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AS Level Business Studies - AQA > Unit 4: Production > Flashcards

Unit 4: Production Flashcards

1
Q

What is labour productivity?

A

Output per employee in a given period

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2
Q

State the formula of labour productivity

A

Labour productivity = Total output/number of employees

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3
Q

Give examples of how operations managers can influence labour productivity

A

Training employees and organise employees and how employees are rewarded

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4
Q

State the formula for unit cost

A

Unit cost = Total cost/total output

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5
Q

What is the other names for unit cost

A

Average cost

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6
Q

Give examples of how operations managers can influence unit costs

A

Change suppliers, change resources used, reducing waste

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7
Q

Why is unit cost important for a business?

A

Influences the price a business can charge and can increase or reduce profit

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8
Q

What is capacity?

A

The maximum output of a business at a moment in time given its resources

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9
Q

How can capacity change over time?

A

More resources become available, more staff can be employed, more land can be acquired and more equipment can be bought

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10
Q

What is capacity utilisation?

A

The existing output as a percentage of the maximum output

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11
Q

State the formula of capacity utilisation

A

Capacity utilisation = (existing output/maximum possible output) x 100

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12
Q

What does higher capacity mean?

A

More resources are being fully utilised

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13
Q

What does higher capacity allow a business to do?

A

Spread fixed costs over more units and bring down the unit cost, therefore a business can become more profitable

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14
Q

Why is low capacity a concern?

A

Suggests demand is relatively low, Cost per unit is likely to be high

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15
Q

How can data be used in operational decision making?

A

If labour productivity is low managers may can analyse this further to identify the cause; If unit costs (av costs) are higher than expected managers will analyse the cause; If capacity is too low, managers may want to consider whether it is worth investing to expand; If capacity is too high, managers would consider whether they can increase demand or whether the business should ‘downsize’

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16
Q

What is efficiency?

A

It refers to how well inputs are used to generate output.

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17
Q

What does being more efficient mean?

A

Reducing unit costs as resources will be used more effectively

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18
Q

How can efficiency be improved?

A

• Increasing capacity utilisation to spread fixed costs • Choosing the optimal mix of resources • Increasing labour productivity • Introducing lean production • Using technology

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19
Q

What happens if capacity is not used fully?

A

Resources are being wasted, so unit costs can increase as the fixed costs are not spread over as many units as capacity is not 100

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20
Q

What happens if capacity is being fully utilised?

A

The business is unable to accept new orders and produce them itself. This might lead to customers finding alternative providers and moving to them, resulting in a loss of customers.

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21
Q

If capacity utilisation is low what can a business do?

A

• Try to improve its marketing to boost sales. • Reduce its capacity. This is known as rationalising or downsizing. This may take time to do and may not be possible. This may be a major strategic decision that is difficult to reverse and therefore will be taken with care.

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22
Q

If demand is too high what might a business do?

A

• Outsource to other producers. This may take time to negotiate and is likely to be more expensive than doing the task in house. Businesses that have a strong brand or way of doing things may be wary of outsourcing a service task to an alternative provider that may do things differently • Find a way to reduce demand in the short term, e.g. increase price

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23
Q

What does higher labour productivity mean?

A

Lower labour costs per unit

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24
Q

How can labour productivity be increased?

A

• Invest in technology so employees have access to more equipment to help them complete their tasks more effectively • Improve training of employees so staff have more skills to do their jobs • Change the way the work is organised and the design of jobs to improve the flow of work and reduce time waiting to complete tasks • Change the way employees are rewarded to provide more incentive.

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25
Q

Why might it be difficult to increase labour productivity?

A

Employees may be resistant, because if demand for a product does not increase but productivity does, fewer employees will be required to produce the output required. So staff may be moved to a different job or made redundant. Employees may demand higher pay in return for productivity on the basis that they deserve more.

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26
Q

What does the best combination of resources depend on?

A

• The process itself. High-volume repetitive tasks may be able to be undertaken by machinery, whereas very creative, ideas-types work may not. • What is affordable and achievable. It may be that the funds or space are not available to justify the investment in new equipment. It may be that the scale of operations does not merit it.

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27
Q

What does getting the optimal mix of resources affect?

A

The quality of work done but also the efficiency

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28
Q

What is lean production?

A

Managers reducing waste and therefore operations become more efficient

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29
Q

What type of market will lean production be used in and why?

A

Competitive market, as there is greater pressure to keep prices low

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30
Q

What does being lean mean?

