Unit 5: Operations management

Increase in capital-intensive leads to...

1. improved levels of output 2. increased productivity 3. reduced avg costs of production: machinery works without rest breaks or financial compensation

How a firm can increase capacity utilisation

1. improved marketing strategies; Increased sales--> higher capacity utilisation. Of course, spending more on marketing does not necessarily generate more sales as there are many other factors that influence the level of demand fora product, such as income and the price of substitutes. 2. subcontract work; using external firms to help supply the firm's products. The main drawback is that profit margins are likely to be lower (if prices are kept constant) or prices need to be raised (to maintain profit margins, but this can reduce the demand for a firm's products). 3. Reduce capacity; spare capacity might exist because of excess capacity. General Motors, Ford and Dell have closed down operations in the past to reduce excess capacity. Whilst this causes job losses, it is often necessary for the firm's profitability.

Disadvantages of outsourcing

1. must be mutual trust between business and subcontracter; conflict can be damaging 2. concerns regarding quality of business will be maintained as quality of outsourced service is passed onto external party 3. must require effect two-way communication and careful coordination 4. cause uncertainty in workforce due to restructuring and staff redundancies

Labour intensive benefits

1. personalised service 2. benefit from USP: able to charge higher prices

Limitation of capital intensive

1. products are the same--> no unique selling point 2. lower selling of products due to standardisation--> lower profit margins 3. high fixed costs of production: machinery, equipment, automation is high

HRM implications

1. role of operations management has direct role on HRM EG: -change in production methods can either reduce/increase the size of the workforce. -capital-intensive workforces with less employees 2. Motivation can also be affected by aspects of operations management. EG: -Flow production; lack of teamwork and group dynamics -Cell production; benefits from individual skills of people working within a team

Disadvantages of stockpiling

1. storage costs (rent, insurance, maintenance and security costs) will be high 2. some stock may perish--> wasteful and expensive ie. flowers or fruit 3. semi-finished goods can be illiquid ye still consuming working capital which could be better used elsewhere 4. changing fashions and tastes-->excess and obsolete stock which need to be heavily discounted

4 sectors of the economy

1: Primary sector; extracting raw materials 2: Secondary sector; turning natural resources into processed or finished goods 3: Tertiary sector; provision of services 4: Quaternary sector; provision of intellectual, knowledge-based activities that generate and share information (ICT, research and design etc)

Advantages of quality control

1. Maintaining business reputation; done by preventing faulty products from reaching consumer 2. Cheaper; cheaper to train quality control inspectors than training individuals for quality assurance 3. QC inspectors can fide widespread issues across the organisation

Examples of waste

1. Materials and resources 2. Time 3. energy (like leaving on lights etc) 4. Human effort (tasks may need to be done again if there is defective output)

Lean production

Approach used to eliminate waste ('muda') in an organisation. As a result, lean organisations benefit from higher productivity and lower costs

Cost-to-buy formula

CTB: P x Q

Cost-to-make formula

CTM= FC+ (AVCxQ) --> if CTM is bigger than CTB, it is more financially desirable to buy -- if CTB is bigger than CTM, makes more sense to "make"

Sustainability

Concept that promotes intergenerational equity. Meeting the needs of the current generation in such a way that it does not jeopardise the needs of our future generations

Quality circles

Small groups of people who meet regularly to examine issues relating to the quality of output and make recommendations for improvement +volunteers from various departments +encourage teamwork and communication to solve problems that have a negative effect on quality +members directly involved in the execution and management of the recommendations or solutions

Work-in-progress

Unfinished products eg; parts and components to be used in the production process

supply chain management (SCM)

art of managing and controlling theses logistitcs, which must be efficient and cos effective for a business to be profitable

Inter-firm benchmarking

comparing the same performance data of different businesses eg: citibank might compare its staff turnover rate with other banks like HSBC, etc

Recylcing

enables old materials to be reprocessed into new products

social sustainability

examines social interactions and structures that are necessary for sustainable development Social sustainability enables society to optimize the quality of life for people and their descendants. eg: gender equality is important for men accepting women as equals

contingency fund

finance kept for emergency use -reserved in case machinery breakdowns or late deliveries from supplier, delaying production

Stock control charts

graphically illustrate a simple system of stock control

labour-intensive production

greater proportion of a firms cost to go to remunerating labour with wages, salaries and other financial benefits

stock-outs

holding insufficient stocks

Raw materials

natural resources used for production eg: soil, timber

Production innovation

new creations or development of existing products eg: toothpaste was originally sold in jars until Colgate introduced toothpaste in tubes +common in industries with high research and development expenditure like car manufacturing, movies, pharmaceuticals, iPHone

production output

resources (land, labour and capital) + productivity (efficiency)

Computer aided machinery (CAM)

sophisticated automation and machinery in production process

usage rate

speed at which stocks are depleted -might be different from orginially predicted

Just in time (JIT)

stock control system based whereby materials and components are scheduled to arrive precisely when they are needed in the production process +buffer stocks (predetermined minimum level of stock) not required--> cost effective +elimintating need for storage +prerequisite to lean production +relies on automation, barcordes, use of highly skilled and motivated workers

Cradle to cradle

sustainable model of production based on natural processes, benefitting the environment +no waste in nature +C2C manufacturing designed in a way that production is efficient and generates minimal/no waste +buildings increasingly being made using C2C processes +minimises the environmental impacrt of disposal in order to promote sustainbakity +C2C important compontent of a firm's CSR +C2C practices enable bueisneses to repeatedly use the same components rather than disposing of them because products can either be reused in the production process or broken down organically as food for the natural environment -Critics argue that C2C practices can restrict ability of businesses to operate in a cost-effective way EG: glass bottles used instead of plastic

Ecological sustainability

the capacity of the natural environment to meet the needs of the current generation without jeopardising the ability of future generations to meet their needs. +requires efficient and sensible use of the worlds scarce resources so that they do not become exhausted or over polluted. EG: deforestation and overfishing is bad

location definition

the geographical position of a business, i.e. where it is sited

industrial inertia

there are problems with relocation so there is often a reluctance to relocate, even when competitive advantages for such location no longer exist

