Unit 5: Operations Management Flashcards
Operations Management
the administration of business practices to create the highest level of efficiency possible within an organisation. It is concerned with converting materials and labor into goods and services as efficiently as possible to maximize an organisation’s profit
Job/customised production
Product customisation and focus on quality - a business models that performs or created custom products for a specific client
Cell production
Mass production in trend with a focus on quality and responsibility
Mass production (also flow and line production)
High volume of standardised products using a continuous flow.
Batch production
Production in stages - blending of customisation and standardisation
Job/customised production example
Wedding cake of a particular size or shape
What is job/customised production about?
Designing and producing a special product that precisely fits the customer’s requirements
Job/customised production pricing
The mark up and prizes are high since it is more expensive and complex to produce as opposed to flow production
Who executes job/customised production?
Typically performed by skilled experts to a high standard and usually allow for considerable flexibility and customisation in the finished product
Advantages job/customised production
Customisation is possible; improving customer satisfaction, employees may be motivated by the variety of tasks, there may be a sense of craftsmanship and pride in the final product
Disadvantages job/customised production
Labour force needs to be highly skilled, equipment is costly, products can’t be produced in bulk, economies of scale aren’t attainable, production is labour intensive, time consuming, and expensive
Focuses of mass production
Standardisation, automation, quantity - the greatest quantity of items while using the fewest resources (eg: labour or time)
Mass production example
Fast food restaurants - a series of employees in a line adding one element to the food being prepared (eg: sandwich)
How is mass production executed?
Usually with an automated assembly line which because prominent in the 1900s although the process embodies principles of efficiency which have been around much longer
Why is batch production used?
Instead of mass production, batch production can offer customised products while using a range of standardised options. Eg: cars, clothes, technology
Example of batch production
Baking cookies since this occurs in stages/parts. First, dough is made, placed onto baking sheets, then into the oven
What happens in batch production?
Items are produced in consignments and undergo a stage of the production prose together. The whole consignment is moved to the next production stage where another task is performed. The process can then be repeated in bathes can can not be completed using a flow production method (eg: continuous stream) because of limitation in the number and size of equipment - (eg: mixing bowls or ovens)
Impact of cell production
Allows organisations to move away from traditional hierarchical organisational structures, allows businesses to interfere many non-financial rewards (eg: job rotation, job enrichment, teamwork, etc)
Process of cell production
Adjusts the mass production process so workers can work in teams and be responsible for a certain part of the production line. mass production only allows workers to carry out 1 specific task
Advantages Mass production
Easier to respond to increase in orders (more growth potential), Once established the system should need little maintenance, Easier to automate and therefore, reduce costs per unit (economies of scale)
Disadvantages Mass production
Initial costs can be high, difficult to alter the process to meet the needs/tastes of individual customers, demotivating to workers as work can be quite monotonous
Batch production advantages
Reduces unit cost compared to job production but can still be partly personalised, allows organisations to address specific consumer needs (eg: size, weight, style) compared to mass production, specialist machinery increases output
Cell production advantages
Often improve quality, increase productivity, and reduce production costs, workers are more motivated than mass production even though a similar production process is taking place
Lean production aims
Reduce waste in the production process and maximise the efficiency of the production process
Lean production methods
Andon, Just-in-time, Kanban, Kaizen
Andon
A Japanese name for a visual production control device (usually a lit overhead display) that continuously shows the changing status of the production line and sounds alert if problem imminent
Just in time
An inventory strategy companies employ to increase efficiency and decrease waste by receiving good only as they are needed in the production process, thereby reducing inventory costs
Kaizen
This is a Japanese term for a gradual approach to ever-higher standards in quality enrichment and waste reduction. This is achieved through small and continual improvements involving everyone from the CEO to the lowest level workers. It utilises just in time production and quality circles
Quality control focus
The end product, and detecting product defects after it has been produced
Approach of quality control
A reactive rather than proactive approach. A certain rejection/wastage rate is often set eg: a reject rate of 1% means that 99/100 products must pass the quality check. The checks apply per job and not the whole production process
Process of quality control
In many cases, inspection is performed by a manager, department, or external organisation
Quality assurance
Organisations aiming for 100% success rate with no rejects. Therefore, organisations must focus on every step of the production process and not just the end product. This is proactive rather than reactive
Quality assurance impact
When an error is identified, production is stopped and the process is corrected - this aligns with the ideas of lean production
Total quality management (TQM)
Many managers attempt to have the entire organisation embrace this culture of quality, affecting attitudes and actions of all employees. Every department must think of those they work for as customers. Emphasis on customer service, great ion and production of high quality products, and zero defect policies hence getting everything right first time.
