4. Operation management Flashcards
(120 cards)
1
Q
What does production mean?
A
The process of converting inputs such as land, labour and capital into saleable goods, for example shows and cell phones. Enterprise is the idea –> plays a part in production.
2
Q
What is productivity?
A
How a business measures it’s efficiency
3
Q
How do you calculate productivity?
A
total output/ factor of production (total input)
4
Q
What are some ways to improve productivity?
A
- Improving layout of factory so production becomes faster and more efficient
- Training workers so they can be more productive
- employee motivation
- Using automation
5
Q
What are the benefits of increase productivity?
A
- Lower cost per unit
- Less employees needed (reduce labour cost)
- Reduces overall costs.
6
Q
What can a firm hold in its inventory?
A
- raw materials
- goods that are not completed yet (a.k.a work-in-progress)
- finished unsold goods.
7
Q
Why are finished good held in inventory?
A
Finished good stocks are kept so that any unexpected rise in demand is fulfilled.
8
Q
Why do businesses hold inventory (stock)?
A
Businesses keep stocks for a variety of reasons:
- factories keep raw material inventory to make sure there are enough materials for production
- a shop might hold stock to ensure that products are available to customers.
9
Q
Why is it a disadvantages of holding inventory to a business?
A
- Warehousing costs - need somewhere to store it
- Handling costs - someone needs to move it in and out
- shrinkage costs - might get damaged, lost or stolen
- Insurance costs - have to pay monthly or yearly fee so losses are covered
- obsolescence - might not sell so out-of-date-goods
- opportunity costs - money tied up could be making profit somewhere else
10
Q
How do you calculate labour productivity?
A
total output in a given time period/ total workers employed
11
Q
What is the difference between production and productivity?
A
Production: Turning inputs into outputs
productivity: Output per worker in a given period of time
12
Q
Why should a business hold inventory?
A
- production process will have to stop if you run out
- Struggles to meet customer orders without it - leads to loss of sales
- Economies of scale - buy stock in bulk and suppliers with give discounts
13
Q
What are the problems with holding inventory?
A
Notes from book
14
Q
What is buffer stock/ safety stock?
A
inventory to deal with sudden customer demands for a product or in case supplies doesn’t get delivered on time.
15
Q
What is lean production?
A
Lean production refers to the various techniques a firm can adopt to reduce wastage and increase efficiency/productivity. Also reduces costs.
16
Q
What are 5 common wastes in businesses? What do they mean?
A
Overproduction – Producing too many products which then costs the business money to keep the product in storage. (and may get damaged/expires etc..)
Waiting – Goods not being processed
Transporting – Materials being moved around the factory inefficiently
Over-processing – e.g. using advanced machine to do simple tasks
Defects- production of faulty products which can’t be sold.
17
Q
What are the benefits of lean production?
A
less storage of raw materials, components and finished goods- less money and time tied up in inventory
quicker production of goods and services
no need to repair faulty goods- leads to good customer satisfaction
ultimately, costs will lower, which helps reduce prices, making the business more competitive and earn higher profits as well
18
Q
What are the 3 common lean production techniques?
A
- Kaizen
- Just In Time production
- Cell production
19
Q
What is kaizen?
A
Kaizen means continuous improvement by eliminating waste. it’s a Japanese term meaning ‘continuous improvement’.
20
Q
How does Kaizen work?
A
- It aims to increase efficiency and reduce wastage by getting workers to get together in small groups and discuss problems and suggest solutions.
- Since they’re the ones directly involved in production they will know best to identify issues.
- When kaizen is implemented, the factory floor, for example, is rearranged by re-positioning machinery and equipment so that production can flow smoothly through the factory in the least possible time.
21
Q
benefits of Kaizen:
A
- increased productivity
- reduced amount of space needed for production
- improved factory layout may allow some jobs to be combined, so freeing up employees to do other jobs in the factory
22
Q
What is just in time production?
A
This techniques eliminates the need to hold any kind of inventory by ensuring that supplies arrive just in time they are needed for production.
23
Q
What are some disadvantages of just in time?
