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Business Topic 4 Flashcards

1
Q

What role does the operations function play in a business, and why is it important to measure its performance?

A

The operations function is the “engine-room” of the business, responsible for driving production and service delivery. Its performance is critical because it directly impacts cost-effectiveness, quality, and customer satisfaction. Measuring performance ensures that the business operates efficiently, meets objectives, and remains competitive.

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2
Q

Why are cost and volume targets critical for a business’s operations?

A

Cost and volume targets are essential because they help ensure operations are cost-effective. Achieving lower unit costs allows a business to compete by offering lower prices or achieving higher profit margins at standard industry prices. These targets contribute to productivity, efficiency, and profitability.

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3
Q

What is “unit cost,” and why is it a significant measure in business operations?

A

Unit cost is the average cost of producing one unit of a product. It is significant because it reflects a business’s cost-effectiveness. Businesses with lower unit costs can price competitively or secure higher profit margins, gaining an advantage over competitors in the same industry.

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4
Q

What are some common objectives businesses set for cost and volume in operations?

A

Common objectives include:

Productivity & efficiency: Measured by output per employee or per week.
Unit costs per item: Keeping production costs low.
Contribution per unit: The profit contribution of each product.
Production volume: Specified number of items to produce within a set timeframe.

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5
Q

Why are quality targets crucial in business operations, and what are some ways to measure them?

A

Quality targets are vital because they ensure products and services meet or exceed customer expectations, which drives satisfaction and loyalty. Methods to measure quality include:

Scrap/defect rates.
Reliability metrics like average lifetime use.
Customer satisfaction surveys.
Incidence of customer complaints.
Rates of customer loyalty or repeat business.

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6
Q

What are efficiency and flexibility targets, and why are they important?

A

Efficiency and flexibility targets measure how effectively a business uses its assets and how quickly it adapts to changes in demand. These are crucial for managing costs and maintaining competitiveness. Examples include:

Labour productivity (output per employee).
Output per time period (e.g., units per week).
Capacity utilisation (percentage of potential output achieved).
Order lead times (time taken to process orders).

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7
Q

Define ‘capacity utilisation’ and explain its significance in operations.

A

Capacity utilisation measures the proportion of a business’s potential output that is actually being achieved. It is significant because higher capacity utilisation typically reduces unit costs and indicates efficient use of resources, contributing to better financial performance.

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8
Q

What are environmental targets in business operations, and why are they becoming more important?

A

Environmental targets aim to reduce the environmental impact of operations. They are increasingly important due to stricter legislation and growing consumer demand for environmentally responsible businesses. Common targets include:

Reducing energy use.
Increasing the proportion of recycled materials.
Compliance with waste disposal regulations.
Sourcing raw materials sustainably.

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9
Q

How does achieving environmental targets benefit a business?

A

Meeting environmental targets can enhance a business’s reputation, attract environmentally conscious consumers, ensure compliance with legal requirements, and potentially reduce costs through resource efficiency. It demonstrates corporate social responsibility and supports long-term sustainability.

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10
Q

What is the relationship between efficiency, flexibility, and unit costs in operations?

A

Efficiency and flexibility are key drivers of unit costs. High efficiency (e.g., greater output per employee or machine) lowers production costs, while flexibility ensures the business can adapt to demand changes without incurring excessive costs, both contributing to reduced unit costs.

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11
Q

What are the two main types of influences on operational objectives?

A

Internal and external influences

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12
Q

How do corporate objectives influence operational objectives?

A

Operational objectives must align with and support corporate goals.

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13
Q

Why is the financial position of a business important for operational decisions?

A

It determines the resources available for investments in operations.

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14
Q

How do human resources affect operational objectives?

A

Workforce quality and planning impact productivity and efficiency targets.

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15
Q

In what way do marketing issues influence operations?

A

Changes in products or marketing mix affect production setup and flexibility.

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16
Q

How does the economic environment influence operational objectives?

A

It affects demand, capacity utilisation, and financing costs.

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17
Q

How do competitors influence a business’s operational objectives?

A

Efficient competitors push businesses to match or improve performance.

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18
Q

Why is technological change significant for operational objectives?

A

It drives innovation and can require updates to production processes.

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19
Q

How do legal changes influence operational objectives?

A

They require compliance with regulations, such as waste management laws

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20
Q

Why are environmental changes an important influence?