Capital-intensive

those that have a relatively high proportion of capital costs in comparison with labour costs batch,mass, flow production

Just-in-case (JIC)

traditional stock management system that maintains buffer stocks in case there are unexpected changes in supply (like delayed delivery of stocks) or sudden changes in demand

sunk costs

when costs cannot be recovered

relocation

when managers consider moving to alternatives premises , perhaps bc of unaffordable rent or area being uncompetitive

labour productivity formula

(total output/number of workers) x100

examples of theses awards

+BSI kitemark; british standards insitution (BSI) responsible for setting quality standards in the UK. products that carry this heklp inform customers that they have been manufactures to high quality levels.

disadvantages

+higher costs of sustainability +harder for businesses with non-flexible structures, creates further obstacles

Kaizen (continous improvement)

-Japanese word for continuous improvement Process of productivity and efficiency gains that come from small and continuous improvements being made, rather than one large one-off improvement eg; the hare and tortoise Kaizen process: forming small groups of employees whose role is to identify changes and improvement to the organisation's products +people are resistant to change so by having small changes, it will not disrupt the organisation +cost savings: by focusing on continual improvements in quality +eliminate waste by looking at ways to prove productivity and efficiency +increased motivation of staff: anyone in the organisation can give suggestions so input in decision making

Advantages of just-in-case stock control

1. Allows a business to meet sudden increases in demand due to the buffer stock 2. take advantange of economies of scale; buy buying in bulk 3. Reduces downtime caused by a stock-out as there is no need to wait for delivery of stocks from suppliers

Advantages of benchmarking

1. Allows a business to reduct performance gap with rivals if BPB successfully implemented 2. More effective; it is more effective to deal with problems of quality with external benchmarking than by guessing 3. Improve competitiveness of business; due to successful implementation of BPB, which will thus lower production costs 4. looks at comparisons from perception of customers and therefore BPB should help the business to take appropriate action to meet its customers' needs and wants

Quantitative reasons for location

1. Availability, suitability, and cost of land 2. Availability, quality and cost of labour 3. Proximity to the market 4. Proximity and access to raw materials 5. Government incentives 6. E-commerce

2 main reasons insourcing occurs

1. Business had previously outsourced a task but no longer satisfied with quality of work done 2. no longer cost-saving beenfits from using a subcontracter and can be assigned in-house to cut costs

why is quality important

1. Business reputation 2. Ability to control costs

Worked example: Suppose a firm is deciding whether to buy or make 1000 wooden storage sheds. Suppliers could offer the product at a price of $200 per unit. However, there is sufficient capacity for the firm to produce these with direct costs estimated to be $120 per shed and allocated fixed costs of $32 000. Calculate whether the firm should make or buy the wooden storage sheds on financial grounds.

1. CTB: PxQ = 200x1000= 200,000 2. CTM: FC+ (AVCxQ) = 32,000 + (120 x 1000)= 152,000 It makes financial sense to use CTM, saving $48,000

Disadvantages of quality control

1. Does not prevent mistakes being made, can be expensive 2. root cause of problem not deal with bc of lack of quality culture--> substandard output is either rejected or reworked 3. Slack is encouraged; workers not accountable for quality of their work

Innovation into 2 categories:

1. Incremental innovation; minor improvements to products or work processes 2. radical innovation; major and disruptive innovations hat tend to involve high risks

Benefits of andon production

1. Instant attention to production problems as they arise in the manufacturing process 2. Consistent and simple communication tool for all factory floor workers and supervisors 3. Immediate action: Encouraging workers and supervisors to deal with production, quality, and safety problems 4. Cost effective and efficient: improving the ability of supervisors to identify and resolve issues

Methods of lean production

1. Kaizen 2. Just-in-time (JIT) 3. Kanban 4. Andon

Disadvantages of quality assurance

1. Energy and training required to nuture total quality culture

Benefits and goals of innovation

1. Growth opportunities; innovation is a source of growth and evolution 2. Productivity gains; Process innovation can help a business increase productivity levels 3. International competitiveness; give a business competitive advantage over international rivals 4. Brand switching; occurs when consumers turn away from rival products for more appealing products. EG: consumer electric brands try to get consumers to do this 5. Job creation; product innovation creates employment 6. Social benefits; innovation improves quality of life for many people

Mass production

Manufacturing of large amounts of a standardised products, catering to the mass market. --> capital intensive --> products assembled on a large scale eg: lego toys, office supplies

Benchmarking

a business comparing its products, operations and processes with others in the same industry, especially market leaders +benchmarking becomes a point of reference for the business to target +allow businesses to emulate the best practice in order to improve its own operational efficiency EG: luxury car manufacturers may benchmark their products against market leaders like Mercedes-Benz

Why are National and international quality standards important?

+ promote quality awareness within the organisation +improve organisational performance +recognise quality achievements +motivate workforce +attract high calibre employees +strengthen firm's competitiveness

CUEGIS

+Production planning can give a competitive advantage as it is able to pass on some cost savings to customer in the form of lower prices +effective stock control--> ensure production meets demand of customers +managers need optimum stock level +buffer stock

make or buy decision..

+assessment of both quantitative and qualitative factors Buy should happen if.. +business does not have the expertise, equipment or productive capacity Outsourcing... +non-core functions and products can be contracted to outside suppliers +if firm is financially better off by making product, then make decision is pursued

4. Proximity and access to raw materials

+availability of raw materials is important -bulk-reducing businesses locate near source of raw materials that are heavier to transport to final product (eg, extracting raw materials at source than to transport to other manufacturin sites)

stock control

+careful planning and control to ensure that sufficient stocks are available and at the right time +stockpiling and stock-outs can cause problems

advantages

+encourages businesses to be more responsible in their use of resources, e.g. selecting raw materials that are more environmentally friendly and designing products +improves survival for the long run +elps a business to survive, thrive and contribute to the economic wellbeing of others via the creation of jobs and wealth.

