UNIT 5 BM VOCAB

OPERATIONS MANAGEMENT

Operations management

Concerned with the use of inputs (land, labour and capital) to provide outputs in the form of goods and services

Added value

the difference between the cost of purchasing raw materials and the price the finished goods are sold for

Environmental/ecological sustainability

a capacity of ecosystems to maintain their essential functions and processes, and retain their biodiversity in full measure over the long term

Social sustainability

the ability of a community to develop processes and structures which not only meet the needs of its current members but also support the ability of future generations to maintain a healthy community

Economic sustainability

within a business context, economic sustainability involves using the assets of the company efficiently to allow it to continue functioning in profitability over time

Production process

Method of turning factor inputs into outputs by adding value in a cost-effective way

Job/customised production

producing a one-off item specially designed for each customer

Batch production

producing a limited number of identical products-each item in the batch passes through one state of production before passing on to the next stage

Mass production

producing large quantities of a standardized product

Flow production

producing items in a continually moving production line-also known as line production

Process production

producing standardized goods, typically in bulk quantities, by using a continuous input of materials and other resources

Mass customization

the use of flexible computer-aided production systems to produce items to meet individual customers’ requirements at mass production cost levels

Cell manufacturing/production

a lean method of producing similar product using cells, or groups of team members, to facilitate operation by elimination of setup time between operations

Capital intensive

Manufacturing or provision of a product relies heavily on machinery and equipment

Labour intensive

Manufacturing or provision of a product relies heavily on labour

Productivity

Measures the level of labour and/or capital efficiency of a business by comparing its level of inputs with the level of output

Specialization

Division of a large task or project into smaller tasks, allowing individuals to concentrate on an area of expertise. Essential part of mass and flow production.

Lean production

producing goods and services efficiently with the minimum of waste resources while maintaining high quality

7 types of waste

1. Excessive transportation of components and products

2. Excessive stock-holding

3. Too much movement by working people

4. Waiting time - delays in production process

5. Overproduction - producing ahead of demand

6. Over-processing - making goods that are too complex as they could have been designed more simply

7. Defects - products that do not come up to quality standards and have to be rejected or corrected

Quality product

a good or service that meets customers’ expectations and is therefore ‘fit for purpose’

Quality standards

the expectations of customers expressed in terms of the minimum acceptable production or service standards.

Quality control

this is based on inspection of the product or a sample of products

Quality assurance

a system of agreeing and meeting quality standards at each stage of production to ensure consumer satisfaction

Kaizen

Japanese term meaning ‘continuous improvement’

Just-in-time (JIT)

this stock-control method aims to avoid holding stocks by requiring supplies to arrive just as they are needed in production and completed products are produced to order

Kanban

Japanese manufacturing system in which the supply of components is regulated through the use of an instruction card sent along the production line

Andon

A manufacturing term refferring to a system to notify management, maintenance, and other workers of a quality or process problem

Cradle to cradle (C2C)

A manufacturing principle that seeks to create production techniques that are not just efficient but are essentially waste-free and truly sustainable

Quality-control techniques

1. Prevention

2. Inspection

3. Correction and improvement

Benchmarking

Involves management identifying the best firms in the industry and then comparing the performance standards - including quality - of these businesses with those of their own business

Quality circles

Groups of employees who meet regularly to discuss ways of resolving problems and improving production and quality in their department/organisation

Total quality management (TQM)

An apporach to quality that aims to involve all employees in the quality-improvement process

Internal customers

People within the organisation who depend upon the quality of work being done by others

Zero defects

the aim of achieving perfect products every time

ISO 9000

an internationally recosnised certificate that acknowledges the existence of a quality procedure that meets certain conditions

Optimal location

a business location that gives the best combination of quantitative and qualitative factors

Quantitative factors (choosing location)

these are measurable in financial terms and will have a direct impact on either the costs of a site or the revenues from it and its profitability

• Site and other capital costs

• Labour costs

• Transport costs

• Salaries

• Market potential

• Government grants

Qualitative factors (choosing location)

non-measurable factors that may influence business decisions

Outsourcing

using another business (a ‘third party’) to undertake a part of the production process rather than doing it within the business using the firm’s own employees

Business-process outsourcing (BPO)

a form of outsourcing that uses a third party to take responsibility for complete business functions, such as HR and finance

