Flashcards in Operations Management Deck (98):
What are the three different types of stock?
Raw Materials, Work In progress, Finished Goods
Explain two benefits of holding stock?
Being able to satisfy demand: If you create a demand that cannot be satisfied often leads to potential customers turning elsewhere for their goods, this leads to a loss of revenue.
Coping with fluctuations in demand: Being able to take advantage of a surge in demand for whatever reason, may lead to further sales and a potential increase in orders and revenue.
Buffer stock to meet late deliveries: Ensures that there is limited downtime, as there will have to be no waiting for late deliveries
Cost savings due to economies of scale
Explain two costs of holding stock?
Storage costs:Using warehouse space is expensive. The actual costs of purchasing the warehouse to hold stock, or the cost of rent has to be covered either immediately or if rented or a regular basis.
Opportunity cost: Paying for stock prevents the business from undertaking alternative expenditure.
Depreciation: Stock may depreciate over time, especially if it is perishable and reaches its sell-by date. It may also be damaged and will therefore lose value.
Security costs: Most goods will require some form of security. CCTV cameras or security guards are both expensive.
Insurance costs: As the risks of holding stock increase, the cost of insurance will increase. Insuring stock is an unavoidable cost.
What is stock out?
A situation in which the demand or requirement for an item cannot be fulfilled from the current inventory.
Explain two disadvantages of stock out
Loss of potential future sales: As you cannot supply the item that is demanded consumers of the product may not purchase the product in the future due to you not being able to supply them at the moment.
Downtime: As there is limited stock productivity is lower as there increased downtime (when production is not taking place) as employees are waiting for stock to arrive. Resulting in a higher cost of production.
What is buffer stock?
Buffer stock is the difference between the minimum stock level and holding no stock, it shows the emergency stock of a business.
What is lead time?
Lead time is the amount of time it takes for the reordered stock to arrive.
What is the economic order level?
This represents the result of attempting to balance, the cost holding stock compared to the savings that can be made from economies of scale of buying stock in bulk.
How is the average level of stock calculated?
Maximum stock + Minimum stock level/2
If the maximum stock level was 25,000 units and the minimum was 4,000 units, calculate the average stock level?
What is the difference between Last in first out and First in first out
Last in first out, is used on non perishable goods such as headphones, as no there don't have a date they need to be sold by.
First in first out, is used on perishable goods such as milk, as the oldest stock will have the shortest sell by date it needs to be sold first to avoid wastage.
Why is an electronic point of scale import for stock control?
It ensures stock levels and the reordering of stock is done efficiently. The EPOS information is scanned by bar codes. Each product has a unique bar code number which is read electronically at the checkout desk, and the information is passed via electronic data to a computer that will automatically reorder stock at the required level.
Define Lean production?
Lean production is an approach to management that focuses on cutting waste, whilst ensuring quality.
How does the use of lean production enable a business to be competitive?
Lean production enables a business to be competitive, as the reduction of waste will result in a lower cost of production, as it costs less than can charge lower and as a result be more competitive.
What is Total quality management?
Total quality management considers the efficient usage of all the resources used within the production process, whether directly or indirectly related to the actual production process. Total is a significant factor as it considered vital that all employees are responsible for the welling of the business.
What are the benefits of using Total quality management in business?
Customer satisfaction. Since the company has better products and services, and its interactions with customers are relatively error-free, there should be fewer customer complaints. Fewer complaints may also mean that the resources devoted to customer service can be reduced. A higher level of customer satisfaction may also lead to increased market share, as existing customers act on the company's behalf to bring in more customers.
Defect reduction. TQM has a strong emphasis on improving quality within a process, rather than inspecting quality into a process. This not only reduces the time needed to fix errors, but makes it less necessary to employ a team of quality assurance personnel.
What is Jidoka?
This is a process for building into the production process, an ability to detect and reject faulty goods and components at the earliest possible moment in the production of the good.
Explain two reasons why Jidoka can save a business money.?
Jidoka can save the business money as it reduces the downtime that can take place what is very expensive cost to a business.
Jidoka also stops faulty goods and components of goods this will mean that there will less unsatisfied consumers whom will ask for refunds.
What is Kaizen?
Kaizen means striving to 'continuous improvement'.
Why is Kaizen beneficial to a business?
Increases efficiency in the business, as employees are striving to continuously improve causing an increase in productivity in the firm, as a result as employees become specialized and have lower production costs.
Employee satisfaction is higher, as they ask employees to suggest ways to improve the process, becoming involved in the decision makes the employees feel valued, that may result in a lower labor turnover.