5. Government incentives

+governments try to relocate businesses in areas of high unemployment, low income, by offering financial incentives, like grants and subsidies to reduce costs of production +low/interest free loans also given -government can also impose limitations that affect business location eg; harder to trade overseas than the domestic country corporate tax rates

examples of crisis

+lack of working capital to pay workers and suppliers +theft and vandalism +bad media publicity +computer hacking or data loss +accidents +high staff turnover +natural disasters +no power +computer failutre +outbreaks of infectious disease

2. Availability, quality and cost of labour

+many companies chose to locate to LEDCs due to low cost of labour +highly skilled workers= more expensive and harder to find +less skilled workers= cheaper and easier to find a supply of workers

key aims of production planning

+minimise the costs of holding stocks whilst ensuring sufficient resources for production to meet customer demand in a timely manner

4. Political stability

+need to find places free from corruption, stable exchange rate, and low rates of txation EG: Congo is one of the worst places to trade (corrupt government activities, huge tax rates etc)

Marketing implications

+output of an exclusive product means that it can be marketed at a high price due to its uniqueness and high quality.

purpose of research and development

+provide continual advancements (like modifications/improvements to existing products) +launch new products to satisfy customer needs in a profitable way

National and international quality standards

+show certain quality standards have been met +businesses that meet/exceed these can get quality award symbols or logos +only when a business proves its products meet or exceed these standards is it given the quality award in recognition of its achievements

3. Infrastrucure (transportation, communication, support networks)

+transportation; links to roads, rail, sea and air, good road and air networks +communication networks; access to telephone lines and postal services +Support networks; maintenance and complementary services for running a business (fuel, power etc) --> affects a countrys international competitiveness, like not wanting to locate to India due to outdated infrastructure +employees must be able to get to and fro without hassle +impact motivation, recruitment, retention of staff

5. Government restrictions and regulations

--> government policies and regulations that constrain business activity as administrative and bureaucratic processes vary from country to country eg; takes 2 days to register company in canada, but 8 in france -difficult to obtain licenses, copyrights

International organisation for standardisation (ISO)

--> made up of representatives from 163 national quality standards bodies like the BSI +goal is to facilirate international reade by providing a single set of quality standards that consumer and businsesse through the world would recognise and respect ISO 9000 +monitored operations and prcesses to ensure that quality goods are being produced +checked products for defects before distributed +regularly reviewed its operations and processes to sutatin or improve its efficiency +proper record keepinh

Finance implications

-capital intensive and lean production require a lot of money invested into machinery and equipment -expensive although if it is mass production, the investment costs can spread over time -Capital intensive firms: use investment appraisal to assess risks

Probelms of SCM

-increased globalisation--> international sourcing becomes more complex as there are more partners in the supply chain to deal with, perhaps from various parts of the world, dealing in different languages and time zones, time lags can delay -greater interdependence--> single problem in the supply chain will cause disruptions. need more trust amongst the partners which may take time and resources

6. Ethical issues

-relocating internationally can have an ethical dimension eg: businesess that exert lots of waste may locate in out-of-town and more rural areas to avoid complaints from local community. May be unethical however to relocate if its causes job losses, possibly damaging firms reputation

disadvantages of offshoring

-unethical practices; explotation of labour in LEDCS with sweatshop conditions, child labour -quality assurance becomes worse -vulnerable to political and economic instability eg; in greece unemplyment rate in greece exceeded 28% in 2014

Disadvantages of flow and mass production

1. Boring work: monotonous, repetitive 2. Inflexibility: Once production process begins, hard to chance design or specificaions. Products must be standardised so will not meet customers individual needs. Only room for some variety 3. High set up costs: running costs and replacement costs. Reliance on machinery--> breakdown of machinery will have huge impact 4. Inflexible system: not possible to rework products that are substandard as the process is continouous, any reworking of a product would halt production

Disadvantages of benchmarking

1. Costly and timely, to collect relevant and up-to-date information for BPD can be a major issue 2. replicating ideas and best practice of other firms has no unique selling points 3. High implementation costs; sufficient time and finance must be made available to implement the findings from the benchmarking exercise 4. relying on BPB can discourage initiative and constrain innovative and creative thinking

Advantages of outsourcing

1. Cut production costs for contracter; subcontracting operations aboroad to benefig from lower labour costs 2. Outsouced to third parties--> allowing business to concentrate on its core activities 3. Quality output can occur despite business lacking skills like ICT management systems, security etc

Advantages of batch production

1. Economies of scale: machinery used to produce larger quantities. Raw materials and components can be bought in bulk 2. Specialisation: specialisation in production processes likely to lead to increased productivity and better products 3. Variety: variety of producrs made--> customers have more choice EG: birthday cakes produced in batches still can be tailored 4. Reduced risks: variety can reduce rissks of producing just a single producr

Disadvantages of cell production

1. Lower output: compared to mass and flow production, which is more efficient and faster 2. High machinery costs: capital-intensive--> set up costs and maintenance and replacement costs of machinery 3. Possible conflict: Team-working can cause conflicts, leading to production problems, esp if team leader is ineffective. Can also exist between different cells, esp if there are production delays 4. Higher fixed costs: The utilisation of the machinery will be less compared to mass and flow production, thus avg fixed costs will be higher

Why is higher productivity rates important to businesses: 4E's

1. Economies of scale; higher levels of output--> reduce average costs of production, can be passed onto customers by reducing prices and help businesses gain a greater profit margin for each product sold 2. Earnings; higher productivity rates are a source of cost savings and higher profits for businesses. higher profitability--> allows firms to pay higher wages to workers who are more productive. Competitive wages--> attract higher calibre employees. Higher earnings can also be reinvested to business to fund research/expand operations 3.Efficiency (improved competitiveness); highly productive businesses can gain advantages beyond economies of scale. +compete on an international scale EG: samsung's productivity in the 200s meant it took over apple and nokia to become market leader of smartphones 4. Evolution (growth); combined benefits of these factors means higher productivity will be a source of growth for businesses because it increases productive capacity. EG: huge productivity gains at Google made company one of the world's largest businesses, allowing it to grow

