Unit 8: Production (operation management)

Question 1

What are the inputs and outputs of the production processes?

Answer 1

Inputs: Information, Capital, Labour, Materials, Energy
Outputs: Goods and Services, Waste

Question 2

What is production and what is productivity?

Answer 2

Production means making goods and services.

Productivity means how effective are the resources used for the production.

Question 3

How to calculate productivity?

Answer 3

Productivity = Quantity of output/quantity of inputs

E.g. Labour productivity = 500 cars per hour/ 1000 employees = 0.5 cars per hour per employee

Question 4

What are the ways to improve productivity?

Answer 4

• Organising work more efficiently (e.g. layout of the machinery)
• Using more productive resources (e.g. using modern machinery and equipment, more employee training)
• Automation: Use machinery instead of workers
• Improve staff’s motivation

Question 5

What are the three ways of methods of production?

Answer 5

Job production
Batch production
Flow production

Question 6

Explain the job production and give an example

Answer 6

Job production: Items are produced individually to meet the requirements of a specific customer. Products take slow to make and are very expensive - but are of very high quality. E.g. Tailors that make suits.

Question 7

Explain the batch production and give an example

Answer 7

Batch production: A number of identical or similar items are produced in a set or batch. Batch production involves highly planned stages of work. Some standardisation of products. Sometimes they stop the production process and change over to a similar one. E.g. A batch of bread rolls.

Question 8

Explain the flow production and give an example

Answer 8

Flow production: The products or services pass down a line of production. The process is repeating with identical products. E.g. Production of bottles of Coca-Cola

Question 9

Define economies of scale

Answer 9

Economies of scale occur when mass producing well results in lower unit cost. Total cost/ Quantity made = Unit cost

Question 10

What are the 5 internal economies of scale?

Answer 10

1) Technical economies: Machinery (Large firms use expensive machinery that is effective and lasts longer)
2) Managerial economies: Can employ specialist staff e.g. accountants, researchers…
3) Financial economies: Cheaper to borrow money.
4) Risk bearing economies: Large firms spread risks over their DIVERSITY of products.
5) Commercial economies: Buying in large quantities - more discount.

Question 11

What are diseconomies of scale and why do they occur?

Answer 11

Diseconomies of scale is when the unit cost begins to rise. It occurs due to ineffective communication, reduced motivation or bad management.

Question 12

What are the external economies of scale?

Answer 12

A local skilled labour force is available
An area has good transport network
An area has a good reputation for producing a certain good

Question 13

Define Lean production

Answer 13

Lean production means doing more with less. A lean company will make best use of resources by cutting out wastes

Question 14

What are the 3 steps to achieve lean production? Explain.

Answer 14

1) Keeping work areas tidy and organised: Time is not wasted on finding things.
2) Just in time (JIT): Goods must be produced and delivered just in time into finished goods, are prepared just in time.
3) Kaizen: Continuous improvement. Everybody in the company is given a responsibility of identifying and suggesting ways of improving production.

Question 15

Define Quality

Answer 15

Producing a product /service or process that the customer expects.

Question 16

What is the importance of quality?

Answer 16

Quality is one of the key decisions in operation in today’s highly competitive world.
Quality increases profits, decreases costs and improves customer’s satisfaction.

Question 17

Main features of quality control

Answer 17

Finished products are checked by inspectors to see if they meet the set standard.
Inspectors cut out substandard products => Wasteful

Question 18

Main features of quality assurance

Answer 18

Focused on the development stage of the production
Seeks to stop faults happening in the first place => Aims so that the products are produced to the required standard.
Responsibility of the work force, rather than the inspectors. Less waste.

Question 19

Main features of the Total Quality Management (TQM)

Answer 19

Managers try to bring out the attitude of thinking about quality in every stage of production.
Whole business understand the need for quality and seeks to achieve it.
Involves creating quality circles - workers/employees meet and discuss to improve quality. (Kaizen)

Question 20

The importance of cost

Answer 20

It business, it is essential to keep costs as low as possible. Businesses with lower costs have an advantage over rivals.

Question 21

What are the two types of costs and explain them.

Answer 21

Fixed costs: Do not increase when the output varies - for example: rent, heating bills, salaries. (indirect costs/overheads) (Drawn as a straight line)
Variable costs: Increases as output increases - for example: materials. (direct costs) (Drawn as a diagonal line)

Question 22

What is a break even point? How to find a break even point?

Answer 22

It’s when there is no loss and no profit.
When Total Sales (Prize x Quantity)= Total cost

Fixed cost/(Unit Selling prize - variable unit cost) = Break even

Question 23

Break even charts

Answer 23

Learn the break even chart: Total Revenue line, Total cost line, What the axis represent, Margin of safety.

Question 24

Limitations of the break - even chart

Answer 24

A break even chart is only a rough guide. Variable costs can change quickly for example is the price of labour or raw materials rise.

Question 25

Factors needed to consider when choosing a location for production

Answer 25

Distance to markets
Availability to raw materials
Transport costs
Availability of land
Availability of labour
Safety
Utilities
Communications