Business Management - Unit 5: Operations management

operations management

the process of transforming resources (inputs) into outputs to achieve business objectives

capital intensive

production process that uses relatively more physical capital than human labour

labor intensive

production process that uses more human labour relative to physical capital

job production

production of unique items that are tailor-made products for individual customers

batch production

producing items in groups of identical products

mass/flow customization

production of large quantities of goods that can be adjusted to customer specifications

types of mass costumization

collaborative, adaptive, cosmetic and transparent

collaborative customisation

where there is a close interaction between the business and customer to adapt a mass-produced product according to the customer’s specifications

adaptive customisation

customers can choose from pre-set customisations provided by the business

cosmetic customisation

where the face of the product, often the packaging, is changed to suit the needs of the customer

transparent customisation

personalised items are recommended to the customer based on their online shopping cart; analysing online customer data is important to make recommendations

advantages of mass customization

customer satisfaction and loyalty, lower costs, and higher prices and profits

disadvantages of mass customization

handling returns, higher customization costs, and time invested

lean production

set of strategies to reduce waste in the production process

quality management

set of strategies to ensure products meet or exceed customers’ expectations

waste

any part of the production process that does not add value to the final consumer

kaizen

continuous improvement - a quality management approach where employees are encouraged always to seek and implement production improvements

efficiency

how well a business transforms physical, human and financial inputs into outputs.

waste categories TIM WOOD

transportation, inventory, motion, waiting, over-processing, over-production, defects

transportation

moving components between workstations or from suppliers

inventory

accumulating excessive stocks, incurring storage costs

motion

risking staff injury during product assembly

waiting

delays in the production process

over-processing

adding unnecessary features to products

over-production

generating surplus finished goods

defects

products failing to meet quality standards

benefits of kaizen

diversity of ideas, better ideas, employee motivation

limitations of kaizen

lower productivity, high labor costs

just in time production (JIT)

aim of minimizing costs by reducing or eliminating stock through smaller, regular orders delivered just in time. requires excellent relationships and regular communication with suppliers.

benefits of JIT

improved cash flow, reduced costs, increased production capacity

limitations of JIT

reduced economies of scale, high risk of production halts, and reduced resilience to changes

biological cycle for products for consumption

production, product, use, biological degradation, biological nutrients, plants

technical cycle for products for service

production, product, use, return, disassembly, technical nutrients

cradle-to-cradle design and manufacturing

process focused on sustainability and minimizing waste and negative environmental effects through durable products, recyclable materials, and pollution-reducing production methods.

quality

characteristics of a product or service that meet customer needs and expectations

quality control

inspection of a product to find defects and remove them before they are delivered to retailers or customers

quality assurance

strategies to prevent defects and improve products

quality management strategies

quality circles, benchmarking, total quality management (TQM)

quality circles

group of employees convened regularly to discuss and propose improvements to product quality within an organization. members come from diverse departments, offering varied perspectives on quality-related issues.

benefits of quality circles

employee motivation, improved quality, and cost effective due to the elimination of quality inspectors

limitations of quality circles

reduced productivity as this requires time, training costs for appropiate participation, and not universally applicable.

benchmarking

strategic process wherein a business compares its performance against industry leaders to identify areas for improvement and learn from best practices

benefits of benchmarking

improved quality, understanding of competitors and consumers, and customer satisfaction

limitations of benchmarking

lack of transferability, lack of information, and selecting the right benchmark

total quality management (TQM)

process that emphasizes collective responsibility among employees for maintaining overall product quality, rooted in principles of empowerment and internal customer focus

empowerment

the authority to initiate changes or improvements within their roles, fostering a culture of continuous improvement

internal customer focus

employees are encouraged to consider the needs of their colleagues who rely on the quality of their output, promoting teamwork and communication

benefits of TQM

motivated employees, improved quality and reduced costs through the elimination of quality inspectors and waste reduction

limitations of TQM

potential reduced productivity due to time allocated to quality management, training costs associated with implementing this method, and the requirement of a conducive organizational culture for effective implementation

certification process

businesses undergo inspection and evaluation by quality standards organizations

project elements

deliverable, has a time period and resources

gantt chart

a business management tool illustrating project plans, representing tasks over time

critical path analysis

a project planning tool revealing the shortest time needed for project completion, known as critical path

float time

the amount of time that a task or activity can overrun its time estimate, but not delay the whole project

free float time

the amount of time that an activity can overrun its time estimate, but not delay the next activity

location

the geographic position of a business; where it is positioned or sited

tariffs

a tax on imports

subsidy

a payment by a government to individuals or businesses

methods of reorganising production

outsourcing/subcontracting, insourcing, offshoring, reshoring

outsourcing

subcontracting

when a business takes an internal function and has it performed externally by another person or business

benefits of outsourcing

passing the costs to the subcontractor and the company can simply end its contract with the subcontractor without having to worry about factory overheads or staff redundancy costs

downsides of outsourcing

the use of subcontractors results in a loss of control, as the company doesn’t own the factories, it makes it more dificult to know and regulate what goes on inside them.

insourcing

when a business decides to have its own personell perform tasks or operations previously performed by an external organisation

offshoring

relocating some business functions overseas to lower costs and increase productivity

advantages of offshoring

companies can cut costs and increase productivity

disadvantages of offshoring

communication and transportation will be made more difficult, and this practice has been criticised for unethical practices such as exploitation of labour in low-income countries, and environmental damage may also be more likely when companies do this.

reshoring

when a business moves an operation that is performed in another country back to the company’s home country

advantages of reshoring

more effectiveness in the management of supply chains, more control over the production and operations and reduces risks involved with offshoring

disadvantages of reshoring

higher costs of production, supply chains would need to be redeveloped and workers abroad would lose their jobs.

supply chain

steps involved in creating finished goods

stock control chart

a chart that records when stocks are delivered, when they’re sold and when and how much stock is reordered

maximum stock level

the total amount of inventory a company wishes to hold, using current storage facilities

buffer stock level

stock that is held just in case there’s an unexpected order or late delivery. a backup so customers’ needs can still be met if something unforeseen occurs

lead time

the time it takes a supplier to fulfill an order

reorder level

point when new stock is ordered from a supplier. it takes into account the lead time and buffer stock level

reorder quantity

the amount of stock that is ordered from a supplier

productivity rate

the ratio of output per unit of input over a period of time

labour productivity

the output per worker over a defined period of time

capital productivity

a measure of how efficiently a business uses its capital

unit cost

the cost of producing a single unit of output

defect rate

a measure of the products that fail to meet specified quality guidelines

operating leverage

the measure of a company’s fixed costs relative to total costs

capacity utilization

a measure of the extent to which a business is using its productive capacity

cost to make

the total cost of production if manufacturing is kept in house

cost to buy

the cost of production if a business decides to subcontract production to a supplier