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Business > Unit 4 - Operational Management > Flashcards

Unit 4 - Operational Management Flashcards

1
Q

What is the operations function of a business?

A
  • Responsible for the production of a good or service
  • Managing the process of transforming inputs into outputs
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2
Q

What are operational objectives?

A
  • Added value
  • Environmental objectives
  • Quality
  • Speed of response
  • Flexibility
  • Costs
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3
Q

What are examples of environmental objectives?

A
  • Minimising waste and packaging
  • Sustainability
  • Pollution control
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4
Q

What are examples of quality objectives?

A
  • Better products
  • Greater reliability
  • Lower waste and returns
  • Fewer complaints
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5
Q

What are examples of speed of response and flexibility objectives?

A
  • Enhanced reputation and sales, increasing profit
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6
Q

What are examples of costs objectives?

A

Reduced unit costs:
- Greater capacity utilisation
- Improved productivity
- Better supplier terms

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7
Q

What must operational objectives be?

A

SMART and fit with the overall corporate objectives

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8
Q

What can SMART operational objectives be used for?

A

To evaluate and judge overall performance of operations management

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9
Q

What are the external influences on operational objectives?

A
  • Political
  • Legal
  • Economic
  • Technological
  • Competition
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10
Q

What are the internal influences on operational objectives?

A
  • Finance
  • Marketing
  • Human resources
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11
Q

What is capacity?

A

Maximum output of a business at a moment in time

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12
Q

What is capacity utilisation?

A

Measures the existing output over a given period as a percentage of maximum output

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13
Q

What is the formula for capacity utilisation?

A

Capacity utilisation = ( actual output in time period / maximum possible output per period ) x 100

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14
Q

If a business has a maximum capacity of 10,000 units and is producing 7,500 units, what is its capacity utilisation?

A

capacity utilisation = ( 7,500 / 10,000 ) x 100
capacity utilisation = 75%

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15
Q

What is labour productivity?

A

The amount of output per employee

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16
Q

What is the formula for labour productivity?

A

Labour productivity = output per time period / number of employees

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17
Q

If a business producing 7,500 units and employed 75 workers, what would be labour productivity be?

A

Labour productivity = 7,500 / 75 = 100 units per worker

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18
Q

What are unit costs (average costs)?

A

Cost of producing one unit

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19
Q

What is the formula for unit costs?

A

Unit costs = total costs / total output

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20
Q

If a business was producing 7,500 units with total costs of £150,000, what would the unit costs be?

A

Unit costs = 150,000 / 7,500 = £20

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21
Q

What will happen to productivity if the same level of output can be achieved with fewer employees?

A

Productivity will rise

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22
Q

What will happen to productivity if more workers are employed but output doesn’t increase?

A

Productivity will fall

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23
Q

What will happen to productivity and unit costs if capacity utilisation increases with no change in number of employees?

A

Productivity rises
Unit costs fall

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24
Q

What will happen to productivity and unit costs if capacity utilisation decreases with no change in number of employees?

A

Productivity falls
Unit costs rise

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25
Q

What is the importance of capacity?

A

As unit costs decline as capacity utilisation increases, it is important that a business does not have too much excess capacity

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26
Q

What is excess capacity?

A

Occurs where actual production falls below the maximum potential production

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27
Q

What excess capacity would there be if operating at 60% capacity utilisation, and what would this mean?

A
  • 40% excess capacity
  • means that resources (factory space, equipment and possible labour) are not being used efficiently
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28
Q

What are the benefits of working at maximum capacity?

A
  • average unit cost falls
  • profits increase
  • less wastage of resources
  • employees more busy and motivated
  • there are opportunities for employee bonuses (profit sharing or overtime)
  • more competitive due to reduced costs
  • most stakeholders will view the business favourably
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29
Q

What are the drawbacks of working at maximum capacity?

A
  • little or no opportunity for maintenance
    • could lead to breakdowns
  • additional orders impossible to meet, or will require overtime = extra costs
  • pressure on employees
    • increased level of absence
  • little or no time for in house training
  • quality could be affected
    • may not meet customer orders/expectations
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30
Q

What is capacity under-utilisation?

