Business Management U3 AOS3

Operations

the function of the business that produces goods or services.

Operations management

the management of resources and functions within a business that converts inputs into outputs via a series of value adding processes.

Inputs

the resources used by a business to produce goods and services

Processes

the value-adding actions performed by a business to transform inputs into outputs

Outputs

the final goods and services produced as a result of a business's operations system which are delivered or provided to customers

Efficiency

how productively a business uses its resources when producing a good or service

Productivity

the number of goods or services that are produced compared to the number of resources used in the production process.

Effectiveness

the extent to which a business achieves its stated objectives

Aspects of inputs

- raw materials

- capital

- human resources

- time

- information

Impact of quality on inputs

Quality of inputs helps improve quality of final good/service. Higher quality = more satisfied customers, higher sales, achievement of business objectives

Impact of price on inputs

The price of the inputs will impact on the price of the final good/service. Cheaper prices = increase in sales due to customers seeking value = achievement of business objectives

Impact of quality on processes

The quality of a good/service can be improved through processes. Eg. a manufacturer produces a small number of high-quality goods make by hand = reduced imperfections and higher quality = higher customer satisfaction, meeting a market need.

Impact of productivity on processes

The productivity of producing a good or service can be improved through processes. Eg. a manufacturing business that mass produces a good (uses machinery), increases speed and

efficiencies, reducing costs per unit in the long term, increasing profits.

Manufacturing business

a business that uses raw materials and resources to produce a finished physical good.

Service business

a business that provides intangible products, usually with the use of specialised expertise.

Manufacturing business characteristics

- A manufacturing business will transform its inputs into a tangible output.

- Because these goods are tangible, it means they can be stored and sold at a later date.

- The production process and consumption are not linked.

- Goods can often be used over and over after they have been purchased.

- processes used are often more capital intensive (use machines and equipment to produce the final output.)

Service business characteristics

- transforms its inputs into services that are intangible.

- because services are intangible, they also cannot be stored.

- Often the production of a service will be linked closely with consumption. This means that the service will often be consumed while it is being created.

- often more labour intensive, where humans are typically performing the bulk of the service being provided.

Similarities between manufacturing and service businesses

- Both aim to optimise their operations to produce high quality outputs at a low cost of production

- Both use an operations system that involves inputs, process and outputs

- Both produce an output that is sold or exchanged for money

- Both have to deal with suppliers during the process of managing operations

- Both can utilise forms of technology in their operations systems

- Both aim to optimise efficiency and effectiveness in their operations

Differences between manufacturing and service businesses

- Manufacturing is more capital intensive whereas service is more labour intensive

- Manufacturing has creating and consumption occurring separately whereas service occurs simultaneously

- Manufacturing has low degree of customer contact during production whereas service has high degree.

- Manufacturing produces tangible output whereas service produces intangible output

- Manufacturing is standardised production whereas service is tailored production

Technological developments

new applications of scientific knowledge which aim to optimise the operations of businesses.

Automated production lines (APL)

machinery and equipment which are arranged in a sequence to perform tasks automatically with little to no employee involvement.

APL effect on efficiency

Can perform at a speed which is usually much faster than humans, improving productivity

APL effect on effectiveness

Allows for a high degree of accuracy which decreases the number of errors that occur during production. Reducing the amount of errors enhances the overall quality of the final product, which can meet the objective of increasing customer satisfaction and sales.

APL advantages

- Can perform tasks 24/7

- Usually performs tasks much faster than human labour

- Improvements in accuracy can enhance the overall quality of a product which can lead to an increase in sales

- Improvements in accuracy can reduce waste from errors, improving the business's environmental reputation

- Minimises the number of employees needed which reduces wage expenses

APL disadvantages

- Employees can be made redundant due to this technology replacing their role

- The business can develop a poor reputation if APL makes numerous employees redundant

- Sudden breakdowns of APL can halt production altogether

- High initial set up costs in purchasing and installing APL

- Can be expensive to repair and maintain

Robotics

Robotics are programmable machines that are capable of performing specified tasks.

Effect of robotics on efficiency

Robotics can perform specific tasks quickly and with high levels of accuracy. This can reduce the amount of time and resources wasted in production, therefore resources are used more optimally, improving productivity.