What is time based competition?
This is an attempt to reduce the time taken between the generation of the idea for a production and it going into production.
How can time based competition be improved.
This can be speed up the use of Computer aided design.
What is cell production?
Cell production is a form of teamwork, Employees are placed in different teams, with each team responsible for a particular part of the production process.
Why may cell production motivate employees?
Cell Production may motivate employees as they are working part of a team communication, this will make work more enjoyable and are motivated and efficient at work.
Continually cell production may motivate employees as employees have more responsibility and as a result feel valued by the business, if they feel valued by the business they are more likely to be more motivated to work harder.
What is quality circle?
This is a voluntary scheme where employees, often between 4-10 in number are allowed to meet in working hours to discuss problems related to their working environment and work stations.
What is Kanban system?
A Kanban system is where the stock of hte business is like you know holded sorter.
What is JIT?
Just in time, this is a method whereby levels of stock are kept low in order to reduce the amount of space required for storing stock. By ordering stock in smaller quantities but with more frequent deliveries.
Explain the advantages of JIT?
Reduced cost due to less stock being held
Less cash is tied up in stock whether it is stock or work in progress
As less stock is held there is less likelihood of damage, or it becoming out of date and therefore wasted.
Explain the disadvantages of JIT?
With less stock being held any delay from suppliers could halt production
Any serious errors within the production system may affect the level of production as again there is little spare stock to utilize.
There is a substantial set up in order to operate JIT.
What are Ergonomics?
Ergonomics looks at the relationship between the employee and the capital equipment being used. An effective ergonomic design is one where the minimum amount of time is wasted in using the machine or equipment.
How can Ergonomics save time in the production process?
An example of an Ergonomic design is in a car plant where tools are hung on spring coils so that workers can literally let go when the task involving that particular tool is complete, saving time not walking to a desk to find the tool.
What is quality?
Quality is about meeting the needs and expectations of customer. It is concerned with the design of the product, the reliability of the production and ensuring that the product is properly checked in production and not only when completed.
Why is quality important?
Quality is important as consumers now expect it as standard and not an optional extra. Any good that is purchased and then has to be returned because it is faulty brings bad publicity for the business and may lead to a loss of good will.
What is quality assurance?
Quality assurance is concerned with the way in which a business sets out its procedures to assure its consumers that the products produced are of the right quality
What is quality control?
Quality control is a process in which a business reviews the quality of all the factors involved in the process of production.
Explain two costs of poor quality products
Cost to the reputation of the business, bad quality products may result in less sales as consumers may perceive all the goods they sell as low quality.
Cost of replacing the faulty if the quality is to low, consumers will ask for replacements.
What is Philip Crosby's four points for quality management?
Meet the conformance requirements
Build quality into the product
The standard for performance is zero defects
Improved quality is free (No costs of repairing), therefore the cost of good quality pays for itself.
How is wastage rate calculated?
No. of rejects produced/ Total number of products produced
Explain how training can ensure quality?
Training can mean that staff have the skills needed for production, then wastage rate will decrease as staff are trained in the production process and are less likely to make mistakes now that a skilled personal have taught them how to do it correct.
What is benchmarking?
Benchmarking is achieved by comparing a business with that of a competitor that is usually the market leader, in order to improve its own practices.
What are the two types of benchmarking?
What is internal benchmarking?
Internal benchmarking is when comparisons are made within a business usually between one department and another.
What is external benchmarking?
The more common type, where comparisons of performance are made between one business and another.
State two limitations of benchmarking
Limited access to sensitive material (trade secrets) so can be hard to externally benchmark
Difficult to find which business offers the best practice
What is meant by Kaizen?
Kaizen means a business is striving to 'continuous improvement', as no business can afford to stand still if it wants to remain competitive.
Explain what a kite mark signifies for a business?
It signifies that the business is quality assured, it is an important marketing tool. A potential consumer knows that the business has achieved or undertaken certain quality procedures. The products should be of a high standard in terms of their quality.
What do operational management objectives generally include?
Many are productive targets in order to meet demand any long term goal of the business.
Explain 3 factors that should be considered when setting operational objectives
The legal status and size of the business -the level of profit that is set for a PLC may be substantially different from that of a sole trader.
The state of the economy- a growing economy will make it easier to achieve targets or objectives than if the economy is in a recession.
The level of competition within the market in which the business operates a highly competitive market may mean that prices have to be lower in order to compete and consequently profit margins may be lower, which in turn will affect the ability of a business to achieve its production target.
Explain how social factors could influence on the operations management area of the business?
