Unit 4 Flashcards
(97 cards)
1
Q
What is production?
A
The process of converting inputs such as land, labour and capital into saleable goods, for example shows and cell phones.
2
Q
What must operations management do?
A
- Use resources in the most cost-effective way.
- Produce the required output to meet consumer demand.
- Meet the quality standard expected by consumers.
3
Q
What is productivity?
A
A measure of the efficiency of inputs used in the production process, especially labour and capital.
4
Q
How is the productivity of labour is measured?
A
Total output /
Number of production employees
5
Q
How does a business improve labour productivity?
A
- Increasing output with the same number of employees.
- Keeping output at the same level but with fewer employees.
6
Q
How do you increase the productivity of employees?
A
- Improving the skill level of employees.
- Improving the motivation of employees.
- Introducing more automation and more or better technology.
- Improving the quality of management decisions.
7
Q
What is the main reason for improving productivity?
A
To reduce unit costs, so the increase in output must be greater than the increase in costs.
8
Q
What do businesses hold inventories of?
A
- Raw materials and components.
- Work-in progress.
- Finished goods ready to be sold or sent out customers.
9
Q
What are inventories?
A
The stock of raw materials, work-in-progress and finished goods held by a business.
10
Q
How does holding inventory add to a businesses cost?
A
- Warehousing costs.
(Rent and purchase of a warehouse). - Handling costs.
(Inventory needs to be moved in and out). - Shrinkage costs.
(Damaged, lost or stolen inventories = replaced). - Insurance costs.
(Will cover the costs lost from shrinkage). - Obsolescence.
(Unable to sell out-of-date goods) - Opportunity cost.
(Working capital is ‘tied-up’ in inventories which could be used more profitably by the business)
11
Q
Why do businesses hold inventories even when they are costly?
A
- The production process needs raw materials or components.
- If the business does not have finished goods in stock, then customers’ orders cannot be met and the business will lose sales.
- Businesses often benefit from economies of scale when they buy inventories in large quantitites because they reveive a discount from the supplier.
12
Q
What is lean production?
A
The production of goods and services with the minimum waste of resources.
13
Q
What are lean production techniques?
A
- Just-in-time inventory control.
- Kaizen.
14
Q
How can the introduction of these techniques benefit us?
A
- New products can be brought to the market more quickly.
- Qualities improved.
- Wastage of time and other resources is reduced or eliminated.
- The cost of holding inventories are eliminated.
- Unit costs are reduced, which will increase the profit made on each unit sold or enable a business to reduce its prices and be more competitive. This will increase sales, revenue and profits.
15
Q
What is just-in-time business control?
A
The just in time inventory control system means that no inventories are held by the business. Raw materials and components arrived from suppliers just as they are needed by the production process. As soon as finished goods leave the production process, they are delivered to the customer.
16
Q
What are some advantages of just-in-time?
A
It reduces business costs by removing the cost of holding inventories.
17
Q
What are some disadvantages of just-in-time?
A
- Preventing over-production.
- Minimising waiting times and transport costs.
- Saving resources by streamlining your production systems.
18
Q
What is Kaizen?
A
The Kaizen approach gives all employees the opportunity to make a suggestions about how to improve quality or productivity. It is an approach to create continuous improvement based on the idea that small, ongoing positive changes can reap significant improvements.
19
Q
What are the main methods of production?
A
- Job production.
- Batch production.
- Flow production.
20
Q
What is job production?
A
The production of items one at a time.
21
Q
What are advantages of job production?
A
- Unique, high-quality products are made
- Employees are often more motivated and take pride in their work.
22
Q
What are disadvantages of job production?
A
- Use a skilled labor rather than machinery, so selling prices are usually higher.
- Production can take a long time and can be expensive, for instance if special materials or tools are required.
- Economies of scale are not possible, often resulting in a more expensive product.
23
Q
What is batch production?
A
The production of goods and batches. Each batch passes through one stage of production before moving on to the next stage.
24
Q
What are advantages of batch production?
A
- Since larger numbers are made, unit costs are lower.
- Offers the customer some variety and choice.
- Materials can be bought in bulk so they are cheaper.
25
What are the disadvantages of batch production?
- Employees are often less motivated because the work becomes repetitive.
- Goods have to be stored until they're sold, which is expensive.
26
What is flow production?
The production of very large quantities of identical Goods using a continuously moving process.
27
What are the features of flow production?
- Large quantities are produced.
- Standardised procedures.
- Employees are relatively unskilled.
- High degree of automation.
- Large inventories of raw materials and work in progress.
28
What are the advantages of flow production?
- More Capital intensive than job or batch production, which lowers the labor cost.
- Materials can be purchased in large quantities, so they are often cheaper due to bulk buying economies of scale.
- Large number of goods are produced.
29
What are the disadvantages of flow production?
- Requires very large capital investment in production line technology.
- Employees are not very motivated, since their work is very repetitive.
- It is not a very flexible method as production lines are difficult to change.
- If one part of the production line breaks down, the whole production process will have to stop until it is repaired.
- High levels of raw materials, work in progress and finished goods are held. This increases business costs.
30
What is capital intensive?
