UNIT 4 BUSINESS

Operations Management

The process of using inputs efficiently to produce goods and services.

Factors of Production

Inputs used in operations: Land, Labour, Capital, and Enterprise.

Transformational Process

Converting inputs into outputs while adding value in production.

Production

Total output produced by a business.

Productivity

Efficiency of production, measuring output per unit of input.

Labour Productivity Formula

Labour Productivity = Total Output in a Time Period / Number of Workers Employed.

Efficiency

Producing at the lowest possible cost with minimal waste.

Effectiveness

Meeting customer demands and ensuring long-term business success.

Sustainability

Ensuring operations do not harm the environment or deplete resources for future generations.

Labour-Intensive Production

A production method that relies heavily on human labor.

Capital-Intensive Production

A production method that relies mainly on machinery and automation.

Job Production

Producing unique, one-off items tailored to specific customer needs.

Batch Production

Producing a group of identical products together.

Flow Production

Continuous production of identical products.

Mass Customisation

Combines mass production with product variation to meet customer preferences.

Just-in-Case (JIC) Inventory Management

Holding extra inventory to avoid stockouts.

Just-in-Time (JIT) Inventory Management

Stock is ordered only as needed to minimize holding costs.

Economic Order Quantity (EOQ)

The optimal order quantity that minimizes total inventory costs.

FIFO

First In, First Out; older stock is used/sold before newer stock.

LIFO

Last In, First Out; newest stock is used/sold before older stock.

Capacity

The maximum output level a business can achieve with its existing resources.

Capacity Utilisation

The extent to which a business uses its total capacity.

Full Capacity Operation

Running at 100% capacity to maximize efficiency and minimize costs.

Under-Utilisation

When production is below potential output level due to low demand.

Over-Utilisation

When demand exceeds production capacity, leading to inefficiencies.

Outsourcing

Contracting external businesses to manage specific tasks or production.

Supplier Management

Choosing and managing suppliers to ensure quality and reliability.

Technology in Inventory Management

Use of tools like barcoding and ERP systems to enhance inventory tracking.

Advantages of JIC

Buffer stock ensures availability and can protect against supply chain disruptions.

Disadvantages of JIC

High storage costs and risk of obsolescence.

Advantages of JIT

Lower storage costs and minimized waste.

Disadvantages of JIT

Risk of stockouts and dependency on efficient supplier logistics.

Efficacy of Inventory Management

Ensures smooth production, reduces costs, and improves customer satisfaction.

Risks of Poor Inventory Management

Can lead to stock shortages, increased costs, and inefficient operations.

Economic Order Quantity Formula

EOQ = sqrt((2DS)/H). Where D is demand, S is ordering cost, H is holding cost.

Importance of Inventory Management

Maintains production flow, meets customer demand, and controls costs.

Challenges of Labour-Intensive Production

Higher wage costs and lower output levels due to reliance on skilled workers.

Economic Impact of Production Capacity

High capacity utilization lowers costs, while low utilization indicates inefficiency.

Capacity Shortages Management

Investing in new capacity or outsourcing to meet excess demand.

Advantages of Full Capacity

Maximizes efficiency and reduces fixed costs per unit.

Disadvantages of Full Capacity

No flexibility for demand spikes, increased wear on equipment.

Flexibility in Capacity Utilisation

85-90% utilization is often ideal for balancing efficiency and flexibility.

How to Increase Demand in Excess Capacity

Marketing campaigns and discounts.

Reasons for Outsourcing

Cost reduction, access to expertise, and increased flexibility.

Risks of Outsourcing

Less control over quality and dependency on suppliers.

Strategies for Managing Under-Utilisation

Increase demand, reduce capacity, or diversify product offerings.

Stock Levels in JIC vs. JIT

JIC holds large buffer stock; JIT maintains minimum stock, ordering as needed.

Impact of Inventory Management on Cash Flow

Efficient management reduces cash tied up in unsold stock.

Importance of Technology in Inventory Control

Enhances tracking, forecasting, and reduces human errors.

Decision Making Based on Capacity Utilisation

Influences capacity expansion or reduction based on current utilization levels.