Limitations of R&D

1. High costs; investment in R&D requires sufficient labour and financial resources 2. High failure rate; most new ideas fail to materialise. Failure leads to loss of investment funds--> demoralises workforce 3. Budgetary constraints; R&D held back by funding problems--> budget constraints can prevent a project from taking place

Methods of benchmarking

1. Historical benchmarking 2. Inter-firm benchmarking

Advantages of quality assurance

1. Improved staff morale: QA programmes involve employee participation as workers gain more ownership--> feel more valued 2. Generate new ideas for improving quality; through employee participation 3. Less hierarchy; break down hierarchy culture between employees and managers bc no formal inspection of work by quality controllers 4. Reduced production costs; less wastage and reworking as products and procesese checked at every stage of output

Advantages of total quality management

1. Increased staff motivation; workers feel empowered in decision making 2. reduced/elimiated waste; through defective goods and reworking. things are done right first time, lowering production costs 3. reputation ofr TWM improves corporate image 4. customer needs are central focus of production process--> provides competitve advantage 5. improves chances of business survival

Factors leading to quality being a priority for businesses:

1. Increasing consumer awareness; in this day and age, consumers have easier access to information through the media and internet. Mistakes made my companies likely to spread worldwide 2. Increasing competition; rivalry with firms with better quality products, possibility of brand loyalty and larger customer base. Quality can give firms a competitive advantage. ie. unique selling point 3. Government legislation Changes to competition laws forced businesses to improve quality standards 4. Increasing consumer incomes; consumers are more willing to buy higher quality products

Advantages of flow and mass production

1. Large output: Capital-intensive methods, so outut is on a large scale 2. Cost-effective methods of production: Costs spread over the high volume of output--> reducing fixed costs. Machine can work continuously. THey do not require wages, rest breaks or motivating, so reduces costs of production in the long run 3. Low defect rate: Use of machinery and equipment means products will be produced of standardised quality, resulting in lower defect and maintaining quality standards 4. Low labour costs: Unskilled workers required to operate machinery, can be trained easily

Reasons or using supply chain amangement

1. Long supply chains--> increased chances of things going wrong. Effective SCM prevents mistakes that would otherwise affect the business 2. SCM ensures an appropriate supply of stocks is used to mee the level of demand. too much supply-->stockpiling and a lack of stock causese delays to the rest of the supply chain 3. tool for achieveing lean production; helping an organisation identify wastage and inefficiency +all suppliers in supply chain are interdependent EG: retailer dependent on manufacturer, who depends on suppliers of components and raw materials

Qualitative reasons for location (not easily measurable)

1. Management preferences 2. Local knowledge 3. Infrastructure 4. Political stability 5. Government restrictions and regulations 6. Ethical issues 7. Comparative shopping (clustering)

Several principles followed when adopting lean production

1. Minimise waste: remove operation/process that does not add value 2. "right first time" approach: aim for 0 defects by identifying and resolving problems at the source 3. Flexibility: resources must be adaptable to changing needs of business eg: multi-skilled workers 4. Continuous improvement: strive to improve quality and efficiency to reduce average costs of production 5. Supply chain management: maintain good relationship with suppliers to help streamline the supply chain process

Location depends on factors like...

1. Nature of the business (e.g. retail outlet or oil extraction) 2. Nature of the product (e.g. agricultural products or tourism) 3. Nature of human resources (e.g. unskilled or skilled).

Types of benchmarking

1. Performance benchmarking; used to benchmark key performance indicators of a business. eg: productivity and labour turnover rates 2. Process benchmarking; used to benchmark the process and operations of a business, eg queuing times at restaurants 3. Internal benchmarking; benchmarking different operations or functions within the same organisation. eg: output per worker in different departments 4. external benchmarking; benchmarking against products or organisations that are class as the best in the industry. EG: inter-firm benchmarking 5. International benchmarking; benchmarking against the performance of organisations in overseas markets

How quality is perceived..

1. Physical appearance and design; has to be appealing 2. Image and reputation of manufacturer/seller; reputable brand associated with higher quality 3. Reliability; are the products reliable? good qual=high quality 4. Durability; how long will they last 5. Fit for purpose; how well does product fulfill its purpose? EG: how tasty is a meal 6. Safety features 7. Customer service; knowledgeable and polite staff 8. After-sales service: warranties, delivery service etc

Edward Deming philosophy about quality

1. Plan; improve qualirt by designing/revising operations and processes 2. Do; execute plan 3. Check; monitor and measure performance, assess reults 4. Act; decide on changes needed to improve the process

Advantages of Job production

1. Quality: High quality of production (and service) because of highly skilled labour used 2. Motivation: Increased motivation of workers--> they feel more involved and proud of finished project 3. Flexibility: each products design and specifications is unique thus it is possible to change specifications of a job even when work has begun 4. Unique: Product will be unique--> adds value to production process--> act as a unique selling point (USP) for business and help secure premium price for finished product 5. Customisation of job production: leads to a variety of choice for the customer that cannot be met by other methods of production

Ecologically sustainable practices:

1. Recycling 2. Green techniques (ie solar panels) 3. Ecological footprint; Measure of the impact of resource consumption and waste production on the natural environment. It assesses whether people are living beyond the capacity of the planet, e.g. how many people drive or whether executives really need to fly (in business class). 4.Cradle to cradle production; Putting an end to traditional single-use manufactured products ('cradle to grave') by creating products that can be easily recycled and re-used. 5. Conservation; sing renewable resources (such as trees and fish) at a rate that enables these resources to self-replenish 6. Preservation; Protecting Earth's resources by reducing the human impact on the physical environment (e.g. national parks), the natural environment (e.g. rainforests) and the cultural environment (e.g. ancient civilization and heritage sites).

