SL Business - Operations Management

Operations Management

concerned with providing the right products in the right quantities and quality level in a cost-effective and timely manner 

Ways of managing operations

1. Method of production 

2. Size, scope and timing of production 

3. Quality control 

4. Research and development innovation

Marketing Implications

Operations method used to provide a good/service will affect both the quality and the individuality of the product

• exclusive product can be marketed at a premium price (uniqueness and high quality)

• Promotional strategies executed by high sales volume (ex. supermarkets) rely on aggressive tactics to gain market share and profit 

Human Resource Management Implications

• Production methods can determine workforce size 

  • Ex. dependence on automated machines → less workers

Finance Implication

Capital intensity and lean production require heavy investment in machinery and equipment

Factors of Production

The resources needed to produce a good or service, namely land, labour, capital, and enterprise

Production Process

The method of turning inputs into outputs by adding value in a cost-effective way

Value Added

Occurs during the production process when the value of output is greater than the costs of production. Firms earn profit if value added exists in the production process.

Job Production

Customizing an individual product from start to finish, tailor made
Benefits: Quality, Flexible, Unique, Motivates, Choice

Drawbacks: Labour Intensive, Time consuming, Expensive, few economies of scale, order irregularity

Batch Production

Producing a set of identical products. For businesses that make a range of products and when demand is estimated
Benefits: Economies of scale, specialization, variety
Drawbacks: High amount of inventory, inflexible, repetitive and boring

Mass Production 

Large-scale manufacturing of a standardized product

Flow Production

Form of mass production that uses continuous and progressive processes, carried out in sequence.

Mass/Flow Benefits/Drawbacks

Benefits: large value of output, cost effective, low defect rate, low labour cost
Drawbacks: monotonous, limited choice, expensive, inflexible

Factors to determine choice of operations method 

1. Size - larger markets tend to use capital intensive technology

2. Cost of labour and capital 

3. Aims and objectives of business - for profit, economies of scale 

Quantitative Reasons for a specific location of production

1. Availability, suitability and cost of land 

   HIGH demand but LIMITED supply =HIGH cost 

2. Availability, quality and cost of labour 

3. Proximity of the market (customers) 

   Bulk-increasing

4.  Proximity and access to raw materials

   Bulk-reducing

5. Government incentives and regulations

6. E-Commerce

Qualitative Reasons for a specific location of production 

1. management preferences

2. local knowledge

   Potential competitive advantage

3. Infrastructure

4. Political Stability 

   No corruption, Stable exchange rate

5. Government restrictions and regulations 

   economic freedom, anti-corruption measures, tax rates 

6. Ethical issues

7. Comparative shopping (clustering) 

Ways of Reorganizing Production 

1. Outsourcing

2. Offshoring

3. Inshoring

4. Reshoring

Outsourcing

Hiring a third-party contractor to carry out specific work.(recruitment, office cleaning)

Benefits: efficient, cost control, reduce labour costs as outsourced workers are not employees of organization

Drawbacks: Subcontractors may not align with business aim, Quality management must be monitored, unethical practices

Offshoring

Getting business activities or functions done in a different country

Benefits: avoid import tax or trade restrictions, Cheaper labour, Abundance of natural resources, job creation

Drawbacks: Unethical to exploit cheap labour , Vulnerable to economic instabilities (exchange rate fluctuations), Political unrest

Inshoring

Use of an organization’s own people and resources to accomplish a certain function 

Benefits: Greater control over business functions, cheaper overall, increased productivity 

Drawbacks: training, Employees feel overworked, Less focus on core activities

Reshoring

Transfer of business operations to country of origin 

Because: Product recalls, unethical practices, Improving/monitoring quality, consistent output

Benefits: lower transportation cost, created jobs

Bulk-increasing/Weight-gain industries 

Products that increase in weight during the production process, so need to be located near their customers in order to reduce costs

Bulk-reducing/Weight-loss industries

locate near the source of raw materials that are heavier and costlier to transport than the final product

Footloose Organization 

Does not gain any cost-reducing advantages from locating in a particular location. Can locate anywhere

Industrial Inertia 

Reluctance to relocate due to the inconvenience of moving even when the competitive advantages for the location no longer exists

Government Incentives 

Financial enticements offered by the state to businesses to locate in a particular area or region, perhaps due to high unemployment 

Subcontractors 

Outsourced firms that undertake non-core activities for an organization due to their expertise and the cost advantages

Break Even Benefits

• make realistic sales, costs,profit predictions 

• decision making, risk assesment in a simple and quick way 

• Works well for single product analysis, standardized product and operation in a single market  

• Predicting impacts of changing costs and prices 

Break Even Drawbacks

• Costs and revenue are not linear

  • unpredictability of economies of scale affecting fixed and variable costs  

  • Businesses offer bulk discounts. Prices are not constant 

• Assumes business will sell all output

• Obsolete or unrealistic data will affect the validity

• Only useful to firms selling one product 

• Ignore dynamic changes. Like staffing, motivation and productivity