Theme 2 - Operations

• Productivity 


  the output per input (person or machine per) hour
• Production

  the total amount of output that is produced in a time period
• Job production 


  Where a single product is made at a time. commonly used by hairdressers, tailoring, painting and decorating, plumbing
• Job production - advantages

  • Products made for a specific client or customer (can charge higher prices)
  • High quality products
  • Very motivated workers who can see one item made from start to finish
• Job production - disadvantages

  • Processes are slow and labour intensive
  • Skilled labour and craftsmen are expensive
  • Hard to speed up with increasing demand
• Batch production

  Used when a business wants to make more than one item at a time. Goods are made in batches, and can be switched over to make something different on the same production line. Commonly used in baking, meal preparation, clothing production
• Batch production - advantages

  • Can be changed to meet customer needs or changing demands
  • Standard production so can be mechanised
  • Employees specialise so become good at their job
• Batch production - disadvantages

  • Small batches carry higher average unit costs (economies of scale)
  • Workers may be less motivated with repetitive work
  • Idle time between batches needs to be managed as this is wastage
• Flow production

  Uses production lines with continuous movements of items through the process. Commonly used when standardised products are being mass produced e.g. crisps, chocolate bars, frozen pizzas
• Flow production - advantages

  • can make larger quantities so can bulk buy raw materials and save money (economies of scale)
  • Automated and computerised production means improved quality and more complex designs in shorter times
• Flow production - disadvantages

  • High costs to buy factories and machinery
  • Low motivation of staff due to repetitive tasks
  • Break downs and lost production can be costly
• Cell production 


  Is dividing up production into separate self-contained areas that are each responsible for a section of work
• Cell production - advantages

  • Wastage through movement of materials is reduced
  • Time waiting for stock to arrive is reduced
  • Bottlenecks in the production process are reduced
• Cell production - disadvantages

  • Any breakdown of machinery will stop the production
  • Needs more staff to supervise than a continuous flow
  • Expanding can be hard as space may be limited or restricted by tasks
• Quality of inputs 


  If a business has high quality/skilled labour or high quality machinery then productivity is likely to be very high. This is due to the fact that high skilled staff are much more trained and can do their work faster than untrained workers
• Motivation

  If motivation is high then production will be higher. This is due to the fact that they will be driven to producing more higher quality products in a faster amount of time. Highly motivated staff can be expensive
• Investments

  Changes in technology may result in the productivity of the production increasing. This may be as a result of the production process being mechanised due to the fact that robots are able to work 24/7. Can result in high levels of unemployment that can damage the reputation of the business.
• Difficulties increasing productivity

  • The role of management (the focus of many firms is on production not productivity as most managers think about short term gain rather than reorganising the workforce to increase efficiency)
  • Boosting productivity when markets are static (if demand is not increasing for a product and the management introduce a more efficient way of working this will lead to job cuts as less employees are needed to produce the same amount
• Efficiency 


  Reducing the amount of wasted inputs
• Improving efficiency

  • Quality of inputs (skilled staff who are better at their job = reducing the amount of waste as less mistakes are made)
  • Production (lean production can help reduce waste = less costs caused by wastage)
  • Management of staff (if staff are better organised then co-ordination is improved = less time wasted = lower costs)
• Labour intensive production

  • Need many employees to produce products
  • Labour costs form a high % of total costs
  • Low financial barriers to entry, because it is cheap to start up
  • Management will focus on cost of labour and may consider switching to a low cost country
• Capital intensive production

  • A large % of total costs are tied up in the fixed costs of purchasing and operating machinery
  • Has high financial barriers to entry
  • may be able to keep producing in a high cost country because labour costs are a small proportion of labour costs
  • Can be inflexible, in terms of switching from one product to another and ability to tailor product to individual customer
• Capacity 


  the maximum output that a business can produce in a given period with the available resources
• Capacity utilisation 


  The % of total capacity that is actually being achieved in a given period
• Capacity utilisation = (Actual level of output/maximum possible output) x 100
• Importance of capacity utilisation

  It has a bearing on average cost per unit and economies of scale

  • In high capacity utilisation the fixed costs are spread over more units of production
  • In low capacity utilisation the fixed costs can be too high to stay in business or keep producing that product
• Reasons why a firm may be operating below maximum capacity

  • New competitors
  • A merger or takeover
  • Over investment in fixed assets
  • Seasonal demand
  • Unsuccessful marketing
  • Fall in demand
• Advantages of operating at under utilisation capacity

  • More time for maintenance and repair of machinery, for training and improving existing systems
  • Less pressure and stress for employees
  • Business can cope with sudden increases in demand
• Disadvantages of operating under utilisation capacity

  • Firms will have a higher proportion of fixed costs per unit (lower profit levels or need to increase price)
  • Spare capacity can portray a negative image of the business
  • With less work to do employees can become bored, lowering their motivation and efficiency. Workers may worry about losing their jobs
• Advantages of operating at over utilisation capacity

  • High capacity utilisation will minimise average total costs and increase business competitiveness
  • If workers are busy they are likely to feel secure in their employment
  • A business that is busy is likely to be well-thought of and attract customers who are willing to wait for products to be delivered
• Disadvantages of operating at over utilisation capacity

  • If a business has a high level of capacity utilisation it may not have the flexibility to respond to new orders from customers
  • Staff will be under a lot of pressure to produce high levels of output and could lead to mistakes. Overworked staff may also cause increased staff turnover
  • Machinery may be pushed to its limits and prone to breakdowns which disrupts production and machine costs
• Improving capacity utilisation

  • Increase sales (more units need to be produced, promotional spending may need to be increased)
  • Increase usage (increasing sales when demand is low, prices may need to be lowered)
  • Outsourcing (increasing level of output by outsourcing tasks )
  • Reduce capacity (sell fixed assets, reduced staffing)
  • Redeployment (move underused resources to other parts of the business)
• Stock control

  Is the control of the flow of stock in a business. concerns the ordering and management of :

  • Raw materials
  • Components
  • Work-in-progress
  • Finished goods
• Maximum level

  The max level of stock a business can or wants to hold
• Re-order level 


  Acts as a trigger point, so that when stock falls to this level, the next supplier order should be placed
• Lead time 


  Amount of time between placing an order and receiving the stock
• Minimum stock level 


  Minimum amount of product the business would want to hold in stock
• Buffer stock 


  The amount of stock held as a contingency in case of unexpected orders so that such orders can be met and in case of any delays from suppliers
• Buffer stocks - advantages

  • a business can easily respond to changes in consumer demands
  • if suppliers cannot deliver on time production wont be affected
• Buffer stocks - disadvantages

  • Cost of storage is high (pay for premises, staff and security
  • Can tie up the working capital of a business
  • Some businesses cannot hold buffer stocks due to perishability (milk) or obsolescence (technology goes out of date)