TQM impact
Quality is higher whole costs are reduced
Quality circles
A participative management technique within the framework of a company wide quality system in which small teams of (usually 6-12) employees voluntarily form to define and solve quality and performance related problems
Role of quality circles internationally
In Japan, (where quality circles originated), they are an integral part of enterprise management
Benchmarking
A measurement of the quality of an organisation’s Policies, products, programs, strategies, etc. and their comparison with standard measurements or similar measurements of its peers
The 3 objectives of benchmarking
- To determine what and where improvements are called for. 2. To analyse how other organisations achieve their high performance levels. 3. To use this information to improve performance
Advantages to implementing quality management
Charge higher prices, differentiate organisation from competitors and attract new customers, maintain existing customers, motivate current employees, recruit future employees, reduce waste and Costa in the long run, expand both nationally and internationally
Disadvantages of implementing quality management
Certification, compliance, inspection and/or training costs, benefits tend to be mostly long term, the challenge of changing the entire culture of the organisation and getting all employees and management on board
Outsourcing (or sub contracting)
Refers to the strategy of transferring internal business activities to an external organisation
Offshoring
When business activities are moved abroad
Restoring
The exact opposite of offshoring, bringing back production from overseas
In-housing
Conducting production within a company instead of relying on outsourcing
Advantages of outsourcing and offshoring
Reduced labour costs and overall production costs (eg: rent), improved efficiency, increased expansion into foreign markets, reduced government regulations and taxes
Disadvantages of outsourcing and offshoring
Complex to set up, organise, and administer, loss of jobs in original location leading to a lack of job security for remaining employees, loss of quality control, reputation at risk, ethical concerns of exploiting foreign workers in LEDCs
Advantages of cell production
Can reduce production costs and cause better worker motivation
Disadvantages of cell production
Production could be slower, decreasing output levels
Batch production advantages
Allows organisations to address specific customer needs. One element can be focused on and corrected at one time
Batch production disadvantages
If one element of the production is delayed, this can delay the production of the entire product
Andon advantages
Workers are notified of issues quickly meaning that only a minimal batch of product would have been made incorrectly and/or not up to standard
Andon disadvantages
Fixing production issues could be timely and set back production
Kanban
A system using cards which controls and ensures that certain supplies are ready to be produced at a certain time (regulating components)
Kanban advantages
Stock-holding costs should reduce as companies do not have to hold as much stock such reduces storage costs
Kanban disadvantages
Delays in one area of production could cause a ripple effect within other components (eg: lack of materials)
Just-in-time advantages
Improves the amount of wasted products, specifically if the company was to discontinue a product. Staff become more careful when ordering stock
Just-in-time disadvantages
It is highly dependent on a business, it’s audience, and its products, requires strong relationships which depends on chosen distribution methods
Kaizen (continuous improvement)
Focuses on conducting a series of company meeting where employees are able to bring forward their ideas for the business and its products
Kaizen (continuous improvement) advantages
Involves staff members within the brainstorming and decision making process to make them more involved and aware within the company
Kaizen (continuous improvement) disadvantages
So many ideas can be provided with many of them not being beneficial which can make certain employees feel misjudged or invaluable to the company
The supply chain
The network created amongst different companies producing, handling and/or distributing a specific product
Supply chain management
Crucial process for many companies. Many companies strive to have the most optimised study chain because it usually translated to lower costs for the company
The two terms that people confuse
Supply chain and logistics
Difference between Logistics and Supply Chain
Logistics is the distribution process within the company. The Supply chain included multiple companies such as the suppliers, manufacturers, and the retailers
The planning of the production process
Is a crucial step of the production process
Too little stock
Can lead to a loss of sales and idle production resources
In managing stock (inventory) you can either heave
Too much or too little stock
Having too much stock
Decreases the amount of cash available to keep the business running and it increases storage costs and the risk of that product becoming obsolete
Ordering smaller quantities of supplies
Could lead to higher costs of production due to lost economies of scale
Research and development
Investigative activities that a business chooses to conduct with the intention of making a discovery that can either lead to the development of new products or procedures or to improvement of existing products or procedures
Impact of research and development
Businesses can experience future growth by developing new products or process to improve and expand their operations
How much on average to companies spend on R&D
Usually under 5% of their revenue. However, pharmaceuticals, software, and semiconductor companies spend more
R&D is often thought of as….
Synonymous with high-tech firms that are on the cutting edge of new technology, many established consumer goods companies spend large funds on improving old products
R&D marketing impact
R&D can use extension strategies to the life of a product through the PLC and extend the growth stage so the business can continue to meet the needs of its customers
R&D extends marketing strategies of organisations with a…
Product orientated approach. Where develop is driven by innovation of products rather than emerging directly from the needs of the market
R&D in finance
It involves investment nd costs which are factored into the profit and loss amount, budgeting, and cash flow forecasts
Concepts in relation to R&D
Change and Innovation (and strategy)
Research in business is….
The foundation to understanding the market, and key to developing effective strategies to meet the needs and wants of stakeholders
Factors in John Bessant and Joe Todd’s 4 P’s model of innovation
Product, Process, Positioning, Paradigm
Who invented the 4 P’s model of innovation
John Bessant and Joe Tidd
Paradigm
Innovation results from major changes in thinking and models, which shape what a business or organisation is all about
Paradigm examples
Amazon redefining retailing, Muhammad Yunus, the Grameen bank and other micro-finance providers redefined financing of the poor
Product
One of the first types of innovation though of since the output of a product or service is tangible
Process
Innovation emerging by improving some type of the process in which products/services are delivered
Process example
Lean production, Henry Ford’s assembly line, Voice over IP technology (skype)
Position
Innovation can emerge by changing how a specific product or process is perceived and how it is used
Position examples
Lucozade started as a medicinal drink and is now sold as a sports drink, Levi-Strauss jeans started as clothing for manual workers and has since been rebranded as fashion
Capacity utilisation
The extent to which the maximum productive capacity of a firm is being used, actual output as a percentage of max potential output
Example of where a company uses capacity utilisation
Airlines - overbooking flights since empty seats are missed opportunity for revenue, manufacturing companies - to know whether production resources are fully utilised or if there is growth room, school building
Capacity utilisation rate works out as a
Percentage
Capacity utilisation rate formula (In FB)
Actual output over productive capacity x 100 (EG: 35k/100k x 100 = 35%)
Goal of lean production
Improving efficiency or productivity
Productivity connects to
Motivation - successful managers motivate their employees to be more productive
Lean production managers look to….
Devenido and implement systems to maximise their organisation’s production per unit of input (EG: per worker or per a certain time period)
Productivity
A mesure of the efficiency of production. It makes reference to the amount of output per unit of input
Productivity rate formula (In FB)
Total output over total input x 100
Who used productivity rate?
Economists to analyse the productivity of a country or region, (EG: OECD reported Norway has the highest GDP per head in 2014) - In the course we will measure productivity of individual organisations
The heart of the decision on how to grow or expand….
The cost implications of making (manufacturing) a product versus the cost of buying a product to sell (outsourcing or contracting)
Formula of the cost to buy a product
Cost to buy = price x quantity
Formula of the cost to make
Cost to make = fixed costs + (variable costs x quantity)
One company’s cost to buy
Is another company’s revenue
Costs too buy and costs to make
Can also be applied to services
The stock management process can be shown through….