A
- The firm will need very reliable suppliers and an efficient system for reordering supplies.
24
Q
What are the advantages of just in time?
A
- reduces the cost of holding inventory
- Warehouse space is not needed any more, so more space is available for other uses
- Finished goods are immediately sold off, so cash flows in quickly
25
What is cell production?
the production line is divided into separate, self-contained units each making a part of the finished good.
26
How does cell production make the work more efficient?
This works because it improves worker morale when they are put into teams and concentrate on one part alone.
27
What are the three methods of production?
- job production
- batch production
- flow production
28
What is job production?
Each product is different and made to specific instructions by the consumer. e.g. tailor made suits, customisable birthday/wedding cakes
29
What are the advantages of job production?
- very flexible method of production
- Workers have more varied job (They won’t become bored)
- Higher price can be charged for product
- Product meets requirements of the customer
29
What are the disadvantages of job production?
- Skilled labour will often be required which is expensive
- Costs are higher for job production firms because they are usually labour-intensive
- Production often takes a long time
- Since they are made to order, any errors may be expensive to fix
- Materials may have to be specially purchased for different orders, which is expensive
30
What is batch production?
Similar products are made in batches or blocks. A small quantity of one product is made, then a small quantity of another. Eg: cookies, building houses of the same design etc.
31
what are the advantages of batch production?
- Gives more variety of jobs to workers
- Production can be easily changed from one product to another
- Gives consumers a variety of products (e.g. many colour shirts)
32
What are the disadvantages of
33
What are the disadvantages of batch production?
- Expensive to produce goods
- Can be expensive since finished and semi-finished goods will need moving about
- Machines have to be reset when changing from one batch to another which slows down production (e.g. change colour of shirts from white to green dye)
- Warehouse space is needed to store products
34
What is flow production (mass production)?
large quantities of products are produced in a continuous process on the production line. Eg: a soft drinks factory.
34
what are the disadvantages of flow production?
- Very boring for workers (same product over and over)
- Starting costs are high (expensive machines, big factory etc…)
- If a machine breaks down the whole production line may stop
- Expensive storage costs as they are lots of products
34
What are the advantages of flow production?
- Goods are produced quickly and cheaply (economies of scale)
- Increased efficiency through use of machinery
- Less labour is needed (machines do the work)
- Automated production line means production can operate overnight
35
What situations affect which method of production you use? Give examples
The nature of the product – Unique products will require job production.
Size of the market – Products with small number of customers mean job or batch production is used. Products with large amount of consumers = flow production should be used.
The nature of demand – Small and infrequent demand by customers means job or batch production will be used.
The size of the business – Small businesses tend to operate using job and batch production while large business may use flow production.
36
What are some examples of technology production?
- Automation
- Mechanisation
- CAD (computer aided designing)
- CAM (computer aided manufacturing)
- Electronic point of sale
- Electronic funds transfer at point of sale (EFTPOS)
37
What is automation?
equipment used in the factory is controlled by computers to carry out mechanical processes, such as spray painting a car body.
38
What is mechanisation?
production is done by machines but is operated by people
39
What is CAD?
(computer aided designing): a computer software that draws items being designed more quickly and allows them to be rotated, zoomed in and viewed from all angles.
40
What is CAM?
(computer aided manufacturing): computers monitor the production process and controls machines and robots-similar to automation
41
What is electronic point of sale?
used at checkouts/tills where operator scans the bar-code of each item bought by the customer individually. The item details and price appear on screen and are printed in the receipt. They can also automatically update and reorder stock as items are bought.
42
What is EFTPOS?
(electronic funds transfer at point-of-sale): the electronic cash register at the till will be connected to the retailer’s main computer and different banks. When the customer swipes the debit card at the till, information is read by the scanner and an amount is withdrawn from the customer’s bank account (after the PIN is entered).
43
What are the advantages of using technology in production?
- Greater productivity
- Greater job satisfaction among workers as boring, routine jobs are done by machines
- Better quality products
- Quicker communication and less paperwork
- More accurate demand levels are forecast since computer monitor inventory levels
- New products can be introduced as new production methods are introduced
44
What are the disadvantages of using technology in production?
