operations U4

name 6 operational objectives

1.reducing unit costs 2.increase quality 3.response speed+flexibility 4.dependability 5.environmental 6.create added value

avrg unit costs formula

total costs / units sold

reducing unit costs (CoA)

• reduce selling price > more competitive > more sales > more rev, if PED is elastic

• maintain selling price > improved profit margin per unit > more profit > use cost savings to improve business e.g increase wages / increase quality

improving quality (CoA)

• increased customer satisfaction > if long term, higher reputation > more brand loyalty > reduced PED > can increase price to increase rev

• less recalls > less waste > more efficient > reduced CPU

environmental (CoA)

satisfying stakeholder needs > less pressure groups > improved brand image > more loyalty > added value

efficiency

using resources in such a way as to maximize the production of goods and services

ways to achieve labour efficiency

more training > skilled workers > less defects/waste & increased motivation > higher labour productivity Or adopt new managerial style best fit for workers (e.g laissez faire)

ways to achieve capital efficiency

invest in machines/tech/automation > supports labour > decreases workload > labour productivity increased & more capital productivity

ways to achieve efficiency through enterprise

increase output > achieve EoS (purchasing, managerial, marketing, technical) > reduced CPU

drawbacks of labour efficiency

cost of training > offset gains? increased workload > lower motivation > lower retention/ask for higher wages > increased costs

drawbacks of capital efficiency

high investment costs > offset gains? > finance available? > resistance from shareholders as less short term gains?

• link to kotter's resistance to change theory

drawbacks of efficiency through enterprise

does demand exist for output? waste is inefficient diseconomies of scale?

what is adding value

the improvement of a product or service which makes it worth more. This can be done through production(quality/usp), distribution(convenience) & marketing (brand image)

importance of adding value

• stands out from rivals > competitive advantage > repeat business > more sales > increased market share

• customers less price sensitive > PED inelastic > charge higher prices > more profit per unit > lower break even output > increased margin of safety > less risk

4 ways to use tech to improve efficiency

1. design (CAD/CAM)

2. stock management (computerised re-ordering)

3. capital for production (robotics/automation)

4. capital for fulfilment (amazons Kiva robots)

how can tech be used in design

CAD = computer aided design, CAM = computed aided manufacturing increases speed of process & easier to alter designs > improves flexibility > fulfil customers needs better > improved customer satisfaction

how can tech be used in stock management

computerised re-ordering > supports JIT > lean production > increased efficiency

how tech can be used in capital for production & fulfilment

capital intensive > less human labour needed > less wages & consistent quality > less waste & increased production scale > technical EOS > lower CPU > more efficient

negatives of using tech to improve efficiency

kotter & resistance to change > labour replaced > self interest, jobs at risk > demotivating finance available? > high investment > loss of short term gains > lower dividends > shareholders not satisfied

JIT - just in time

holding little/no stock so it arrives just as needed

Pros of JIT

• less storage costs > lower labour & overheads

• less risk to stock > easier to quality check > less risk of stock becoming obsolete

• greater productivity > pull method creates time pressure > increased responsibility (e.g quality control) > more motivation

Cons of JIT

• higher arg cpu > smaller purchases > no purchasing EOS & more deliveries > more pressure on logistics team > more skilled workers > higher wage costs

• reliant on suppliers > failure to deliver/poor quality > no production > no sales > failure to meet demand > rep issues

JIT depends upon?

suppliers - proximity & relationship?, predictability of sales?, type of inventory?

JIC - just in case

the buffer, minimum stock a business holds

pros of jic

• manages uncertainty e.g suppliers fail to deliver/ unexpected demand > can continue production > sales > maintain rep

• bigger order size & less frequent > more important to suppliers > negotiate better deal w suppliers> purchasing EOS > lower cpu

cons of jic

• always holding stock > higher storage costs > lower cash flow as stock not being turned into cash

• waste > if goes off/ demand drops/ damage > opportunity cost

key points on stock level chart

capacity

max amount a business can produce, deliver, handle

pros of increasing capacity

• can meet consumer demand > avoids lost sales & rivals benefiting & damage to rep

• able to fulfil high order volumes > maximise revenues > help business grow > competitive advantage

cons of increasing capacity

• lead to higher costs e.g factory, staff, equipment > need rev to cover costs >. shareholders dissatisfied > lower profits > less dividends how are extra costs financed? loans > impact on gearing > more susceptible to external changes in interest rates

evaluation for increasing capacity

• consider cap u > must match demand e.g 10% rise in cap but 5% rise in sales leads to lower cap u > less efficient > higher cpu - but increased flexibility of business

• is the capacity flexible? e.g use zero hours contracts to change cap to meet demand > more efficient

capacity utilisation

Actual output / maximum output x 100

impact of increasing capacity utilisation

increased efficiency as more resources being used > less waste > lower cpu (esp important if fixed costs high)

• links to other functional areas: e.g marketing impacts on brand image if prices can be lowered / HR & staff motivation if worker feel overworked

• more staff responsibility > feel greater sense of loyalty to business> improved motivation

impact of spare capacity

• aids operational flexibility to cope w changes in demand (fashions, seasonal, growing markets)

• improved quality > production not rushed > spare space & time to upkeep factors of production> e.g improvements/repairs to capital & labour training

• less staff workload > improved motivation > better retention & less absenteeism

what is rationalisation

A process by which a firm improves its efficiency by cutting the scale of its operations

ways to rationalise

• redundancies

• reduce production size > sell nc assets e.g machinery / factory leads to reduced capacity > increased cap u

Ways to increase capacity

operate for longer hours e.g 24/7 production, more capital, increase staff levels, outsource to other businesses

capital intensive

using more capital than labor in the production process

pros of capital intensive production

• fully automated > 24/7 production(no breaks & sick days) > more capacity utilisation

• less human error > more consistent production > improved quality

• cost effective in long term (less wages to pay)> improved efficiency > technical Eos > lower cpu

cons of capital intensive production

• initial cost of capital > how to finance > cash flow issues > less dividend for shareholders

• inflexible machinery > can't change to match demand

become capital intensive if...

• increasing finance available

• produces in country w high wages

• cost of capital is reducing

• its a standardised product

Labour intensive production

Production methods that make more use of labour relative to machinery

pros of labour intensive

• labour can complete tasks that capital can't

• they can support process of kaizen & TQM by giving feedback & ideas

• high levels customisation & flexibility