A

When a business’ output is below the maximum (also known as excess capacity)

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31
Q

What is capacity over-utilisation?

A

When a business’ output is above the maximum possible

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32
Q

How can a business improve capacity utilisation?

A
  • reduce excess capacity
  • increase usage of its product
  • outsourcing
  • redeployment
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33
Q

What might a business do to overcome situations of excess capacity?

A
  • Increase sales
    • e.g. marketing campaign, extension strategy
  • Reduce capacity
    • however once done, cannot be reversed
  • Alternative uses
    • alternative use for the capacity (new products or leasing to other businesses)
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34
Q

What might a business do to overcome situations of lack of capacity?

A
  • Outsourcing
    • transferring portions of work to outside businesses
  • Investment
    • investment into permanent establishment of new capacity (should only be undertaken if high capacity expected in the future)
  • Reducing demand
    • increasing price
    • dynamic pricing (highly flexible prices for products based on demand at the time)
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35
Q

What is the importance of efficiency and labour productivity?

A

Increased labour productivity = reduced unit costs of production = more competitive on price

Increased labour productivity = increased efficiency = less waste of resources = profit

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36
Q

How can you increase efficiency and labour productivity?

A
  • investment in technology
    • could improve both quality and reliability of product = greater output from fewer employees
  • improvements in training and motivation
    • improve skills of the workforce = greater output
  • job redesign
    • may be executed in such a way to improve overall performance of the employee
  • reduction in the labour force
    • automatically improves productivity if same level of output can be maintained
    • through technology or better training
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37
Q

What are the difficulties in increasing efficiency and labour productivity?

A
  • increased costs
    • but may be covered once greater sales
  • quality
    • must ensure increased labour productivity does not come at the expense of quality
  • resistance of employees
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38
Q

What is lean production?

A

Refers to using as few resources as possible in production

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39
Q

What are the methods of lean production?

A
  • Just-in-time (JIT)
  • Just-in-case (JIC)
  • Job, batch, flow
  • Division of labour
  • Cell production
  • Kaizen
  • Kanban
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40
Q

What is JIT production?

A
  • Producing the exact amount of product needed, at the exact time customers need it
41
Q

What are the benefits of JIT production?

A
  • Cash is not tied up in stock
    • helps maintain healthy cash flow
      • ideal for smaller businesses
  • Stock will be fresh
    • especially important with perishable goods
    • reduced waste
  • Greater flexibility for response to changes in demand
42
Q

What are the drawbacks of JIT production?

A
  • Unforeseen circumstances can cause late deliveries
    • potential to run out of stock
  • Limited opportunity to benefit from economies of scale as not necessarily buying in bulk
  • Initial problems may drive away customers
  • Need to wait for more stock to arrive if business has run out
    • potential sales lost in that time
43
Q

What is JIC production?

A

Stock control method involving producing enough stock with buffer/excess stock in place (more than needed)

44
Q

What are the benefits of JIC production?

A
  • Never run out of stock
  • Able to meet unexpected surges in demand
  • Benefit from economies of scale as buying in bulk
45
Q

What are the drawbacks of JIC production?

A
  • Higher storage costs
  • Ties up cash which could’ve been used elsewhere
  • Stock can perish/go out of date
    • increased waste
  • If demand falls, there will be a waste of stock
  • May have to sell at discounted rate if stock doesn’t sell
46
Q

What is job production?

Give an example

A
  • Concentrates on producing one product from start to finish
  • Once one product has been made, another can start production
  • Highly specialised
  • Very labour intensive
    Example
    • tailor made suits
47
Q

What are the advantages of job production?

A
  • High quality product
  • Can customise orders
  • High profit margins for bespoke products
48
Q

What are the disadvantages of job production?

A
  • Highly skilled staff required
    • increased costs
  • High production costs
  • Production time may be longer
  • Investment in machinery may be higher as specialist equipment may be needed
49
Q

What is batch production?

Give examples

A
  • Involves making a set quantity of identical products
  • The quantity is known as ‘batch’
    Examples
    • food products
    • clothing in different sizes and designs
50
Q

What are the advantages of batch production?