- Higher unemployment as machines replace human labour
- Technology is expensive
- Technology becomes outdated very quickly and may needs to be upgraded often
45
What are the three different types of costs?
- fixed costs
- variable costs
- total costs
- average costs
45
what are fixed costs?
Fixed Costs are costs that do not vary with output produced or sold in the short run. They are incurred even when the output is 0 and will remain the same in the short run. In the long-run they may change. Also known as overhead costs
46
What are variable costs?
Variable Costs are costs that directly vary with the output produced or sold. E.g.: material costs and wage rates that are only paid according to the output produced.
47
What are some examples of fixed costs?
- rents such as office space or land,
- insurance
- employee salaries
- advertising
- design and development
- software
48
How can fixed costs per product be lowered?
- Fixed cost per product can be lowered by making more products.
49
What are some examples of variable costs?
- Materials used to produce product
- wages of production worker
- bought in stock
50
What is total costs?
Fixed cost and variable costs are combined
51
What are the two formulas to calculate total costs?
total costs = variable costs + fixed costs
total costs = average costs * output
52
How do you calculate average costs?
Average cost per product = Total cost / Number of products produced
53
What can business do with this cost data? What are some examples?
A business can use these cost data to make different decisions.
e.g.
- setting prices
- deciding whether to stop production
- deciding on the best location
54
How do average costs per unit help set prices?
if the average cost of one unit is $3, then the price would be set at $4 to make a profit of $1 on each unit
55
How do the total costs help when deciding whether to stop production?
if the total cost exceeds the total revenue, a loss is being made, and so the production might be stopped
56
How do costs help deciding the location?
locations with the cheaper costs will be chosen
57
As output increases, a firm’s average cost ...
decreases
58
what are economies of scale?
Your average costs lower as you increase your production
59
What are the five different types of economies?
- purchasing
- marketing
- financial
- technical
- managerial
60
purchasing economies?
For large output, a large amount of components have to be bought. This will give them some bulk-buying discounts that reduce costs
61
marketing economies?
1. Buying own vehicle to distribute product
2. Advertising costs can be spread over a large number of products.
62
Financial economies?
Large firms able to negotiate cheaper finance deals (e.g. lower bank loans because banks view large businesses as less risky)
63
Managerial economies?
Large businesses can afford to hire specialists to work for them. This increases efficiency.
64
technical economies?
Use of specialist machinery to produce large quantities of products. (Small businesses cannot afford this)
65
What is diseconomies of scale?
Diseconomies of scale are the factors that lead to an increase the average costs of a business as it grows beyond a certain size.
66
What are the diseconomies of scale?
- poor communication
- demotivation of workers (low morale)
- Poor control (slow decision making)
67
How is poor communication an example of diseconomies of scale?
- when a business grows large, more departments and managers and employees will be added and communication can get difficult.
- Messages may be inaccurate and slow to receive, leading to lower efficiency and higher average costs in the business.
68
How is demotivation of workers an example of diseconomies of scale?
- when there are lots of workers in the business and they have non-contact with their senior managers
- the workers may feel unimportant and not valued by management.
- This would lead to inefficiency and higher average costs.
69
How is poor control (slow decision making) an example of diseconomies of scale?
- As a business grows larger, its chain of command will get longer.
- Communication will get very slow and so any decision-making will also take time
- since all employees and departments may need to be consulted with.
70
How are business avoiding diseconomies from arising?
Businesses are now dividing themselves into small units that can control themselves and communicate more effectively, to avoid any diseconomies from arising.
71
What is the break-even level of output?
Break-even level of output is the output that needs to be produced and sold in order to start making a profit.
the break-even output is where
output at which total revenue = total costs (neither a profit nor loss is made, all costs are covered).
72
How can you find out a businesses break-even output?
A break-even chart can be drawn
73
Have does a break-even chart show?
Shows the costs and revenues of a business across different levels of output and the output needed to break even.
74
Where is the breaking point calculated?
