UNIT 4- Operations

Question 1

Operations management

+key types of operational objectives

Answer 1

The management of processes, activities, and decisions relating to the way goods and services are produced and delivered

Cost and volume, quality, efficiency and flexibility, environmental

Question 2

Cost and volume objectives

+examples

Answer 2

Traditional measure of cost-effectiveness is unit costs (total costs divided by total units)

As the business with the lowest unit cost is in a strong position to be able to compete by being able to offer the lowest price or make the highest profit margins at the average industry price

Productivity and efficiency for example units per week or employee, unit costs per item, contribution per unit, number of items to produce per time period or pad machine et cetera

Question 3

Quality objectives

Answer 3

Our requirement for a reputation of high-quality can give a competitive advantage over competitors

Potential objectives are rejection of defect rates, reliability how often something goes wrong and average lifetime use, customer satisfaction, number or incidents of customer complaints, customer loyalty, percentage of on time delivery

Question 4

Efficiency and flexibility objectives

Answer 4

Looks at how effectively the assets of the business are being utilised – return on capital employed (how much money you’re putting in versus getting out)
Also measure how responsive the business can be to short-term or unexpected changes in demand

Example examples include labour productivity for example output per employee, units produced per production line, sales by shop
Output per time period, capacity utilisation, order lead times

Question 5

Environmental objectives

Answer 5

Use of energy efficiently, proportion of production or packaging materials that are recycled, compliance with the waste disposal regulations/proportion of waste to landfill, supplies of raw materials from sustainable sources

Question 6

The transformation process

Answer 6

Operations management runs the transformation process
- What happens inside the business where value is added to inputs to create outputs

Question 7

Unit costs and efficiency
+formula

Answer 7

Average cost per unit= total production cost in a given period (£) /
Total output in period (units)

Lower unit costs will enable the firm to reduce their prices and be more competitive or they can enjoy higher profit margins. The decision they make may depend on the price elasticity of demand if it is inelastic or reduction in price will increase overall revenue.

Question 8

Economies of scale

+ the difference between internal and external economies of scale

Answer 8

Economies of scale arise when unit costs fall as output increase

Internal economies of scale arise from the increased output of the business itself whereas external economies of scale occur within the industry and involve changes outside of the business and affect all competitors in an industry

Question 10

The six internal economies of scale

Answer 10

Managerial economies of scale aware larger firms can afford specialists with more experience who are therefore efficient and reduce unit costs

Technical economies of scale is the use of specialist equipment or processes to boost productivity for example machines robotics and IT

Purchasing economies are buying in greater quantities which usually results in a lower price per unit or bulk buying

Marketing economies of scale are the spreading of fixed marketing spent over a larger range of products, markets and customers

Network economies of scale are they adding of extra customers or users to a next work that is already established for example mobile phones or Netflix?

Financial economies of scale are where larger firms benefit from access to more and cheaper finance as they pose less risk so are more likely to get investments at lower interest rates

Question 11

Examples of external economies of scale

+ agglomeration economies

Answer 11

University research department helping fund research
Transport networks lower logistics costs
Relocation of suppliers to the centre of production
Influx of human capital – highly skilled workers

A commotion economies a occur when businesses in similar industries tend to cluster together and attract an influx of skilled talent which provides human capital to expand businesses

Question 12

Diseconomies of scale

Answer 12

A occur when average costs rise as a business gets too big usually occurring due to coordination or communication problems as well as alienation or demotivation of staff as they feel more detached from the company

Question 13

Capacity

Answer 13

The capacity of the business is a measure of how much output it can achieve in a given period it is very dynamic for example when a machine is having maintenance capacity is reduced and is also heavily linked to labour

It also needs to take account of seasonality or unexpected changes in demand for example, chocolate factories making Easter eggs and ice cream factories during the summer

Question 14

Capacity utilisation
+formula

Answer 14

Capacity utilisation is the proportion or percentage of a businesses capacity that is actually being used over a specific period and is expressed as a percentage
- The key costs of capacity are usually equipment facilities and labour
( wages are weekly variable costs and salaries are fixed monthly/yearly costs)

Capacity utilisation = actual level of output/maximum possible output x100

Question 15

Why most businesses operate below capacity
+the dangers

Methods of increasing capacity
+ dangers

Answer 15

Lower than expected market demand, loss of market share, seasonal variations and demand, recent increase in capacity, maintenance and repair

Higher unit costs which directly impact competitiveness, less likely to reach break even output, capital tied up and under utilised assets

Can increase capacity by increasing workforce hours through extra shifts, encouraging overtime and utilising temporary staff , can subcontract some production activities and reduce time spent maintaining production equipment

However this can negatively affect quality as production is rushed and there is less time for quality control, can lead to added workload and stress on employees demotivating them, potential loss of sales due to an inability to meet sudden or unexpected increases in demand

Question 16

Labour productivity
+why it matters
+ factors influencing it

Answer 16

Labour productivity ( output per worker) = output per period (units) / no of employees at work

Labour productivity is usually a significant part of total costs
Business efficiency and profitability are also closely linked with the productive use of labour and in order to remain competitive a business needs to keep its units costs down