Effect of robotics on effectiveness

Robotics can perform specified tasks quickly with high levels of precision, which can minimise the number of errors that occur during production. This can enhance the overall quality of the final product and increase customer satisfaction, sales, and market share.

Robotics advantages

- Performing tasks precisely and accurately can ensure products are consistently produced at a high standard, which can improve the business's reputation.

- Improved accuracy can reduce errors and the number of resources wasted in production. This can assist a business to minimise its impact on the environment and improve its reputation.

- Tasks can be performed much faster than human labour.

- Robotic technology can complete tasks for extended periods of time, without the need for breaks.

- The number of employees needed for production can be minimised, which can reduce a business's wage expenses.

- Increased precision when completing tasks can enhance the overall quality of the product and allow a business to generate more sales revenue.

Robotics disadvantages

- A business may develop a poor reputation if it implements robotic technology that makes employees redundant.

- There are high initial setup costs associated with purchasing, programming, and installing robotics.

- It can be expensive for a business to repair and update robotic technologies.

- There may be expenses associated with training employees to use robotic technologies.

Computer-aided design (CAD)

Computer-aided design (CAD) is a digital design tool that enables businesses to generate and modify technical illustrations of a product before it is put into production.

Effect of CAD on efficiency

It can reduce the time and labour resources used to design a product which improves productivity

Effect of CAD on effectiveness

A business can use CAD to develop various prototypes and choose the best design to produce. Choosing the best option enables the business to manufacture the highest quality of design which can meet the objective of increasing customer satisfaction and sales.

CAD advantages

- Greater accuracy in the design process results in a consistent level of quality which can improve the business' reputation

- Speeds up the design process

- Improved accuracy and consistently high quality product can increase customer satisfaction and may increase the number of sales.

CAD disadvantages

- Employees can be made redundant due to this technology replacing their role

- The business can develop a poor reputation if CAD makes numerous employees redundant

- Expensive in the short term due to purchasing and installing CAD technology.

- Constant updates can be expensive.

- May be expenses to train employees on how to use CAD.

Computer-aided manufacturing

Computer-aided manufacturing (CAM) is the use of software and computer controlled machinery to manufacture products.

Effect of CAM on efficiency

CAM is often more precise, which results in less wastage and improves productivity, hence improving efficiency

Effect of CAM on effectiveness

The increased accuracy of CAM creates products with a consistent level of quality which can meet the objective of increasing customer satisfaction and sales

CAM advantages

- Greater accuracy results in a consistent level of quality which can improve the business' reputation

- Speeds up the manufacturing process

- Improved accuracy can improve quality and can increase customer satisfaction and may increase the number of sales.

CAM disadvantages

- Employees can be made redundant due to this technology replacing their role

- The business can develop a poor reputation if CAM makes numerous employees redundant

- Expensive in the short term due to purchasing and installing CAM technology.

- Constant updates in software can be expensive.

- May be expenses to train employees on how to use CAM.

Artificial Intelligence (AI)

Artificial intelligence (AI) involves using computerised systems to simulate human intelligence and mimic human behaviour.

Effect of AI on efficiency

AI can reduce the time and labour used to complete complex tasks that would usually require human intelligence. This can allow resources to be used more optimally and improve productivity.

Effect of AI on effectiveness

AI can perform complex tasks, such as providing timely and high-quality customer assistance. This can improve customer satisfaction levels, and allow for increases in sales and market share.

AI advantages

- Artificial intelligence has the ability to provide prompt customer service 24/7, which can improve customer satisfaction and the business's reputation.

- Artificial intelligence can perform complex functions, such as analysing data, with greater levels of precision.

- tasks that would have previously required human labour can be removed, reducing wage expenses.

- Improved accuracy can enhance product quality and increase customer satisfaction, which can increase sales revenue.

AI disadvantages

- The business may develop a poor reputation if artificial intelligence makes numerous employees redundant.

- Employees may be made redundant if artificial intelligence replaces roles previously performed by human labour.

- There are high initial setup costs associated with purchasing and installing artificial intelligence.

- It may be costly to recalibrate and maintain artificial intelligence.

Online Services

Online services are services that are provided via the internet.

Effect of online services on efficiency

Online services can remove the need for employees to perform certain tasks and enable labour resources to be used more efficiently.

Effect of online services on effectiveness

Implementing online services within an operations system can improve convenience for customers, increasing levels of customer satisfaction, sales, and market share.

