Unit 4 - operations:

• Operations management is all about the management of processes, activities and decisions relating to the way goods and services are produced and delivered
• Key tasks of operations management

  • Capacity planning
  • Process design
  • Quality control
  • Inventory management
  • Scheduling
• Cost and volume objectives

  • A business needs to ensure that operations are cost-effective
  • The traditional measure of cost-effectiveness is "unit cost" (total costs divided by total units)
  • Businesses in the same industry can compare unit costs
• Operations Management

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

  Developing a reputation for high quality to create an advantage over competitors
• Efficiency and flexibility objectives

  Looking at how effectively the assets of the business are being utilised and how responsive the business can be to short-term or unexpected changes in demand
• Efficiency and flexibility objectives

  • Labour productivity: e.g. output per employee, units produced per production line; sales per shop
  • Output per time period: e.g. potential output per week on a normal shift basis; potential output assuming certain levels of capacity utilisation
  • Capacity utilisation: the proportion of potential output actually being achieved
  • Order lead times: e.g. the time taken between receiving and processing an order
• Environmental objectives

  Objectives focused on environmental responsibility and sustainability
• Innovation

  Putting a new idea or approach into action, the commercially successful exploitation of ideas
• Internal influences on operations objectives

  • Corporate objectives
  • Operational capabilities
  • Organisational culture
• External influences on operations objectives

  • Customer requirements
  • Competitor actions
  • Technological change
  • Economic conditions
  • Legislation and regulation
• Innovation

  Practical application of new inventions into marketable products or services
• Capacity is a measure of how much output a business can achieve in a given period
• Capacity

  A measure of "potential" output
• Importance of capacity

  • Enables orders to be met and revenues generated
  • Lack of capacity can have a damaging effect on business performance
• Capacity utilisation

  Measures the extent to which capacity is used during a specific period
• Calculating capacity utilisation

  Capacity utilisation = the percentage of actual output compared to potential output
• Capacity utilisation

  The proportion (percentage) of a business' capacity that is actually being used over a specific period
• Spare (excess) capacity

  Where actual output is less than capacity
• Excess demand

  Where demand for a business' products or services is greater than the business capacity
• Calculating capacity utilisation

  (Actual output / potential output) x 100
• Reasons why businesses operate below full capacity

  • Lower than expected market demand
  • Seasonal variations in demand
  • Recent increase in capacity
  • Maintenance and repair programmes
• If a business operates consistently at a low level of capacity utilisation, this is likely to indicate potentially serious issues, particularly if production costs are mainly fixed and the business has a high break-even output
• Options to increase capacity

  • Increase workforce hours (e.g. extra shifts; encourage overtime; employ temporary staff)
  • Sub-contract some production activities (e.g. assembly of components)
  • Reduce time spent maintaining production equipment
• act

  some production activities (e.g. assembly of components)
• Capacity

  The potential output of a business measured in terms of units of output over a specific period
• Labour productivity measures the amount or value of output per employee
• Achieving a higher labour productivity results in lower labour unit costs, which in turn should lower overall unit costs
• Illustration of how labour productivity is calculated

  • 10 employees, £100,000 labour costs, 2,000 units output, 200 output per employee, £50 labour cost per unit
  • 20 employees, £200,000 labour costs, 5,000 units output, 250 output per employee, £40 labour cost per unit
  • 30 employees, £300,000 labour costs, 10,000 units output, 333 output per employee, £30 labour cost per unit
  • 40 employees, £400,000 labour costs, 20,000 units output, 500 output per employee, £20 labour cost per unit
  • 50 employees, £500,000 labour costs, 30,000 units output, 600 output per employee, £17 labour cost per unit
• Calculating labour productivity

  Output / Number of employees
• Ways a business can improve labour productivity

  • Measure performance and set targets
  • Streamline production processes
  • Invest in capital equipment (automation + computerisation)
  • Invest in employee training
  • Improve working conditions
• Potential issues with trying to improve labour productivity include potential trade-off with quality, potential for employee resistance, and employees may demand higher pay for improved productivity
• Labour productivity

  A measure of output per employee
• Unit Labour Costs

  Average labour cost per unit of output produced
• Unit costs are a key indicator of the efficiency and productivity of a business, and are critical to the profitability and competitiveness of many businesses
• Unit cost

  The average cost per unit produced, as measured over a particular time period (e.g. month, year)
• Unit costs will vary over time and as the scale of a business' operation changes
• Unit costs are particularly sensitive to the effect of significant operational scale and to the relationship between fixed and variable costs for a business
• Calculating unit costs

  Total costs / Total output
• Calculating Unit Costs

  Average (or unit cost) is calculated using this formula: