4 - Operational Efficiency

Question 1

What Is Capacity?

Answer 1

The maximum amount of goods or services a business can produce, deliver or handle within a given time period.

Question 2

What Are The Benefits Of A Business Increasing Capacity?
(3 Points)

Answer 2

~ Enables business to meet consumer demand.

~ Maximise revenues -> able to fulfil higher order volumes.

~ Larger capacity -> competitive advantage.

Question 3

What Are The Drawbacks Of A Business Increasing Capacity?
(2 Points)

Answer 3

~ Higher costs.

~ Less dividends to shareholders as a result.

Question 4

What Is Efficiency?

Answer 4

Production is maximised, based on a given level of FOPs.

Question 5

What Is The Importance Of Increasing Efficiency?
(2 Points)

Answer 5

~ Reductions in AC per unit -> lower prices or maintain prices -> higher sales -> increased profit margins.

~ Efficiency gains achieved -> increased wages -> increased motivation -> increased labour productivity.

Question 6

What Are The Solutions To Increasing Efficiency?
(3 Points)

Answer 6

~ Labour -> increase level of training -> less defects + waste -> increases motivation -> increases labour productivity.

~ Capital -> increase investment in machines -> supports labour -> increasing labour productivity.

~ Enterprise -> increasing output -> achieve EOS.

Question 7

What Are The Drawbacks To Increasing Efficiency?
(2 Points)

Answer 7

~ Costs of training and investment.

~ Increased output, leads to DEOS.

Question 8

What Is Lean Production?

Answer 8

Reducing waste, to increase efficiency and productivity, to decrease costs and increase revenue.

Question 9

What Are The Types Of Lean Production?
(3 Points)

Answer 9

~ Just-In-Time (JIT).

~ Just-In-Case / Buffer stocks.

~ Kaizen (Continuous improvement).

Question 10

Describe Just-In-Time (JIT)
(2 Points)

Answer 10

~ Inventory management technique.

~ Stock arrives just in time, for the sale or production.

Question 11

What Are The Benefits Of Just-In-Time (JIT)?
(2 Points)

Answer 11

~ Reduce waste -> decrease storage costs + less labour required.

~ Greater productivity -> time pressure from order -> added responsibility placed on employees -> more motivation.

Question 12

What Are The Drawbacks Of Just-In-Time (JIT)?
(3 Points)

Answer 12

~ Higher average unit cost -> smaller and frequent purchases -> unable to get PEOS.

~ Very reliant on suppliers -> fail to deliver or quality issues -> no production, no sales.

~ Risk of failing to meet unexpected demand -> loss of sales -> reputational issues.

Question 13

Describe Just-In-Case

Answer 13

Minimum stock a business intents to hold.

Question 14

What Are The Benefits Of Just-In-Case?
(2 Points)

Answer 14

~ Manage uncertainties -> suppliers fail to deliver -> continue to produce.

~ Negotiate better deals with suppliers -> PEOS, due to importance to suppliers because of increased order sizes.

Question 15

What Are The Drawbacks Of Just-In-Case?
(2 Points)

Answer 15

~ Higher storage costs.

~ Can lead to wastage.

Question 16

What Is Capital Intensive Production?

Answer 16

More use of machinary, then labour.

Question 17

What Are The Benefits Of Using A Capital Intensive Process?
(3 Points)

Answer 17

~ Full automated, leading to less wastage.

~ Cost effective in the long term.

~ Greater opportunities for EOS.

Question 18

What Are The Drawbacks Of Using A Capital Intensive Process?
(3 Points)

Answer 18

~ High initial costs.

~ Lack of human initiative.

~ Greater resistance to change.

Question 19

What Is Labour Intensive Production?

Answer 19

Using more labour, than machinary.

Question 20

What Are The Benefits Of Using A Labour Intensive Process?
(3 Points)

Answer 20

~ Cheaper.

~ Labour can do some jobs that capital cannot do.

~ Are able to spot defects.

Question 21

What Are The Drawbacks Of Using A Labour Intensive Process?
(4 Points)

Answer 21

~ Breaks, holidays and effective management are needed.

~ Increased recruitment costs.

~ Lack of skilled workers in some industries.

~ Strikes can occur.

Question 22

What Are The Ways Technology Can Be Used To Increase Operational Efficiency?
(3 Points)

Answer 22

~ Design Technology -> CAD (Computer aided design).

~ Stock / Inventory Management -> Computerised reordering.

~ Capital For Production + Fulfilment -> Robotics / automation.

Question 23

Describe ‘Design Technology’ To Increase Operational Efficiency
(2 Points)

Answer 23

~ Increases the speed of the design process.

~ Easier to alter designs.

Question 24

Describe ‘Stock / Inventory Management’ To Increase Operational Efficiency
(2 Points)

Answer 24

~ Instant, automated re-ordering when inventory or stock falls below a certain level.

~ Supports JIT.

Question 25

Describe 'Capital For Production + Fulfilment' To Increase Operational Efficiency (3 Points)

Answer 25

~ Capital intensive production. ~ Consistent quality -> decreasing waste. ~ Increases production scale -> EOS.

Question 26

What Is The Impact Of Introducing Technology? (3 Points)

Answer 26

~ Resistance from employees. ~ Finances available for technology. ~ Labour replaced by capital can be demotivating.