Unit 4 - Decision Making To Improve Operational Performance Flashcards
Define operations
Converts inputs to outputs
What decisions do operations management involve
-level of output
-Range of products
-level of customer service
-how to produce (capital intensive or labour intensive)
-how much done by business itself or suppliers
Define supply chain
The series of activities involved in turning the initial resources into th3 final product
What are cost objectives
- reducing unit costs
- reduced fixed costs
- reducing variable costs
What are quality objectives
◇ operations work with marketing to decide what customers want/ expect
◇ better quality operations mean more competitive
◇higher customer satisfaction
◇ lower product returns
◇ less waste
◇ punctuality (delivery)
What are the 3 steps of the operations process
Inputs -> transformation process -> outputs
Stages in the production process
◇ raw materials
◇ manufacturing
◇ transportation
◇ retail
◇ disposal/ recycling
What are 5 types of operations
- Gathering analysing and distribution of information
- Storing and transporting products
- Transforming people (e.g. doctors)
- Producing goods
- Bringing products and customers together
Internal influences on the operations process
◇ corporate objectives
◇ resources
◇ finance
◇ HR
◇ marketing
◇ nature of product
◇ leadership and culture
Speed of response objectives
. Can be competitive by providing goods quicker than competitors
. Is the time from when the order is placed to delivery
. Lead times
. Response time
. Pricing effects
What are flexibility objectives
. PRODUCT - ability to switch one product to another
. VOLUME - ability to change level of outut based on demand
. MIX - availability to provide a range of alternatives
. DELIVERY - ability to adapt to changes in volume.e and demand
What are dependability objectives
(Ablity of a business to deliver reliably and on time)
- quality
- punctuality
- durability
What’s the formula for added value
Selling price - cost of production
(Added to the selling price)
What are operational objectives?
Targets a business sets for production and operations such as cost efficiency, quality, and speed of response.
Examples of operational objectives?
Costs, quality, speed of response, flexibility, dependability, environmental objectives, added value.
Internal influences on operational objectives?
Corporate objectives, finance, HR capabilities, nature of the product, and operational resources.
External influences on operational objectives?
Technological change, competitor performance, economic environment, market conditions, legal changes.
What is capacity?
The maximum level of output a business can produce in a given period.
What is capacity utilisation?
The proportion of maximum output being used. Formula: (Actual Output / Maximum Possible Output) × 100
Why isn’t 100% capacity utilisation ideal?
May cause stress, maintenance delays, and lower quality.
What is labour productivity?
Output per worker. Formula: Total Output / Number of Employees
How can labour productivity be improved?
Training, investment in equipment, better motivation, streamlined operations.
What is efficiency?
Producing more output from the same or fewer inputs.
What is unit cost?
Average cost per unit produced. Formula: Total Costs / Units Produced
What are economies of scale?
Cost advantages from growth—e.g., bulk buying, specialist staff, and better tech.
What is lean production?
A set of practices aimed at reducing waste and increasing efficiency.
Lean production techniques?
Just-in-Time (JIT), Kaizen, Cell production, Time-based management.
Benefits of lean production?
Lower costs, less waste, improved quality, better responsiveness.
Drawbacks of lean production?
Requires reliable suppliers, may reduce buffer stock, staff training needed.
What is quality?
Meeting or exceeding customer expectations.
What is quality control?
Inspecting products after production to ensure standards.
What is quality assurance?
Preventing defects by checking quality throughout the production process.
What is Total Quality Management (TQM)?
A company-wide culture focused on continuous improvement and quality.
Why is quality important?
Drives customer satisfaction, loyalty, reputation, and competitive advantage.
What is inventory?
The stock held: raw materials, work-in-progress, and finished goods.
What is buffer stock?
The minimum stock level kept to prevent stockouts.
What is the reorder level?
Inventory level at which new stock is ordered: Lead time × Average usage rate
What is Just-in-Time (JIT)?
Stock management strategy where materials arrive only when needed.
Benefits of JIT?
Lower stockholding costs, less waste, improved cash flow.
Drawbacks of JIT?
Highly reliant on suppliers, risk of delays or stockouts.
What is supply chain management?
Managing the flow of goods and services from suppliers to customers efficiently.
Factors affecting supplier choice?
Price, quality, reliability, flexibility, payment terms, reputation.
What is outsourcing?
Using external firms to carry out business activities.
Advantages of outsourcing?
Reduced costs, access to expertise, focus on core business.
Disadvantages of outsourcing?
Loss of control, dependency on suppliers, quality risks.
What is mass customisation?
Producing tailored products using flexible systems on a large scale.
Impact of technology on operations?
Increases speed, quality, and efficiency; enables automation and customisation.
What are financial objectives?
Targets related to finance, such as revenue, costs, profits, cash flow, return on investment.
Give examples of financial objectives.
