2.3 - Making Operational Decisions Flashcards
What are the two main purposes of business operations?
+To produce goods, [such as books or cars]
+To provide services, [such as haircuts or eye tests]
What does a business that produces goods have to decide?
+The best way to manufacture its products +There are a number of ways to do this depending on the type of product and the scale of the business operation.
What is Job production?
+The process a firm uses to manufacture individual, bespoke products, where each product has a unique design according to the customer’s specification.
+Eg, bridges, wedding cakes, handmade crafts [such as furniture making] and made to measure clothes.
What are the advantages of job production?
+Products are usually of high quality [customers may buy products even if highly priced - higher profits]
+Products meet individual customer requirements
+Greater job satisfaction for employees, as they are involved in all stages of production.
What are the disadvantages of job production?
+Unit costs are higher than producing a large number of the same good or service - less able to take advantage of economies of scale
+Very labour-intensive as less suited to use of machinery - often requires highly skilled labour and a high labour-to-capital ratio
+Requires skilled employees, who will demand higher levels of pay and perhaps require ongoing training
What is batch production?
+Batch production occurs when many similar grouped items are produced together in limited quantities.
+The products will be similar but have some variation, different style, different size, different colour.
+Eg, furniture manufacture, baking/meal preparation, clothing production
What are the advantages of batch production?
+Producing in batches reduces unit costs [as more than one unit is produced at a time] meaning fixed costs are spread across more units - can benefit from economies of scale, so unit costs are lower than job production - prices can be lower and therefore more competitive.
+Can still address specific customer needs, including size, weight, style. Eg, car manufacturers can vary colour, engine size and interior design even within the production of a batch of one model of car being produced
+Use of specialist machinery and skills can increase output and productivity, making the process more efficient than job production.
What are the disadvantages of batch production?
+Time is lost switching between batches, as machinery may need to be reset, resulting in a reduction in efficiency - so productivity is lower than flow production
+Stocks of raw materials need to be kept, which will impact cash flow, as money is tied up in stock and in work in progress [ie, products that are moving through the production process but are not finished and therefore cannot be sold]
+Staff could potentially be demotivated as tasks are more repetitive compared to job production; this can lower productivity.
What happens as a business grows its scale of operations?
+It often needs to change its method of production to allow it to produce more and increase its production capacity.
What kind of production is needed for mass markets?
Flow Production
What is flow production?
+A process involving a continuous movement and production of items through the production process along an assembly line in order to be as productive and operationally efficient as possible.
+Many flow production factories operate 24 hours a day with workers rotating in shifts.
+Eg, in a car manufacturing plant, doors, engines, bonnets and wheels are added to a chassis as it moves along the assembly line - It is appropriate when firms are looking to produce a high volume of similar items.
+Capital intensive - has a high proportion of machinery in relation to workers.
What are the advantages if flow production?
+Ideal for large scale production of mass market products
+Less use of labour - a business can more easily operate 24/7 due to the increased use of robots, reducing the average cost per unit, as long as demand for products in question is there, making a firm more operationally efficient.
+Workers can specialise in one job or one part of the production process, which makes them more efficient.
+Can still create personalised products using computer programmed machinery.
What are the disadvantages of flow production?
+Expensive to purchase machinery and to set up +Production can be inflexible
+Jobs can be repetitive and boring - reducing motivation of workers
+Can involve considerable risk to a business; it takes a lot of planning time to organise the production process +May require a lot of space for storage
What is productivity?
+The amount produced [output] for a given number of employees [input]
+It is about the efficiency and lowering the average cost of producing goods and services
+A business would want this to be as high as possible
How can a business improve productivity?
+Invest employees through better recruitment, training and motivation
+Invest in better equipment [it will have a short term cost, but will save the business money in the long run]
What are the advantages of improving productivity?
+Allows a business to make more profits [as a firm’s fixed costs are spread across more units]
+This enables a firm to have more flexibility over its pricing decisions
+They could charge lower prices [as average cost of one unit is lowered, meaning the business will be more competitive
+The business can keep the same price, but with an increased productivity a firm would be able to enjoy an increased profit margin on each item sold.
What have advances in technology created?
+New faster and cheaper ways to produce goods
+Eg, robots are now used instead of human staff for tasks such as assembling products or packing products into boxes - making the process more operationally efficient and productive.
What can technology also be used for?
+To help design products
+Eg, computers can be made to design products digitally - this information can be fed straight into the production machine.
+This is faster, cheaper than traditional methods of making prototypes, making the design process more efficient.
What are the advantages to using technology in production?
+Technology can carry out processes more quickly and accurately than humans - this increases productivity of the business & the goods produced should be of a more consistent quality.
+Technology means that machines can work 24/7 so production can be completely continuous. +In the long term, it’s cheaper to run machines than to pay humans to do the same thing.
What are the disadvantages of using technology in production?
+Using technology can be very expensive - it can cost a lot to buy and install new machines and they may need regular maintenance and updates.
+Staff will also need to be trained to use technology, which can be expensive and time consuming.
+Some technologies might replace manual work, so staff might be worried they’ll lose their jobs - this could demotivate them causing their productivity to go down.
+Machines are often suited to one task, making them inflexible - this means it can be difficult if a firm wants to change its production method (or the product it’s making)
What is a supplier?
+A business that supplies goods or services to a business to enable it to function and produce its products.
What happens if a firm’s suppliers produces poor quality raw materials and is unreliable with their deliveries?
+This will affect the performance and reputation of the business.
+Managing stock in terms of ensuring the right quantity is always available at the right time, at the right quality is therefore a very important role within any business.
What is stock control?
+A process to ensure a business does not run out of stock, but also to order stock in a way that the costs of holding stock is minimised.
What do businesses often use in order to help the stock control process?
+They will often use bar gate stock control charts
+Although in today’s business world, these are often computerised and linked to suppliers, so the process of stock control is automatic.
What is an example of a bar gate stock graph?
This shows how stock levels decrease over time as stock is used up, until a new order arrives when the stock level increases again.
What are the reasons for having a maximum level of stock?
+Short shelf life [could go out of date]
+Lack of space
What is the maxiumum level?
This shows the maximum level of stock a business can or wants to hold.
• Example from graph: 800 units.
What is thee re-order level?
This is a trigger point; when stock falls to this level, the next supplier order should be placed.
• Example from graph: 400 units
What is the lead time?
This is the time it takes between placing the order and receiving the stock
• Example from graph: just under a week
What is the minimum stock level/buffer stock?
+This amount of stock is held “just in case” of unexpected orders; this helps to ensure that such orders
can be met and other orders can be met in case of any delays in deliveries from suppliers.
+It is the minimum amount of stock the business would want to hold; the firm would not want its stock levels to
fall below this level, as it may run out and therefore may not be able to satisfy customer orders.
• Example from graph: 200 units.
What are the factors affecting how much stock to reorder?
- Lead time from supplier
- Implications of running out of stock altogether [ie risk of stock outs]
- Demand for product
How does lead-time affect how much stock to reorder?
How long it takes for the supplier to deliver the order
• Longer lead times may require a higher re-order level, for example supplies that are being shipped from the Far East may take as long as 8 weeks to arrive into the UK
How does implications of running out of stock affect how much sotck to reorder?
If stock-outs are very damaging to the firm’s reputation and will impact heavily on future orders, then businesses should set a higher re-order level and quantity, plus increase the amount of buffer stock it holds.
