business management - operations

production process

methods used to turn factor inputs into outputs of finished product by adding value in a cost effective way

factors of production

resources used in the production process to ensure that the production process adds value to ensure the value of the output is greater than the costs of production, earning a profit.

productivity

rate at which inputs are transformed into outputs and are a good measure of a firm’s operational efficiency level

job production (definition)

involves customizing an individual product from start to finish, made to meet the specific requirements of the client.

labour intensive

relies heavily on labour inputs so the cost of labour accounts for large proportion of production costs labor inputs,

A&D of job production

• quality of production because of highly skilled labour

• uniqueness adds value to the production process and acts as USP to secure premium pricing

• highly time-consuming due to specific requirements of customers, as quality standards need to be followed

• labour intensive, so it is expensive operations method

batch production (definition)

involves simultaneously producing identical products until it is completed before switching to the next batch

A&D of batch production

• reduces risk as a variety of products can be made so customers have more choice, instead of single product with limited sales

• economies of scale: machinery can be used to produce larger quantities (technical economies) and bulk purchases (purchasing economies).

• storage needed due to high amounts of stock, increasing costs

• high production costs due to reliance on specialised machinery and equipment

mass production (definition)

manufacturing large amounts of a standardized product, involving the assembly of individual components bought from other suppliers. capital-intensive with a reliance on machinery and equipment

flow production (definition)

form of mass production that uses continuous and progressive processes carried out in sequence, relying on automated systems heavily to maximise output

A&D of mass/flow production

• large volumes of output due to capital intensive production methods

• low labour costs due to unskilled workers being required to operate machinery, who can be hired and trained easily

• limited choice for customers due to standardization, which cannot meet individual needs

• expensive startup costs due to methods being capital intensive (maintenance and replacement costs)

• demotivates workers are tasks are monotonous

mass customization

combining different methods of production by using flexible manufacturing systems for mass production that meet individual wants/needs

• flexible for individual wants/needs

• low unit costs

lean production

process of streamlining operations to reduce all forms of wate and achieve greater efficiency

ways to adopt lean production

• waste minimization

• right first time approach (zero defects)

• flexibility

• continous improvement (KAIZEN)

continuous improvement (KAIZEN)

changing for the better by continualy improving work processes and efficiency by establishing a steady flow of small improvements

cradle to cradle

based on natural processes, benefiting the environment by ensuring no waste for future generations

cradle to grave

one time use of a product

ways customers perceive quality

• physical apperance

• reputation of manufacturer

• durability

• after sales services

quality management

concerned with controlling business activities to ensuure that products are fit for their purpose from the production and purchase to its use

quality control

involving inspecting quality of work by detecting faulty output by requiring products to be made to required specifications

a & d of quality control

• preventing faulty products from reaching customer, safeguarding firm’s reputation

• QC does not prevent mistakes being made and can be expensive

quality assurance

guaranteeing the consumer of a product’s quality by ensuring that everything is done right and there are no defects acting as a competitive advantage

a & d of quality assurance

• improve staff morale due to employees having recognition for their work and participation

• time-consuming, as it requires a lot of time and resources to train staff

how businesses measure quality

• reject rates

• level of product returns

• product recalls

• customer satisfaction

quality circles

small groups of employees who meet regularly to examine issues relating to quality of output and improvement

a&d of quality circles

• increased productivity due to investigating ways to improve operations

• some individuals remain unmotivated by extra responsibility/powerment

benchmarking

comparing its products and operations with others in the same industry as a target, improving its own efficiency

historical & inter-firm benchmarking

historical: comparing the same performance indicators over time
inter-firm: comparing the same indicators of different businesses

a&d of benchmarking

• improve its competitiveness

• costs can be very high due to collecting relevant and up-to-date info

total quality management

dedication of everyone to achieving quality standards by removing wastage and inefficiencies in business activity

a & d of TQM

• improving employee motivation since workers are involved in decision-making

• reducses waste as things are done right the first time, lowering unit costs of production

• requires sufficient funding for staff training and development

• becomes bureaucratic as procedures must be administered properly

TQM & Lean production

• elimnate waste

• rectify mistakes leading to long-term impacts

• improved customer satisfaction

• competitve advantages

quantitative reasons for a specific location of production

• Availability, suitability and cost of land

• Availability, quality and cost of labour

• Proximity and access to raw materials

• Proximity to the market (customers)

• Government incentives and regulations

• Feasibility of e-commerce

Qualitative reasons for a specific location of production

• Management preferences

• Infrastructure

• Local knowledge

outsourcing

way of reorganizing production by transferring internal business activities to an external organization

subcontractors

outsourced firms that undertake activities for an organization used for expertise and cost advantahes

a&d of outsourcing

• reduce labout costs are outsourced workers are not remunerated

• outsourcing allows businesses to concentrate on its core activities, improving efficiency

