Unit 5 (Operations) Flashcards
Operation management tasks
1) Designing and improving process
2) Capacity planning
3) Stock management
4) Supply Chain management
5) Quality Control
6) Continous improvement
7) Scheduling and logistics
Input / Output Model
Input: Raw materials components, expertise
->
Process
->
Outputs: FInished goods / services
Green supply chain management
Environmentally friendly suppliers, reducing waste, minimising carbon footprint
Energy effeciency
Energy saving technologies, optimising equipment and managing and reducing energy consumption
Waste reduction / recycling
Waste management systems, adapting lean manufacturing principles and designing products with a focus on recyclability and sustainability reduced material usage through the use of eco friendly materials and durability
Promoting fair labour practices
Ensuring healthy and safe working conditions like flexible working hours, ample breaks, access to training and advice, and physical conditions
Production
Transformation of resources into finished goods and services
Method of production used by business depends on numerous factors:
- Level of output to be produced
- Nature of product
- Whether product is standardised or customised
- Level of automation used in production
Job production
Process made to meet specific requirements of customers. Each item produced separately and production process tailored to unique specifications of customised order
Key characteristics:
- Customisation
- Low volume
- Variability
- Skilled labour
- Longer lead times
Adv of job production
- Higher levels of customisation
- Provides flexilbility to adapt to changes in customer demands
- Alllows for greater attention to detail and quality control
- Offers personalised customer experience
Dis of job production
- More expensive than other methods
- Longer lead times
- Complex and challenging to manage
- Unlikely to achieve high economies of scales
Batch production
Occurs when products produce in groups or batches
- Certain quantity of products produced together before next batch
- Each batch goes through entire production process from raw materials to finished products
Adv of batch production
- Allows switch between batches and caters for varying customer demands
- Can be more effective compared to flow production
- Some extent of managing economies of scales
- Quality issues can be identified and detected, reaction within specific batches before moving on
- Can speculate products due to tailoring each batch to meet customer requirements
Dis of batch production
- Setting up equipment and production line time consuming
- Often leads to accumulation of stock requiring storage costs
- Not as adaptable as other methods
- Can be stress on equipment requiring regular maintenance
Flow production
When products is produced in continuous sequence of operations on a production line. Involves movement of materials or components through series of machines.
- Division of labor
- Standardization
- Automation
- High volume
- Continuous
Adv of flow production
- Minimizes setup time and reduces production time leading to better overall efficiency
- Eliminates need for frequent startups and shutdown of machines
- Labour costs lower due to automation
- Greater control over product quality
- Faster production results in shorter lead time
Dis of flow production
- Requires capital investment for machine equipment and automation technology
- Requires an reliability and efficiency of equipment and machinery
- Only suited for standardized products
- May require stoppage of entire production line if detects spotted
- Requires steady supply of raw materials and components
Mass customiation
- Mass production appears through flow production and involves large amounts of standardized products
- Customization within job production or small scale batch production
- Mass customization flexible with amount of customisable options within standardized process
- Benefits from low units costs associated with flow proudction
Adv of mass customisation?
- Can obtain products that match unique preferences -> Likely to be highly satisfied -> Positive feedback and gained customer loyalty
- Utilizing components and processes allows economies of scales
- Can differentiate from competitor’s, attract new customers
Dis of mass customization
- Requires large capital and variable costs tend to be high
Lean production
Process of streamlining operations and processes to maximize value and achieve greater efficiency. Should lead to improved quality and reduced cost of production
Kaizen
- Japanese philosophy on making small and continuous improvement to increase effeciency and productivity.
- Small groups are formed with purpose of idnetifying improvmeent to firms products, processes, and procedures
- Process of incremental improvement in quality
mapct of Kaizen
- Change is easier to make in small continous improvements
- People tend to be resistant to big changes
- Focus on quality and cost saving
- All employees can contribute to the firm, irrespective of rank
Just in time
- Stock management method based on having stock delivered as when they are needed
- Only absolute minimum are held as finished goods dispatched as they are produced
What is cradle to cradle / grave
C2C: Sustainable model of production based on renewable processess, benefitting the enviornment
C2G: Refers to single use products. Currently the most common method of manufacturing
Quality
When the product fulfils the purpose and the expectation of the customers. Percieved based on:
- Physical apperance / design
- Image and reputation
- Durability
- Fit for purpose
- Customer service
- After sales service
Quality management
Factors concerned with refining business activities to ensure products are fit for their purpose. 4 Driving factors that led to quality being parmount priority for new business
- Increasing consumer reviews
- Government legislation
- increasing consumer incomes
Quality Control
Inspecting quality of output at the end of production process. Focus on maximising output , products not up to standard rejected before released for sale.
