Unit 4: Operations Management

Question 1

Define production

Answer 1

The process of constructing inputs such as land, labour and capital into saleable goods. Production is the making of a product or service to satisfy consumer wants/needs.

Question 2

Define productivity

Answer 2

The measure of the efficiency of inputs used in the production process, especially labour and capital.

Question 3

What is labour productivity

Answer 3

Total output by number of production of employees

Question 4

How to achieve productivity of employees

Answer 4

• Improving the skill level of employees.
• Improving motivation of employees.
• Improving quality of management decisions.

Question 5

Benefits of increasing efficiency

Answer 5

• More output compared to inputs.
• Lower costs per unit.

Question 6

Define inventories

Answer 6

The stock of raw materials, work-in-progress and finished goods held by a business.

Although it adds to a business’s costs, they hold them as to ensure there is always enough products to satisfy demand of consumers.
No stock of products lead to lower sales.

Question 7

Define lean production

Answer 7

The production of goods and services with a minimum waste of resources.

Question 8

Benefits of lean production

Answer 8

• New products can be brought to the market more quickly.
• Quality is improved.
• Wastage of time and other resources is reduced or eliminated.
• Unit costs are reduced.

Question 9

Methods of lean production

Answer 9

Just in time theory: (inventory control) is a production method of eliminating the needs of having raw materials for production and of finished products. This reduces businesses costs by removing the cost of holding inventories.

Kaizen - meaning ‘continuous improvement’ by focusing on constantly removing waste.

Question 10

Define job production

Answer 10

The production of items one at a time, where an individual item is completed before another is started.

Question 11

Define batch production

Answer 11

The production of goods in batches. Each batch moves from one stage of production to the other.

Question 12

Define flow production

Answer 12

The production of large quantities of identical goods using a continuously moving process.
Used where large output of identical goods is required.

Question 13

Job production advantages and disadvantages

Answer 13

Advantages:
- Unique, high quality products are made.
- Employees are often more motivated and take more pride in their work.

Disadvantages:
- Uses skilled labour rather than machinery, so selling prices are higher.
- Production can take a long time and is expensive.

Question 14

Batch production advantages and disadvantages

Answer 14

Advantages:
- Unit costs are reduced as larger number are made.
- Offers the customer some variety and choice.

Disadvantages:
- Employees are less motivated because the work gets repetitive.
- Goods have to be stored until they are sold, which is expensive.

Question 15

Flow production advantages and disadvantages

Answer 15

Advantages:
- More capital intensive than job or batch production which lowers labour costs.
- Large number of goods are produced.

Disadvantages:
- Employees are not very motivated because their work is repetitive.
- Requires high investment in production line technology.

Question 16

Define capital intensive

Answer 16

Production process that uses high quantity of capital equipment compared with labour input.

Question 17

Advantages and Disadvantages of new technologies to businesses

Answer 17

Advantages:
- Reduces costs and time to produce products.
- Increases productivity.

Disadvantages:
- Can be very expensive.
- May need to spend money training employees, which increases costs.

Question 18

Advantages and disadvantages of new technologies to consumers

Answer 18

Advantages:
- Better quality products
- Lower prices.

Disadvantages:
- Products may be out of date more quickly.
- When a product develops a fault it can be expensive to repair.

Question 19

Advantages and disadvantages of new technologies to employees

Answer 19

Advantages:
- The work is easier with the aid of technology.
- Increased job security.
- Technologies efficiently complete tasks which employees find boring.

Disadvantages:
- Technology reduces need of employees, resulting in redundancy.
- A smaller workplace reduces opportunities for promotion.

Question 20

Define quality

Answer 20

Ensuring a good or service that meets the requirements of consumers.

Question 21

Define quality standards

Answer 21

The minimum standard of production or service expected by consumers.

Question 22

Why is quality important to businesses?

Answer 22

• Develops a strong brand image.
• Keep customers and attract new customers.
• Lengthens product life cycle.
• Reduce costs, customer complaints, and returns.

Question 23

Define quality control

Answer 23

Checking the quality of goods through inspection.

Question 24

What are problems of quality control through inspection?

Answer 24

• Expensive and time-consuming.
• The work can be repetitive and boring and this may demotivate inspectors, resulting in them not performing their tasks efficiently.
• If inspection takes place at the end of the production process, then problems with quality are not found sooner which leads to waste.

Question 25

Define quality assurance

Answer 25

A system of setting agreed standards for every stage of production.