A

• Improving quality and so reducing the number of items that need to be reworked, thrown away or fixed. • Reducing the amount of inventory held as this reduces costs of protecting and storing it. • Reducing the time items are waiting for something to happen to them • Reducing the time when items are moving from one stage of process to another

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31
Q

What can a business adopt to become leaner?

A

• Kaizen • Andon: On a production line an andon cord is present above the processes. • Changes to the layout of a store or factory and changes to the process used to make it more efficiently.

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32
Q

What is andon?

A

A system to notify management, maintenance, and other workers of a quality or process problem

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33
Q

What does andon involve?

A

Transparency and ensuring that when a problem happens everyone in the organisation learns from it and becomes more efficient as a result.

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34
Q

What happens in andon?

A

Flashing lights highlight where the problem has occurred and everyone goes to this point to understand what has happened.

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35
Q

When is andon used?

A

When there is a problem in production

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36
Q

What is kaizen?

A

An approach which emphasises the value of continuous improvement

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37
Q

How is kaizen used?

A

Employees are encouraged to work in kaizen groups to focus on their area of work and come up with ideas on how processes can be improved and made leaner.

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38
Q

What do lean organisations attempt to do?

A

Ensure that the systems and rules in place are the essential ones, that meetings are productive and do not take up too much time and that there is not so much communication that people spend most of their time responding to emails.

39
Q

Why is adopting lean production difficult?

A

Lean production can mean a business is more vulnerable because there is no inventory if there is ever a disruption to production. If employees strike or if suppliers fail to deliver, the business will have to halt operations. Employees are expected to take a more active role in checking their own work to ensure that any problems are discovered early and that mistakes are not repeated. Employees need to be engaged, have the skills and training to improve the quality of their own work and be willing to send work back to others in the organisation if it is not good enough.

40
Q

For lean production to work what does a business have to do?

A

Work closely in partnership with stakeholders to keep operations going, so investment in communications and technology may be required

41
Q

What do technological developments enable a business to do?

A

• Be more flexible to customer needs: with technology they can track customer behaviour more effectively, target specific groups more easily and provide personalised products. • Reduce costs by having more efficient processes with less errors • Be innovative, for example, enabling customers to stream films as and when they like: this can increase customer satisfaction.

42
Q

Why is it difficult to introduce new technology?

A

• Needing the finance to invest; new technology may be needed just at the moment when the business is struggling and lacking finance to buy new equipment. • Have the training to use it effectively. • Understand and manage the impact on other functions; for example, technology may change people’s jobs and managers have to ensure staff understand why this is happening, • Be able to judge which technology will be useful in the long term rather than trying to adopt every new development that comes along.

43
Q

What is quality?

A

The extent to which an operation meets its customers requirements

44
Q

What is a quality good or service?

A

Fit for purpose

45
Q

What is a good quality operations process?

A

Delivering exactly what it is intended to produce and meets the targets that have been determined by the customer requirements

46
Q

What is a poor quality operations process?

A

Failing to achieve the targets determined by the customer requirements

47
Q

Why is quality important?

A

Customers can stop buying from a poor quality business and then buy from a competitor due to better quality. Therefore revenue for the poor quality business decrease and there is a loss of customers. Businesses will need to continuously invest in good quality raw materials to make good quality products or services as competitors will be doing the same

48
Q

What is quality assurance?

A

The maintenance of target quality by attention to detail at every stage of the process

49
Q

What does quality assurance aim to do?

A

Make sure mistakes do not occur and to achieve zero defects

50
Q

What do businesses want their employees to do to maintain quality assurance?

A

Wanting employees to think of what steps can be taken to get the product right and avoid errors

51
Q

What is quality control?

A

A system of maintaining standards by testing or inspecting the output against standards

52
Q

What happens in quality control?

A

Products are inspected by a quality team to try and find faults in the product

53
Q

Why is improving quality beneficial for a business?

A

It means a process is under control. So the production team is doing what it should be doing and consistently delivering what it should be delivering. So operations managers can feel comfortable that they can meet the set targets. The business will be competitive. Therefore the business can get a better brand image, leading to customer satisfaction and generates goodwill through word of mouth

54
Q

What are the consequences of poor quality?

A

• It costs money to recall faulty products and recall them. • It can damage a brand’s reputation • It costs money to rework faulty items • There may be legal costs if customers sue the company.