A

They push businesses to adopt sustainable practices and reduce environmental impact.

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21
Q

What is an example of an internal influence interacting with an external influence?

A

A corporate sustainability goal aligning with new environmental legislation

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22
Q

Why is it important for a business to make effective use of its assets?

A

To maximise returns on expensive production investments like factories and machinery.

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23
Q

What is productivity in a business context?

A

Productivity measures the relationship between production inputs and outputs.

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24
Q

How can productivity be measured?

A

Through output per worker, hour, machine, or unit costs.

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25
What does a falling unit cost ratio indicate?
It shows that efficiency is improving.
26
Why is achieving high productivity important for competitiveness?
It enables a business to produce lower-cost goods than competitors.
27
How does high productivity affect profit margins?
It increases profit per unit or allows for competitive pricing while maintaining profits.
28
What are some methods to improve productivity through workforce development?
Providing training to enhance employee skills.
29
How does employee motivation impact productivity?
Motivated employees produce more output with the same effort.
30
How can capital investment improve productivity?
By upgrading or adding better equipment and automation.
31
How do better raw materials improve productivity?
They reduce wastage and the time spent handling rejected products.
32
What role does production organisation play in productivity?
Improved organisation reduces waste and optimises output.
33
What is cost minimisation in a business context?
A strategy to deliver goods and services cost-effectively while maintaining required quality.
34
Is cost minimisation about reducing quality?
No, it focuses on meeting customer needs without compromising quality.
35
Name two industries where cost minimisation is highly emphasised.
Low-cost airlines (e.g., Ryanair, EasyJet) and discount retailers (e.g., Lidl, Aldi).
36
How does cost minimisation theoretically affect profits and cash flow?
It should increase profits and improve cash flow if done without harming revenue or quality.
37
Why might businesses neglect cost minimisation during economic booms?
Growth and expansion often lead to increased cost structures viewed as "investments."
38
What often prompts businesses to focus on cost reduction?
Economic downturns or recessions, such as in 2008/09.
39
Name two common methods for reducing costs in established businesses.
Eliminating waste and outsourcing non-core activities.
40
What does the acronym KISS stand for, and how does it relate to cost minimisation?
"Keep it simple, stupid," used to simplify processes and procedures.
41
How can negotiating with suppliers help in cost minimisation?
It allows businesses to secure better pricing and reduce expenses.
42
Why might pruning product ranges be beneficial in cost minimisation?
It eliminates unprofitable items, simplifying operations and reducing costs.
43
What is a potential danger of over-aggressive cost minimisation?
It might harm quality or customer service and reduce employee morale.
44
How can insufficient capacity from cost cutting become a problem?
The business might struggle to meet unexpected increases in demand.
45
Why is communication important during cost reduction efforts?
Poorly communicated changes can disrupt or annoy other departments.
46
Give an example of an aggressive control over overheads.
Banning first-class travel unless absolutely essential.
47
What is a key principle to keep in mind when minimising costs?
Ensure actions do not negatively impact quality, customer service, or long-term goals.
48
What are economies of scale?
Cost advantages achieved by increasing the scale of production, resulting in lower average costs.
49
What are the two main types of economies of scale
Internal and external economies of scale.
50
What are internal economies of scale?
Cost savings within a business as it grows, such as purchasing, managerial, technical, and marketing economies.
51
How do purchasing economies reduce costs?
By negotiating better prices with suppliers for bulk purchases.
52
What are managerial economies?
Cost savings achieved by employing specialist managers who bring expertise and efficiency.
53
How do technical economies benefit a business?
By allowing investment in advanced technology and machinery, increasing efficiency and reducing costs.
54
What are marketing economies?
Spreading marketing costs over a larger output, lowering the average cost per unit.
55
What are external economies of scale?
Cost savings arising from the growth of the industry or geographic clusters outside the business.
56
How does a geographic cluster create external economies of scale?
By reducing transportation costs and increasing efficiency through proximity to suppliers and related businesses.
57
What are industry-wide economies?
Cost advantages from the development of specialized labor and ancillary industries as an industry grows.
58
What are diseconomies of scale?
Increased costs and inefficiencies that arise when a business becomes too large.
