3.4

• the operations function in a business is responsible for producing products or services, and distributing them to chosen target markets
• four variables operations has to manage


  volume of output

  variety of output

  visibility of production

  variability of demand
• volume of output - production in accordance with its revenue budgets and corporate objectives
• variety of output - operations teams responsible for many production lines
• visibility of production - customers need to be aware the business is able to produce products in acceptable time scale
• variability of demand - meeting changing needs of market
• transformation process - what happens inside a business, specifically operations
• operations managements - process of transforming resources into outputs
• the supply chain

  resources -> manufacturing -> distribution -> retail -> recycling
• operation must add value to product
• the output needs to be worth more to customer than combined inputs i.e. customer satisfaction
• 6 objectives for operations management

  cost control

  adding value

  quality

  speed

  flexibility

  environmental
• 4 operations management key performance indicators

  labour productivity

  unit cost

  capacity

  capacity utilisation
• labour productivity - tells us how effectively the team is producing, sets expectations around output
• unit cost - tells us the cost of making one unit, determines profit margin and profit of loss. it can link to the success of the marketing.
• capacity - how it's calculated depends on resources, number of employees, skills of employees, available space for worker. it assists forecasting. sets up data required to check for utilisation
• capacity utilisation - tells operations the percentage of resources being used to generate present output under utilisation will impact unit costs because fixed costs are not being effectively covered. whereas maximum utilisation removes flexibility required to rapidly respond to change.
• labour intensive - people working in operations
• capital intensive - machines working in operations
• the higher the level of utilisation, the lower the unit cost (resources being used more efficiently)
• productivity describes a level of output over set timescale
• a gain in efficiency describes an increase in productivity over set timescale
• efficiency gain can be achieved by...

  training

  motivation techniques (financial or not)

  job redesign (targets)

  reducing number of people in labour force
• efficiency gains are worth nothing unless other factors relating to operational objectives are met e.g. quality targets
• capacity tells operations the maximum possible output that business can achieve with resources it has
• capacity help managers calculate utilisation and determine under utilisation
• solutions to managing capacity to its optimum


  flexible working

  outsourcing

  demand

  diversify products

  increase sales volume = more orders arrive into operations the more capacity utilised

  reduce capacity = capacity utilisation appear to be on a downward trend so rationalisation may be sensible

  more investment = adding new capacity for the foreseeable future
• ways to increase productivity

  rewards or bonuses

  new machinery or tech

  training
• training may need to be refreshed to be effective and so expensive and time consuming
• financial bonuses may not work as paying people for output target does not guarantee they will meet quality targets
• lean production - more output from fewer resources
• lean production - cutting down waste throughout operations processes e.g. time, quantity of resources, land, labour, storage, wages on workers who are not fully utilised
• two types of lean production


  just in time and just in case
• just in time - firm does not store buffer stock on premise. Instead has regular deliveries before existing stock runs out. The raw materials are taken to production to be used immediately. the procurement teams buys smaller amount frequently by using significant insights and information to get it right.
• just in time advantages

  removal of buffer stock means space can be used for sales or cheaper smaller premises

  no capital tied up in stock that could expire, and so can be invested elsewhere

  products may be fresher if smaller more frequent deliveries
• just in time disadvantages

  hard to react to unexpected changes in demand

  suppliers must be geared to deliver on demand

  unable to benefit from bulk buy discounts

  inconsistency in supply chain may mean some buffer stock is needed
• just in case - business stores some supplies of raw materials for production rather than arriving stock and taken straight to production. buffer stock is available. procurement team less pressured and more likely to buy larger amounts.
• just in case advantages

  reduces running out of stock = increased customer satisfaction

  useful when there is shortage or sudden demand for product or inconsistency in supply chain causing delivery delays

  benefit from bulk buy discounts

  good for dealing with unforeseen demand variances
• just in case disadvantages

  buffer stock needs large storage = expensive

  unused stock = cash tie up so cannot be used elsewhere

  stock may never be needed so increases risk of losses

  products may lose freshness as kept in stock for longer
• types of firms that can operate lean production methods

  • when managing costs becomes critical to survival and when it outweighs benefits of just in case
  • when suppliers desperate to supply and will adjust operation
  • health business with positive net cashflow
  • profit margins are higher = business can afford to tie up some cash with stock