Factors to consider when choosing methods of production

1. Relative cost of labour and capital: 2. Size of market: larger markets use capital-intensive 3. Aims and objective of an organisation

Disadvantages of JIT

1. Relies on sophisticated technologies to ensure the correct stocks are ordered--> malfunctions can bring production to a halt 2. High administration and transaction costs; JIT requires frequent re-ordering of stocks 3. quality control can be an issue; stocks must be of good quality to prevent bottlenecks in the production process 4. Huge reliance on efficient and dependable suppliers; problems if stocks not delivered on time 5. fewer opportunities for economies of scale; cannot exploit buying in bulk 6. Inflexible; when trying to cope with a sudden increase in demand 7. Little scope for mistakes; the need for "RIGHT FIRST TIME" adds extra pressure to staff 8. Requires the belief, support and commitment of all workers

Advantages of mass production

1. Saved costs: Capital-intensive machinery with many tasks relying on automation, so unit costs of production low 2. Specialisation: specialised capital equipment and people used at each work station to carry out different functions--> high level of producitvity 3. Increased productivity: Automated production line

Advantages of cell production

1. Specialisation: and team dynamics and team spirit within each cell promotes higher levels of productivity 2. Some autonomy: Some autonomy in decision making, eg team selects its leader and arranges rest breaks for each member 3. Increased staff morale: motivation from team working and autonomy in decision making, each team likely to see finished product--> sense of achievement 4. Improvement in quality standards: each team held responsible for quality of items that pass onto next group in production process

Disadvantages of batch production

1. Storage: Storage is essential for batch production--> increased storage costs bc of high amount of stock. 2. Boredom: Division of labour--> repetitive tasks-->boredom and reduced motivation and reduced productive effeciencey 3. Inflexibility: Once production run for a batch starts, difficult to switch to or work on another batch, causing delays to production process 4. High production costs: reliance on machinery and equipment

Disadvantages of Job production

1. Time consuming: due to varying and specific requirements of customers, difficult to speed up production process as quality will fall 2. Labour-intensive: Expensive production method, high costs of production 3. Long working capital cycle: Long length of time producing a product and selling it EG: ferrari has a 9-12 month waiting list for its cars and so customers do not pay for cars until they are delivered 4. Few economies of scale: not produced in batches and unique. Will face storage and insurance costs 5. Irregularity of orders: Production is unpredictable, could possibly cause cash flow problems for business

2 categories to creativity

1. adaptive creativity; category of incremental innovation that adjusts something that already exists +adaptors produce several new ideas that build on the continuity of practices and organisational norms, but with improved ways of doing so EG--> linked to product life cycle and extension strategies 2. innovative creativity; more radical as it involves creating something new +innovators redefine problems and cultural norms +create solutions aimed at doing things differently -unpredictable outcomes with high risk EG: steve jobs

Change in production methods can be caused by..

1. attempts to achieve greater efficiency 2. The use of just in time production 3. Growth of the firm

Advantages of contingency planning

1. cost; acting in a socially responsible way can be a source of competitive advantage. Contingency plans can therefore help to minimise negative reactions and hence the costs (financial losses) of crises. 2. time; Planning takes time, but it will save time at the event of the crisis. Delays in responding to a crisis can allow problems to escalate beyond repair. 3. risks; helps reduce risks as most risks can be accounted for. well-thought out plan will reduce overall risks 4. safety; immediate actions, such as communication with organisation's personnel, will help minimise staff concerns (like anxiety) and meet their security needs

Disadvantages of contingency planning

1. cost; crises may never actually happen so time and money invested into contingency planning could have been used elsewhere 2. time; uses up valuable management time and resources--> increasing costs. takes a lot of time to think of possible scenarios 3. risks; if plans are outdated or inaccurate, then inappropriate actions may be taken if a crisis actually occurs. -no matter how well thought out they are, cannot guarantee survival of business or safety of people not all risks can be covered by insurance

Disadvantages of total quality management

1. costly; have to maintain a TQM system (like costs of market research into customer satisfaction) 2. bureaucratic; proecudures and processes must be audited and administered 3. funding for staff training and development required 4. only works if every memeber of an organisation is committed 5. time lag before benefits of TQM happen (cannot be instant, it is continuous)

Disadvantages of stock-outs

1. damaged corporate image and reputation; disgruntled customers bc of late deliveries or inconvenience 2. higher administration costs; firm needs to place more orders more often. cannot get bulk discount prices 3. Lost sales; stocks not available to meet customer orders--> result in customers buying from competitors 4. inefficiencies; production comes to a standstill i.e. machinery and other resources left idle . staffing costs and overheads must be paid

Advantages of Just-in-time

1. eliminates costs of holding stock (eg; rent, insurance, stockpiling, costs of theft) 2. As cash is not tied up in stocks, working capital can be used for other things--? improving cash flow 3. Reduce break-even; (eg; rolls-royce claimed its annual break-even halved bc of JIT) 4. Allow firms to be more flexible and more responsive to meet customers needs 5. improve motivation; promoting employee participation and teamwork 6. reduces wastage; inventory is not outdated or obsolete and no buffer stock 7. Strengthen firm's relationship with suppliers--> reducing lead times in the production process 8. no need to rework substandard products; JIT promotes "right first time" approach to production

Factors deciding whether to make or buy

1. expected sales volume/quantity 2. Fixed costs (FC) with making the product eg: tools, equipment, machinery 3. Average variable costs of making product eg; wages and material costs 4. Price per unit charged by the supplier

Disadvantages of just-in-case stock control

1. high costs of storage; like insurance and maintenance costs 2. some stocks are perishable whilst other inventories subject to damage or theft 3. money tied up in stocks and money could have been used more profitability elsewhere in the business

High capacity utilisation is important to firms with...