Insourcing

the reverse of outsourcing as it is undertaking a business function or process within the business rather than contracting it to another business

subcontracting

the practice of assigning to another business (the subcontractor) part of a contract – for example, a specialist activity that makes up part of a construction contract

Offshoring

the relocation of a business process done in one country to the same or another company in another country

Inshoring

ending offshoring contracts with overseas suppliers and returning functions or processes to business operations in the home country

Multinational

a business with operations or production bases in more than one country

Supply chain

every business that comes into contact with a particular product

Stock (inventory)

materials and goods required to allow for the production and supply of products to the customer

• Raw materials and components

• Work in progress

• Finished goods

JIT – just-in-time stock control

this stock-control method aims to avoid holding stocks by requiring supplies to arrive just as they are needed in production and completed products are produced to order

JIC – just-in-case stock control

the stock management strategy that businesses use when they hold a high level of stocks because there is a risk of ‘stock-out’

Stock holding costs and cost of not holding stocks

Stock holding costs:

• Opportunity cost

• Storage costs

• Risk of wastage and obsolescence

Cost of not holding stocks:

• Lost sales

• Idle production resources

• Special orders could be expensive

• Small order quantities

Economic order quantity (EOQ)

the optimum or least-cost quantity of stock to re-order taking into account delivery costs and stock-holding costs

Stock control charts

Charts that record stock levels, stock deliveries, buffer stocks and maximum stock levels over time

Buffer stocks

the minimum stocks that should be held to ensure that production could still take place should a delay in delivery occur or production rates increase

Maximum stock level

limited by space or financial costs

Calculation: EOQ of each component + buffer stock level for the item

Reorder quantity

the number of units ordered each time

Lead time

the normal time taken between ordering new stocks and their delivery

Re-order stock level

the level of stocks that will trigger a new order to be sent to the supplier

capacity utilisation

the proportion of maximum output capacity currently being achieved

full capacity

when a business produces at maximum output

excess capacity

exists when the current levels of demand are less than the full capacity output of a business – also known as spare capacity

capacity shortage

a shortfall that occurs between the required operating capacity and the actual amount of operating capacity the system can provide.

productivity

the ratio of outputs to inputs during production, e.g. output per worker per time period

• Labour productivity (number of units per worker) = Total output in a given time period/Number of employees

• Capital productivity = Total output/Capital employees

level of production

the number of units produced during a time period

Make - or - buy decisions

Decision if a business should make a product themselves or buy them in

• Figures they should consider

  1. Expected volume (V)

  2. Fixed or overhead costs directly associated with making the product (FC)

  3. Unit direct costs of making the product (UDC)

  4. Unit cost from an external supplier - including transport costs (UCS)

  Formula:

  1. Cost to buy (CTB) = V x UCS

  2. Cost to make (CTM) = FC + (UDC x V)

• If CTM exceeds CTB → it is more financially advantageous to buy-in or outsource

• If CTB exceeds CTM → it is more financially advantageous to make ourselves

Innovation

the practical application of new inventions into marketable products

Invention

the formulation or discovery of new ideas for products or processes

Research and development (R&D)

the scientific research and technical development of new products and processes

Intellectual property

refers to creations of the mind such as inventions, literary and artistic works and symbols, names, images and designs used in business

Intellectual property rights:

legal property rights over the possession and use of intellectual property

Copyright

legal right to protect and be the sole beneficiary from artistic and literary works

Trademark

a distinctive name, symbol, motto or design that identifies a business or its products - can be legally registered and cannot be copied

Types of innovation → 4Ps Innovation Model

Product innovation: new marketable products and improving products

Process innovation: new methods of manufacturing or providing a service

Positioning innovation: ‘relocation’ of customer’s perception about a certain product

Paradigm innovation: a distinctive change in what a business does or in the nature of goods and services available

Adaptive creativity and innovative creativity

Adaptive creativity: thinking that applies existing solutions, techniques or products to new scenarios or changed conditions → do things better

Innovative creativity: thinking that results in new solutions → do thing differently

Patents

legal right to be the sole producer and seller of an invention for a certain period of time

contingency planning

preparing the immediate steps to be taken by an organisation in the event of a crisis or emergency

crisis management

steps taken by an organisation to limit the damage from a significant, damaging event by handling, containing and resolving it

quantifiable risks

financially measurable threats that can jeopardize the survival of an organization