Question 26

Benefits of quality assurance

Answer 26

• It encourages teamwork and this acts as a motivator to employees.
• It reduces cost of wastage and faulty products.
• Quality issues are found when they occur and not at the end of the production process, reduces wastage of resources.

Question 27

Define fixed costs

Answer 27

Costs that do not change with output.

Question 28

Define variable cost

Answer 28

Costs that change in direct proportion to output.

Question 29

Define total cost

Answer 29

Fixed costs + variable costs.

Question 30

Define average costs

Answer 30

The cost of producing a single unit of output.

Question 31

Define economies of scale

Answer 31

The reduction of average costs as a result of increasing scale of operations.

Question 32

What are the types of economies of scale

Answer 32

• Financial economies: larger businesses can borrow more money then smaller businesses - at a smaller rate of interest - because banks and lenders know that larger firms pay them back.
• Managerial economies: Bigger businesses hire specialist managers for different functional areas of the business (marketing, finance, etc). Specialist managers improve quality of business decisions and make fewer mistakes.
• Marketing economies: A large business can spend its total marketing spend over a larger output.
• Purchasing economies; where businesses buy from suppliers in bulk large quantities, so they are offered a discount from suppliers.
• Technical economies: as large businesses use flow production to produce their output, the method of production uses the latest technology. However, it is very expensive. The technology helps the businesses in achieving a large output with lower unit costs than smaller businesses.

Question 33

Define diseconomies of scale

Answer 33

Factors that cause average costs to increase as scale of operations increase.

Question 34

Types of diseconomies of scale

Answer 34

• Poor communication - If a business becomes too large, managers may no longer be able to communicate with employees which results in slower decision making and increase in mistakes.
• Lack of commitment from employees - In large businesses, managers do not have day to day contact with employees so employees feel less valued then de-motivated. This leads to higher labour turnover, poor quality and fall in productivity.

Question 35

Define break-even

Answer 35

The level of output where revenue equals total costs; the business is making neither profit or loss from the production and sales of its products.

Question 36

Define margin of safety

Answer 36

The difference between the level of output and break-even output.

Question 37

Break-even charts advantages and disadvantages

Answer 37

Advantages;
- Easy to construct and understand.
- Can show the effect of a decision to change costs or revenue.

Disadvantages:
- It assumes all output is sold - do not allow for inventories and the cost of holding them.
- It is not easy to separate costs into fixed and variable.

Question 38

Define infrastructure

Answer 38

The basic facilities, services and installations needed for a business to function, e.g water, power, transport links.

Question 39

Quantitative factors of location decisions of manufacturing and service businesses

Answer 39

1- Cost of site - how expensive the land buildings are to rent or buy.
2- Labour costs - The average wage paid to employees in the area, which is influenced by supply of employees, skill lvl required and competitors.
3- Transport costs - How close suppliers are to the site and what will be the cost of transporting goods to and from the site, accessibility for customers, important for service industries.
4- Market potential - Revenue from sales depend on location.
6- Government incentives - they provide businesses with incentives if they locate in a particular area (reduces set-up costs).

Question 40

Define government incentives

Answer 40

Finance such as interest free loans provided to businesses to help when locating in a country or region.

Question 41

Qualitative factors of location decisions of manufacturing and service businesses

Answer 41

1- The size of the available site - needs to be large enough for the current needs of the business and to offer scope for expansion in the future.
2- Legal restrictions - these prevent businesses from locating in a particular area, eg manfacturing industries cannot locate close to residential areas due to noise pollution and government restrictions.
3- Quality of local infrastructure - How good are transport links such as road, rail, air and sea? Does the location have good support services such as water, power, telecommunications?
4- Ethical issues and concerns - If a business is locating in another area how will this affect its existing workforce? It might lead to redundancy of employees which could damage the reputation of the business among its customers which lead to reduced sales, revenue and profits.

Question 42

Advantages of locating internationally

Answer 42

• Lower labour costs - locating from a high labour cost country to a low labour cost country.
• Access to global markets.
• Government incentives - due to economic growth by providing employment, improve skills of workforce, improving quality and increasing customer choice.

Question 43

Disadvantages of locating internationally

Answer 43

• Cultural differences - (can affect marketplace/workplace) some products in one country may not be as popular in another country due to different consumer tastes and religious beliefs.
• Communication barriers - language differences could be a barrier to communication between managers, employees and suppliers.