unit 4 - decision making to improve operational performance

operational management

the physical requirements necessary to produce a good or a service

operational objective

are targets a business sets in order to produce goods or services in the most efficient way in a given period of time

dependability

means the reliability of a business in terms of product and services

ethical environmental objective

meeting targets to minimize any detrimental effects of the operations of the business on the environment this will include setting targets to reduce its negative impact upon the environment or increase its positive influence

speed of response and flexibility

the speed with customers needs are met and the ability to tailor the goods to meet individual needs a business will use this in order to differentiate itself from others and gain a competitive advantage

reduce unit cost

targets set to control the costs of each individual good or service supplied (unit cost or cost of one unit or cost per unit) this may support a strategy of cost minimization. the business with the lowest unit cost is in a strong position to be able to compete by being able to offer the lowest price or make the highest profit margin

quality targets

minimum acceptable standards in terms of the quality of raw materials processes output and customer service to match customers expectations if a business can develop a reputation of high quality it may be able to create a competive advantage and charge a premium price helps reduce waste and the cost of reworking faulty products

dependability

a target that considered how reliable or dependable a business is in satisfying customers needs this involves getting the right product with the right quality in the right quantity and to the right customer on time in terms of a good dependability would consider its quality and durability in hte service industry this may consider the expertise and knowledge or efficiency of the person providing the service

added value

the ability to ensure that the value of the output is higher than the sum of the value of all the inputs the value of the finished output over and above the cost of achieving it operations can add value through the production process to ensure a quality finished products

internal influences on operational objectives

1. corporate objectives
2. finance
3. human resources
4. marketing issues

external influences on operational objectives

1. economic environment
2. competitor efficiency and flexibility
3. technological change
4. legal and environmental change

operations data

a quantifiable information that will allow a business to measure performance and help inform decisions-making on how best to improve operational performance

output

is the number of products produced during a period of time

capacity

is the maximum output achievable by a business using current reasources

labour productivity

a measure of how efficient the workforce is in transforming inputs into outputs

labor productivity formula

total output/number of employees

unit cost formula

total costs/total output

capacity utilization

the proporation of maximum capactiy that is currently being used

capacity utilization formula

actual output/maximum output \*100

unit cost

the measures the average cost per unit produced as measured over a particular time period

operational data

is used to measure performance against objectives and identify problems this enables managers to spot where the problem might be and to decide what action to take to rectify the problem and increase efficiency

what decisions can unit cost data make

1. which products to produce
2. where to produce
3. which suppliers to use
4. how much output

what decisions can capacity utilization help decide

1. if it is the correct capacity level
2. if the business should increase capacity
3. if the business should downsize
4. targets for output

economies of scale

are the costs advantages that a business can exploit by expanding their scale of production the effect of economies of scale to reduce the average unit costs of production

bulk buying

the purchases by one organisation of large quantities of a product or raw material which often result in lower price

technical economies of scale

large scale businesses can afford to invest in expensive and specialist capital machinery

managerial economies of scale

a large business can spread its advertising and marketing budget over large output and it can purchase its inputs in bulk at negotiated discounted prices if it sufficient negotiation power in the market

specialization of the workforce

large-scale manufactures employ specialist to supervise production systems manage marketing systems and oversee human resources

investing in technology increases efficacncy as

new or better quality machinery or roborts can speed up production and reduce human error this may both improve quality and results in greater output from fewer employees

improvements in training increases efficiency as

the aim to improve the skills of the workforce which is likely to lead to greater output in addition to employees are likely to feel valued and involved in the process which could lead to greater motivation and further improvements in wuality and output

job redesign increases efficiency as

this involves changing the content of a job in terms of duties and responsibilities to make it more interesting this should lead to greater employee engagement motivation and an increase in productivity

introducing anew reward system increases efficiency as

improves pay to retain hard working staff set productivity targets and pay bonuses to employees reaching these targets

improving recruitment process increases efficiency as

review the recruitment process to assess that successful candidates have the required skills and are able to meet production targets