1. high fixed costs; higher the firm's capacity utilisation, lower the average fixed costs as it spreads out 2. low profit margins; products with low profit margins will not generate high profits thus must be sold in large quantities. eg; FMCG (fast moving consumer goods) have low profit margins but high volume of sales can generate profit 3. high levels of break-even; high capacity utilisation needed if a firm has a high break-even quantity -due to high production costs or because products have low profit margins 4. Low marginal costs; if extra cost of providing a good or service to additional customer is close to zero, high capacity utilisation will be important for profitability

Stages in benchmarking process

1. identify the performance indicator which is being benchmarked 2. measure internal performance against a set of criteria 3. identify the most appropriate competitors to measure against (usually the best competitor) 4. Measure the external performance of rivals 5. Used comparative data to determine the main weakness of the firm 6. Set the standards for quality improvements 7. Implement changes to achieve the required benchmarked standards 8. evaluate outcome of implementation to check for the measured improvments

key concepts of stock control charts

1. maximum stock level; upper limit of stock a business wishes to hold, determined by the storage space avail and level of output 2. re-order level; time lag between firm placing an order for stocks and it being deliverd. when invenetories fall to the re-order level, order is placed--> ensures order arrives just before stocks fall below pre-set minimum level 3. buffer stock; lowest amount of inventory a business wishes to hold. precautionary againt unexpected events like late deliveries or increase in demand

Qualitative factors when considering with make-or-buy decisions

1. product quality; if produced in house compared to outside 2. timeframe in which products can be produced 3. Whether business has spare capacity to meet extra orders 4. Reliability of suppliers eg; track record and reputation for delivering products on time 5. assessment of firm's core competencies and its non-core activities and function. EG: suppliers have greater design flexibility 6. Whether decision is irreversible i.e terms and conditions of contract

2 categories of offshoring

1. production offshoring (manufacturing) PM 2. Services offshoring (call centres) SC

Methods of managing quality

1. quality circles 2. benchmarking 3. total quality management

How businesses measure quality

1. reject rates; higher the reject rate, lower quality assurance tends to be 2. level of product rates; faulty products more likely to be returned by disgruntled customers 3. Product recalls; faulty products may need to be brought back for correction by firm to prevent PR disaster 4. Levels of customer satisaction; dissatisfied customer more likely to complain about quality of products 5. degree of customer loyalty; good qual= encourage repeat purchases 6. Market share; good quality= great market share as sales revenue and brand loyalty increase

potential limitations of relocation

1. relocation costs; EG: transportation 2. lower mroale of staff; more anxiety if they are cut loose 3. damage to corporate image if gfirm values profits over people 4. loss of skilled and loyal workers 5. need to find new customers and supliers 6. links with local community will be lost 7. redundancy payments given to employees who are cut

drawbacks of high capacity utilisation

1. requires equipment and machinery to be used constantly, without time for routine servicing and maintenance--> future breakdowns--> delay output 2. burden workers with stress; if staff are constantly required to work overtime, this can affect the quality of work 3. increased source of problems for operating near full capacity; eg: in a theme park or restaurant, there might be longer waiting times, lower standards of customer service, health and safety problems (overcrowding) 4. Cannot be a substitute for growth; it needs to expand the scale of production instead like raise its productive capacity

Function of supply chain management

1. stock control; managers must plan, implement and monitor movement and storage of all stocks 2. quality control; stages in the suply chain must add value in order to attract customers to buy quality products, generating profit for all firms in supply chain 3. supplier networks; which suppliers or intermediaries to use. Can facilitate improvements in logistics, helping reduce costs without compromising quality 4. transportation; cost-effective methods of distributing products to customers must be investigated

Costs of poor quality

1. sustandard products affect reputaion of business 2. poor product design lead to problem with finished product--> affecting demand, customer complaints rise 3. Timely and expensive to rework substandard products 4. Physical harm if products r unsafe 5. machinery that breaks down adds to costs of business 6. Poor labour producitvity--> increased costs 7. late deliveries can result in customers wanting compensation

factors affecting effective crisis managment

1. transparency; being open and transparent during a time of crisis is best. Acting in a socially irresponsible way is more likely to cause a firm long-term damage than if it had acted responsibly and taken necessary corrective measures from the outset. 2. communication; effective communication with key stakeholders is essential in a crisis situation, like contacting emergency services and insurers. Leaders need to get a press release to contain the situation. +help to reassure stakeholder groups like employees, customers, suppliers, investors 3. speed; In crisis, speed of response is critical to effectiveness of crisis management eg: person in accident who needs immediate attention otherwise they could get really sick. Speed of response will reduce the damage caused or influence the chances of containing. 4. control; leaders have to control the situation. Entails many skills like being able to work well under pressure, communicate and make effective decisions.

factors influencing amount of stock a business holds/orders:

1. type of product; +fast-moving customer goods (FMCG) like soft drinks and hygiene products sold in supermarkets, are re-ordered in large quantities--> by the time new stocks delivered more units of FMCGs sold. +consumer durables (cars, laptops etc) have slower stock usage rate so re-ordered in smaller quantities +stockpiles of perishable products disastrous for business 2. expected level of demand; +higher level of demand--> more stock needed +stock levels peak during trading periods and decline during off peak seasons 3. lead times; suppliers with short lead times (waiting) will allow business to have minimal buffer stocks. 4. Costs of holding stock; Higher the opportunity cost of stockpiling--> lower the optimal stock level. +costly for luxury brands to hold excess stock of its products (bc of limited demand and risk of theft/damage) +stocking products at the right time when consumers want them can help give business a competitive advantage

types of innovation

4 P's 1. product 2. process 3. positioning 4. paradigm

Computer aided design (CAD)

using dedicated computer hardware and softwarre in design process, eg: 3D Designs of products

3. Proximity to the market

Certain products (bottles of drinks) will increase in weight during the production process. Known as bulk-increasing/weight-gaining industries. -bulk-increasing products located near the source of raw materials instead of the consumers--> increase in transportation costs as heavier products need to be delivered - thus should locate nearer to markets -firms that use JIT production need to locate nearer to suppliers to reduce transportation costs and minimise delays in delivery of products to consumer -retail and service industry; suitably located to markets in order to attract customers

Flow production

Flow production uses continuous production process of manufacturing products that are standardised in large quantities. They are carried out in a sequence and when one task is completed, the next stage of production starts immediately. EG: printing millions of identical copies of a newspaper on a production line --> diff from mass production in that it occurs on a larger scale, with production assembly lines kept running 24/7, 7 days a week -->relies entirely on automated machines EG: Coca Cola compay uses flow production processes to make 10,000 bottles of water every minute of the day

Quality management

Function concerned with controlling business activities to ensure that products are fit for their purpose. 1. Quality control 2. Quality assurance

Just-in-time (JIT)