Now the break-even point can be calculated at the point where total revenue and total cost equals
75
What is the formula for the break-even level of output?
Total fixed costs/ selling price - variable costs (per unit)(contribution)
76
What is the margin of safety?
Tells a firm the amount sales can fall before the break-even point (BEP) is reached and the business makes no profit
77
do businesses want their margin of safety to be high or low?
As high as possible
78
What are the advantages of break-even charts?
- Enables managers to see the level of production/sales needed to break even
- Allows managers to read off expected profit/loss for different levels of sales
- Impacts of business decisions can be seen (e.g. See effects of lowering variable costs)
- Break even chart shows safety margin
79
What are the limitation of break even charts?
- Assumes that all costs and revenue can e shown in straight lines i.e. won't change
- Not easy to separate costs into fixed and variable costs
- Assumes all output is sold, doesn't take into account holding inventory
80
What is contribution (formula)?
Selling price – Variable cost per unit (this is the value added/contributed to the product when sold)
81
What is quality?
Quality means to produce a good or service which meets customer expectations. The products should be free of faults or defects.
82
Why is quality is important?
- establishes a brand image
- builds brand loyalty
- maintains good reputation
- increase sales
- attract new customers
83
What happens if there is no quality?
- lose customers to other brands
- have to replace faulty products and repeat poor service, increasing costs
- bad reputation leading to low sales and profits
84
There are three methods a business can implement to achieve quality. These are:
- quality control
- quality assurance
- total quality management
85
What is quality control?
Quality control is the checking for quality at the end of the production process, whether a good or a service.
86
What are some advantages of using quality control?
- Eliminates the fault or defect before the customer receives it, so better customer satisfaction
- Not much training required for conducting this quality check
87
What are some disadvantages of using quality control?
- Still expensive to hire employees to check for quality
- Quality control may find faults and errors but doesn’t find out why the fault has occurred, so the it’s difficult to solve the problem
- if product has to be replaced and reworked, then it is very expensive for the firm
88
What is quality assurance?
Quality assurance is the checking for quality throughout the production process of a good or service.
89
What are some advantages of quality assurance?
- Eliminates the fault or defect before the customer receives it, so better customer satisfaction
- Since each stage of production is checked for quality, faults and errors can be easily identified and solved
- Products don’t have to be scrapped or reworked as often, so less expensive than quality control
90
What are some disadvantages of quality assurance?
- Expensive to carry out since quality checks have to be carried throughout the entire process, which will require manpower and appropriate technology at every stage.
- How well will employees follow quality standards? The firm will have to ensure that every employee follows quality standards consistently and prudently, and knows how to address quality issues.
90
What is Total Quality Management (TQM)?
Total Quality Management or TQM is the continuous improvement of products and production processes by focusing on quality at each stage of production. There is great emphasis on ensuring that customers are satisfied.
91
What are the advantages of TQM?
- quality is built into every part of the production process and becomes central to the workers principles
- eliminates all faults before the product gets to the final customer
- no customer complaints and so improved brand image
products don’t have to be scrapped or reworked, so lesser costs
- waste is removed and efficiency is improved
92
What are the disadvantages of TQM?
- Expensive to train employees all employees
- Relies on all employees following TQM– how well are they motivated to follow the procedures?
93
How can customers be assured of the quality of a product or service?
They can look for a quality mark on the product like ISO (International Organisation for Standardisation). The business with these quality marks would have followed certain quality procedures to keep the quality mark - good reputation
94
What factors affect the location decisions of a manufacturing firm?
Quantitive (measurable financial terms):
- government incentives
- Market potential (main reason)
- Cost of the site
- Labor costs
- Transport costs
Qualitative:
- The size of the site
- legal restrictions
- quality of infrastructure
- ethical issues
- Production Method
- Market
- Raw Materials/Components
- External economies
- Availability of labour
- Government Influence
- Transport & Communication infrastructure
- Power and water supply
- Climate
- Owner’s personal preferences
95
How does the production method of a business affect its location?
- When job production is used, the business will operate on a small scale, so the nearness to components/raw materials won’t be that important.
