Unit 4: Production of goods and services (Chap 15)

Question 1

What are inputs?

Answer 1

Operations management involves managing business resources (known as inputs).

Question 2

What is output?

Answer 2

Finished goods, services and components.

Question 3

Example of a production process

Answer 3

• A baker (labour) will take ingredients such as flour and water to his kitchen (land)
• He’ll use mixers and ovens (capital)
• To create bread (the output)

Question 4

What are the 3 things operations management must do?

Answer 4

• Use resources in the most cost-effective way
• Produce the required output to meet consumer demand
• Meet the quality standard expected by consumers

Question 5

What is the difference between production and productivity?

Answer 5

• Production involves changing inputs into output.
• It can be measured by the number of units produced in a given period of time -this is the level of production.
• Productivity is a measure of how efficiently the inputs are changed into output, which is the number of units of output produced for every unit of input.

Question 6

How can a business improve labour productivity?

Answer 6

• Increasing output with the same number of employees
• Keeping the same level of output but with fewer employees

Question 7

How can the productivity of employees be increased?

Answer 7

• Improving the skill level of employees
• Improving the motivation of employees
• Introducing more automation and more or better technology
• Improving the quality of management decisions

Question 8

What is the main benefit of increasing efficiency in businesses?

Answer 8

All businesses will try to increase productivity because this usually reduces average costs - the cost of producing each unit of output.

Question 9

What do businesses hold inventories of?

Answer 9

• Raw materials and components (inputs for the production process)
• Work-in-progress goods (part-finished goods that haven’t completed the production process yet)
• Finished goods ready to be sold or sent out to customers

Question 10

What costs would holding inventories add to the business? (3)

Answer 10

• Warehousing costs (renting/purchasing a warehouse to store inventories)
• Handling costs (inventories need to be moved in and out of the warehouse)
• Shrinkage costs (damaged, lost or stolen inventories will need to be replaced)

Question 11

What costs would holding inventories add to the business? (Another 3)

Answer 11

• Insurance costs (these will cover the cost of losses from shrinkage)
• Obsolescence (the business may not be able to sell out-of-date goods)
• Opportunity cost (working capital is ‘tied-up’ in inventories which could be used more profitably by the business)

Question 12

Why do businesses hold inventories if they are so costly? (Card 1)

Answer 12

• Raw materials and components are essential to the production process and if these aren’t available when required, the process must stop
• Employees and machinery will stand idle and there will be a loss of output
• If the business doesn’t have finished goods in stock, then customers’ orders can’t be met and the business will lose sales – affecting short/long-term profitability

Question 13

Why do businesses hold inventories if they are so costly? (Card 2)

Answer 13

• Businesses often benefit from economies of scale when they buy inventories in large quantities because they receive a discount from the supplier
• The supplier may not offer discounts for smaller quantities

Question 14

What are 5 sources of business waste?

Answer 14

• Production defects
• High inventories
• Over production
• Idle resources
• Transporting goods

Question 15

What is the aim of lean production?

Answer 15

• To lower the costs of production by reducing waste to a minimum while maintaining, or even improving, the quality of the finished product.
• At the same time, inputs to the production process must be used efficiently

Question 16

What are the benefits of lean production?

Answer 16

• New products can be brought the market more quickly
• Quality is improved
• Wastage of time and other resources is reduced/eliminated
• Cost of holding inventories are eliminated

Question 17

Notes on Just-in-time (JIT) inventory control

Answer 17

• No inventories are held buy the business
• Raw materials and components arrive from suppliers just as they are needed by the production process
• As soon as finished goods leave the production process, they’re delivered to the consumer

Question 18

How can JIT be fully successful?

Answer 18

• JIT must also remove the costs of not holding inventories
• To achieve this, businesses need to have an excellent relationship/good communication with suppliers
• Raw materials and components have to be delivered on time and be of the required quality and quantity

Question 19

Notes on Kaizen

Answer 19

• Means ‘continuous improvement’
• Gives all employees the opportunity to make suggestions about how to improve quality or productivity
• Employees are doing the tasks every day so they may have better ideas than manager on how to improve the efficiency of the production process
• Small changes can lead to big improvements in efficiency

Question 20

What are the 3 main methods of production?

Answer 20

• Job
• Batch
• Flow

Question 21

Notes on job production

Answer 21

• An individual item is completed before another is started
• Single or one-off/unique items, large or small e.g. a ship or designer dress
• Usually needs highly skilled employees and specialised equipment

Question 22

Notes on batch production

Answer 22

• A group of items is completed one stage of the production process at a time, through to completion
• E.g. making bread in a bakery

Question 23

Notes on flow production

Answer 23

• Involves products moving continuously along a production line
• At each stage of production additional features are added until the product reaches its finished state
• AKA mass production e.g. chocolate bars

Question 24

What are the main features of flow production?

Answer 24

• Large quantities are produced
• Standardised products
• Employees are relatively unskilled
• High degree of automation
• Large inventories of raw materials and work-in-progress goods

Question 25

Benefits of job production

Answer 25

• Unique, high-quality products are made
• Employees are more motivated/take pride in their work

Question 26

Limitations of job production

Answer 26

• Uses skilled labour rather than machinery, so selling prices are usually higher
• Production can take a long time/be expensive e.g. if special materials are needed
• Economies of scale are not possible, often resulting in a more expensive product

Question 27

Benefits of batch production

Answer 27

• Unit costs are lower because larger numbers are created
• Customer has more variety and choice
• Cheaper materials as they can be bought in bulk

Question 28

Limitations of batch production

Answer 28

• Employees are less motivated because the work becomes repetitive
• Goods have to be stored until they are sold, which is expensive

Question 29

Benefits of flow production

Answer 29

• More capital intensive than job/batch production, lowering labour cost
• Materials can be purchased in large quantities, so they’re cheaper due to bulk-buying economies of scale
• Large number of goods produced

Question 30

Limitations of flow production

Answer 30

• Requires very large capital investment in production line technology
• Employees aren’t very motivated because of repetitive work
• Not flexible as production lines are difficult to change
• If one part of the production process breaks down, the whole procees will have to stop until it is repaired
• High levels of inventories are held, increasing business costs

Question 31

What are 3 factors considered when choosing the method of production?

Answer 31

• The amounts they are likely to sell
• The product they’re making
• The costs of production