Inventory management system based on stocks being delivered as and when they are needed in the production process. As stocks are delivered just before they are used, there is no need for buffer stocks. --> finished goods are dispatched as soon as they are produced, eliminating need for storage --> relies on automation and highly skilled workers --> common in car manufacturing EG: BMW mini assembled using JIT system

Quality assurance

Management process of assuring the consumer of a product's quality by ensuring that everything is done "right first time", ie. no defects +informs customers that products have been made to required specification and certain quality standards have been met +important source of competitive advantage +focused on preventing poor output rather than solving current problems +ongoing performance +if quality standards drop below expected standards, business will be stropped of its QA award

Kanban

Method of lean production used to ensure that inventory is based on actual customer orders using a card system with an inventory number attached to each component in the production process. --> systems starts when customer places an order, a part is only used if there is a kanban card for it --> a kanban must accompany each item at all times in the production process and no time is used or moved without a kanban card --> defects identified to prevent it being moved on to the next process EG: traditional Sushi restaurants with customers placing their orders using a card system (ie what dishes they want and how many of each) --> kanban boards created as a visual tool to help operatives see which tasks have been completed, which are works in progress and which need to start still --> items in the complete column need to be delivered promptly to customer

Quality

Quality means that a product fulfils its purpose and meets the expectation of the consumer

Cell production

Sets of tasks are completed by teams (or 'cells') by spliting the production process into a number of self-contained units. Each cell is given responsibility for completing a part of the overall production process. Completed units then passed on to another cell in the production process --> promoties teamwork, cells are independent of one another but rely on each other to ensure final production targets are met

Batch production

Simultaneously producing a limited number of identical products (a batch). Work on each batch is fully completed before production switches to another batch. EG: •a bakery produces 12 loaves of broad before changing to bake 24 blueberry muggins •clothing outlets like H&M and Gap •hotels with buffet dinners cook food in batches

development

using research findings to create products that might be commercialised +can improve existing processes or products

Determinants of productivity rates (TRIES)

TRIES 1. TECHNOLOGY; investment in latest technologies allows workers to be more productive and produce higher quality products. ICT has allowed businesses to operate globally 2. RIVALRY; Competition makes businesses mods productive in order to remain competitive. Without competition, businesses may slack off. 3. INNOVATION; commercialisation of new ideas and products like iPHone etc have changed the way people work, incresaing producitivity 4. ENTREPRENEURSHIP; entrepreneurs take business risks for profit. firm's productivity rate dependant on leadership and personal motivation of entrepreneurs, like their willingness to exploit new business opportunities 5. SKILLS AND EXPERIENCE; labour productivity rate determined by quantity and quality of work. Education, training and development can incerase a firm's human capital--> improving labour productivity

Andon

a Japanese visual control system used to indicate the status of an aspect of the production process EG: production line or work progress. +Andon are supplemented with audible sound systemes. +Typically colour-coded using a traffic light system: Green-normal operations in progress Yellow- attention will be needed soon Red-immediate attention is required EVERYDAY EXAMPLE: the petrol tank warning sign in a car uses a red warning sign on the dashboard to warn the driver that fuel is running low. +Andon system provides visual feedback to workers and supervisors on the production floor. +Using the traffic light system, and on systems indicate to workers the status of the production line, alert supervisors to where assistance is needed and empowers factory operatives to halt the production process if there are difficulties such as emergencies, malfunctions and quality control issues (thus preventing product defects in the process). +Signal boards, lights and audio systems are combined to indicate which workstation has a problem. Depending on the business operation, andon alert systems can be activated manually by pressing a button or pulling a cord at the workstation, or can be activated automatically by the machinery and equipment itself, e.g. bottlenecks in the production process. +Manufacturing is stopped until a solution has been found. It is common practice, and sometimes a legal requirement, for any red alerts to be logged (recorded) so that these can be monitored as part of the firms lean production programme.

Operations management (production) definition

concerned with providing the right goods and services in the right quantities and at the right quality level in a cost-effective and timely manner

contingency planning--> proactive

being proactive to changes in the business environment +developing a plan before an unwanted event occurs by using "what if?" questions +helps with crisis mangement by preparing for the emergency +businesses carry out contingency planning +help managers to be better prepared if there is a crisis in order to ensure the survival of the business EG: fire drills like emergency exits

1. Availability, suitability, and cost of land

busier the area--> higher the earning potential but higher cost of land cheapest location not always ideal Why is it more expensive in city centres? +more demand for land in city area +supply of land is limited in these areas +combination of high demand and low supply of land= higher rent Suitability of land? in agricultural businesses--> locate in areas with suitable climate +need adequate infrastructure, like good communication and road networks

2. Local knowledge

businesses may locate in a certain area because they have personal contacts and the location and its culture +less risky for a business--> competitive advantage +lack of local knowledge can be disastorous EG: launch of OK! magazine in the USA was the worlds largest magazine launch but sales were a disaster bc UK firm didnt realise US supermarket shelf sizes were too small to hold the magazines

footlose organisation

bysienss that does not gain any cost reducing advanrages from locating in a particular location so can locate anywehre

capacity utilisation formula

capacity utilisation= AP (actual output/productive capacity) x100

Process innovation

change in the way production or delivery takes place +improve method of production and logistics of getting product from factory to consumer

Positioning innovation

changing the context of a product +focus is to reposition the perception of an established product +EG: levi jeans eveloped for manual workers but repoistioned as fashionable casual wear +positioning is vital in today's competitive world as brand perception is important to customers

7. Comparative shopping (clustering)

clustering; firms locate near other businesses that cater for similair or complementary markets EG: saville row is a street in london which have many suits

Historical benchmarking

comparing the same performance data over time, like sales turnover, market share, profits and staff turnover. +used for internal benchmarking whereby performance of the organisation can be measured

Finished goods

completed units of output ready for sale eg; furniture, books, bread

What does R&D involve?

conducting extensive research into new products, their designs, testing, development of prototypes +extremely lengthy and drain resources of a business EG: pharmaceuticals spend millions on R&D and it takes 2 decades to commercialise drugs or medicine +vital to an organisation's long term survival and success +improve my efficiency and performance +beneficial for businesses that operate in sunrise industries (those with rapid growth potential, such as high tech industries) +generate a first mover advantage like being the first to launce a new product--> charge higher prices--> favourable corporate image and establish strong market share