Revenue objectives, cost minimisation, profit maximisation, cash flow targets, return on capital employed (ROCE).
What internal factors influence financial objectives?
Corporate objectives, characteristics of the firm, operational and marketing performance.
What external factors influence financial objectives?
Economic conditions, competitor actions, interest rates, exchange rates, inflation.
What is revenue?
The income generated from sales.
Formula: Revenue = Price × Quantity.
What are costs?
Expenditures incurred in producing goods/services.
What is profit?
The financial gain.
Formula: Profit = Revenue - Costs.
What are fixed costs?
Costs that do not change with output, e.g., rent.
What are variable costs?
Costs that change with output, e.g., raw materials.
What is break-even analysis?
Determines the level of output where total revenue = total costs.
What is the break-even formula?
Break-even Output = Fixed Costs / Contribution per Unit.
What is contribution per unit?
Selling Price - Variable Cost per Unit.
What is margin of safety?
Actual output - Break-even output.
What is budgeting?
Setting financial targets for revenue and expenditure.
What is variance analysis?
Comparing budgeted figures with actual results.
What is favourable variance?
When actual results are better than budgeted.
What is adverse variance?
When actual results are worse than budgeted.
Advantages of budgeting?
Improves planning, coordination, motivation, control.
Limitations of budgeting?
Can be time-consuming, based on forecasts, may demotivate if unrealistic.
What is cash flow?
The movement of money in and out of a business.
What is cash inflow?
Money received by the business (e.g. from sales).
What is cash outflow?
Money paid out (e.g. wages, rent, suppliers).
Why is cash flow important?
Ensures a business can meet short-term liabilities.
Methods of improving cash flow?
Speeding up inflows, delaying outflows, overdraft, factoring.
What is gross profit?
Revenue - Cost of Sales.
What is operating profit?
Gross Profit - Operating Expenses.
What is profit for the year?
Operating Profit - Interest and Taxes.
What is profit margin?
Profit as a percentage of revenue.
How to improve profitability?
Increase revenue, reduce costs, improve efficiency.
Internal sources of finance?
Retained profits, sale of assets.
External sources of finance?
Bank loans, overdrafts, share capital, venture capital, trade credit.
Short-term sources of finance?
Overdrafts, trade credit.
Long-term sources of finance?
Loans, share capital, retained profit.
Factors influencing finance choice?
Cost, risk, control, financial position, purpose of finance.
What are financial objectives?
Targets related to finance, such as revenue, costs, profits, cash flow, return on investment.
Give examples of financial objectives.
Revenue objectives, cost minimisation, profit maximisation, cash flow targets, return on capital employed (ROCE).
What internal factors influence financial objectives?
Corporate objectives, characteristics of the firm, operational and marketing performance.
What external factors influence financial objectives?
Economic conditions, competitor actions, interest rates, exchange rates, inflation.
What is revenue?
The income generated from sales.
Formula: Revenue = Price × Quantity.
What are costs?
Expenditures incurred in producing goods/services.
What is profit?
The financial gain.
Formula: Profit = Revenue - Costs.
What are fixed costs?
Costs that do not change with output, e.g., rent.
What are variable costs?
Costs that change with output, e.g., raw materials.
What is break-even analysis?
Determines the level of output where total revenue = total costs.
What is the break-even formula?
Break-even Output = Fixed Costs / Contribution per Unit.
What is contribution per unit?
Selling Price - Variable Cost per Unit.
What is margin of safety?
Actual output - Break-even output.
What is budgeting?
Setting financial targets for revenue and expenditure.
What is variance analysis?
Comparing budgeted figures with actual results.
What is favourable variance?
When actual results are better than budgeted.
What is adverse variance?
When actual results are worse than budgeted.
Advantages of budgeting?
Improves planning, coordination, motivation, control.
Limitations of budgeting?
Can be time-consuming, based on forecasts, may demotivate if unrealistic.
What is cash flow?
The movement of money in and out of a business.
What is cash inflow?
Money received by the business (e.g. from sales).
What is cash outflow?
Money paid out (e.g. wages, rent, suppliers).
Why is cash flow important?
Ensures a business can meet short-term liabilities.
Methods of improving cash flow?
Speeding up inflows, delaying outflows, overdraft, factoring.
What is gross profit?
Revenue - Cost of Sales.
What is operating profit?
Gross Profit - Operating Expenses.
What is profit for the year?
Operating Profit - Interest and Taxes.
What is profit margin?
Profit as a percentage of revenue.
How to improve profitability?
Increase revenue, reduce costs, improve efficiency.
Internal sources of finance?
Retained profits, sale of assets.
External sources of finance?
Bank loans, overdrafts, share capital, venture capital, trade credit.
Short-term sources of finance?
Overdrafts, trade credit.
Long-term sources of finance?
Loans, share capital, retained profit.
Factors influencing finance choice?
Cost, risk, control, financial position, purpose of finance.