Adv of quality control
- Quality specialist employed to check standards
- Inexpensive and simple way to check output fit for purpose
Dis of quality control
- Rejection at end is waste of resources
- Little focus on check for defects
Quality Assurance
Inspecting quality of production throughout production process. Workers check their own work and others at various stages of production
Adv of quality Assurance
- Identified early thus reworked instead of rejected
- Focus on case of defects so future quality issues prevented
Dis of quality assurance
- Skilled training and labour required increases costs
- Reworking may slow down production process
Quality circles
Group of workers meeting regularly to identify and solve quality problems in production process
- Volunteers from different departements
- Led by leader
- Work together to manage situations
Adv of quality circles
- Improved worker motivation through decision making involvement
- Workers facilitated with process, relevant and focused solutions
- ## Improved productivity as workers engaged in solutions they developed
Dis of quality circles
- Management needs trust in workers
- Required ongoing teaching to contribute effectively
- Meeting organizing regularly
Benchmarking
Comparing quality and performance with markets leaders in same industry
What is internal and external benchmarking
Internal = Comparing of different functions on performance and process
External = Comparison of key performance indicators against market leaders domestically and overseas
Adv of benchmarking
- Identify areas of improvement from practices of industry leaders
- Identify innovative practices / processes
- Setting of realistic performance goals
- Worker motivation when seeing employer striving to be industry leader
Dis of benchmarking
- Differences in metrics can affect accuracy and comparability of data
- May not be applicable to needs of business
- Struggle to find time and resources for data collection and analysis
- Leads to narrow view of success, ignoring ideas from other sources
Total quality management
Places quality at core with every worker responsible for quality
- Quality considered from customer perspective
- Inefficiency / waste removed from every business activity
Adv of TQM
- Improves efficiency leading to improve profitability
- Constant improvement with high standards
Dis of TQM
- All workers committed to significant continued training
- Careful monitoring and control required
Quality standards
National / International benchmark that demonstrate business commitment to quality
- Administered by independent bodies with string of tests to ensure standards met
- Business awarded these standards revisited regularly to ensure maintained
Importance of quality standards
- Ensures customers commitment to quality
- Set business apart from competitors
- Allow business to enter these markets
- Reduces risk of legal issues / penalties.
Factors affecting production location
- Proximity to markets
- Proximity to labor
- Proximity to materials
- Proximity to competitors
- Nature of business activity
- Infrastructure
Outsourcing
Process where business delegates specific business activities to external service providers
- Business do this to reduce costs, access specialized expertise and focus on core competencies
Subcontracting
Specific parts of a larger project or contract assigned to third parties
- Business remains responsible for project but certain tasks and components delegated to other individuals / companies with specialized skills
Adv of outsourcing / subcontracting
- Cost saving through reduction of expenses like hiring and training employees, maintaining infrastructure, and IT systems
- Access to specialized skills through resources that business lacks internally, benefitting from knowledge and experience of industry experts
- Increased flexibility to scale up or down operations based on demand fluctuations
- Can concentrate business resources on core competencies where they can add value
Dis of outsourcing / subcontracting
- Difficult to ensure consistent quality and adhere to company standards
- Loss of control as reliable partners must be selected to clear contractual terms and protect interests
- Sharing information may introduce risks to data security / confidentiality
- May result in language barriers with time zone differences or communication barriers due to cultural differences
Offshoring
When business sets up operations in another country to carry out business activities
Adv of offshoring
- Labour costs often lower
- Tap into skilled labour markets not available domestically
- Take advantage of 24/7 operations, providing better customer support
- Can gain local markets insights, spotting opportunities for growth
Dis of offshoring
- Communication and language barriers, resulting in delays
- Quality control difficult when moved offshore
- Sharing sensitive information and intellectual property may lead to breach of data security / confidentiality
- Domestic job losses
Insourcing
- Business assigns tasks to individuals within the organization which was previously outsourced
Reasons for insourcing
- Cost saving strategy to eliminate need to pay external specialists
- Direct control over quality of work and easier to establish own standards
- Greater flexibility to changing business needs, adjusting workflows and adapting to new challenges
- Develop specialized skills within workforce, reducing risks of intellectual property breaches
Reshoring
- Business brings its production activities to home country from abroad
- Reversing decision to offshore or outsource these activities to another country
Reasons for reshoring
- Initial cost advantages may reduce due to rising labor or transportation costs in foreign country
- Better control of manufacturing process and ensures higher quality control standards, improving customer satisfaction
- Reduce risks of intellectual property theft
- Reduces dependency on foreign suppliers
- Closer to target markets leading to faster delivery times, reducing transportation costs and customer responsiveness to demand
Supply Chain Management
Coordinates and schedules manufacturing to ensure products are produced efficiently and on time with the quantities needed. Refers to stages from obtaining materials to delivery of product to end consumer
Stages of supply chain management
Stock control: Planning, implementing, and monitoring movement of raw components, work in progress, and finished goods
Quality Control: Ensuring output meets standards so that end product is safe and meets customer expectations
Transport networks: Efficient delivery of goods to customers with speed, reliability and cost taken into consideration
Supplier networks: Strong relationship with suppliers to improve quality
Global supply chains
Coordinated activities across international borders as some stages completed for cheaper in certain countries
Just in time
Involves stocks delivered to business as and when they are needed to be used in production process.