task specialist increases efficiency as

when employees repeat the same task day in and day out they develop a proficiency which makes them faster and more accurate leading to increased productivity with fewer mistakes

introduce better management increases efficiency as

improve supervision and leadership of the workforce appoint managers with the right leadership style for the workforce to maximize productivity

under utilization

occurs when a business resources are not being used at or close to full capacity

over utilization

occurs when a business is operating above full capacity

over production

means producing too many goods

lean production

included practice that reduced waste in the operational process the main forms or lead production are focused on reducing defects time wasted and inventory levels a key feature of lean production is just in time

types of waste

1. motion
2. transport
3. inventory
4. defects
5. waiting time
6. extra processing
7. over production

just in time aim

to ensure that inputs into the production process only arrive when they are needed implemented successfully stock levels of raw materials work in progress and finished goods can be kept to a minimum

just in case manufacturing

* produce first
* stock finished products
* try to sell the products
* potential waste of storage and products that customers may not want

just in time manufacturing

* get and order first
* only produce what has been ordered
* dispatch goods as soon they are produced
* no waste of unwanted goods

time based management

general approach that recognizes the importance of time seeks to reduce the level of wasted time in production process

cell production

is a form of team working where production processes are split into cells or teams each cell/teams is responsible for a complete unit of work

kaizan

a Japanese concept of continuous improvement to increase efficiency staff are empower to suggest changes that could lead to a reduction in waste

ways of reducing waste

• Designing the work areas within a business so that employees are close together & in close proximity to the resources they require (cell production & time-based management)

• Designing production facilities to minimise movement

• Using effective stock control systems

• Adopting quality assurance techniques to minimise defaults & eliminate wastage of rejects or need for rework (Total quality management & Kaizen)

Designing products & services to meet the exact needs of customers (Just in time production)

• Using a range of forecasting techniques to predict future demand & match production levels accordingly

labour intensive business

a business that uses people to produce their goods or services rather than machinery

capital intensive business

production mainly capital resources

advanatages of capital intensive

1. less employees wages
2. quality standardized
3. 24/7

disadvantages of capital intensive

1. breakdowns
2. initial set up cost

when is it appropriate to use capital intensive

1. making cars
2. oil production
3. steel production

advantages of labour intensive

1. customized products easier
2. less expensive machinery
3. human initiative

disadavantages of labour intensive

1. quality variation
2. workers take time to train

when is it appropriate to use labour intenstive

1. agriculture
2. construction
3. coal-mining industrial

quality

is the ability of a good or services to satisfy consumers wants and needs

what can quality do

1. provide a USP
2. allow a business to charge a premium price and increase profit margins
3. enable a business to increase sales and market share
4. enhances reputation and brand loyalty leading to repeat purchases

quality management

is the process by which a business meets the customers expectations in relation to quality

quality control

is the checking of a good or services before it is delivered to a customer at the end of the production process it normally relies on an inspection process

quality assurance

is the checking of a good or service at each stage of its production as it travels along a production aim is to avoid mistakes by getting the production right he first time

total quality management

is an attitude towards quality assurance in which each employee is responsible for checking their own qualities

advantages of quality control

1. not disruptive to production workers
2. can help to prevent faulty goods and service being sold

disadvantages of quality control

1. costs money
2. does not encourage all workers to be responsible to quality
3. it does not prevent waste

quality circles

is a group of workers who meet regularly to identify analyse solve quality issues and suggest ways of improving quality it is a part if the TQM approach

total quality management

believes in getting it right the first time and having zero defects

pros of TQM

1. improves quality of end product
2. increases customer loyalty
3. increases employee motivation

cons of TQM

1. costs of TQM culture
2. time to see real improvement hard to measure
3. resistance

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difficulties of improving quality