Religious Changes- UK Economy multi-cultural society as a result there will be changes in purchasing habits.
Explain how Ethical factors could influence on the operations management area of the business?
Businesses need to consider the level of waste is often viewed as an ethical issue.
Changing the resources used has become significant within the car manufacturing industry where there is a substantial growth in the use of standardised components for a range of car models.
Explain how Environmental factors could influence the operations management area of the business?
A Healthy regard for the planet and its resources has seen a growth in the level of concern and awareness of environmental issues.
The use of sustainable resources in production will enhance its sales as consumers often favour such products.
Explain how Legal factors could influence the operations management area of the business?
Complying with the law is essential, as not doing so may damage the reputation of the business and subsequently the good will of the business.
Legislation can affect the productive process within a business, such as health and safety issues, which in turn may have a cost implication and impact how the productive process takes place.
Explain how Economic factors could influence the operations management area of the business?
The state of the economy, in terms of the level of inflation will affect the costs of production.
The level of unemployment will affect the availability of labour required in order to produce goods and services.
The cost of labour, when there is full employment the wage level increases and therefore the cost of labour increases.
Explain how Political factors could influence the operations management area of the business?
The nature of the actual government in power will affect the operations management of many businesses.
Withdrawal from the EU, (Brexit) could cause a fall in demand for the goods and services some businesses produce as exports into the EU will fall due to the free market closing, meaning tariffs will cause UK goods to be more expensive abroad resulting in less demand.
Explain how technological factors could influence the operations management area of the business?
Technology is ever changing and consequently the operations management area of a business must keep pace with such changes in order to remain competitive.
Rapid technological advances within the mobile phone industry is an example of technology affecting the operations management of the business. More money is being spent on R@D in order to remain competitive.
Explain how international factors could influence the operations management area of the business?
As the pace of globalisation increases, operations managers need to be aware that markets are growing, as in the degree of competition.
Globalisation offers potential customers more choice and consequently those working in operations management need to be mindful of keeping up to date with eh competition or ensure there is a USP that will appeal to the wider market.
Define added value.
The difference between the actual price charged for a product or service and the actual cost of all the components and assembly of the product or service.
Explain how value can be added to a product or service?
Offer a high standard of customer service may also allow a retailer to add value.
Gaining a distinct brand image and therefore making the product appear more valuable, which in turn allows higher prices to be charged.
Value can be added to a house by building extra features, so that the house may be sold on for more than it was bought. E.g. building a conservatory will allow you to charge a higher price.
What is the usefulness of adding value to a business?
Being able to charge a higher price and therefore a higher level of profit.
The higher price may enhance the image of the product or service.
It may enable the business to target its chosen market more easily.
How can stakeholders benefit from a business adding value?
Consumers may gain additional services, which they are feel are good value for money.
Consumers will be able to recognise the brand name and associate the brand with quality.
Shareholders may benefit as profits increase, therefore dividends may increase also.
If adding value leads to increased sales, suppliers will be able to supply more and therefore have the opportunity to increase profits.
What are the disadvantages attempting to adding value for a business?
It is not guaranteed that the cost of adding value can be recouped by increasing the price.
The increase in price needed to gain from adding value may restrict sales and therefore sales revenue.
The amount of competition may make it harder to increase the price in order to recoup the cost of adding value.
Explain a way to add value to an umbrella?
Add a button that pulls the umbrella out and then in.
What is innovation?
Innovation is the introduction of a new idea, or method of production or new equipment into the production process.
What is research and development?
Research & Development is all activities that look at identifying new products / services and new ways of producing.
What are the problems associated with research and development?
Cost-Can be very expensive depending on the nature of the product
Risk- There is no guarantee of success as research does not necessarily yield effective results.
Copying from other businesses- Other businesses may copy your ideas found.
Limited protection of new ideas
Copying with such rapid changes in technology- Some industries the rate of progress is so fast that without R@D then the business could fail easily.
Unemployment- Labour may be replaced by robots
What is the difference between a product oriented and market orientated?
Product orientated focuses on improving the quality or efficiency of the product, where as market orientated focuses on meeting the needs and desires of the consumers.
What is meant by Morphological study?
A method that generates a lot of ideas very quickly and therefore cheaply.
What are the three factors to value analysis?
Function- The nature of the product will determine its task. It is essential that a lawnmower is capable of cutting the grass as this its main function.
Cost- The price charged for the product, keeping the costs down for any product allows the business to be competitive and more profitable.
Aesthetics- The looks of the product, e.g. the look of clothes is more important than the look of a water bottle for spraying a car windscreen.
