Operational management Flashcards
1
Q
What is operations management?
A
Describes the activities, decisions, and responsibilities of managing production and delivery of products and services.
2
Q
What are the operations management decisions?
A
Level of output a business needs to produce
Range of products the business wants to offer
How best to produce the good/service (labour or capital intensive)
How best to provide the good/service to the customer
How much of a process managers want to provide itself and how much they want to use suppliers
3
Q
What is the difference between labour intensive and capital intensive?
A
High amount of labour is used in the production process while high amount of capital is invested in the production process.
4
Q
What are the key features of labour intensive processes?
A
Labour costs higher than capital costs
Costs are mainly variable
Labour supply (quantity and quality) and cost are key
e.g. hotels, restaurants, hairdressing
5
Q
What are the key features of capital intensive processes?
A
Capital costs higher than labour costs
Costs are mainly fixed (including depreciation)
Significant investment often required e.g automation but with longer term benefits on unit costs
e.g. oil extraction, car manufacturing, pharmaceutical production
6
Q
What must operations mangers ensure?
A
Effective methods of production
Effective use of workforce
Waste is minimised
7
Q
What are the operational objectives?
A
Costs
Quality
Environment
Dependability
Speed of response
Flexibility
8
Q
What is cost minimisation?
A
A financial strategy that aims to achieve the most cost-effective way of delivering goods and services to the required level of quality.
9
Q
What are the benefits of cost minimisation?
A
Competitive advantage
Revenue increases
Reinvestment of saved costs (long-term)
Improved cash flow
10
Q
What are the drawbacks of cost minimisation?
A
Slower production
Reduced quality resulting in dissatisfied customers
Lack of motivation from employees
Decreased labour productivity
Lower production/ reduced output
Potential loss of jobs
Cost of switching suppliers/ methods of production
11
Q
What may happen if a business is too aggressive with cost minimisation?
A
The business can be left with insufficient capacity to handle unexpected or short-term increase in demand.
Cost reduction by one department may surprise/annoy other functions if they are not properly communicated and coordinated.
12
Q
How can costs be reduced in a well-established business?
A
Eliminating waste and avoiding duplication
Simplifying processes and procedures
Outsourcing non-care activities e.g. transaction processing
Negotiating better pricing with suppliers
Improving communication
13
Q
What are the relevant objectives of efficiency and flexibility?
A
Labour productivity (e.g. output per employee)
Output per time period (e.g. potential output per week on a normal shift basis)
Capacity utilisation: the proportion of potential output actually being achieved.
Order lead times (e.g. the time taken between receiving and processing an order.)
14
Q
What is quality significant?
A
Customers are more knowledgeable, demanding and so prepared to complain about poor quality, and able to share information through images and reviews online via social media.
15
Q
How could a business measure its rate of quality?
A
Scrap/defect rate: a measure of poor quality
Reliability- how often something goes wrong; average lifetime uses etc.
Customer satisfaction- measured by customer research
Number/incidence of customer complaints
Customer loyalty (% of repeat business)
% of online order and/or correct delivery
16
Q
Why is environmental an increasingly important focus of operational targets?
A
Businesses face more stringent environmental legislation.
Customers increasingly base their buying decisions on firms that take environmental responsibility seriously e.g. reducing water pollution.
17
Q
What is dependability?
A
Ability to be able to deliver on time
18
Q
What things could prevent dependability from being met?
A
Availability of drivers
Traffic/accidents
19
Q
Why is the speed of response significant?
A
Businesses may compete by providing their goods and services faster than their competitors.
20
Q
What is the formula for added value?
A
Sales revenue - the cost of bought (in materials, components and services)
21
Q
How can value be added?
A
Add product features/benefits
Build a brand
Deliver excellent customer service
Be efficient
22
Q
What are the benefits of adding value?
A
Charge a higher price
Differentiates you from the competition
Protects against the action of competitors
More focused on your target market
23
Q
What is innovation?