59
How does poor communication lead to diseconomies of scale?
By making coordination harder, leading to inefficiencies and increased costs.
60
What role does bureaucracy play in diseconomies of scale?
Excessive bureaucracy increases costs and reduces efficiency in large businesses.
61
How can employee commitment affect diseconomies of scale?
Reduced commitment in large businesses can lead to decreased productivity and higher costs.
62
What are diseconomies of scale?
Diseconomies of scale occur when a business grows so large that the costs per unit increase, often due to difficulties in managing a larger workforce.
63
Does increasing output always result in lower unit costs?
No, as a business grows, unit costs can sometimes rise due to diseconomies of scale.
64
What are the main reasons for diseconomies of scale?
Diseconomies of scale stem from: Poor communication Lack of motivation Loss of direction and co-ordination
65
How does poor communication contribute to diseconomies of scale?
Larger businesses face challenges like distorted messages in complex hierarchies, wide spans of control, and reduced face-to-face communication, leading to unclear instructions and less effective feedback.
66
What issues arise from less face-to-face communication in large businesses?
Increased reliance on written communication (e.g., emails, newsletters) can reduce feedback and weaken communication effectiveness.
67
How does lack of motivation affect productivity in large businesses?
Workers may feel isolated and undervalued, reducing loyalty and motivation, which leads to lower productivity and higher average labor costs per unit.
68
What solutions can businesses use to address low motivation?
Delegation of decision-making (empowerment) Making jobs more interesting (job enrichment) Splitting employees into teams (teamworking)
69
What is the relationship between communication and motivation in large businesses?
Poor communication reduces motivation, as workers receive less personal attention and feedback, diminishing their sense of belonging and productivity.
70
How does loss of direction and coordination lead to diseconomies of scale?
In larger businesses, wider spans of control and increased delegation make it harder to align workers with the overall goals and ensure effective collaboration.
71
What challenge does increased delegation pose to managers in large businesses?
While delegation can motivate subordinates, it reduces the manager's direct control and oversight, potentially leading to inefficiencies.
72
What is the definition of capacity in a business context?
Capacity is the maximum output a business can produce in a given period using the available resources.
73
How is capacity usually measured?
Capacity is measured in production units, such as 1,000 cars per month.
74
How can productive capacity change?
Productive capacity can change, for example, when a machine is undergoing maintenance, reducing available capacity.
75
How is capacity linked to workforce planning?
Capacity can be increased by measures such as adding more production shifts.
76
Why must businesses consider seasonal or unexpected changes in demand when managing capacity?
Businesses need to adjust capacity to handle variations in demand, such as producing Easter eggs in winter or increasing ice-cream production during a heatwave.
77
Give an example of how seasonal changes affect capacity requirements.
Chocolate factories need to ramp up capacity in November and December to produce Easter eggs for post-Christmas shipping.
78
Provide an example of how unexpected changes can impact capacity.
Ice-cream factories in the UK may need to rapidly increase capacity during a heatwave.
79
What is capacity utilisation in business?
Capacity utilisation refers to the percentage of a business’s total output capacity that is being achieved, showing how effectively productive resources are used.
80
What is the formula for calculating capacity utilisation?
Capacity Utilisation (%) = Current Output Maximum Output × 100 Maximum Output Current Output ​ ×100
81
What are the benefits of high capacity utilisation?
Lower unit costs Higher profitability Increased efficiency
82
What are the disadvantages of low capacity utilisation?
Under-utilisation of resources Higher unit costs Potential financial losses
83
How does demand affect capacity utilisation?
Changes in demand directly impact capacity utilisation; higher demand can increase utilisation, while lower demand reduces it.
84
How does production efficiency influence capacity utilisation?
Improving production efficiency allows businesses to produce more with the same resources, increasing capacity utilisation.
85
What role does machinery availability play in capacity utilisation?
Regular maintenance and upgrades reduce downtime, improving productivity and capacity utilisation.
86
How can businesses improve labour productivity to enhance capacity utilisation?
Businesses can increase labour productivity through training or automation, enabling higher output with the same workforce.
87
List strategies to improve capacity utilisation.
Increasing production volume Investing in technology Outsourcing Implementing flexible working hours
88
What is labour productivity?
Labour productivity measures the amount (volume) of output obtained from each employee.
89
Why is monitoring labour productivity important for businesses?