Factors influencing labour productivity are the extent and quality of fixed assets, skills, ability and management of the workforce, effectiveness of the production process and organisation of workflow, extent to to which workforce is trained and supported and external factors such as the reliability of suppliers

Question 17

Ways to improve labour productivity
+ potential problems when trying to increase it

Answer 17

Can increase later productivity through motivation for example pay and communication, good working conditions, investment and employee training, investment in capital equipment, streamline production process, measurements of performance and set target

Potential problems when trying to increase labour productivity as a potential trade off with quality, potential for employee resistance depending on the matter of used, employees may demand higher pay for their improved productivity which could turn the gate any impact on labour costs per unit

Question 18

Labour intensive
+examples
+ implications on unit costs
+ advantages and disadvantages

Answer 18

Labour intensive is where production relies on using labour resources for example food processing, hotels and restaurants, fruit farming, hairdressing, coal mining

Labour costs tend to be higher than capital costs, however the costs are mainly variable which tends to lower the breakeven output
Firms benefit from this if they can access sources of low-cost labour

Advantages – unit costs may still be low in low rage locations, it is a flexible resource through multi skilling and training, labour being at the heart of the production process can help continuous improvement
Disadvantages – greater risk of problems with employee employer relationships, potentially high costs of labour turnover through recruitment et cetera, need for continuous investment and training

Question 19

Capital intensive production
+examples
+ implications on unit costs
+ advantages and disadvantages

Answer 19

relies on using capital resources for example oil extraction, call manufacturing, web hosting, intensive arable farming, transport infrastructure

Capital costs tend to be higher than labour costs and the costs are mainly fixed which means a higher breakeven output
Firms can benefit if they have access to low-cost long-term financing

Advantages – efficient and quick with great quality, greater opportunities for economies of scale, lower labour costs, potential for significantly better productivity
Disadvantages – may generate resistance to change from labour force, significant investment, potential for loss of competitiveness due to obsoletion – the machinery becoming out of date

Question 20

Quality
+ tangible and intangible measures of quality
+ benefits of quality

Answer 20

A productive services of good quality if it meets the needs and expectations of the customer

Tangible- reliability, functions and features, support levels and standards, cost of ownership for example repairs
Intangible – brand image, exclusiveness, market reputation

Customer satisfaction, repeat purchases, customer recommendation, lower market costs, higher customer loyalty
Quality provides a company with a key advantage over its competitors as it allows it to differentiate his product from the competition
Companies such as Waitrose, Disney, Starbucks, BMW and Apple

Question 21

Customer experience and customer service

+examples of businesses using low prices and high quality

Answer 21

The customer experience, including the buying process, product reliability, after sales service and cost of ownership

Customer service and quality particularly in service focused businesses such as restaurants

Premier Inn, Nando’s, Aldi, IKEA

Question 22

Examples of poor quality
+implications

+measures of quality

Answer 22

Product fails, product doesn’t perform as promised, product is delivered late, pour instructions/direction of use, unresponsive customer service service

Lack of return customers, loss of customers, cost of working or remaking a product, cost of replacement/refunds, wasted materials, competitive advantage for competitors

Question 23

Methods of improving quality

Answer 23

Quality control is the checking of a good or service before it is delivered to a customer for example at the end of a process for example a head chef expects a meal on a plate before it leaves the kitchen
advantages – quality can be monitored, stops faulty products reaching the customer, common problems can be identified, inspector takes responsibility
disadvantages – takes responsibility away from operatives, expires specialist/additional personnel, problems only identified at the end of the process, waste levels may be High

Quality assurance is the checking of a product or service at each stage of its production for example as it travels along a production line
advantages - spot any faults earlier saving resources from being wasted, motivates workers who are responsible for ensuring quality standards are met, aims to achieve an objective of no defect, enhances the reputation of the business as there is less chance of faulty goods reaching the end customer
disadvantages – requires staff training and high levels of staff commitment, can slow down the production process and labour productivity leading to higher unit costs, made demotivate workers who feel under pressure

Question 24

Inventory management

Definition of industry
Factors affecting the amount of inventory held by a company

Answer 24

Inventory is the raw materials, work in progress, and finished goods held by a firm to enable production and meet customer demand
Holding inventory enables production to take place, satisfy customer demand, precaution against delays from suppliers, allows efficient production, allows for seasonal changes

The amount of inventory held depends on the companies
- need to satisfy demand as it can be costly if goods are not available however demand may be seasonal or unpredictable
- need to manage working capital as holding inventory ties up cash in working capital money spent on day-to-day running of the business however there is an opportunity cost associated with inventory holding
- Risk of inventory losing value/becoming obsolete

Question 25

the cost of holding inventories

Answer 25

cost of storage- require large storing space and equipment to control and handle them interest costs- tied up capital could mean paying interest obsolescence risk- unusable due to damage or lost demand and incapable of being sold stock out costs- if a business runs out of stock it could lose sales and customer good will as well as costs in urgent replacement orders and in production stopping or delays

Question 26

Inventory control charts +purpose

Answer 26

on paper to maintain inventory levels so that the total costs of holding inventories is minimised