55
Q

Why is it hard to improve quality? (the employees perspective)

A

• Believe the business is doing well enough as it is and not see the need to set higher targets over time. They may resent this and even perceive it as a criticism of what they currently do. • See improving quality as extra work and not understand why they should bother unless they are paid more • Be unwilling to suggest improvements, believing this is management’s job not theirs • Be unwilling to undertake all the administration required to measure and check progress.

56
Q

Why is it hard to improve quality? (the businesses perspective)

A

• Discussing the issues with employees and getting them to agree to the process • Investing in training • Possibly changing suppliers • Developing a culture where getting it right first time and continually measuring performance is the norm. This may be difficult to achieve due to employee resistance and difficult to sustain and ensure this remains the way people think, rather than just a short-term initiative • Incentives to encourage employees to value better quality as a target.

57
Q

State some examples of supply objectives

A

Speed of response. In some industries, speed of response has been used as a competitive weapon. To achieve this the process may be reviewed to find time savings Dependability. This refers to a process starting and finishing at the stated time. Becoming more flexible. Some businesses might want to offer greater flexibility to their customers.

58
Q

What is inventor?

A

The stock a business holds

59
Q

What form might inventory take?

A

1) Inventory of materials and supplies that may be held by the business. 2) During a production process, semi-finished items may be held ready for the next stage of the process. 3) Finished products may be held ready for distribution or sale. (Inventory of supplies) (Inventory of works in progress) (Inventory of finished goods)

60
Q

Why is inventory held?

A

To ensure that production can take place immediately and to ensure that customer orders can be fulfilled quickly

61
Q

Why is managing the amount of inventory held important for a business?

A

• Holding inventory uses up resources. • Holding inventory has an opportunity cost; that is, the money invested in producing products could have been used for something else. This is why managers are often eager for the inventory to ‘turn over’ relatively fast as this frees up funds and generates a profit to expand the business. • Inventory may go out of date and become worthless if held for too long.

62
Q

How can inventory be managed?

A

Managers will want to measure how much of an item is held at any time, what the likely usage rate is going to be and how quickly it can be replaced

63
Q

What can a business do to match supply to demand?

A

• Employing a flexible workforce: by ensuring employees are multi-skilled and have flexible contracts, managers may be able to move staff to where they are needed and increase hours to meet any sudden peaks in demands. • Using queuing systems or introducing waiting lists to manage high levels of demand • Outsourcing production to other businesses to meet high levels of orders • Increasing prices to reduce demand • Accepting orders to produce for others if demand is low • Producing to order

64
Q

Give an example of a supply chain

A

Supplier -> manufacturer -> Wholesaler -> Retailer

65
Q

What decisions does managing a supply chain involve?

A

• What to produce yourself and what to buy from others • Which other businesses to work with • A supplier strategy, in terms of how many suppliers to work with • Setting out the terms and conditions of the supplier relationship, for example, penalty clauses for any delays • Deciding on the assurances from the supplier on their operations. • How much direct involvement to have with suppliers • How centralised purchasing should be

66
Q

What does an effective management of the supply chain ensure for a business?

A

• The right supplies arrive on time • A fair price is paid for the items • The products are produced in a way which is acceptable to the business.

67
Q

What does the way in which a supply chain is managed affect?

A

• The extent to which suppliers meet the requirements of the business reliably • The costs of the business • The ability of the business to be flexible to customer requirements

68
Q

State how a business can take control of their supply chain

A

By owning more of the stages within the supply chain

69
Q

What is vertical integration?

A

When businesses start producing at different stages in the production process

70
Q

What benefit does vertical integration give to a business?

A

Gives greater control over their supply chain

71
Q

What is a supply chain?

A

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

72
Q

What factors might a manager consider when choosing a supplier?

A

• The cost of materials and quality. Managers will want value for money • Dependability. Managers will generally want supplies to arrive as and when they are ordered to arrive. • Ethical considerations. Organisations are increasingly being held responsible for the behaviour of their suppliers. Businesses need to decide on how much responsibility they need to accept, what their standards are and how they will ensure they are achieved.

73
Q

Why might a supply chain be changed?

A

Customers want to know more about how and where a product is produced. So managers need to be able to track back more of their supplies to know the answers to these questions. This may mean investigating not just their immediate suppliers but their suppliers.

74
Q

What is outsourcing?

A

An organisation uses a separate business or businesses to complete part of its work

75
Q

What is horizontal integration?

A

When one business joins together with another business at the same stage of the same production process

76
Q

What are the benefits of outsourcing?

A

• It enables the business to make use of specialist skills and services, this may mean they get a better quality of work provided more efficiently • It can increase the capacity of the business by getting some aspects of its provision provided by others.