A
Putting a new idea/approach into action
24
Q
What is product innovation?
A
Launching new or improved products/services into the market
25
What is process innovation?
Finding better or more efficient ways of producing existing products, or delivering existing services.
26
What are the benefits of product innovation?
Enhanced reputation as an innovative company
Improved public relations
Increased market share
Higher prices and profitability
Increased added value
Opportunity to build early customer loyalty
27
What are the benefits of process innovation?
Reduced costs
Improved quality
More responsive customer services
Greater flexibility
Higher profits
28
What are the internal influences on operational objectives?
Corporate objectives - an operational objective should not conflict with a corporate objective
Finance
Human resources (workforce)
Marketing issues - regular changes to the marketing mix may place strains on operations.
29
What are the external influences on operational objectives?
Economic environment
Competitor efficiency flexibility
Technological change
Legal and environmental change
30
What is the formula for labour productivity?
Output per time period or (total output) / number of employees
31
What is the formula for unit costs (average costs)?
Total cost of production / number of units of output produced
32
What are unit costs significant?
Influences the price a business can charge and still make a profit
33
What is capacity of a business?
Measure of how much output it can potentially achieve in a given period.
e.g. a fats-food outlet may be able to serve 1000 customers per hour
34
What is capacity utilisation?
% of a business' capacity that is actually being used over a specific period of time.
35
What is the formula for capacity utilisation?
Actual level of output / Maximum possible output x100
36
Why does capacity utilisation matter?
Useful measure of productivity- measures whether there are unused resources.
Average production costs tend to fall as output rises so higher utilisation can reduce unit costs, making a business more competitive.
Minimise unit costs
37
What are examples of the cost of capacity?
Equipment e.g. a production line
Facilities e.g. building rent insurances
Labour e.g. wages and salaries of employees involved in production/delivering the service
38
Why do most businesses operate below capacity?
Lower than expected market demand e.g. a change in consumer tastes.
A loss of market share e.g. competitors gain customers.
Seasonal variants in demand e.g. whether changes lead to lower demand.
Recent increase in capacity e.g. a new production line added.
Maintenance and repair programs e.g. capacity is temporally unavailable.
39
What are the dangers of operating at a low capacity utilisation?
Higher unit costs - impacts on competitiveness
Less likely to reach breakeven output especially if fixed costs are high.
Capital is tied up in underutilised assets such as machinery, and factories.
40
What are the problems in working at high capacity?
Negative effect on quality because production is rushed and there is less time for quality control.
Employees suffer because of added workload and stress and de-motivation is sustained too long.
Loss of sales because businesses are unable to meet sudden or unexpected increase in demand and production equipment may require repair.
41
What does efficiency measure?
How well inputs are used to generate output. If a process becomes more efficient it uses fewer inputs to produce a given output and the unit cost should fall.
42
Why is efficiency important for competitive environments?
Lowers the price
Better quality
43
How could efficiency be improved?
Increasing capacity utilisation
Choosing the optimal mix of resources
Increase labour productivity
Introducing lean production which reduces waste
Using technology
44
If capacity utilisation is low, how can a business improve this?
Improve marketing to boost sales
Reduce its capacity (rationalising/downsizing), it takes time to do as you may close stores, re-locate.
45
If demand is too high, how can a business meet this demand?
Outsource part of the company to other businesses- can be costly and take time as you would need to negotiate costs and risks would be taken on the quality.
Find a way to reduce demand in the short term by increasing the price e.g. dynamic pricing
Waiting list to gage the amount of demand.
46
What does productivity measure?
The relationship between inputs into the production process and the resultant outputs.
47
Why is achieving high productivity important?
Produce lower-cost goods than competitors
This means the business can either make a higher profit 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.
48
How can a business improve its productivity?
Training - e.g. on-the-job training that allows an employee to improve skills required to work.
Improved motivation - more motivated employees tend to produce greater output for the same effort than de-motivated ones.