* The business has to bear the cost of training _ staff and any
* equipment that may be needed
* Employees may be resistant to change and convincing them to take part in TQM & Kaizen for example might prove difficult. They might demand higher due to higher pay the increased responsibility.
* Customer's Perception of quality is constantly changing
* measuring quality can be difficult & expensive

consequences of poor quality

* If products need to be Scrapped or reworked this will increase costs
* Further costs will occur if goods are returned for repair or need to be replaced under warranty
* If products need recalling this can be extremely.
* expensive
* Poor quality can damage brand's reputation
* There may be legal costs if customers sue the company
* Correcting poor quality can be very expensive

dependability

can be used in three ways for punctuality and also in relations to reliability and durability it is important to identify the correct context when responding to a question

inventory

the stock a business holds in the form of raw materials work in progress and finished goods

flexibility

is the ability to meet the customers specific requirements and to adapt to change

mass customization

is the ability to tailor goods made in bulk to meet the requirements of individual customers

outsourcing

contracting a process to another business

inventory control diagram

is the graphical representation of the flow of inventory within a business it is used by management to control and monitor the flow of inventory to meet demand

lead time

is the time it takes between placing an order and reviving delivery

re-order level

is the level of inventory which triggers an order

buffer level

is the minimum amount of stocks a business wants to hold just in case of an emergency

re-order quantity

is the point at which an order for new inventory is placed this will depend on the buffer stock level and the lead time

finished goods

completed products ready for sale or distribution

work in progress

semi or part-finished production

raw material

bought from suppliers used in production process

interest costs

more inventories requires larger storage space and possibly extra employees and equipment to control and handle them

cost of storage

holding inventories means typing up capital on which the business may be paying interest

obsolescence risk

the longer inventories are held the greater the risk of them becoming obsolete

stock out costs

happens if a business runs out of inventory this can result in

* lost of sales and customer goodwill
* cost of production stoppages delays
* extra costs of urgent replacement orders

a supplier

is a business or individual who provides goods or serviced to another business

a supply chain

is a group of other business such as suppliers wholesalers shipping companies involved in the process of getting suppliers from a manufacturer to the business

effective management of the supply chain may involve

* Supplier strategy such as long-term vs short-term
* agreements (a short-term agreement with a supplier may enable the business to switch easily to a cheaper supplier. However, a long-term agreement may guarantee & secure supplies against changes in the market or even against an increase in prices)
* Agreeing contracts with suppliers to cover level of service
* Deciding on whether the business will do the process itself or outsource it to a supplier
* Deciding on how much control the business wants to have on the supply chain

benefits of having multiple suppliers

* To ensure backup if one supplier fails to deliver on time or the right quality To be able to increase size order (one supplier may not be able to supply the required supplies for an increase in output)
* To be able to compare suppliers' quality, prices, punctuality, reliability, payment
* terms, etc.

how does price effect the business

* business' costs
* business' unit cost
* the price charge to customers
* the profit margin
* the competitiveness of the business

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how does quality affect business

* business' own quality
* business' reputation
* business' efficiency (low-quality suppliers could create waste or delay)

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how does reliability affect business

* business' reputation
* business efficiency (wrong or late delivery could delay production/sales)
* level of buffer stock help (minimum level of stock held)
* re-ordering level

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how does flexibility affect business

• business' ability to change order size (small or small) or specifications (mass- customisation)

• business' ability to accept 'non-standard orders ('one-off or unusual orders)

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how does capacity affect business

* ability to supply large quantities
* business costs (large quantities can lead to bulk discounts)

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how does payment terms affect business

* payment form: by cash, cheque, bank transfer, monthly instalments or foreign currency
* availability of trade credit (option to pay later)
* the cost of credit does the supplier charge interest for credit?

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how does ethics affect business

* does the supplier operate in a socially responsible manner? e.g.
* adheres to Fair Trade, pays staff the minimum wage, etc.

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how does location affect business

• affects transport costs

• ability to set up JIT

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how does return policy affect business

* how easy is it to return or exchange goods? are refunds given?
* how long does it take to get a refund?
* affects the business' own flexibility towards its customers affects the business' cash flow

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