Chapter 23 - The nature of operations Flashcards
Factors of production
LAND: Everything that occurs naturally and can
be seen in nature
LABOUR: Work provided by people. If you need
more people than machinery to complete a job it
is called labour-intensive
CAPITAL: That which is used to utilise the
resources equipment and finances. Also refers
to intellectual capital intangible capital
ENTERPRISE: Ability and enthusiasm to combine
all FOP to create a business
Operations managers can increase added value by effectively managing:
- Efficiency of production = keeping keeping costs as low as possible will help to give competitive advantage
- Quality For its purpose
- flexibility and innovation: the need to develop and adapt to new processes and new products is increasingly important in today’s dynamic business environment.
Operations managers aim to produce goods and services of the required quality, in the required quantity, at the time needed, in the most cost-effective way.
operations management issues:
- The design of the product: Does this allow for economic manufacture, while appearing to have quality features that will enable a high price to be charged?
- The efficiency of operations: By reducing waste, the operations department will increase the value added by the production process. Increasing productivity will reduce costs per unit and this will
increase added value if customer prices remain unchanged. - Branding to encourage consumers to pay more for the product than the cost of the inputs: A good example is the market for luxury ice creams. Effective branding leads consumers to pay prices much greater than the input costs.
Operations makes a considerable contribution to adding value by
- reducing production costs through increased efficiency
- producing quality goods that meet customer expectations
- ensuring production is flexible so that changing consumer tastes can be satisfied.
Stages of the operations process
- Converting a consumer need into a product that can be
produced efficiently - Organising operations so that production is carried out
efficiently e.g. order stocks to arrive on time - Deciding on suitable production methods
- Setting quality standards and checking they are
maintained
How can we raise productivity levels?
- Improve the training of employees to raise skill levels: Employees with higher skill levels and more flexible skills should be more productive. However, training can be expensive and time
consuming, and highly qualified workers could leave to join another business. - Improve worker motivation: Using appropriate financial and non-financial methods of motivation should encourage employees to work more efficiently. Non-financial methods in particular could be used as they will not increase labour costs. Therefore, any resulting increase in labour productivity will lead to lower average costs of production.
- Purchase technologically advanced equipment: Modern machinery – from office computers to robot-controlled production machines – should allow increased output with fewer workers. High-cost investment will only be worthwhile if high output levels can be maintained. In addition, workers may need to be retrained and there may be genuine fear about lost jobs and reduced security of employment.
- More effective management: Ineffective management can reduce the overall productivity of a
business. Failure to purchase the correct materials, poor maintenance schedules for machines or demotivating methods of employee management are just some examples of this. More efficient operations and people management could go a long way towards improving productivity levels.
Raising productivity does not guarantee success - Why
- If the product is unpopular with consumers, it may not sell profitably no matter how efficiently it is made.
- Greater effort from workers to increase productivity could lead to demands for higher wages. This will lead to higher costs, which may cancel out the impact of productivity gains.
- Workers may resist measures to raise productivity. A 20% increase in labour productivity may lead to job losses if sales do not increase too. There could be industrial disputes.
- The quality of the management determines the success of a policy to increase productivity. If the culture of management is to involve the workforce and seek their views, then productivity improvements are likely to be greater and accepted by workers.
- There is a difference between efficiency, as measured by productivity, and effectiveness.
How to be sustainable in business operations
- reducing energy use and carbon emissions
- reducing the use of plastic and other non-biodegradable materials
- using recycled materials
- manufacturing products that are recyclable
Labour intensive:pro and cons
Pro:
- Handmade = more value
- interesting and varied work
- low machine cost
- one-off designs meet customer requirements such as exclusive furniture. (Customised designs = unique = expensive)
limits:
- low output levels
- skilled, high-paid workers required
- product quality depends greatly on the skill and experience of each worker.
Capital intensive:
Pro:
* economies of scale
* consistent quality
* low unit costs of production
* the ability to supply the mass market.
limits:
* high fixed costs
* cost of financing the equipment
* high maintenance costs and the need for skilled workers to do repairs
* the quick pace of technological change, which can make the latest production equipment and computer systems obsolete and relatively inefficient.
Factors that determine if a business should use Labour intensive Vs Capital intensive
- the nature of the product and its brand image
- the relative cost of labour and capital
- business size and access to finance.
Job production
Main feature:
* single one-off
items
Requirements:
* highly skilled
workforce
Advantages:
* allows for specialist projects or jobs, often with high added value
* high levels of worker motivation
Disadvantages:
* high unit production costs
* time consuming
* wide range of tools and equipment needed
Batch production
Main feature:
* a group of identical products pass through each stage together
Requirements:
* labour and machines must be flexible to switch to making batches of other designs
Advantages:
* some economies of scale
* faster production with lower unit costs than job production
* some flexibility in design of product in each batch
Disadvantages:
* high levels of inventory at each production stage
* unit costs likely to be higher than with flow production
Flow production
Main feature:
* mass production of standardised products
Requirements:
* specialised, expensive capital equipment
* high steady demand for standardised products
Advantages:
* low unit costs due to constant working of machines
* high labour productivity
and economies of scale
Disadvantages:
* inflexible – it is often very difficult and time consuming to switch from one type of product to another
* expensive to
set up flow line machinery
Mass
customisation
Main feature:
* flow production of products with many standardised components but also customised differences
Requirements:
* many common components
* flexible and multi-skilled workers
* flexible equipment allows variations in the product
Advantages:
* combines low unit costs with flexibility to meet customers individual requirements
Disadvantages:
* expensive product redesign may be needed to allow key components to be switched to allow variety
* expensive flexible capital equipment needed