More or better capital equipment
Better quality raw materials (reduces the amount of time wasted on rejected products)
Improved organisation of production
49
How is labour productivity calculated?
Total output / number of employees
50
What happens if a business can achieve more output from a given number of employees?
Assuming the wages and salaries stay the same, the cost per unit falls.
51
What potential problems can occur if businesses try to increase labour productivity?
Potential "trade-off" with quality - higher output must still be of the right quality.
Potential for employee resistance - depending on the methods used (e.g. introduction of new technology)
Employee may demand higher pay for their improved productivity (negates impact on labour costs per unit)
52
What factors determine choosing the optimal mix?
The combination of resources used by a business will depend on the nature of the operations process.
Some are very capital-intensive- airline and oil refineries
Some are very labour-intensive- Hairdressers and website designer.
The best combination will depend of:
The types of processes involved i.e. high volume vs creative
What is actually affordable and achievable?
53
What is rationalisation?
The organisation of a business in order to increase efficiency.
54
What are the disadvantages of outsourcing?
Confidentiality and security are at risk, lack of flexibility, management problems, instability (go out of business)
55
What is dynamic pricing?
Prices changes depending on demand
56
What is lean production?
Approaches to management that focus on cutting out waste, while ensuring quality.
57
What does lean production involve?
Doing simple things well
Doing things better
Involving employees in the continuous process of improvement.
And as a result... avoiding waste, thereby reducing costs.
58
What is considered as waste?
Over-production (making more than is needed leads to excess stock)
Waiting time (equipment and people standing idle waiting for a production process to be completed or resources to arrive)
Transport (moving resources (people and material) unnecessarily)
Stock (Often held as an acceptable buffer (JIC), but should not be excessive)
Motion (A worker who appears to be busy but is not actually adding value)
Defects (Output that does not reach the required quality standard)
59
What does effective lean production require?
Good relations with suppliers
Committed skilled and motivated employees
A culture assurance; Kaizen and willingness to embrace changes
Trust between management and employees
60
What are the main methods of lean production?
Just in time (JIT)
Kaizen
Just in case (JIC)
61
What is JIT and how does it work?
Aims to ensure that inputs into the production process only arrive when they are needed.
Based on a "pull" system of production, i.e. customers orders determine what is produced.
Requires complex production scheduling- achieved using specialist software to connect production with suppliers.
Supplies are delivered to production only when needed.
Required close cooperation with reliable suppliers.
62
What are the benefits of JIT?
Lower stock holding means a reduction in storage space which saves rent and insurance costs.
As stock is only obtained when it is needed, less working capital is tied up in stock.
Less likelihood of stock perishing, becoming obsolete, or out of date.
Less time is spent on checking and re-working production as the emphasis is on getting the work right the first time.
63
What are the drawbacks of JIT?
There is little room for mistakes as minimal stock is kept for reworking faulty products.
The production relies highly on suppliers, and if stock is not delivered on time, the production schedule is delayed.
No spare finished product is available to meet unexpected orders, because all products are made to meet actual orders.
A need for complex, specialist stock systems.
64
What is kaizen and how does it work?
An approach of constantly introducing small incremental changes in a business to improve quality and or efficiency.
As ideas come from employees they are less likely to be radically different and easier to implement.
Small improvements are less likely to require major capital investment than major process changes.
The culture- all employees should continuously look for ways to improve their own performance.
Encouraging employees to take ownership of their work can help reinforce team working and improve motivation.
65
What is JIC?
A small amount of buffer stock is kept just in case there is a surge in demand.
66
What are the advantages of JIC?
Back-up stock available in case of faults, delays with suppliers, increase in demand.
Could benefit from economies of scales.
Competitive advantage if stock is available, customer needs are met, and stay loyal.
67
What are the disadvantages of JIC?
Storage required- may be extra cost.
If not used then waste.
68
What are the difficulties with lean production?
