CIE IGCSE Business Studies - Unit 4: Operations Management

Production

Is the provision of a product or a service to satisfy customer wants and needs

Inputs

Inputs are the factors of production (land, labour, capital, enterprise)

Outputs

The final goods or services produced

Productivity

Is the output measured against the inputs used to create it

Labour-intensive

Employing more human workers than machines to produce goods or services

Capital intensive

Businesses use machines and employ few workers to produce goods or services

Labour Productivity (formula)

Output (over a period of given time) / Number of employees

The buffer inventory levels

Is the inventory held to deal with uncertainty in customer demand

Lean Production

Is an approach to management that focuses on cutting out waste/using less resources, whilst ensuring quality.

Examples of lean production

Kaizen, Just-in-time production, Cell production

Kaizen

Is an example of lean production, the word means 'continuous improvements' through employees (discussing ideas to make improvements)

Just-in-time

When a business holds no stock and instead relies upon deliveries of raw materials and components to arrive exactly when they are needed.

Cell production

Is where the production line is divided into separate, self-contained units (cells)

Methods of production

Job production, batch production, flow production

Job production

Where products are made specifically to order

Batch production

A manufacturing process in which components or goods are produced in groups (batches) and not in a continuous stream

Flow production

When large quantities of a product are produced in a continuous process

Fixed costs/overhead costs

Costs which do not vary with the number of items sold in the short run , salary

Variable costs

Costs which vary directly with the number of items sold, material costs

Total costs

Fixed costs + variable costs

Average cost per unit

Total costs / total outputs

Economics of scale

Factors that lead to reduction in average costs as a business increases in size

Purchasing economies

Buying goods in bulk (and achieving a discount from suppliers) which in turn reduces the average cost per unit.

Marketing economies

Advertising rates are not proportionate to the business size. The business will not need to pay more for advertisement if it's a large organisation and buys advertising space in bigger quantities, frequently.

Financial economies

It's easy for a large company to get finance as they are seen as less of a risk than smaller businesses. A lower rate of interest is charged.

Managerial economies

Small businesses can't usually afford skilled managers → reduces efficiency

Technical economies

Using different methods of production it produce the best quality product efficiently

Diseconomies of scale

Factors that lead to an increase in average costs as a business grows beyond a certain size

Break-even level/point

Quantity that must be sold for total revenue to equal total cost

Break-even charts

Graphs that show how costs and revenue of a business changes with sales

Revenue

Quantity sold X price → income during a period of time

Contribution

Selling price per unit - variable cost per unit

Quality

To produce a good or a service which meets customer expectations

Quality control

Checking for quality at the end of the production process.

Quality assurance

The checking for the quality standards throughout the production process.

Total Quality Management (TQM)

The continuous improvement of products and processes by focusing on quality at each stage of production.

Market

Locating near to the market as if it is heavy, it will cost more money to transport, meaning more expenses for the business

Raw materials/components

If a business locates near to where raw materials are made, it will result in costs being lower to transport it to the business

Availability of labour

It may be easier and cheaper to recruit employees if the business is set up in an area where epiole with the relevant skills live

Government influence

When a government wants to encourage a business to set up in a particular area, it will offer state funded grants to the firm so that they move there. This will make a business reconsider where they choose to locate.

Transport and communications

Businesses need to be close to a transport system as it will be required when exporting product or importing raw materials

Power and water supply

Some industries need to have a reliable source of power and can't afford to have any failures in power.

Climate

Climate may affect the production of goods for a business

Customers

A business needs to be set up near to customers to ensure that they shop with the business and revenue is generated.

Personal preference of the owners

The owners of a business can influence where particular services choose to locate. They often locate near where they live.

Near to other businesses

Some services serve the needs of larger businesses - they will need to be nearby to respond quickly to a call to repair equipment.

Rent/taxes

If the business doesn't need to be in the city center, where costs are high, they can move to a less desirable area in order to pay less in tax or rent.

Productivity (formula)

Outputs/Inputs