Unit 4: Operations Management Flashcards
production vs productivity
Production is the effective management of resources in producing goods and services.
Productivity is how a business can measure its efficiency.
what are the benefits of increasing efficiency?
lower costs per unit (average costs), higher motivation in workers, increased output relative to the inputs required, lower wage costs due to the reduced number of workers needed
what are the main ways of increasing efficiency?
improving employee motivation, introducing new technology, improving inventory control, training staff to be more efficient, using machines to do jobs instead of people (automation), improving quality control
why do businesses hold inventory?
to ensure that there is always enough inventory to satisfy demand
what is lean production?
a term for the techniques used by a business to cut down on waste and therefore increase efficiency
what are the benefits of lean production?
costs are saved, quicker production of goods, better use of equipment, reduced costs lead to lower prices for customers, etc.
just-in-time inventory control
Just in Time is another method of stock control. It consists of producing components and products once the orders have already been placed. No buffer stock is kept meaning that as soon as it runs out more of it comes.
just-in-case inventory control
Just in Case is a method of stock control in which inventory is never 0. It consists of producing components and products before the orders come in and keeping them in stock until they are used/sold.
Features, benefits, and limitations of job production
It is the process in which specific products are produced to satisfy the customer’s demand. Each product is different and unique.
Benefits:
- The product meets the customer’s requirements.
- Job satisfaction as motivation in employees increases because of variety in their work.
- Products of high quality.
- The product is one of a kind and specific.
Limitations:
- High costs and prices.
- Employees have to be highly and professionally skilled.
- Long production process
- High production costs due to unique materials need to be purchased
- Mistakes could be expensive to solve
Features, benefits, and limitations of batch production
Batch production is the process of manufacturing groups of very similar products using different machinery and methods in common stage by stage.
Benefits:
- Employees are motivated as they still have some diversity in their work.
- Variation of products gives different choices to customers.
- The business is able to purchase economies of scale.
- Production can easily switch between one batch to another.
Limitations:
- More storage space needed leading to higher costs.
- Not finished products are constantly being moved around which increases production costs.
- Production delays or missing/lost output due to the different machines that need to be adjusted between the production of the different batches.
Features, benefits, and limitations of flow production
Flow Production is the process when large quantities of identical products in a continuous process which is consistent and never stops.
Benefits:
- Businesses can demand low prices and sell more products due to low average costs.
- Output level is very high
- Quick production, as production lines are generally working 24 hours a day.
- Reduced costs due to the purchases of economies of scale.
- High efficiency
- Reduced labour costs.
Limitations:
- If a machine fails the whole production process has to stop immediately.
- High storage costs due to large numbers of inventory for finished products.
- Initial investment is very high because of all the compound equipment.
- Motivation and efficiency in productivity may be low as employees lack work.
Features, benefits, and limitations of flow production
Flow Production is the process when large quantities of identical products in a continuous process which is consistent and never stops.
Benefits:
- Businesses can demand low prices and sell more products due to low average costs.
- Output level is very high
- Quick production, as production lines are generally working 24 hours a day.
- Reduced costs due to the purchases of economies of scale.
- High efficiency
- Reduced labour costs.
Limitations:
- If a machine fails the whole production process has to stop immediately.
- High storage costs due to large numbers of inventory for finished products.
- Initial investment is very high because of all the compound equipment.
- Motivation and efficiency in productivity may be low as employees lack work.
How has technology changed production methods?
Automation: equipment utilized in factories is overseen by computers and machinery to carry out mechanical processes amongst other operations of the same nature
Mechanisation: where the production is done by machines but controlled by humans
CAD (computer aided design): computer software that draws items being designed quickly
CAM (computer aided manufacturing): where computers monitor the production process and control machines and robots on the factory floor
CIM (computer integrated manufacturing): the total integration of CAD and CAM – the computers that design the products are linked to the computers that aid the manufacturing process
what are fixed costs?
Costs that do not vary and have to be paid regardless of whether the business produces anything or not.
E.g: rent, salaries, production premises
what are variable costs?
Costs that vary directly with the time or number of items produced.
E.g: electricity bills, raw materials, wages
how to calculate total costs
fixed costs + variable costs
or
average cost per unit x output
how to calculate average costs
total costs / output
what are economies of scale?
the factors that lead to a reduction in average costs as a business increases in size
what are diseconomies of scale?
the factors that lead to an increase in average costs as a business grows beyond a certain size
what are the 5 economies of scale?
purchasing economies:
companies that need to buy large quantities of the same component buy in bulk, meaning that they buy large quantities of that component for a reduced price. This reduces the cost per unit furthermore decreases the total costs.
marketing economies:
A firm might be able to afford to purchase its own vehicles to deliver products rather than relying on other companies to distribute them. In addition, a company might consider advertising its own band, as the costs are proportionately less than those that come when using television or newspaper advertising.
financial economies:
Banks are more likely to loan money to bigger companies given that they see it as less risky than lending to smaller firms. The reason for this is because larger businesses often raise capital faster and cheaper than smaller businesses, meaning that they are more likely to pay back loans. Banks usually have lower interest rates for bigger companies for this reason.
managerial economies:
Large companies can afford to hire specialists and managers that focus on a certain part of the business. The hired specialists are experts in their field of knowledge, so they increase the overall efficiency of the business.
technical economies:
Larger businesses usually use flow production with large machinery to aid each step of the process. This improves efficiency as the machinery used are made specifically to carry out the intended tasks at hand. It also increases employee productivity because employees only have to specialize in a limited number of tasks. Using technical economies both decreases average costs and increases efficiency.
what are the 3 diseconomies of scale?
poor communication:
slow or inaccurate communication can lead to serious mistakes that lowper the efficiency of the business and raise average costs.
low morale:
In big firms, the lack of relationship between employees and management leads to lower morale, which tends to bring down the efficiency of the business.
slower decision making:
long chains of command mean that the messages from the managers take long to reach the employees, so they act way later than when the command was issued.
what is the break-even level of output?
Break-even could be defined as the point when the total revenue equals the total costs produced by the business; therefore reaching a point where there is no profit or loss generated; therefore reaching a point of economic neutrality for the business
formula to calculate the break-even point
fixed costs / contribution per unit
contribution = selling price per unit - variable cost per unit
what is the margin of safety? +formula
the difference between your breakeven point and the actual sales that have been made
quantity of sales - breakeven quantity