77
Q

What are the disadvantages of outsourcing?

A

• A business will be affected by the work undertaken by other businesses in terms of the costs and quality of their suppliers. If the suppliers quality is poor this may adversely effect the reputation of the business itself. • A business may also be held accountable for the actions of its suppliers; for example, if the supplier behaves unethically the business buying its services may be criticised for using its services. • A business will have to pay enough for the products for the supplier to make a profit. This may be more expensive than doing the work in-house.

78
Q

State the operations process

A

Inputs -> transformation process -> outputs (continuous cycle)

79
Q

What is operations management?

A

Describes the activities, decisions and responsibilities of the managing production and delivery of products and services

80
Q

What does operations management involve?

A

Managing the process of converting inputs into outputs

81
Q

What decisions might the operations management involve?

A

• The level of output a business needs to be able to produce • The range of products the business wants to offer, the level of customer service to provide and how flexible a business wants to be in relation to customer demands • How best to product the good or service • How best to provide the good or service to the customer • How much of a process managers want a business to provide itself and how much they want to use suppliers

82
Q

What does a labour intensive operations process mean?

A

A relatively high proportion of labour in the production is used compared to capital equipment

83
Q

What does a capital intensive operations process mean?

A

Using a relatively high proportion of capital equipment relative to labour

84
Q

What does the operations decision making process involve?

A

• Identifying the operations objectives • Analysing the existing position of the business in relation to operations • Choosing what actions need to be taken to achieve the objectives • Implementing these decisions • Reviewing to see if they are on target and taking actions if not

85
Q

What are the stages of the operations process?

A

Raw materials -> manufacturing -> transportation -> retail -> disposal/recycling

86
Q

What does adding value mean?

A

Outputs being worth more than the inputs used to produce them

87
Q

What is the important thing about adding value?

A

Not to add enough value to be worth undertaking, as the resources could be used elsewhere and to look for ways to increase the value being added

88
Q

What ethical decisions are related to the operations process?

A

• How to reward and treat employees. Increasing employees workloads may improve the amount produced but place high levels of stress on employees. • Where to locate the business. Should the business locate in a low-wage location? This will be good in terms of costs and profits but is it exploiting the workforce? • Safety features. Should the business avoid adding some safety features to the product (that they do not have to have by law) because they would add significantly to costs? • The environment. Should the business worry about the environmental costs of their suppliers operations or of the way in which supplies are transported to them?

89
Q

What is the impact of competitiveness on the operations process?

A

The operations of the business account for the majority of the costs in a business and so operations management is vital to competitiveness

90
Q

State some operational objectives

A

Quality – Operations managers have to decide what they think customers want and expect – in liaison with marketing - and then set appropriate targets. Speed of response – Businesses may compete by providing their goods or services faster than their competitors Dependability – this refers to the ability of the business being able to deliver reliably on time Costs – if a business can produce at lower costs than rivals it can make profits with the same price or it may allow it a business to reduce its price and be competitive on that basis. A business may therefore set cost objectives to enable it to control prices. Flexibility – If a business can meet customer needs more precisely than others this may give it an advantage Environmental objectives – greater awareness of the environmental Impact of operations decisions and greater interest in the impact of decisions by stakeholders has raised the profile of such decisions in recent years. Defect rates – operations managers may measure the proportion of products that are thrown away, have to be reworked or are sent back by customers for being faulty. Safety targets – operation managers may set targets to limit the health risk to employees.

91
Q

What are the internal influences on operational objectives and decisions?

A

Marketing activities may determine what actually has to be produced, how it is produced and what quantities are needed. Human resources may determine what is possible. The number and skills of staff may influence what can be provided. Finance. The finance available may affect the level of investment in technology which may affect what can be produced.

92
Q

What are the external influences on operational objectives and decisions?

A

• Political and legal factors • Economic factors – changes in the economic factors will affect the demand for products and the costs of producing them • Social factors – There is now greater demand from customers for choice and variety • Technological factors – With technological advances it becomes quicker to develop, test and launch new products. • Competition – there is greater demand for better customer service as customers realise their power to demand more and can find alternatives more easily online. This means businesses are trying to offer more while also keeping costs down – this can be a difficult balance.

93
Q

Why might operational objectives change?

A

The values and the strategy of the business change

94
Q

What is competitiveness?

A

The extent to which a business offers good value for money relative to competitors

AS Level Business Studies - AQA (14 decks)

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