Can be overused
Low margin for error
Worker frustration
69
What do technological developments enable businesses to do?
Be more flexible to customer needs; track customer behaviour more effectively and provide personalised recommendations.
Reduce costs; more efficient processes with fewer errors, i.e. online booking where you enter your own details, also using CAD to get a prototype and model on screen before they are built.
Be innovative; streaming films whenever you want, which increases customer satisfaction.
70
What do managers have to do due to technological developments?
Find the finance to invest in new technology
Have training to ensure technology is used effectively
Understand and manage the impacts on other functions, i.e. technology may change people's jobs and managers have to ensure staff understand why this is happening, have the necessary skills to adapt, and do not resist changes.
Be able to judge which technology will be helpful/useful in the long-term rather than trying to adapt to every new piece of technology that is released.
71
What are the main types of technology used in operations?
Robots
Stock control/sales order fulfilment programs
Automation-email
Software systems
72
What are the advantages and disadvantages of robots?
Advantages: Speed, accuracy, and efficiency.
Reliable quality and less waste.
Handle boring, repetitive, or hazardous tasks.
Reduce unit costs
Disadvantages: Up front costs
De-motivating for displaced staff
73
What is automated production?
Production processes and procedures that are performed by machines.
Reduce human intervention to a minimum
Used to regulate workflows.
Not just confined to factories- any business process can potentially be automated e.g. call handling.
74
What are automated stock control programs?
Integrated software and hardware used to monitor the quantity, location, and status of stocks.
Also used to automate the sales over-processing
75
What are the benefits of design software systems?
Speeds up R and D process
Virtual testing
Reduce costs
76
What is quality?
Meeting the needs and expectations of customers.
77
What key aspects of quality would a customer look for?
Good design
Good functionality
Reliable- acceptable level of breakdowns or failure
Consistency
Durable
Good after-sale service
Value for money
78
How can quality help determine a firm's success?
Customer loyalty
Strong brand reputation for quality
Retailers want to stock the product
As the product is perceived to be better value for money, it may command a premium price and will become more price-inelastic.
Fewer returns and replacements lead to reduced costs
Attracting and retaining good staff
79
Why is quality important in business?
Markets are highly competitive as customers are more knowledgeable and demanding, prepared to complain about poor quality.
If a business can develop a reputation for high quality, then it may be able to create an advantage over its competitors.
80
What is quality assurance?
The processes that ensure production quality meets the requirements of customers.
81
What is the aim of quality assurance?
Design the way a product/service is produced or delivered to minimise the chances that output will be sub standard.
82
What is the difference between quality assurance and quality control?
Quality assurance: Focus on processes
achieved by improving production processes
targeted at the whole business
emphasises the customer
quality is built into the product
Quality control: Focus on outputs
achieved by sampling and checking (inspection)
targeted at production activities
emphasises required standards
defective products are inspected out
83
What is total quality management (TQM)?
Management philosophy committed to focusing on continuous improvements of products/services with the involvement of the entire workforce e.g. Kaizen.
Whole business understands the need for quality and seeks to achieve it.
Everyone in the workforce is concerned with quality at every stage of the production process.
Quality is ensured by workers.
84
What are the advantages of TQM?
Puts customers at the heart of the production process.
Motivational since workers feel more involved and are making decisions.
Less wasteful than throwing out defective finished products.
Eliminates cost of inspection.
85
What are the disadvantages of TQM?
Requires strong leadership
Substantial involvement in training and support- but return on investment not immediate.
May become bureaucratic- expected to live and breath quality.
Disruption and costs may outweigh benefits.
86
What is quality control?
The process of inspecting products to ensure that they meet the required quality standard.
87
What is the process of quality control and inspection?
When raw materials are received before entering production.
Whilst products are going through the production process.
When products are finished- takes place before products are dispatched to customers.
88
What are the benefits of improving quality?