Production process that uses a high quantity of capital equipment compared with labour input.
31
How do you decide which is the most appropriate method of production?
- The size of the market.
- The type of good being made.
32
What are the advantages of technology to businesses?
- Reduces the costs and time taken to design new products.
- Increases productivity.
- Reduces cost of production.
- Improves quality and reduces waste.
33
What are the disadvantages of technology to businesses?
- Can be very expensive.
- When technology is rapidly changing it will need to be changed often if the business is to remain competitive.
- May need to spend money training employees, which increases costs.
34
What are the advantages of technology to consumers?
- Better quality products.
- Lower prices.
- Products with more features are easier to develop and produce.
35
What are the disadvantages of technology to consumers?
- Products may become out of date more quickly.
- When the product develops a fault it can be expensive to repair.
36
What are the advantages of technology to employees?
- Technology complete simple and repetitive tasks that employees find boring.
- The work is easier with the aid of Technology.
- A business that uses the latest technology is likely to be more successful so provides job security.
37
What are the disadvantages of technology to employees?
- Technology often reduces the need for employees, resulting in redundancy.
- Technology could make the work less interesting.
- A smaller Workforce reduces opportunities for promotion.
- The development and manufacture of new technology products provide employment opportunities.
38
How are costs classified?
- Fixed costs.
- Variable costs.
- Total costs.
- Average costs.
39
What are fixed costs?
Costs that do not change with output.
- They will be the same even when the output is 0.
40
What are variable costs?
Costs that change in direct proportion to output.
- If output increases by 50%, variable costs will also increase by 50%.
41
What are total costs?
All the variable and fixed costs of producing the total output.
42
What is the formula for total costs?
Fixed costs + Total variable costs.
43
What is average cost?
The cost of producing a single unit of output.
44
What can cost-data tell us about a business?
It can be used in making decisions about whether a business should continue or stop producing a loss-making product.
45
What are economies of scale?
The reduction in average costs as a result of increasing the scale of operations.
46
What are the different types of economies of scale that businesses can benefit from?
- Financial economies.
- Managerial economies.
- Marketing economies.
- Purchasing economies.
- Technical economies.
47
What are financial economies?
Lenders, such as Banks often prefer to lend to large businesses because they consider them less of a risk than smaller businesses. So, large businesses find it easier to borrow money and often do so at a lower rate of interest in smaller businesses.
48
What are managerial economies?
As a business grows it often employs specialist managers for the different functional areas of the business. Specialist managers improve the quality of business decisions and make fewer mistakes than non specialist managers.
49
What are marketing economies?
Well total marketing costs rise as a business gets larger, they do not rise at the same rate as the sales output. The average cost of marketing falls as output and sales increase.
50
What are purchasing economies?
Large businesses usually by greater quantities of raw materials and goods than smaller businesses. Small businesses do not benefit from discounts.
51
What are technical economies?
Large businesses usually use flow production to produce their output. This method of production can be very expensive and only very large businesses can afford the level of investment required. The technology enables businesses to to produce very high levels of output at lower unit costs than smaller businesses.
52
What are diseconomies of scale?
Factors that cause average costs to rise as the scale of operations increase.
53
What are the main causes of these problems?
- Poor communication.
- Lack of commitment from employees.
- Weak coordination.
54
What is poor communication?
If a business becomes too large, managers May no longer be able to communicate directly with employees. Leading to slow and poor decision making and an increase in mistakes.
55
What is lack of commitment from employees?
In very large businesses, managers May no longer have day-to-day contact with employees. The employees can feel that they are no longer a valued part of the business making them demotivated and can lead to a high labor turnover, poor quality and a fall in production.
56
What is weak coordination?
As a business grows, so will the number of its departments, products and production units. The business is average costs may rise as a result of managers in different departments or different production units working towards different objectives. This increases the risk of duplicated work which is a waste of resources and increases costs unnecessarily.
57
What do economies of scale reduce?
Average costs.
58
What do diseconomies of scale increase?
Average costs.
59
What is break-even?
The level of output where Revenue equals total costs; the business is making me their profit or loss.
60
What would a business use break-even analysis to do?
- Calculate how many units it needs to sell before it starts to make a profit.
- Calculate the effect on profit of increasing or decreasing the price of a product.
- Calculate the effect on profits of an increase or decrease in business costs.
61
What do you need to know to produce a break-even chart?
- Revenue at 0 output and it's maximum output.
- Total cost at zero output and at capacity output.
- Fixed cost 0 output and at capacity output
62
What is the margin of safety?
The difference between the current level of output and break-even output
63
What is the formula for the margin of safety?
Actual sales - Break Even point
64
What are advantages of break-even charts?
- Easy to construct and interpret.
- Provide businesses with useful information about the output that must be sold to cover all costs and how different sales volumes affect the margin of safety and profitability.
- Can show the effect of a decision to change costs or revenues.
- Can help with other important business decisions such as the location and relocation of a business.
65
What are disadvantages of break-even charts?
- Assume that all costs in revenues can be represented by straight lines.
- It is not easy to separate costs into fixed and variable.
- Assume that all output is sold - do not allow for inventories and the cost of holding these.