A
  • Allows flexible production
  • Part finished goods can be stored and completed later
51
Q

What are the disadvantages of batch production?

A
  • Making many small batches can be expensive and time consuming
  • May be additional costs and delays in preparing equipment if production runs are different
52
Q

What is flow production?

Give examples

A
  • Continuous production
  • Enables a product to be created in a series of stages on an assembly line
  • Large number of the same goods are produced continuously
    Examples
    • bottling plant
    • car assembly plant
53
Q

What are the advantages of flow production?

A
  • Economies of scale can be achieved
  • Automated assembly lines save time and money
  • Quality systems can be built into the production at each stage (see quality assurance)
54
Q

What are the disadvantages of flow production?

A
  • Standardised product is produced
  • High initial set up costs of automated assembly lines
  • Workers may not be motivated
    • as work is boring and repetitive
55
Q

What is division of labour?

A

The assignment of different parts of production to different workers in order to improve efficiency

56
Q

What are the advantages of division of labour?

A
  • Workers become specialised at their task, improving efficiency
  • Increased output
  • Less waste
57
Q

What are the disadvantages of division of labour?

A
  • Workers may become bored
  • Over reliance on workers
    • if a worker isn’t there and no one else can do their job, production may come to a halt
58
Q

What is cell production?

A

Where workers are organised into teams to carry out a specific part of production

59
Q

What is kaizen and kanban production?

A

Methods that promote identifying waste in the production process, and finding ways to eliminate them

  • Continuous improvement
60
Q

What is the definition of labour intensive?

A

Operations process involving a high proportion of employees

61
Q

What is the definition of capital intensive?

A

Operations process involving a high proportion of capital equipment, automation and robotics

62
Q

When might a capital intensive approach to manufacturing be used?

A
  • In countries where labour is expensive
  • Some businesses such as oil refineries and chemical plants are likely to be capital intensive due to their very nature
63
Q

When might a labour intensive approach to manufacturing be used?

A
  • In countries where labour is relatively cheap
  • Some businesses such as hotels and restaurants are more likely to be labour intensive
64
Q

What developments in technology might affect production?

A
  • More advanced computer systems
    • e.g. automated stock control
  • Internet
    • enhance ability to communicate, promote and sell
  • Computer-aided manufacture (CAM)
    • robots used as integral part of production process
  • Computer-aided design (CAD)
    • can be linked to CAM
    • easier to design new products
    • can be used to estimate cost of newly designed products
65
Q

What are the benefits of new/updated technology?

A
  • Reduces unit costs
  • Premium prices for high-technology products
  • Consistent quality guaranteed using CAM
  • Using technology efficiently may enable employees to work more efficiently
  • May allow access to new markets
  • Can reduce waste
66
Q

What are the disadvantages of new/updated technology?

A
  • Can be a drain on an organisation’s capital
    • difficult to raise funds
  • Requires training of the existing workforce and or recruitment of new employees
    • significant costs
  • Introduction of new technology may be met with opposition from employees, especially if job security is threatened
67
Q

What is the importance of quality?

A
  • provides USP
  • reason to buy product
  • enables higher prices
  • increased sales
  • enhance reputation and brand loyalty
68
Q

What is quality control?

A

refers to checking a product at the end of the production process

69
Q

What are the advantages of using quality control?

A
  • less risk of faulty products going to customers
    • fewer returns and good reputation
      • increased brand loyalty and customer retention
70
Q

What are the disadvantages of using quality control?

A
  • too late to correct errors
  • products have to be destroyed
    • increased waste
  • wastes money and resources
    • increased costs
  • cost of quality inspectors
71
Q

What is quality assurance?

A

checking a product at each stage of production

72
Q

What are the advantages of using quality assurance?

A
  • leads to zero defects
    • don’t waste money
  • customers are assured of good quality
    • encouraged repeat purchases and loyalty
  • not paying for inspectors as employees check for quality
    • motivate employees
73
Q

What are the disadvantages of using quality assurance?