- For flow production, on the other hand, production will be on a large scale- there will be a huge amount of components and transport costs will be high- so components need to be close by.
96
How does the market of a business business choosing its location?
if the product is a consumer good and perishable, the factories need to be close to the markets to sell out quickly before it perishes.
97
How do the raw materials/Components of a place affect a business choosing its location?
the factories may need to be located close to where raw materials can be acquired, especially if the raw material is to be processed while still fresh, like fruits for fruit juice.
98
How do the external economies of a place affect business choosing its location?
the business may locate near other firms that support the business by provide services- eg: business that install and maintain factory equipment.
99
How does the availability of labour of a place influence a business choosing its location?
- Businesses will need to locate near areas where they can get workers of the skills they need in the factory.
- If lots of unskilled workers are needed in the factories firms locate in areas of high unemployment.
- Wage rates also vary by location and firms will want to set up in locations where wage rates are low
100
How does the government influence of a place influence a business choosing its location?
- the government sometimes gives incentives and grants to firms that set up in low-development, rural and high-unemployment areas.
- There may also be govt. rules and restrictions in setting up, e.g.: in some areas of great natural beauty.
- The business needs to consider these.
101
How does the Transport & Communication infrastructure of a place influence a business choosing its location?
- the factories need to be located near areas where there are good road/rail/port/air transport systems.
- If goods are to be exported, it needs to be set up near ports.
102
How does the Power and water supply of a place influence a business choosing its location?
- factories need water and power to operate and a reliable and steady supply of both should be ensured by setting up in areas where they are available.
103
How does the climate of a place influence a business choosing its location?
- not the most important factor but can influence certain sectors.
- Eg: the dry climate in Silicon Valley aids the manufacturing of silicon chips.
104
What factors affect the location decisions of a retailing firm?
- shoppers
- nearby shops
- Customer parking availability
- Availability of suitable vacant premises
- Rent/taxes
- Access to delivery vehicles
- Security
105
How do the shoppers affect the location decisions of a retailing firm?
retailers need to be located in areas where shoppers frequent, like malls, to attract as many customers as possible.
106
How do the nearby shops affect the location decisions of a retailing firm?
- being located to other shops that are visited regularly will also attract attention of customers into the shop.
- Being near competitors also helps keep an eye on competition and snatch away customers.
107
How do the customer parking availability affect the location decisions of a retailing firm?
when parking is available nearby, more people will find it convenient to shop in that area.
108
How do the availability of suitable vacant premises affect the location decisions of a retailing firm?
- Obviously, there needs to be a vacant premise available to set up the business.
- Vacant premises can also help the business expand their premises in the future.
109
How do the Rent/taxes affect the location decisions of a retailing firm?
rents and taxes on the locations need to be affordable.
110
How do the access to delivery vehicles affect the location decisions of a retailing firm?
if the retailer has home delivery services, then delivery vehicles will be required.
111
How do the secuirty affect the location decisions of a retailing firm?
- high rates of crime and theft can happen in shops.
- Shopping complexes with security guards will thus be preferred by firms.
112
Why businesses locate in different countries?
- New markets overseas.
- Cheaper or new raw materials available in other countries.
- Cheaper and/or skilled workers are available overseas.
- Rent/ taxes are lower..
- Availability of government grants and other incentives
- Avoid trade barriers and tariffs
113
Why do businesses want to avoid trade barriers and tariffs?
When exporting goods to other countries, there will be some tariffs, rules and regulations to get by. in order to avoid this, firms start operating in the country itself, since there is no exporting/importing involved now.
114
What is the role of legal controls on location decisions?
(How does the Government influence location decisions)
- to encourage businesses to set up and expand in areas of high unemployment and under-development.
- Grants and subsidies can be given to businesses that set up in such areas.
- to discourage firms from setting in areas of that are overcrowded or renowned for natural beauty.
- Planning restrictions can be put into place to do so.
115
Map out the production process:
INPUTS (Economic resources) --> Factors of production (Land, Labour, Capital and Enterprise) --> Production process --> OUTPUTS --> goods/ services