• quality management can become challenging, which is risky for the reputation of a business

• may cause redundancies and affect level of staff morale and motivation

offshoring

involves relocating business functions overseas in either production or services outshoring where labor costs are low

a&d of offshoring

• access latest technologies that the business may not have expertise in

• helps with job creation in host countries

• quality management issues

• inflation in countries/ rising labour costs

insourcing

use of organization’s own people and resources to accomplish a certain task

a&d of insourcing

• in-house can produce higher quality

• high operational cost

reshoring

transfer business operations back to their country of origin

reasons for reshoring

• transportation costs

• domestic governments supporting reshoring

Bulk-increasing

products that increase in weight during the production process, so they need to be located near their customers in order to reduce costs.

Bulk-reducing

products that need to locate near the source of raw materials because they are heavier and more costly

contribution

refers to the sum of money that remains after all variable costs have been taken away

unit contribution

difference between the selling price and its variable costs of production

total contribution

unit contribution mulitplied by quantity of sales

break-even quantity

level of output where total costs are equal to total revenues

margin of safety

difference between a firm's sales volume and the quantity needed to break-even.

advantages of break-even analysis

• allows managers to visualise the impact of changes in price

• used to make realistic predictions based on changes in price/cost

limitations of break-even

• assumes all cost functions are linear

• assumes business will sell all of its output

• not useful in a dynamic business environment

• only suitable for single-product firms

supply chain

refers to the different stages of activities from production to distribution

factors involving SCM

• stock control

• quality control

• supplier networks

• transportation networks

problems of SCM

• time consuming

• long lead times

• high costs

buffer stock

predetermined minimum level of stock

a&d of JIT

• eliminates costs of holding stock (storage space)

• reduces wastage as inventory can’t go out of date

• stocks are only ordered when needed which reduces economies of scale

• inflexible to cope with sudden increases in demand

just in case

traditional stock control system that maintains large amounts of stock in case there are supply or demand fluctuations.

a&d of JIC

• allows a busines to meet a sudden increase in demand as there is buffer stock

• allows business to exploit production EOS from bulk buying

• high costs of storage

• opportunity cost of money being tied up in stocks

stock control

involves careful planning to ensure that sufficient stocks are available and at the right time

costs of stockpiling

• storage costs

• perishable stocks

• changing tastes results in obsolete stocks

costs of stock-outs

• lost sales as stocks are not available

• inefficiencies as production comes to a standstill

factors influencing amount of stock a business holds

• type of product

• expected level of demand

• lead times

• costs of holding stock

capacity untilization

measures a firm’s existing level of output as a proportion of its potential ouput

disadvantages of high capacity utilization

• requires equipment and machinery

• operating at full capacity can overburden workers

defects

occurs when the quality of a particular product is unacceptable

advantages of productivity

• economies of scale

• earnings (higher profits and wages)

• efficiency (improved competitiveness)

operating leverage

measures a firm's fixed costs as a percentage of variable costs.

make-or-buy decision

when it has a choice between manufacturing a product or purchasing it from an external supplier

Qualitative factors considered with make-or-buy decisions

• product quality in house vs external supplier

• timeframe of production in house vs external

• reliability of suppliers

contingency planning

being proactive to changes in the business environment by developing a plan beforehand

research and development

refers to the technological and scientific research that generates a flow of new ideas and

sunrise industries

those that have rapid growth potential

sunset industries

negative growth potential, unlikely to be profitable

importance of r&d

• competitiveness due to first-mover advantage

• brand switching (turn away from competitor)

• growth opportunities

limitations of r&d

• high costs

• high failure rate

incremental innovation

minor improvements to products/services with low risk and affordable

disruptive innovation

major innovation that introduces a new good/service designed to replace existing ones by altering the market, high risks and competitive advantage

critical infrastructure

essnetial physical structures needed for effective functioning of a business

data centre

physical space of networked computers that supports businesses in housing applications and data

• high maintenance costs

• doesn’t require internet connection

cloud computing

virtual online space that enables businesses to store and organize data in safe and efficient ways.

• low maintenance costs

• requires stable internet connection

Internet of Things

broad systems of physical objects embedded with electronics that connect to the internet used for data

Big data

collecting and analysing large amounts of data to identify trends and patterns
- improves decision making

customer loyalty programme

customer retention strategy which incentivizes customers to continue buying the same products of 1 brand

• requires huge amount of data from customers

advantages of use of data to manage employees

• free management time

• improved control

• training and development

• improve appraisal process

management information systems

study of computer technologies and their impact on organizations, people, and the relationships among them.

a&d of MIS

• better-informed decisions

• better control and coordination

• employees may want to maintain privacy