Labour costs are a significant part of total costs. Business efficiency and profitability depend on productive use of labour. Keeping unit costs down is crucial for competitiveness.
90
What factors influence labour productivity?
Extent and quality of fixed assets (e.g. equipment, IT systems) Skills, ability, and motivation of the workforce Methods of production organisation External factors (e.g. supplier reliability)
91
What are the main approaches a business can take to improve labour productivity?
Measure performance and set targets Streamline production processes Invest in capital equipment (e.g., automation, computerisation) Invest in employee training Make the workplace conducive to productive effort
92
How does measuring performance help improve labour productivity?
Setting measurable targets encourages focus and achievement, following the principle "what gets measured, gets done."
93
Why is investing in employee training important for labour productivity?
Training enhances workforce skills, abilities, and motivation, directly boosting productivity.
94
How does streamlining production processes impact labour productivity?
Simplifying and optimising production methods reduces inefficiencies, increasing output per employee.
95
What is the role of capital equipment in improving labour productivity?
Automation and computerisation allow employees to work faster and more efficiently, increasing output.
96
How can creating a conducive workplace improve labour productivity?
A positive work environment boosts motivation and focus, leading to greater productivity.
97
What are the two main factor inputs in production operations?
Labour – e.g., management, employees, temporary staff Capital – e.g., machinery, IT systems, buildings, vehicles
98
What is labour-intensive production?
Labour-intensive production relies mainly on labour rather than capital.
99
What is capital-intensive production?
Capital-intensive production relies mainly on capital rather than labour.
100
Give examples of labour-intensive industries.
Food processing (e.g., ready meals) Hotels and restaurants Fruit farming/picking Hairdressing and personal services Coal mining
101
Give examples of capital-intensive industries
Oil extraction and refining Car manufacturing Web hosting Intensive arable farming Transport (e.g., airports, railways)
102
What are the main features of labour-intensive operations?
Labour costs are higher than capital costs. Costs are mainly variable, leading to lower breakeven output. Firms benefit from access to low-cost labour sources.
103
What are the main features of capital-intensive operations?
Capital costs are higher than labour costs. Costs are mainly fixed, resulting in higher breakeven output. Firms benefit from low-cost, long-term financing.
104
What is lean production?
Lean production is an approach to management focused on cutting out waste while ensuring quality, making a business more efficient and responsive to market needs.
105
What is the primary aim of lean production?
Lean production aims to reduce costs by eliminating activities that do not add value to the production process, such as excess stock, faulty products, and unnecessary movement.
106
What are the key principles of lean production?
Doing simple things well Continuously improving processes Involving employees Avoiding waste
107
Why is avoiding waste essential in lean production?
Waste equals cost, so reducing waste lowers costs, helping businesses remain competitive.
108
What types of waste did Toyota identify in lean production?
Over-production: Excess stock due to unnecessary production. Waiting time: Idle equipment or people. Transport: Unnecessary movement of resources. Stocks: Excessive inventory. Motion: Non-value-adding worker activity. Defects: Faulty products that fail quality standards.`
109
What are the key aspects of lean production methods?
Time-based management Simultaneous engineering Just-in-time production (JIT) Cell production Kaizen (Continuous improvement) Quality improvement and management
110
What is the purpose of Just-in-Time (JIT) production in lean management?
JIT aims to minimize stock levels by producing goods only as needed, reducing waste and holding costs.
111
What does Kaizen mean in lean production?
Kaizen refers to continuous improvement through small, incremental changes involving employees at all levels.
112
Why is lean production considered a powerful strategy for competitiveness?
By reducing waste and lowering costs, businesses can become more efficient, improve quality, and respond better to market demands.
113
How does time-based management contribute to lean production?
Time-based management focuses on reducing production time to improve efficiency and responsiveness to market changes.
114
What is Just-in-Time (JIT) production?
JIT is a production and inventory management strategy where materials and components are ordered and received just in time to meet customer demand, minimizing inventory levels and storage costs.
115
What are the advantages of JIT production?
Reduced inventory costs Reduced stock obsolescence Improved cash flow Reduced waste
116
What are the disadvantages of JIT production?
Higher transportation costs Higher inventory risk (e.g., supplier delays) Limited flexibility for demand changes Higher costs for quality control
117
How does JIT impact business profits?
