3.4 Operations

• Capacity utilisation?

  output in a period of time/maximum possible output in the period of time x 100
• labour productivity?

  output per time period/number of employees
• unit cost?

  total costs/units of output
• Kaizen cycle for quality management - requires involvement from all employees (dont know if u need to know)

  
• inventory control chart

  
• Operations Management Department Functions

  • Design of efficient production methods
  • Minimising waste
  • Managing the supply chain
  • Managing capacity utilisation
  • Using technology to improve operations
  • Quality
  • Planning
• Cost

  Reducing unit costs by reducing fixed and/or variable costs
• Lower unit costs

  Business can obtain high profit margins or become more competitive
• Quality


  The features of a product/service that allow it to satisfy and delight customers
• Speed of Response


  The time taken for a customer requirement to be fulfilled
• Flexibility


  The ability to change operations
• Types of Flexibility

  • Product flexibility (change production)
  • Volume flexibility (change the level of production)
  • Mix flexibility (provide a range of alternatives)
  • Delivery flexibility (change delivery timings)
• Dependability


  A measure of whether businesses are 'on time'
• Added Value

  Increasing the worth of resources
• Influences on Operational Objectives


  • Internal
  • External
• Internal Influences

  • Corporate objectives
  • Human resources- skills training and motivation
  • Availability of finance
  • Resources available
  • Nature of the product
• External Influences


  • Market factors
  • Competitors actions and performance
  • Technological change
  • Economic factors- increased costs and reduced sales?
  • Political factors
  • Legal factors
  • Environmental factors
  • Suppliers
• Operational Targets

  Measures of operational performance that measure the efficiency of an organisation
• Operational Targets

  • Labour Productivity
  • Unit Costs
  • Capacity
  • Capacity Utilisation
• Labour Productivity


  A measure of the output per worker in a given time period
• Benefits of an Increase in Labour Productivity

  • Increased output without affecting costs
  • Reduced costs without affecting output
• Methods of Achieving Increased Labour Productivity

  1. Introducing new technology

  2. Modifying the production system

  3. Recruiting new workers with better qualifications and skills

  4. Implementing new motivational approaches

  5. Providing better training

  6. Improving flexibility- less time is wasted
• Unit Costs

  Total costs divided by units of output
• Calculating Unit Costs

  • FC= £2000

  VC per unit= £2

  TC= £2000 + (£2 × 200) = £2400

  Output (per period) = 200

  Unit Costs = £2400 / 200 = £12 per unit
• Disadvantages of Improved Labour Productivity

  • Workers pushed too hard leading to stress and reduced quality
  • Increased speed leading to reduced quality
  • May increase output beyond demand
• Capacity


  The maximum total level of output/ production that a business can produce in a given time period
• Factors affecting Capacity


  • Levels of demand
  • Flexibility of product lines
  • Seasonality of demand
  • Implications of failure to meet demand
  • Opportunities for sub-contracted or outsourced production
• Capacity Utilisation


  The percentage of a firm's total possible production level that is being reached
• Every percentage point below 100% means that there are unused resources and higher fixed costs per unit for capacity utilisation
• Problems of Spare Capacity

  • Higher fixed costs
  • Higher unit costs= lower profit levels
  • Negative image of the firm, suggesting it is unsuccessful
  • Less work means that employees may be discouraged
• Advantages of Spare Capacity

  • Time for maintenance and repair of machinery
  • Less pressure and stress for employees
  • Can deal with sudden increases in demand
• Reasons a Business may have Spare Capacity

  • New competitors or products
  • Changes in tastes or fashions
  • Unsuccessful marketing
  • Seasonal demand
  • Over investment in fixed assets e.g. premises
  • Merger or takeover leading to duplicate of resources or sites
• Labour productivity


  Measures the efficiency of labour
• Efficiency

  Output/production is maximised from a given level of inputs
• Capital-intensive production


  • Methods of production that use a high level of capital equipment in comparison to other inputs e.g. labour. Examples: fully automated factories, nuclear power plant
• Labour-intensive production


  • Methods of production that use high levels of labour in comparison to capital equipment. Examples: restaurants, call centres
• Resources used for production

  • Labour (physical and mental effort of people)
  • Land (all natural resources)
  • Capital (goods made to produce other goods)
  • Enterprise (bringing together factors of production)
• How to increase efficiency and labour productivity

  1. Improving the fertility of the land

  2. Using renewable resources

  3. Greater education and training of the workforce

  4. Investment in capital equipment

  5. Improvement in management skills and a willingness to take risks

  6. Combining the factors of production in a balanced way

  7. Extending the scale of production
• Benefits of high labour productivity and efficiency

  • Maximised production
  • Reduced unit costs
  • Competitive advantage
  • Saved costs can be used to improve quality
• Difficulties increasing labour productivity and efficiency

  • Land - not always possible to increase efficiency
  • Consumption of resources/cost
  • Education or training consumes resources
  • Capital equipment requires funding