Stock control charts
Elements of a stock control chart
Initial order, usage pattern, max and min stock level, buffer stocks, re-order levels, re-order quantities, lead times
Initial order
The initial amount of stock delivered, usually equal to the max stock level
Usage pattern
With regular orders and usage the chart takes on a saw-tooth pattern. Stock is being used (eg: production) when the amount of stock decreases over time
Max/min stock
The maximum or minimum amount of stock held at any one time
Buffer stocks
Minimum stock level held to safeguard against any unforeseen events
Re-Oder levels
When this level is reached, a new amount of stock is ordered
Re-order quantities
The amount of stock that is ordered each time
Lead tomes
How long stock takes to be received
Just in case
Buffer stock is established so that stock is on hand just in case there is a spike in demand or need
Main features of the Just in case approach
Meets student change in demand, reduces costs of buying in bulk (purchase economies of scale), provides an organisation with an inventory of spare parts, can minimise issues with delivery
Disadvantages of just in case
Relates to holding too much stock: cashflow problems, risk of stock becoming obsolete, and storage costs
Just in time inventory system
This approach aligns more closely with lead production and quality management. Stock is delivered as needed and is kept to an absolute minimum
Main features of just in time
Improves the cashflow available for daily expenses, reduces storage cost and wastage, provides more flexibility to meet the demands of the customer, demands a closer relationship with suppliers
Just in time disadvantages
Can lead to loss of sales, idle production resources, and higher material costs
Kanban production works with
Just in time inventory to improve efficiency
Just in time has to rely on:
The supplier for timely and reliable deliveries, as well as can free up cash to pay daily expenses
A longer lead time means a business should:
Negotiate favourable payment to avoid cash flow problems
The supply chain process involves managing
Various channels of distribution (such as retailers), various suppliers needed to purchase raw material for production, inventory costs and the time that it takes to get products to the customer
The supply chain process….
Involves a network of suppliers, managers, and retailers
One way to visually represent the just i time method
A horizontal line across the x axis in the stock control chart
With just in time…
There is no lead time as orders are based on the customer demand. Stock would be used up almost immediately upon delivery
Building on Bessant and Tidd’s model, innovation can be categorised as…
Incremental or radical
Incremental innovation
Improves the status quo
Radical innovation
Changes the status quo
Adaptive creativity
Adapting something that exists or changing within the system
Innovative creativity
Creating something new or changing the system
Adaptive and innovative creativity is based on
Dr Michael Kirton’s theory form 1976
What did Michael Kirton discover?
He studied different types of creativity and found that most people operate in the middle of this continuum between being adaptive and innovative when solving problems and making decisions
Categorising creativity has allowed….
For further research on whether thee is a need for diversity in approaching problems within an organisation, or whether culture affects an individual’s approach to decision making
Crisis management
Reactive. A crisis is a major, unpredictable event that threatens to harm an organisation and its stakeholders. It must be managed by identifying causes and controlling consequences
Example of a crisis
A subsidiary may have liquidity problems. A possible solution would be to provide Short term capital from the parent company to the subsidiary
Contingency planning
Proactive. Plans are prepared before crises occur, anticipating problems and identifying possible causes of action
Example of contingency planning
Developing plans to prevent liquidity problems of a subsidiary from starting or getting worse (EG: setting aside financial reserves during profitable times)
Although contingency planning can reduce the chance that a business will face a crisis
It is difficult to plan for every possibility - especially with the business being dynamic and change being inevitable
Factors that require businesses to change more quickly than desired
Competition, new technologies, and markets, globalisation and trends in consumer behaviour
Factors of a business crisis
Transparency, Communication, Speed, Control
Length of the benefits and limitations of contingency planning
Limitations are usually in the short-term, benefits are long-term
Some business analysts argue that contingency planning
Is the first and most crucial step in crisis management
Limitations and Benefits of contingency planning
Cost, time, risks, safety
Cost limitations (contingency planning)
Managers and employees will be pulled away from their daily activity to work on the contingency plans, consultants may need to be hired
Cost benefits (contingency planning)
Well developed contingency plans can help avoid financial problems and give confidence to investors
Time limitations (contingency planning)
Researching and preparing a contingency plan takes a significant amount of time
Time benefits (contingency planning)
In the long run, time will be saved and crises will be avoided and/or managers will know what to do in a time of crisis
Risks limitations (contingency planning)
Contingency plans will need to be updated so they remain relevant to the current situation
Risk benefits (contingency planning)
Overall, contingency planning reduces risk of being unprepared for a crisis
Safety limitations (contingency planning)
Managers have to protect against being over-confident as businesses operate in a dynamic environment and it is nearly impossible to plan ahead for every situation
Safety benefit (contingency planning)
Well designed contingency plans make the organisation more safe
Kanban meaning
Visible record such as a billboard, card, label or sigh