Reduced costs: Lower inventory and storage expenses improve margins. Improved cash flow: Less capital tied up in stock reduces financial strain. Increased revenue potential: Faster response to demand can boost sales.
118
How does JIT compare to Just-in-Case (JIC) systems?
JIT: Minimizes inventory, suitable for stable demand and reliable suppliers. JIC: Maintains buffer stock, suitable for unpredictable demand or supply chain disruptions.
119
Why does JIT reduce inventory costs?
By minimizing stock levels, businesses lower storage needs and stockholding costs.
120
What is a key risk of JIT systems?
Production can be disrupted if suppliers fail to deliver materials on time.
121
In what scenario is JIC more suitable than JIT?
JIC is better for businesses with unpredictable demand or frequent supply chain issues.
122
How does JIT improve cash flow?
Reduced inventory levels mean less capital is tied up, freeing funds for other uses.
123
Why are quality control checks critical in JIT systems?
With lower inventory levels, defects can disrupt production more significantly, making thorough quality checks essential.
124
How can quality be defined in a business context?
Quality is about meeting the needs and expectations of customers.
125
What are the key aspects of quality for customers?
Good design (looks and style) Good functionality (does the job well) Reliability (low breakdowns or failures) Consistency Durability (lasts as expected) Good after-sales service Value for money
126
Why is 'value for money' important in assessing quality?
Customers need to feel that the price they pay fairly reflects the quality of the product or service.
127
Can a low-priced product be considered high quality?
Yes, if it provides good value for its price, such as budget products like EasyJet or George at Asda, which focus on basic features.
128
Why is good design important for a firm?
It ensures the product can be produced efficiently, reliably, and at the lowest possible cost.
129
How does quality contribute to a firm's success?
Customer loyalty and repeat purchases. A strong brand reputation. Retailer interest in stocking the product. Higher perceived value, enabling premium pricing. Lower costs through fewer returns and replacements. Attracting and retaining good staff.
130
What impact does quality have on pricing and demand elasticity?
High-quality products may command premium prices and become more price inelastic.
131
Why is maintaining a reputation for quality crucial?
A firm's quality reputation can be easily damaged by news of a quality failure, harming customer trust and loyalty.
132
How can firms use quality to support marketing efforts?
A reputation for quality can enhance customer loyalty, attract new customers, and strengthen brand image.
133
What are the risks of not maintaining quality standards?
Customer dissatisfaction and loss of loyalty. Damage to brand reputation. Increased costs from returns and replacements. Negative publicity from quality failures.
134
Why is measuring quality important for businesses?
Measuring quality helps businesses ensure they meet customer expectations, improve processes, and maintain competitiveness.
135
What are common ways businesses measure quality?
Failure or reject rates Level of product returns Customer complaints Customer satisfaction surveys Customer loyalty (e.g., repeat purchases, renewal rates)
136
Why is quality considered subjective?
Quality is subjective because it depends on personal opinions, and what one individual sees as acceptable may differ from another's perspective.
137
Why are some aspects of quality difficult to measure?
Not all quality factors are tangible, such as the assurance provided by a firm's reputation or brand name.
138
How does quality evolve over time?
Quality evolves due to advancements in technology, better materials, new manufacturing techniques, and competition.
139
Why is it essential for businesses to continually improve quality?
Standing still in terms of quality can lead to falling behind competitors and losing customer trust as expectations rise.
140
What is a key consideration when controlling quality?
The benefits of controlling quality must outweigh the costs in the long term.
141
How can customer loyalty help measure quality?
Repeat purchases and high renewal rates indicate customer satisfaction with quality.
142
What are the risks of failing to measure and manage quality?
Poor quality can result in dissatisfied customers, increased complaints, product returns, and a damaged reputation.
143
How does technology impact quality management?
Improved technology enables better production methods, higher precision, and more efficient quality control.
144
What is quality control?
Quality control is the process of inspecting products to ensure they meet required quality standards.
145
What is the main objective of quality control?
To ensure that a business achieves the quality standards it sets for itself.
146
How does quality control account for variation in production?
By setting standards for acceptable levels of variation in materials, production skills, and product reliability.
147
What are the common methods of quality control?
Inspection of work-in-progress and finished goods. Statistical Process Control (SPC) for continuous monitoring and charting of processes.
148
What is Statistical Process Control (SPC)?
SPC involves continuous monitoring and charting of a process, with data analysis to warn when limits are exceeded.
149

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