Just in case
Holding spare buffer stock to ensure there is more than enough stock to meeting requirements
Differences in stock levels between just in time and just in case
Just in time:
- Minimal stock levels
- Materials delivered / ordered in time for production
- Lower storage and security costs
Just in case:
- Buffer stock
- Protects unexpected increase in demand, supply chain disruptions, or production delays
- Prevent stockouts
Differences in costs between just in time and just in case
Just in time:
- Lower stock costs
- Reduced waste
- Lower purchasing economies of scales
Just in case:
- Increases fixed costs
- Costly to hold slow-moving stock
- Risks of wastage through expiration or damage
Differences in flexibility between just in time and just in case
Just in time:
- Emphasis on efficiency and ability to respond to change
- Reliable and efficient suppliers needed
Just in case:
- Safety net against unexpected change in demand / supply
- Less responsive to market changes as buffer stock needs to be used up before new products made
Stock controls
Careful planning and controlling of stock flow to ensure raw materials, work in progress, and components available to meet production demands
Maximum stock level
maximum amount of stock a business able to hold in normal circumstances
reorder level
Level at which business places new order with supplier
minimum stock level
Aka buffer stock, and lowest level at which business willing to allow stock levels to drop
Lead time
Length of time from point of stock being ordered from supplier to it being delivered
Problems with holding too much stock
- Storage costs higher than necessary
- Risk of stock spoilage increased
- Excess stock may need to be sold at lower revenue, lowering profit margins
problems with holding to little stock
- Stock may run out, production stoppages and higher unit costs due to underused capacity
- Sudden increase in demand may be unable to be met
Stock
Materials, components and products used in the production process. Three main categories:
- Raw materials
- Semi finished goods
- Finished goods
Disadvantages of stockpiling
- Storage costs
- Risk of damage / their
- Products may be perishable
- Stock is illiquid
- May become obsolete if demand changes
- Changing fashions / taste
Disadvantage of stock outs
- Lose out on sales revenue, lost off customers to rivals
- Leads to inefficiencies
Optimum levels of stock
- Orderinig in bulk to get economies of scales but will be forded to pay high storage costs
- Order in small quantity but more frequently
Factors influencing amount of stock
- Fast moving consumer goods/ Consumer durables
- Peak season / low season demands
- Short / long lead time
- High / low opportunity costs
Capacity utilization rate
- Measures output level as percentage of its potential output
- This measures efficiency as it removes extent of idle resources in the organization
- High measure is financially important as it spreads fixed and indirect costs over large level of output
Capacity utilization rate formula
Actual output / Productive capacity * 100
What are defects
When quality of product is not up to standard, represents waste and inefficiency of firms production process
Defect rates
Measures proportion of defects per time period that is standard. Can be used to evaluate production process as a measure of quality assurance
Defect rate formula
Defective output / Total output * 100
Labour productivity
How resources are used in production process to generate outputs. Can be measured using various formulaes
- Labour productivity
- Capital productivity
- Productivity rate
Capital productivity
- How well firm uses its physical resources
Capital productivity formula
Total outputs / Number of capital hours
Labour productivity formula
Total outputs / number of workers
Productivity rate formula
Total output / total input * 100
Advantages of higher productivity rates
- Economies of scales
- Higher profit / wages
- Improved competitiveness
- Growth in business activity
Operating leverage
- Measures firms fixed costs as percentage of variable costs
- Firms with high costs has higher operating leverage and vice versa
- Firms with high operating leverage vulnerable to drop in sales volume as sufficient sales volume required to pay substantial fixed costs not feasible
Operating leverage formula
((Price - VC per unit) * Quantity) / ((price - VC per unit) * Quantity) - Fixed costs) * 100
Interpretation of low and high operating leverage
- Low = Less risky but less likely to increase income as quickly with sales increase
- High = riskier but increase in profitability will rise faster as a result of sales increase
Determinants of productivity rates
- Technology
- Rivalry
- Innovation
- Entrepreneurship
- Skills / experience
Cost to make vs cost to buy
- Make or buy decisions occurs when business has to decide between manufacturing a product themselves or buying from external suppliers
- This involves qualitative and quantitative factors
Cost to buy / cost to make formula
- Cost to buy = Price x Quantity
- Cost to make = Fixed costs + (Variable costs x Quantity)
Qualitative factors in make or buy decisions
- Time frame of production
- Spare capacity
- Reliability of suppliers
- In house expertise
- Size of capital expenditure
- Core / non core competencies
- Strategic importance
- Signfinace of the product to the firm
- Extenral influences
