Business Unit 4

• Production


  The process of making or manufacturing goods or services
• Operational Objectives


  Goals or targets set for the operations or production function of a business
• Value of Setting Operational Objectives

  • Focuses decision making
  • Improves condition by giving purpose
  • Improves teamwork and coordination within the business so that everyone has a purpose for success
  • Improves efficiency by examining the reasons for success and failure in different areas
• Setting Operational Objectives


  Examines the value of operational objectives and decision making
• Roles of Operations Management

  • Meeting the needs of customers by ensuring the business produces the right goods and services
  • Encouraging efficient methods of production
  • Using technology to improve business performance
  • Ensuring high quality goods and services are produced
  • Working closely with suppliers to improve efficiency
• Operational Objectives


  • Cost
  • Quality
  • Speed of Response
  • Flexibility
  • Dependability
  • Environmental objectives
  • Added Value
• Profit Margin


  Percentage measure of how much money a company is making on its products and services after subtracting all of the costs involved
• Costs


  To be competitive in the market, the business needs to reduce its costs for each unit it produces by lowering costs, which allows them to lower their prices and increase sales
• Economies of Scale


  The more a product is produced, the lower the unit costs
• Quality


  Higher quality leads to greater customer satisfaction, which can increase brand loyalty and sales volume
• Quality Objectives


  Based on customer complaints, customer satisfaction ratings, level of product returns, scrap rate
• Speed of Response


  The time taken from the customer's order to fulfilling the customer requirement - quick response leads to customer satisfaction
• Flexibility


  The ability of an organisation to change its operations in certain ways, such as changing the level of output or providing a wide range of alternative versions of goods and services
• Dependability


  Customers get what they want in terms of quality, punctuality, long-lasting, unlikely to break down
• Environmental Objectives


  Measures taken by the business to help the environment, such as recycling, which can also save costs
• Added Value


  The difference between the costs of purchasing raw materials and the price the finished goods are sold at, which can be increased through branding, unique selling points, production processes, and extra features
• Labour Productivity


  Measure of output per worker in each time period
• Increasing labour productivity can increase output without affecting costs or reduce costs without affecting output
• Businesses need to be cautious when increasing labour productivity as it may focus workers only on output and not other objectives like flexibility, dependability and quality
• Unit Costs/Average Costs


  Total costs divided by units of output
• Labour productivity


  Has a massive effect on unit costs - the higher the labour productivity, the lower the wage cost per unit
• Capacity


  The maximum total level of output or production that a business can produce
• Capacity Utilisation


  The percentage of a business's total possible production level that is being reached
• Efficiency


  Completing a task successfully without wasted time, the output that is maximised with the level of input
• Productivity


  Output that is maximised from a given level of inputs
• Benefits of High Labour Productivity and Efficiency

  • Allows the business to maximise production and satisfy customer needs
  • Reduces unit costs
  • Cost savings can be used to improve product quality
• How to Improve Labour Productivity and Efficiency

  • Increasing investment in capital equipment and machinery
  • Improving management skills and willingness to take risks
  • Training the workforce with greater education
  • Improving the land
  • Using recyclable/renewable resources
  • Extending the overall scale of production as the business grows
• Economies of Scale


  The advantages that a business gains due to increasing the scale of its operations, such as technical, specialisation, purchasing, marketing, R&D, and managerial/administrative economies
• Diseconomies of Scale


  The disadvantages that an organisation experiences due to an increase in size, such as coordination, communication, and motivation diseconomies
• Capital Intensive Production


  Methods of production that use a high level of capital equipment in comparison to other inputs, such as fully automated factories
• Labour Intensive Production


  Methods of production that use high levels of labour in comparison to capital equipment, such as restaurants and retailers
• Factors Influencing Choice of Capital Intensive vs Labour Intensive Production

  • Skill and efficiency of the factors of production
  • Reliability of labour and capital
  • Size and financial position of the business
  • Customer preferences
• Excess Capacity/Spare Capacity


  When a firm's output is below its maximum possible, representing a waste of resources
• Capacity Shortage


  When there is increasing demand that outpaces the firm's ability to increase production levels
• Lean Production


  A range of time-saving and waste-saving measures inspired by Japanese manufacturers, including Just-In-Time, Quality Circles, Total Quality Management, Kaizen, and Cell Production
• Just-In-Time


  A Japanese philosophy that organises operations so that inputs arrive just as they are needed for production or sale, in order to reduce waste from high stock levels
• Features of Just-In-Time Operations

  • Linked to customer needs and orders
  • Greater responsibility placed on flexible, multi-skilled workers
  • Well-trained, highly skilled staff
• Benefits of Just-In-Time


  • Better methods identified by staff, increasing productivity and efficiency
  • More motivated workforce and reduced labour turnover
  • Reduced levels of waste
  • Increased worker participation
  • Higher quality and greater variety of products
• Robotics


  The use of robots to handle operations on a production line, such as packaging, assembling, measurement, inspection, and testing
• Automation


  The use of machinery to replace human resources, such as computer-aided manufacturing for planning, controlling, and operating processes