Chapter 21 operation planning

Question 1

What is Operations planning>

Answer 1

Operations planning is preparing input resources to supply products to meet expected demand

Question 2

What do Operation managers need to do?

Answer 2

Operations managers need to coordinate and plan all production decisions with departments of the business – marketing, human resources, finance.

Question 3

what is operational flexibility?

Answer 3

Operational flexibility means the ability of a business to vary both the level of production and the range of products following changes in customer demand

Question 4

What is process innovation?

Answer 4

Process innovation is the use of a new or much improved production method or service delivery method

Question 5

What is Job production?

Answer 5

producing a one-off item specially designed for the customer

Question 6

What is Batch production?

Answer 6

producing a limited number of identical products – each item in the batch passes through one stage of production before passing on to the next stage

Question 7

What is Flow production?

Answer 7

producing items in a continually moving process

Question 8

What is Mass customization?

Answer 8

the use of flexible computer-aided production systems to produce items to meet individual customers’ requirements at mass-production cost levels

Question 9

Main advantages of Job production

Answer 9

1 able to undertake specialist projects or jobs, often with high value added
2 high levels of worker motivation

Question 10

Main disadvantages of Job production

Answer 10

1 high unit production costs
2 time consuming
3 wide range of tools and equipment needed

Question 11

Main advantages of Batch production

Answer 11

1 some economies of scale
2 faster production with lower unit costs than job production
3 some flexibility in design of product in each batch

Question 12

Main disadvantages of Batch production

Answer 12

1 high levels of stocks at each production stage

2 unit costs likely to be higher than flow production

Question 13

Main advantages of Flow production

Answer 13

1 low unit costs due to constant working of machines, high productivity and economies of scale

Question 14

Main disadvantages of Flow production

Answer 14

1 inflexible – often very difficult and time consuming to switch from one type of product to another
2 expensive to set up flow-line machinery

Question 15

Main advantages of Mass customisation

Answer 15

1 combines low unit costs with flexibility to meet customers’ individual requirements

Question 16

Main disadvantages of Mass customisation

Answer 16

1 expensive product redesign may be needed to allow key components to be switched to allow variety
2 expensive flexible capital equipment needed

Question 17

What factors will influence the production method a business adopts?

Answer 17

1 Size of the market
2 The amount of capital available
3 Availability of other resources
4 The type of market demand for products

Question 18

Problems of changing production methods, Job to Batch?

Answer 18

1 Cost of equipment needed to handle large numbers in each batch
2 Additional working capital needed to finance stocks and work in progress
3 Staff de-motivation – less emphasis placed on a individual’s craft skills

Question 19

Problems of changing production methods, Job or batch to flow?

Answer 19

1 Cost of capital equipment needed for flow production
2 Staff training to be flexible and multi-skilled – of this approach is not adopted, then workers may end up on one boring repetitive task, which could be de-motivating
3 Accurate estimates of future demand to ensure that output matches demand

Question 20

What is an Optimal Location?

Answer 20

An optimal location means a business location that gives the best combination of quantitative and qualitative factors

Question 21

Factors influencing location decisions: Quantitative factors

Answer 21

1 Business costs – capital costs, labour costs, transport costs
2 Potential sale revenue
3 Government grants

Question 22

Factors influencing location decisions:Qualitative factors

Answer 22

1 Safety
2 Room for further expansion
3 Ethical considerations
4 Environmental concerns
5 Infrastructure

Question 23

What is Multi-site location?

Answer 23

Multi-site location means a business that operates from more than one location

Question 24

Advantages of multi-site locations

Answer 24

1 greater convenience for customers, e.g. McDonald’s restaurants in every town
2 lower transport costs
3 opportunities for delegation of authority to regional managers from head office
4 cost advantages of multi-sites in different countries

Question 25

Disadvantages of multi-site locations

Answer 25

1 coordination problems between the locations – excellent two-way communication systems will be essential
2 potential lack of control and direction from senior management based at head office
3 different cultural standards and legal systems in different countries

Question 26

What is Offshoring?

Answer 26

Offshoring means the relocation of a business process done in one country to the same or another company in another country

Question 27

What are the reasons for international location decisions?

Answer 27

1 To reduce costs e.g. labour costs
2 To access global (world) markets
3 To avoid protectionist trade barriers*
4 Other reasons e.g. foreign government support

Question 28

Issues and potential problems with international location

Answer 28

1 Language and other communication barriers
2 Cultural differences
3 Level-of-service concerns
4 Supply-chain concerns
5 Ethical considerations

Question 29

What is Scale of operation?

Answer 29

The scale of operation is the maximum output that can be achieved using the available inputs (resources) – this scale can only be increased in the long term by employing more of all inputs

Question 30

What is Economies of scale?

Answer 30

Economies of scale means reductions in a firm’s unit (average) costs of production that result from an increase in the scale of operations

Question 31

What are the five main reasons for economies of scale?

Answer 31

1 Purchasing economies
2 Technical economies
3 Financial economies 
4 Marketing economies
5 Managerial economies

Question 32

What is Purchasing economies of scale?

Answer 32

• Purchasing economies are also known as bulk-buying economies
• Cheaper deals are always offered for greater quantities offered e.g. suppliers will often offer substantial discounts for large orders

Question 33

What is Technical economies of scale

Answer 33

Larger firms are more likely to be able to invest and install high-tech equipment that are more efficient (produce lower cost per unit) than the equipment smaller firms can afford

Question 34

What is Financial economies of scale?

Answer 34

Larger firms often get charged lower interest rates when borrowing finance compared to smaller firms

Question 35

What is Marketing economies of scale

Answer 35

Marketing costs (e.g. employing a sales force, employing an advertising agency) can be spread over a higher level of sales for a big firm therefore lowering the marketing cost per unit

Question 36

What is Managerial economies of scale?

Answer 36

Larger firms should be able to afford to attract specialist functional managers who should operate more efficiently than general managers

Question 37

What is Diseconomies of scale?

Answer 37

Diseconomies of scale means the factors that cause average costs of production to rise when the scale of operation is increased

Question 38

What are the 3 main cause for Diseconomies of scale?

Answer 38

1 Communication problems
2 Alienation of the workforce
3 Poor coordination

Question 39

Diseconomies of scale: Communication problems

Answer 39

Large-scale operations will often lead to poor feedback to workers, excessive use of non-personal communication media, communication overload with the sheer volume of messages being sent, and distortion of messages caused by the long chain of command

Question 40

Diseconomies of scale:Alienation of the workforce

Answer 40

1 The bigger the organisation, the more difficult it becomes to directly involve every worker and to give them a sense of purpose and achievement in their work
2 They may feel so insignificant to the overall business plan that they become de-motivated and fail to give of their best

Question 41

Diseconomies of scale: Poor coordination

Answer 41

1 A major problem for senior management of large-scale operations is coordination
2 Poor coordination could lead to substantially higher production costs than for a smaller business with much tighter control over operations