A
  • takes time to introduce
  • cost of training staff to check quality
  • employees may not want the extra responsibility
  • customer perceptions of quality are changing
  • quality can slip if there is no incentive to outperform rivals
74
Q

What are the benefits of improving quality?

A
  • enhanced reputation
  • increased brand loyalty
  • competitive advantage (USP)
  • increased revenue due to higher sales and possibly higher selling price
  • greater flexibility in terms of price
75
Q

What are the disadvantages of improving quality?

A
  • increased costs (training staff, administration of system, equipment)
  • employees may be resistant to change
    • may demand higher pay due to increased responsibility
76
Q

What are the consequences of poor quality?

A
  • cost of scrapping or fixing products
  • additional costs if goods are returned for replacement or repair
  • could damage business’ reputation
77
Q

What is the definition of inventory?

A

the stock a business holds in the form of raw materials, components, work in progress and finished goods

78
Q

What is the definition of supply chain?

A

A series of activities involved in taking initial resources to providing the final product

79
Q

Why is it important that a business is able to match supply to demand?

A

Problems will arise if there are insufficient supplies to match demand or if there is too much supply
- not enough supply
- miss out on orders
- lose future orders due to lack of dependability
- too much supply
- costs of storing the excess
- may have to sell at a reduced price

80
Q

How would a business overcome theses problems?

A
  • Manage demand
  • Manage supply
81
Q

How would a business manage demand?

A
  • increasing/decreasing prices
  • increasing/reducing advertising
  • sales promotions
82
Q

How would a business manage supply?

A
  • flexible workforce
    • multi-skilled workforce, part-time workers, workers on zero-hour contracts
  • increase capacity
  • produce to order
    • mass customisation has enabled more businesses to do this
  • outsourcing
83
Q

What is the definition of mass customisation?

A

The production of custom-tailored goods or services to meet customers’ diverse and changing needs

84
Q

What is the definition of outsourcing?

A

The subcontracting of non-core activities of an organisation in order to free up cash, time, personnel and facilities
- concentrate on other areas in which it has competitive advantage

85
Q

What are the factors that influence the amount of inventory held?

A
  • nature of the product
    • may be perishable goods
  • nature of production
    • JIT means lower levels of stock are held
  • nature of demand
    • may be seasonal
  • opportunity cost
    • money tied up in stock could’ve been used more efficiently
86
Q

What might a business use to manage inventory/stock efficiently?

A

Inventory/Stock control chart

87
Q

What are the key features of an inventory/stock control chart?

A
  • buffer level of inventory
  • reorder level
  • lead time
  • maximum stock level
  • reorder quantity
88
Q

What is the buffer level of inventory?

A

The minimum amount of inventory held, designed to cover for emergencies such as late arrival of inventory

89
Q

What is the reorder level?

A

The level of inventory at which a new order is placed

90
Q

What is the lead time?

A

The time between an order of stock being made and its arrival in the business

91
Q

What is the maximum stock level?

A

The highest amount of inventory a business is able to hold

92
Q

What is the reorder quantity?

A

The amount ordered

93
Q

What influences the choice of suppliers?

A
  • dependability
  • flexibility
  • quality
  • price and payment
  • ethics
94
Q

How could a business manage the supply chain effectively?

A
  • need to consider the long term vs short term arrangements
  • deciding what can be outsourced
  • vertical integration (taking over the supply chain)
  • awareness of potential problems
    • long lead times
    • choosing a sufficient level of buffer stock
    • computer errors when reordering
  • coordination with other functional areas
    • marketing, finance, human resources
95
Q

What is the value of managing the supply chain effectively?

A

The business is likely to gain customer loyalty and maximise revenue, and therefore profit

96
Q

What are the benefits of outsourcing?

A
  • enables quicker response to increased demand
  • greater dependability for customers during periods of increased demand
  • lower cost
    • particularly in cases of temporary increases in demand
97
Q

What are the drawbacks of outsourcing?

A
  • quality may suffer
  • reliability of supplies not guaranteed
  • likely to be more costly than producing in-house
98
Q

What is outsourcing dependent on?

A

The relationship between the two companies

Business (16 decks)

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