20 - The Nature Of Operations Flashcards
What are the 3 main resources for a business?
- Land, all firms need a location to operate from or manufacture on
- Labour, all business activity requires labour input, this can be manual labour or the mental skill of researchers. Labour effectiveness can be improved through the training of specific skills,however this can lead to workers becoming. Sought after by other firms and leaving
- Capital, this refers to the tools, computers and equipment used to produce the good or service sold. This also means the sum of finance invested by owners to start up the firm
What is operations management?
This is the process of managing the inputs of a business and the conversion of it into outputs
It is concerned with:
-Efficiency of production, keeping costs as low as possible will help the firm gain a competitive advantage
- Quality, the good or service must be suitable for the purpose intended
- Flexibility, the need to adapt to new processes and new products is increasingly important
Key point
*Operations management isn’t only about manufacturing, it’s about a firm using its resources productively and effectively
What is production?
This is converting inputs into outputs
What is added value?
The difference between the cost of purchasing raw materials and the price of the finished product
This is affected by:
- The design of the product
- The efficiency of the firms production
- The impact of promotional strategies
What is level of production?
This is the number of units produced during a period of time
What is productivity?
This is the ratio of outputs to inputs during production
E.g. Output per worker per time period
What are the two main measures of productivity?
Productivity can be measured as labour productivity (the productivity of the workforce) or as capital productivity (the productivity of the investment that has been made)
-Labour productivity (number of units per worker) = total output over a given period of time / total workers employed
This is used in labour intensive firms
-Capital productivity = output / capital employed
What are the methods of raising productivity levels?
- Improving the training of staff to increase skill levels, staff with higher skills are more efficient and more productive. This gives the firm a competitive advantage but it increases the likelihood of workers leaving as they are sought after by other firms
- Improving worker motivation, well motivated workers are more productive, an increase in productivity without an increase in pay would result in a reduction in unit costs. Giving the firm a competitive advantage
- Purchasing more technologically advanced equipment, modern equipment should allow increased output with fewer staff and this would allow a reduction in unit costs, however this is in the long term as the equipment is expensive
- More efficient management, this would ensure that the correct materials are bought at the best possible price. It would also ensure that machinery and equipment is maintained in order to keep productivity high
Does an increase in labour productivity always result in an increase in total output?
Not always. If demand for a product is reducing, the firm may be force to reduce the size of its workforce. However the smaller workforce might be very productive but output might decrease due to the reduction in the overall workforce
What is efficiency?
This is producing output at the highest ratio if output to input
-This minimises waste and reduces unit costs
What is effectiveness?
This is meeting the objectives of the enterprise by using inputs to meet consumer need productively
What is labour intensive?
This is when a firm relies on labour input than capital equipment or machinery in the production process
What is capital intensive?
This is when a firm relies on capital equipment and machinery than labour input in the production process
