3.4 Operational Management

Question 1

Operational objectives may relate to:

Answer 1

Costs

Quality

Speed of response and flexibility

Environmental issues

Added value

Question 2

LABOUR PRODUCTIVITY =

Answer 2

Output ÷ Number of employees

Question 3

UNIT COSTS =

Answer 3

Total costs ÷ Output

Question 4

Output means the…
Unit costs are also called ‘…

Answer 4

the total number of units produced.

average costs’.

Question 5

CAPACITY

Answer 5

means the maximum amount that an organisation can produce in a given period of time with its current resources.

Question 6

CAPACITY UTILISATION=

Answer 6

= Output ÷ Capacity x 100

Question 7

EFFICIENCY

Answer 7

means using resources effectively.
It can be measured in terms of labour productivity (see above) or wastage.

Greater efficiency and higher labour productivity result in lower unit costs.

Question 8

LEAN PRODUCTION

Answer 8

means the range of waste-saving techniques introduced by Japanese manufacturing firms. By reducing the waste of time, materials and factory space, unit costs will be reduced, which makes it possible to offer lower prices. Lean production techniques include just-in-time production and kaizen.

Question 9

JUST–IN-TIME PRODUCTION

Answer 9

means keeping only minimal quantities of stock of materials and finished goods. Materials are only ordered and goods produced in response to specific orders.

Question 10

Advantages of JIT production

Answer 10

reduces costs such as storage and wastage.

It improves cash flow due to the shorter gap between paying for materials and receiving payment for goods sold.

Question 11

Disadvantages of JIT production

Answer 11

There is more danger of failing to meet customers’ orders on time, especially if workers or suppliers are unreliable.

Some workers may find JIT too stressful.

Question 12

JUST-IN-CASE PRODUCTION

Answer 12

is the alternative to just-in-time production.
It means keeping high levels of buffer stocks just in case there is an unexpected rise in demand or an unexpected shortfall of supply.

Question 13

KAIZEN means ‘

Answer 13

continuous improvement’.
It involves using ideas from employees on how to complete tasks more efficiently.

Question 14

Advantages of Kaizen

Answer 14

Unit costs are lower due to the continuous flow of improvements.

This provides a competitive advantage as firms can charge lower prices.

Workers are motivated by having their suggestions taken seriously.

Question 15

Disadvantages of Kaizen

Answer 15

Meeting in groups takes workers away from their usual work

The workforce may not like the continuous changes

There may be problems with suggestions that cannot be taken on board.

Question 16

RESOURCE MIX means

Answer 16

whether production is capital intensive or labour intensive.

Question 17

LABOUR INTENSIVE

Answer 17

means being more reliant on people instead of machinery and equipment

Question 18

CAPITAL INTENSIVE

Answer 18

means being more reliant on machinery and equipment instead of people. This may include the use of automation and robotics.

Question 19

AUTOMATION means

Answer 19

the use of technology instead of people.
It includes robotics, as well as any other machinery or equipment that can replace human labour in the production process.

Question 20

ROBOTICS

Answer 20

means using robots during the production process instead of human labour.

Question 21

OPTIMAL MIX OF RESOURCES

Answer 21

means the combination of capital and labour intensive production processes that is best for a particular business in terms of quality, flexibility and unit costs.

Question 22

QUALITY

Answer 22

means the standard of goods produced or services provided in relation to customers’ expectations

Question 23

QUALITY CONTROL

Answer 23

means using inspections to check the standard of goods that have been produced.

Question 24

QUALITY ASSURANCE

Answer 24

goes beyond checking the standard of the finished products.
It is a whole-organisation approach that makes quality the responsibility of everyone at all stages of the production of goods or services in order to ensure customer satisfaction.
The aim is for ‘zero defects’: all work meeting the required standards at every stage of the production process.

Question 25

TOTAL QUALITY MANAGEMENT

Answer 25

involves expensive training from a specialist TQM firm in order to establish a culture of quality that affects the attitudes and actions of every employee.

Question 26

ISO 9000

Answer 26

is a certificate that a business can achieve if its sets and achieves quality targets in line with international standards. An independent assessor will regularly visit the business to ensure that these standards are being met.

Question 27

Benefits of providing a high quality of goods and services:

Answer 27

● Higher levels of sales due to customer satisfaction and good reputation ● Lower costs due to less waste of time and materials

Question 28

The consequences of poor quality are:

Answer 28

● Lower levels of sales due to customer dissatisfaction and poor reputation ● Higher costs due to more waste of time and materials

Question 29

FLEXIBILITY

Answer 29

means the ability to change what is being produced or methods of working.

Question 30

OUTSOURCING

Answer 30

means finding an outside organisation to carry out part of your production process.

Question 31

INFLUENCES ON CHOICE OF SUPPLIERS

Answer 31

PRICES CHARGED – lower prices paid to suppliers means lower unit costs. PAYMENT TERMS – cash flow is improved by suppliers offering longer periods of credit. QUALITY – better quality supplies means better quality goods for your customers. RELIABILITY – so you can meet your customers’ orders on time. LEAD TIME – a supplier with a short lead time allows you to meet your customers’ needs more quickly. CAPACITY – the supplier must be able to cope with the amount of work involved. FLEXIBILITY – a supplier must be able to cope with varying orders. ETHICAL CONSIDERATIONS – such as fair trade or environmental issues

Question 32

LEAD TIME

Answer 32

is the amount of time between an order being placed and the goods being received.

Question 33

BUFFER INVENTORY

Answer 33

is the lowest amount of inventory that a business plans to hold.

Question 34

RE-ORDER QUANTITY

Answer 34

is the amount of inventory that is ordered.

Question 35

Re-order quantity can be calculated by:

Answer 35

Lead time (in days) x Average daily usage

Question 36

Re-order level can be calculated by:

Answer 36

Re-order quantity + Minimum inventory level

Question 37

RE-ORDER LEVEL

Answer 37

is the level of inventory at which a new order is placed.