Question 27

factory affecting when + how much inventory to reorder

Answer 27

- lead time from supplier -Extent of implications of running out of stock, if it’s like amazon where it promises fast delivery, it may have a greater impact - demand for the product

Question 28

advantage of low and high inventory levels

Answer 28

Low inventory levels- lower inventory holding costs,

Question 29

Inventory control chart +purpose Factors effecting reorder quantity

Answer 29

on paper to maintain inventory levels to that the total costs of holding inventories is minimised lead time from the supplier, implications of running out (if it is a company such as amazon and relies on

Question 30

Advantages of low and high inventory levels

Answer 30

Low- lower inventory holding costs, lower risk of obsolescence, less capital tied up in working capital, “lean” operation High- production fully supplied, potential for lower unit costs by bulk buying, able to handle unexpected changes in demand, less likelihood of stock outs

Question 31

JIT Production

Answer 31

Inventory required for production arrives just as it Is needed - Lean production = minimal capital tied up ininventories - No need for buffer stocks - Stock holding costs are minimised - Lead times are very short - Requires highly reliable suppliers & sophisticated IT systems to work properly

Question 32

Lean production +methods

Answer 32

An approach to management that focuses on cutting out waste, whilst ensuring quality. This approach can be applied to all aspects of a business - from design, through production to distribution. Involving employees in the continuous process of improvement And reduction of waste caused by over-production, Waiting time, Transport, Stocks, Motion, Defects Time based management, simultaneous engineering and JIT

Question 33

Time based management +benefits + requirements

Answer 33

A general approach that recognises the importance of time and seeks to reduce the level of wasted time in the production processes of a business Quicker response times (reduced lead times) to meet changing market and customer need, Faster new product development May enable First Mover advantage Reduction in waste, therefore greater efficiency Flexible production methods (Able to change products quickly + Can change production volumes / runs) Trained employees, Multi-skilled staff, Trust between workers and managers

Question 34

Simultaneous engineering + benefits

Answer 34

An approach to project management that helps firms develop and launch new products more quickly. All parts of the project are planned together- Everything is considered simultaneously (together, in parallel) rather than separately (in series) • New product is brought to the market much more quickly • Business may be able to charge a premium price that will give a better profit margin and help recoup R&D costs • A greater sense of involvement across business functions improves staff commitment • Can be a source of competitive advantage (first mover markeing +advantage') for the firm if it can get a reliable new product into the market and build brand loyalty before its competitors

Question 35

JIT + advantages and disadvantages

Answer 35

Just in time aims to ensure that inputs into the production process only arrive when needed - lower stock holding means a reduction in storage space which saves on insurance- lower unit costs -less working capital is tied up in stock -less likelihood of stock perishing (becoming obsolete or our of date). - less time spent on checking and re-working products as there is emphasis on “getting the work right the first time” -There is little room for mistakes as minimal stock is kept for re-working faulty products. - production is highly reliant on suppliers and if stock is not delivered on time, the whole production schedule can be delayed. -There are no spare finished products availabe to meet unexpected orders, Because all product is made for meet actual orders. -A need a complex / advanced, specialist stock system

Question 36

Matching supply with demand- labour + advantages and disadvantages + real world examples

Answer 36

Outsourcing = hiring external companies or individuals to handle specific business functions. - Cost reduction through lower labour and operational expenses, Access to specialised expertise and technology - Potential quality control issues, Risk of confidential information leaks Apple outsources iPhone manufacturing to Foxconn in China while maintaining design and development in California. Temporary and Part-Time Workers= hiring workers on a non-permanent basis to handle fluctuating demand. - Flexibility to adjust workforce based on seasonal demands - Higher training costs due to frequent staff turnover, potentially lower employee loyaly and commitment Real-world example: Retail stores like Next hiring additional staff during holiday seasons. Producing to Order= manufacturing products only after receiving customer orders. -Reduced inventory costs and waste, Guaranteed sales for produced items - Longer waiting times for customers, Higher production costs per unit Real-world example: Dell Computers building laptops based on specific customer specifications.

Question 37

Mass customisation

Answer 37

Mass customisation combines the efficiency of mass production with customization flexibility. It allows companies to produce personalized products at relatively low costs. Example: Nike By You (formerly NIKED) allows customers to design their own shoes while maintaining mass production efficiency.

Question 38

Supplier + favourable characteristics Supply chain

Answer 38

A business or individual that provides goods and services to another business A supply chain is a network between a company and its suppliers to produce and distribute a specific product, and the supply chain represents the steps it takes to get the product or service to the customer. Example: Magazine What characteristics would make an effective supplier? • price- value for money - reliability- delivers the correct product, in consistent time - communication- easy to communicate with - financially secure- stay in business • capacity- able to withstand increased demand

Question 39

Strategic versus Commodity Suppliers

Answer 39

Strategic = the business cannot succeed without maintaining an effective supplier relationship. These goods and services are crucial to the business success Other suppliers can be regarded as "Commodity Suppliers" - they provide goods and services that can easily be bought elsewhere and which are not hugely important to the business.