - the movement of materials or customers (e.g. taxi service)
- Supply - change in ownership of goods (e.g. in retailing)
- Service - the treatment of customers or the storage of materials (e.g. hospital wards, warehouses)
What are operational objectives?
Targets that a business sets in order to produce goods or services in the most efficient way in a given period of time.
What are the key operational objectives?
- Reduced unit costs (reduce the cost of making each unit)
- Quality targets (better products, fewer complaints or lower returns)
- Speed of response & flexibility (shorter lead time, ability to adapt)
- Added value (process of increasing worth of resources by modifying them)
- Ethical &/or environmental objectives (no exploitation of workers, reduced pollution, etc.)
- Dependability (reliability, consistent quality)
What must the operational objectives be?
SMART
- They can be used to evaluate the overall performance of the operations function (department).
- Must also fit with the overall corporate objectives.
Explain reduced unit costs as an operational objective
Target set to control the cost of each individual good or service supplied (unit cost or cost of one unit or cost per unit). This may support a strategy of cost minimisation.
- The business with the lowest unit cost is in a strong position to be able to compete by being able to offer the lowest price or make the highest profit margin.
- However, costs must not be reduced to the point where other objectives are compromised, e.g. quality.
How can the operational objective of reduced unit costs be achieved?
- Renegotiate fixed costs / variable costs.
- Increase scale: economies of scale.
Explain quality targets as an operational objective
Minimum acceptable standards in terms of quality of raw materials, processes, output and customer service to match customers’ expectations.
- If a business can develop a reputation for high quality it may be able to create a competitive advantage and charge a premium price.
- Helps reduce waste and the cost of reworking faulty products.
- Can be achieved through recalls, etc.
Explain speed of response and flexibility as an operational objective
The speed with which customers’ needs are met and the ability to tailor the goods to meet individual needs, i.e. matching supply to demand.
- This includes the ability of a business to respond to changes in the market and consumer wants (flexibility).
- A business will use this in order to differentiate itself from others and gain a competitive advantage.
- Can be achieved by meeting delivery agreements.
Explain added value as an operational objective
The ability to ensure that the value of the output is higher than the sum of the value of all the inputs, i.e. the value of the finished output over and above the cost of achieving it.
- Operation can add value through the production process to ensure a quality finished product.
Explain ethical &/or environmental objectives as an operational objective
Meeting targets to minimise any detrimental effects of the operations of the business on the environment.
- This will include targets set to reduce its negative impact upon the environment or increase its positive influence.
- These targets may be turned into quantifiable objectives for the business to measure their performance against, e.g. to reduce carbon emissions by a give percentage by a certain date.
What do operational objectives link closely with?
- Corporate objectives
- HRM objectives
- Financial objectives
- Marketing objectives
- Efficiency and productivity
- Capacity management
What are the internal influences on operational objectives?
- Finance: the availability of finance will determine the extent of any operational decision making, e.g. investment in new production technology.
- Marketing: it is likely that the marketing function will determine both what has to be produced and the quantities, so the operations department will have to liaise closely with marketing department.
- Human resources: the skills of the workforce determine both what can be produced and its quality.
List the external influences on operational objectives
- Political or legal influences
- Economic influences
- Technological influences
- Competitive influences
Explain political or legal influences on operational objectives (external influence)
- Businesses will always have to be aware of the legal environment and potential changes in legislation from the government.
- This is illustrated by the greater awareness in recent years of health and safety and environmental issues, which has brought increasing amounts of legislation.
Explain economic influences on operational objectives (external influence)
- The operations function needs to be both prepared for and responsive to changes in the economy, as demand will fluctuate according to the stage of the economic cycle.
- In addition, due to the global nature of the economy, resources can be sourced from anywhere in the world and it is possible to undertake production from anywhere, both factors that may be considered by the operations function.
Define economic cycle
The economic cycle is the natural fluctuation of the economy between periods of expansion (growth) and contraction (recession).
Explain technological influences on operational objectives (external influence)
- Technology has had a significant impact on the operations function in terms of both production and the way consumers purchase goods and services.
- The introduction of computer-aided design (CAD) and computer-aided manufacture (CAM) has resulted in speedier innovation and production, and better quality.
- The use of comparison and review sites means that consumers are more aware and demanding in terms of price, quality and customer service.
- Newspapers can be read online and books, films and music can simply be downloaded by consumers.
- There are apps for almost any purpose, and the growth of social media has influenced operational objectives.
Explain competitive influences on operational objectives (external influence)
- Markets have become increasingly competitive, with competition both at home and from overseas.
- As a result, there is increasing pressure on businesses in terms of costs, quality and price.
- Added to this is a greater awareness among consumers, resulting in increasing pressure on the operations function to play its part in maintaining consumer loyalty.
What is operations data?
Quantifiable information that will allow a business to measure performance and help inform decision-making on how best to improve operational performance.
Define output
Output is the number of units (products) produced during a period of time.
- E.g. a car manufacturer may have an output of 12 cars per day or 4,300 cars per year.
Define resources
Means what is needed to make a product (material, labour, machines, £, etc.)
