4.20 The nature of operations

Question 1

Added value

Answer 1

The difference between the cost of purchasing raw materials and the price the finished goods are sold for

Question 2

“Operations” is concerned with

Answer 2

+ Efficiency of production - keeping costs as low as possible will help to give competitive advantage
+ Quality - the good or service must be suitable for purpose intended
+ Flexibility - the need to adapt to new processes and new product

Question 3

Value added depends on

Answer 3

+The design of the product
+ The efficiency with which the input resources are combined and managed e.g: reduce waste and increase productivity will increase the value added by the production process.
+ The impact of the promotional strategy on convincing consumers to pay for for the product

Question 4

Operation process before selling the good

Answer 4

+ Converting a consumer need into a product that can be produced efficiently
+ organising operations so that production is carried out efficiently
+ Deciding on suitable production methods
+ setting quality standards and checking they’re maintained

Question 5

Production

Answer 5

converting inputs into outputs

Question 6

The level of production

Answer 6

is the number of units produced during a time period

Question 7

Productivity

Answer 7

The ratio of outputs to inputs during production

e.g: output per worker per time period

Question 8

Raising productivity levels

Answer 8

1. Improve the training of staff to raise skill levels: Staff with higher and more flexible skill = more productive -> perform task efficiently.
2. Improve worker motivation : Many business put emphasis on non-financial methods of motivation (decision making, kaizen groups. delegation and quality circles) -> increase in productivity without increasing labour pay -> unit costs fail
3. Purchase more technologically advanced equipment: mordern machinery should allow increased output with fewer staff. But only worthwhile if level of output is high.
4. More efficient management: + Purchase correct materials
   + Good maintenance schedules for machines
   + Good management of staff

Question 9

Is raising productivity always the answer?

Answer 9

+ Product is unpopular –> efficient for nothing
+ Greater efforts and contributions –> higher wage demands -> increasing unit costs -> not gain productivity
+ Improvement of labour productivity may lead to job loss of workers
+ There’s a difference between efficiency and effectiveness

Question 10

Efficiency and effectiveness

Answer 10

Efficiency: Producing output at the highest ratio of output to input
Effectiveness: + Meeting the objectives of the enterprise by using inputs productively to meet customers’ needs
+ Meeting customers’ needs profitably > just producing at the lowest-possible unit cost.

Question 11

Labour intensity

Answer 11

Involving a high level of labour input compared with capital equipment

Question 12

Capital intensive

Answer 12

Involving a high quantity of capital equipment compared with labour input

Question 13

Capital intensive problems

Answer 13

+ Fixed costs, costs of financing the purchase of equipment, maintenance cost are very high
+ Skilled engineers and programmers to monitor and adjust performance
+ Technology quickly becomes obsolete and relatively inefficient.

Question 14

Methods of production chosen depend on

Answer 14

+ The nature of the product and the product image that the firm wishes to establish
+ The relative prices of the two inputs - if labour costs are high and rising –> capital equipment is justifiable
+ The size of the firm and its ability to afford expensive capital equipment

Question 15

Operation Management

Answer 15

Operations management has been defined as the discipline of managing resources to
achieve efficient on-going production/provision of goods and services.
• Concerned with workflow at the operational level – how work will be performed, who will
do it, how resources will be combined.
• The conversion of strategic goals into operational activity.

Question 16

Labour productivity

Answer 16

Total output in a given time period/ total workers employed

unit: number of units per worker

Question 17

Capital productiviy

Answer 17

output/ capital employed

Question 18

Technology affect operations management

Answer 18

• Advances in technology could mean greater efficiency in production/service processes.
• Could mean the need to update equipment and require new investment.
• Impact of technological change on employees - can they change/cope?
• If the business does not keep up with technological change the operations management may contribute to a fall in demand for the product/service. • Possible impact on productivity and costs.
• Could mean less/different staff required.

Question 19

Operation management can add value by…

Answer 19

○ reducing costs.
○ reducing wastage.
○ increasing productivity.
○ taking out activities that do not add value.
○ improving design.
○ improving quality.
○ designing more efficient work methods.
○ better product development. ○ more efficient inventory management.