Give an example of a product where function is the most important factor?
Give an example of a product where Aesthetics is the most important factor?
Give an example of a product where Cost is the most important factor?
Factors affecting research and development?
Level of competition in the market
State of the economy
What is job production?
Job production is producing a single item or product, usually high quality such as bespoke, unique, tailor- made.
Focuses on the consumers needs.
What are the benefits of job production?
It can meet customer needs exactly, so consumers are more likely to be satisfied.
It is easier to motivate workers involved in the production process, as they will build the product from start to finish, so they should involved.
Little stock is tied up, there for less costs of holding stock.
What are the disadvantages of job production?
No opportunities for benefiting from economies of scale.
Higher costs of production
Labour is more likely to be skilled and therefore more expensive.
What is batch production?
When groups of items are made together, each batch has to be finished before starting the next batch.
What are the benefits of batch production?
The system is able to produce in larger quantities than job production.
There may be some economies of scale, depending on batch sizes.
What are the disadvantages of batch production?
There may be a time delay between batches which means that nothing is being produced, (downtime), this downtime reduces the level of output when compared to flow production.
Storage costs may be high, as the storage space for products waiting to go into the next batch process may be needed.
There is less variety of work involved and as a result staff may become demotivated easier.
What is flow production?
Where identical, standardised items are produced on an assembly line. Most cars are mass-produced in large factories using conveyor belts and expensive machinery such as robot arms.
What are the benefits of operating as flow production?
The business is able to benefit significantly from economies of scale and therefore reduce the unit cost of production.
The business can produce a standardised product in very large numbers much more quickly than all the other methods.
Little downtime, therefore efficiency and productivity is high.
More opportunities for specialisation as employees will be focuses on specific tasks, this will increase the productivity in the business.
List three products that are likely to be produced using job production?
List three products that are likely to be produced using batch production?
What is specialisation?
Specialisation is when an employee focuses on one specific task, once the employee has learn the task he would be able to perform the task quickly and as he continues to perform the same task over and over again his productivity will rise until he becomes specialised in his role.
How does specialisation impact stakeholders?
Shareholders may benefit from increased efficiency and productivity, which leads to an increase in profit and therefore dividends increase.
Employees may be bored or demotivated, leading to high labour turnover and absenteeism
Suppliers may benefit from supplying more.
What is critical path analysis?
Critical path analysis is the process that allows for the overall time of project to be calculated, showing when activities should start and finish.
Why might a business use critical path analysis?
It offers a simple method to calculate the shortest time in which to complete the project.
It gives a method to identify the activities which are critical.
It allows the business to see when finance will be needed to ensure that suppliers are ready for any activity
What is a Gantt Chart?
A graphical representation of the order and duration of given tasks within a project.
What are the limitations of using critical path analysis?
The value depends upon the accuracy of the activity times
CPA Doesn't consider any cost implications that may occur.
What are the limitations of using a GANTT chart?
It cannot allow the user to see which activities are critical.
It does not allow the user to see EST or LFT
Float can be difficult to calculate.
What is PERT?
Pert is another statistical tool that is used within project management (CPA AND GANTT CHARTS)
What is the formula for PERT?
Optimistic time+4* Likely time + Pessimistic time/6
What are the limitations of PERT?
It can be difficult to accurately calculate all the different times there for the reliability of the answer may be deceiving.
If the optimistic time = 25, the pessimistic time = 30 and the likely time = 28, using PERT, calculate the expected duration of the project
What is productivity?
Productivity is output per worker in a given time period.
What is the formula for productivity?
Output/No. of employees
How can you increase productivity?
Setting realistic targets, targets must be achievable if they are to encourage the workforce to increase productivity.
Ensuring that jobs are engaging, job rotation, job sharing will keep workers engaged in their work and should increase productivity.
Offering training to ensure employees are able to be more productive.
Ensuring the factory layout is ergonomic
By offering profit sharing incentives, employees may well increase their productivity if there is a direct correlation between effort and reward.
Explain using a numerical example how an increase in productivity will result in lower unit costs.
Output was previously 100 per hour per worker, if 100 units cost £100 in raw materials (£1 per unit) and £10 workers wage this means that for £110 the business produces 100 units (£1.10 per unit), if workers become more productivity and now produce 120 per hour this means that there will be a cost of £120 in raw materials and £10 wage.
This means that and increase productivity means that the business now produces units at £1.08 per unit compared to before when it was £1.10 per unit, showing that an increase in productivity made it cheaper to produce.