Cost-to-make

consider the relative costs of manufacturing the product

cost-to-buy

costs to purchase the products from a third party supplier. +if cost of producing the product is lower than the supplier's price, it makes financial sense to make the product rather than buy it

Job production (Customised production)

customizing an individual product from start to finish, tailor made to meet the specific requirements of the client EG: tailor made clothes like a wedding dress, hollywood movie, haircut etc

economic sustainability

development that meets the needs of the present generatino using existing available resources without comprimising the ability of future generations EG: the use of fossil fuels as energy sources (e.g. coal, oil and natural gas) has huge repercussions on the environment including climate change. The rapid economic development in China and India, for example, has resulted in high levels of pollution and environmental damage. Globally, economic activity has led to the rapid depletion of the worlds finite resources, especially non-renewable resources. EG: with the continual rise in world population growth, the question for businesses is whether economic growth and its associated impact on the natural environment is sustainable.

offshore outscourcing

hiring of a subcontracter to do the work overseas, usually to lower costs and exploit vendor's local expertise

stockpiling

holding too much stock +caused by overproduction and falling demand +can be deliverate as businesses prepare for seasonl peaks in demand, like during xmas +incurs higher costs which can cause liquidity problems

Paradigm innovation

innovative, often quite radical change +contribute to changing corporate culture +EG: e-commerce revolutionised buying and selling

Research

investigating the unknown, such as new products or processes

benefits of offshoring to to host country

job creation higher wages

factors of production (4)

land, labour, capital and enterprise

intellectual property rights

legal rights to exclusive ownership of certain inventions or pieces of work +patents; legal protection to registered producer of a newly invented product or process +copyrights; to artists and authors by preventing others from using or plagiaring their pworks +trademarks; signs/logos

Role of operatons management

looks at the need for businesses to decide how production should take place. EG: type of product

stock control chart

make diagram in book, p525 -re-order quantity; amount of new stock ordered. order is placed when stock levels hit the re-order level -lead time; time lag between placing an order and recieving stocks. greater the lead time, more buffer stock needed

1. Management preferences

managers may prefer a certain location due to personal reasons (like gut feeling, familiarity, emotional attachment, history)

6. e-commerce

many businesses no longer need to locate near customers bc of e-commerce eg: online stores sell prodcuts via internet and can reach a global audience -not all businesses can do e-commerce (like a plan for example)

the Five Ms (the avail resources to a business)

materials manpower money machine management

stocks/inventories

materials, components and products used in the production process 3 categories: 1. raw materials 2. work-in-progress 3. finished goods

Offshoring

relocating business functions overseas offshore outsourcing; outsourced to an overseas organisation EG: apple use offshourt outsourcing for production of phones, using Taiwan's subcontracter

capacity utilisation

measures a firm's existing level of output as a proportion for its potential output eg: if a girm's possible output per month is 100 units but only sells 85, its capacity utilisation is 85% +high capacity utilisation= level of output close to maximum (productive capacity) also good as it spreads out fixed and indirect costs of production over a large level of output +measure firm's efficiency as it revels how unused resources are in the organisation

Productivity rate

measures how well resources are used in the production process eg: labour productivity measures efficiency of workers by calculating output per worker higher the labour productivity--> more productive workers are

Cradle to grave

one-time use, which is the most common form of manufacturing

economic order quantity

optimum stock level that ensures sufficient stocks for uninterrupted production, but also minimises inventory costs

Total quality control (TQC)

philosophy that embeds quality in every business operation and process. places quality as the core focus in all functional areas so all employees responsible for quality assurance

crisis management --> more reactive or disaster recovery

response of an organisation to a crisis situation, it is about being reactive to events that can cause serious harm to a business +formulating the best response to a crisis +requires management to deal with crises in a swift manner before they escalate into a bigger problem

Outsourcing the use of a third-party subcontracter paid to carry out specific work

practice of transferring internal business activities to an external business to reducse costs and increase productivity subcontracters can carry out outsourced work more cost effectively without compromosing quality eg: ict maintenance, security, customer support

innovation

process of commercially pioneering new ideas and creations in the production process examples 1. discovery of new production processes 2. introduction of new products 3. successful exploitation of creative ideas 4. entering new markets

creativity

process of generating new ideas +prerequisite to innovation

Total quality management (TQM)

process that requires the dedication of everyone in the organisation to commit to achieving quality standards +removes wastage and inefficiencies in all forms of business activity (production, financing, marketing and personnel) +requires all employees to be skilled +purpose is to achieve 0 defects +eliminate waste +improved customer satisfaction +business with highly trained, flexible and motivated workforce more likely to achieve TQM +requires flatter/more flexible organisational structures--> adapt easier to market changes

Labour-intensive

production methods relying on labour the most than any other factor input eg: Job production

reuse

products is not made into a new material or products, preventing waste

Substandard

products that do not meet the needs or expectations of customers, producers or governments

assisted areas/eneterprise zones

regions identified by the government to be suffering from high unemployment and low incomes, so are in need for regeneration through financial assitance

supply chain

sequence of activities from production of good or service to it being delivered to the end customer

crisis

situation of instability that results in major problems for a business +unexpected and unpredictable

make or buy decicions`

situations where a firm has to decide between manufacturing a product and purchasing it from a supplier, based on comparing the cost to make (CTM) with the cost to buy (CTB)

Quality control

traditional way of quality management involving insepcting, testing and sampling the quality of work. +Products made to required specification +approach to managing quality based on detecting faulty output, right from the delivery of raw materials to output of finished products +helps to identify problems (ie. substandard products) before products are sold to consumers

prototypes

trial or test products used in the R&D process designed, tested and developed with the hope of eventual commercialisation

Role of production

turn factors of production into the output of goods and services cost-effectively

Insourcing

use of an organisation's own people and resource s to accomplish certain tasks which would otherwise have been outsourced

optimum level of stocks

varies from one business to another eg: supermarket vs small shop