Decision-Making to Improve Operational Performance

Question 1

Objectives relating to cost and volume tend to focus on:

Answer 1

Productivity & efficiency (e.g. units per week or employee)
Unit costs per item
Contribution per unit
Number of items to produce (per time period, or per machine etc)

Question 2

quality targets- ways to measure

Answer 2

Scrap / defect rates: a measure of poor quality
Reliability – how often something goes wrong; average lifetime use etc
Customer satisfaction – measured by customer research
Number / incidence of customer complaints
Customer loyalty – e.g. percentage of repeat business

Question 3

Efficiency and flexibility are key drivers of unit costs. Relevant objectives would include:

Answer 3

Labour productivity: e.g. output per employee, units produced per production line; sales per shop
Output per time period: e.g. potential output per week on a normal shift basis; potential output assuming certain levels of capacity utilisation
Capacity utilisation: the proportion of potential output actually being achieved
Order lead times: e.g. the time taken between receiving and processing an order

Question 4

their buying decisions on firms that take environmental responsibility seriously. Examples include:

Answer 4

Use of energy
Proportion of production materials that are recycled
Compliance with waste disposal regulations / proportion of waste to landfill
Supplies of raw materials from sustainable sources

Question 5

Internal influences on operational objectives

Answer 5

Corporate objectives

As with all the functional areas, corporate objectives are the most important internal influence. An operations objective (e.g. higher production capacity) should not conflict with a corporate objective (e.g. lowest unit costs)

Finance

Operations decisions often involve significant investment and cost The financial position of the business (profitability, cash flow, liquidity) directly affects the choices available

Human resources

For a services business in particular, the quality and capacity of the workforce is a key factor in affecting operational objectives. Targets for productivity, for example, will be affected by the investment in training and the effectiveness of workforce planning

Marketing issues

The nature of the product determines the operational set-up. Regular changes to the marketing mix – particularly product – may place strains on operations, particularly if production is relatively inflexible

Question 6

external:

Answer 6

Economic environment

Crucial for operations. Sudden or short-term changes in demand impact on capacity utilisation, productivity etc. Changes in interest rates impact on the cost of financing capital investment in operations

Competitor efficiency flexibility

Quicker, more efficient or better quality competitors will place pressure on operations to deliver at least comparable performance

Technological change

Also very significant – especially in markets where product life cycles are short, innovation is rife and production processes are costly.

Legal & environmental change

Greater regulation and legislation of the environment places new challenges for operations objectives.

Question 7

Why is achieving high productivity important?

Answer 7

more efficient business will produce lower cost goods than competitors. That means the business can either make a higher profit per unit sold (assuming that the product is sold for the same price as a competitor) or the business can offer customers a lower price than competitors (and still make a good profit/
Investing in production assets (e.g. equipment, factory buildings) is expensive – a business needs to maximise the return it makes on these assets

Question 8

ways to improve productivity:

Answer 8

Training – e.g. on-the-job training that allows an employee to improve skills required to work more productively
Improved motivation – more motivated employees tend to produce greater output for the same effort than de-motivated ones
More or better capital equipment (this links with the topic of automation)
Better quality raw materials (reduces amount of time wasted on rejected products)
Improved organisation of production – e.g. less wastage

Question 9

what is productivity?

Answer 9

Productivity measures the relationship between inputs into the production process and the resultant outputs. Productivity can be measured in several ways: e.g.

Output per worker or hour of labour
Output per hour / day / week
Output per machine
Unit costs (total costs divided by total output)