Improved image and reputation which should result in:
higher demand
greater production volumes (better economies of scale)
lower unit costs (less waste and rejected output)
fewer customer complaints
higher selling prices (less need to discount)
89
What are the difficulties in improving quality?
Employees: might believe the business is doing well enough as it is and not see the need to set higher targets over time.
extra work and not understand why they should bother unless they are paid more.
From a business perspective: discussing the issues with employees and getting them to agree the process.
investing in training
possibly changing suppliers
developing a culture
incentive to encourage employees to value better quality as a target.
90
What are inventories?
Raw materials, work in progress, and finished goods held by a firm to enable production and meet customer demand.
91
What are the 3 main types of inventory?
raw materials and components
work in progress
finished goods
92
What are the key reasons to hold inventory?
Enable production to take place
Satisfy customer demand
Precaution against delays from suppliers
Allow efficient production
Allow for seasonal changes
Provide for a buffer between production processes
93
What are the main influences on amount of inventory held?
Need to satisfy demand- failure to have goods available for sales is costly, demand may be seasonal/unpredictable.
Need to manage working capital- holding inventories ties up cash in working capital, and there is an opportunity cost associated with inventory holding.
Risk of inventory losing value- longer stocks are held, the greater risk they cannot be used/sold.
94
What are the different types of costs of holding inventories?
Cost of storage: more inventories require large storage space and possibly extra employees and equipment to control and handle them.
Interest costs: holding inventories means typing up capital on which the business may be paying interest.
Obsolescence risk: the longer inventories are held, the greater is the risk that they will become obsolete.
Stock out costs: a stock out happens if a business runs out of inventory which can result in- lost sales and customer goodwill, cost of production stoppages or delays, extra cost of urgent replacement orders.
95
What are the key parts of an inventory chart?
Maximum level: max level of inventory a business can or wants to hold.
Lead time: amount of time between placing the order and receiving the inventory.
Re-order level: acts as a trigger point, so that when inventory falls to this level, the next supplier order should be placed.
Minimum inventory level: minimum amount of product the business would want to hold in stock. Assuming the minimum stock level is more than 0, this is known as buffer stock.
Buffer stock: an amount of inventory held as a contingency in case of unexpected orders so that such orders can be met and in case of nay delays from suppliers.
96
What are the methods for managing supply to match demand?
Employing a flexible workforce
Using queuing systems/introducing waiting lists to manage high levels of demand
Outsourcing production to other businesses to meet high levels of orders
Increasing prices to reduce demand
Accepting orders to produce for others if demand is low
Producing to order
97
What does managing the supply chain involve?
Taking decisions about:
-what to produce yourself and what to buy from others
-which other businesses to work with
-supplier strategy (how many suppliers to work with)
-setting out the terms and conditions of the supplier relationship e.g. penalty clauses for delays
-deciding on the assurances from the supplier on their operations e.g. treatment of employees, where they source their resources-important for businesses brand an image
-how much direct involvement to have with suppliers
-how centralised purchasing should be e.g. do all offices buy their supplies from a company?
98
What will effective management of the supply chain ensure?
The right suppliers arrive on time
A fair price if paid for the items
The products are produced in an acceptable way to the business
99
What is the value of managing the supply chain effectively?
How the supply chain is managed will affect:
the extent to which suppliers meet the requirements of the business reliably
the costs of the business
the ability of the business to be flexible to customer requirements
100
What is vertical integration?
When businesses start producing at different stages in the production process.
101
What are the influences on the choice of suppliers?
the costs of materials and quality
dependability
102
What is outsourcing?
When a business uses another provider for some of its goods and services.
103
What are the benefits of outsourcing?
Enables the business to make use of specialist skills and services.
Increase the capacity of the business by getting some aspects of its provision provided by others.
104
What are the drawbacks of outsourcing?
A business will be affected by the work undertaken by other businesses in terms of costs and quality of their suppliers.
A business may be held accountable for the actions of its suppliers.
A business will have to pay enough for the products for the supplier to make a profit.