66
What is quality?
Ensuring a good or service that meets the needs and requirements of its consumer.
67
What are quality standards?
The minimum standard of production or service acceptable to Consumers.
68
What is the importance of quality to a business?
- Develop a strong brand image.
- Keep customers and attract new customers.
- Reduce costs, customer complaints and returns.
- Charge a premium price.
- Encourage wholesalers and retailers to stock the product.
- Lengthen product life cycles.
69
What is quality control?
Checking the quality of goods through inspection.
70
What is a flaw of quality control?
It is usually tested on a sample. So, not every product is checked for quality and there is always a chance of a poor quality product finding its way to the final consumer.
71
What are the problems of quality control by inspection?
- The work can be repetitive and boring which may demotivate the inspectors.
- If inspection only takes place at the end of the process, then problems with the quality at the beginning are not found soon enough.
- The use of quality inspectors takes any responsibility for quality away from the employees.
72
What is quality assurance?
A system of setting agreed standards for every stage of production.
73
What does quality assurance make sure that?
-Raw materials components and other resources are of the required standard before they enter the production process.
- Quality standards are agreed for every stage of the production process.
74
What are some benefits of quality assurance?
- It encourages teamwork and this can act as a motivator for employees.
- It reduces the cost of wastage and faulty Goods.
- Quality issues are found when they occur and not at the end of the production process.
- Although a business May inspect Goods at the end of the production process the time spent by inspectors will be less and the business is inspection costs will be reduced.
- Businesses that have a quality assurance system of quality control find it easier to obtain industry quality Awards.
75
What is infrastructure?
The basic facilities, services and installations needed for a business to function, for example, water, power, transport links.
76
What are the two types of factors that businesses need to take into account when choosing the location for a business?
- Quantitative factors.
- Qualitative factors.
77
What are some examples of quantitative factors?
- Cost of site.
- Availability and cost of labour.
- Transport costs.
- Market potential.
- Issues.
- Government incentives.
78
What is cost of site?
How expensive the land and buildings are able to rent or buy.
79
What are labour costs?
What is the average wage paid to employees in the area? This will be influenced by the supply of employees, the skill level required and competitors for the labour concerned.
80
What are transport costs?
How close to suppliers is the proposed sire and what will be the cost of transporting goods to and from the site? How easy it is for customers to access / reach the location? This is particularly important for service industries such as retail outlets, hotels, cinemas etc.
81
What is market potential?
Revenue from sales might depend heavily on the location. For example restaurants, supermarkets and other tertiary sector businesses will often need to be close to their customers. Clearly, it is less important for secondary sector businesses to be located so close to their customers.
82
What are government incentives (definition)?
Usually finance such as interest-free loans or grants provided to a business to help when locating in a country or an area of a country.
83
What are government incentives?
Both local and national governments will often provide financial and other incentives to encourage businesses to locate in a particular area. These incentives can significantly reduce set-up costs.
84
What are some examples of qualitative factors?
- The size of the available site.
- Legal controls.
- Quality of local infrastructure.
- Ethical issues and concerns.
85
What is the size of the available site?
Not only does the site need to be large enough for the current needs of the business, but it also might be important that it offers scope for expansion in the future.
86
What are legal restrictions?
In most countries it is not possible for a business to simply locate where it wants to. There may be planning restrictions or other legal restrictions that prevent location in certain areas or close to other community amenities. For example, it would be unlikely that a manufacturing business would be allowed to locate very close to an area for residential housing because of the effect noise and air pollution might have on residents.
87
What is the quality of local infrastructure?
How good are transport links such as road, rail, air and sea? Does the location have good support services such as water, power and telecommunications?
88
What are ethical issues and concerns?
If a business is relocating from one part of the country to another, or from one country to another, how will this affect its existing workforce? The decision to relocate might lead to the redundancy of existing employees and could damage the reputation of the business among consumers - this could lead to reduced sales, revenue and profits.
89
Why would businesses locate their operations to another country?
- To achieve growth.
- To reduce production costs.
- To locate production closer to the market.
90
How would relocation achieve growth?
Location overseas might be the best way of achieving growth for companies whose sales have reached their maximum level in the home market; the product in the maturity stage of its life cycle.
91
How would relocation reduce production costs?
For example, labour costs in countries such as India, China and Eastern Europe are much lower than in Western Europe, Japan and the USA.
92
How would relocation locate production closer to the market?
This reduces delivery time to customers and reduces transport costs.
93
What are the benefits of relocation?
- Lower labour costs.
- Access to global markets.
- Avoidance of legal barriers and import tariffs.
- Government incentives.
94
What are the limitations of relocation?
- Cultural differences.
- Communication problems.
- Ethical concerns.
- Quality issues.
95
What other factors do businesses also need to consider when relocating?
- The role of legal controls.
- Choosing a location.
96
What are the role of legal controls for a business?
- Building new premises such as factory or a supermarket may require planning permission from local government or other government agencies.
- There are often legal controls concerning the employment of workers such as discrimination laws and minimum wage laws.
- The legal controls based on businesses will not be the same for every country.
97
Whose task is it to chose a location?
The task of owners and managers.