Online services advantages

- Online services, such as food ordering platforms, can process orders accurately and provide increased customer convenience, which may improve a business's reputation.

- Online services, such as price comparison platforms, may be useful for a business to showcase competitive prices or distinguish its product's features.

- Online services, such as online marketplaces, may allow a business to gain exposure to more customers, which can increase the size of its customer base.

- Employees may experience increased job satisfaction if the online service removes tedious or boring tasks from their workloads.

- Online services, such as booking platforms, can process bookings faster than employees.

Online services disadvantages

- If the platform providing the online service experiences technical difficulties it may disrupt the business's operations.

- If the business only allows access to its services online it may deter customers who lack technological skills.

- The process of a business developing its own platform that provides online services may be time consuming.

- There is typically a cost involved with using an established platform to offer online services.

- There may be high initial establishment costs for a business that develops its own platform to provide online services.

- There may be expenses associated with training employees to navigate the online platform used to provide services.

Materials management

Materials management is the planning, organising and controlling of a business's supplies required for production. The proper management of the materials required for production can enhance the efficiency and effectiveness of an operations system.

Forecasting

Forecasting is a materials planning strategy that predicts customer demand for an upcoming period using past data and market trends.

Effect of forecasting on efficiency

Forecasting decreases the likelihood or ordering and stocking excessive stock, which optimises the use of resources by reducing wastage. Having enough materials minimises halts to production, which improves productivity.

Effect of forecasting on effectiveness

Forecasting increases a business's ability to meet customer demand which can meet the objective of increasing customer satisfaction and sales.

Forecasting advantages

- Informed decisions about the quantity of materials required can improve a business's ability to meet customer demand.

- Forecasting prevents the excessive ordering of materials that may go to waste if unneeded. This can help minimise the business's impact on the environment and improve its reputation.

- Can reduce the cost of storage as it prevents the need for a large space to store materials.

Forecasting disadvantages

- If a business is too reliant on forecasting, it may be unable to meet unexpected increases in customer demand.

- The quantity of materials ordered may be incorrect as historical data and market trends may not reflect future demand.

- It can be time consuming to analyse historical data and market trends.

- Production halts may occur if the business has insufficient materials due to inaccurate predictions.

- Businesses may need to hire forecasting specialists, which increases training and wage costs.

Master production schedule (MPS)

A master production schedule a plan that outlines what a business intends to produce, in its specific quantities, within a set period of time.

Effect of MPS on efficiency

The MPS improves efficiency by enabling production to flow continuously with minimal interruptions, improving productivity along with reducing waste.

Effect of MPS on effectiveness

A business is more likely to produce an amount that meets customer demand which meets the objective of meeting customer satisfaction and increasing sales and market share.

MPS advantages

- Improves a business's reputation by having a reduced impact on the environment. Prevents the business from producing an excessive amount of products, therefore reducing the amount of wastage.

- Can provide employees with a clear schedule of operations that includes the timeline and quantity of production targets.

- Clear rostering can allow employees to develop a positive work-life balance.

- By determining specific details about how production will occur, it is less likely production will be brought to a halt and time is wasted due to an organisation error.

- By determining production targets, businesses are more likely to meet customer demand. Meeting customer demand can increase sales and therefore increase a business's net profit figures.

MPS disadvantages

- Businesses that are constantly changing details of their operations system may find a master production schedule unhelpful as it is not a flexible program.

- It can be time consuming to map out details of production.

- Implementing and maintaining this plan can be expensive.

Materials requirement planning (MRP)

Materials requirement planning is a process that itemises the types and quantities of materials required to meet production targets set out in the master production schedule.

Effect of MRP on efficiency

Having the exact materials required reduces avoidable halts in production which enhances productivity by allowing operations to flow smoothly. It also reduces the amount of wasted stock in storage which optimises resources by reducing waste.

Effect of MRP on effectiveness

Ensures there is sufficient materials to meet customer demand. Meeting customer demand helps meet the objective of increasing customer satisfaction and sales.

MRP advantages

- Materials requirement planning ensures a business only has the exact materials it needs, decreasing waste generated in production. This can help minimise the business's impact on the environment and improve its reputation.

- By determining the exact materials required, it is less likely that production will halt due to insufficient materials or organisational errors.

- Accurate ordering of the quantities of materials required avoids excess storage and therefore reduces associated expenses.

MRP disadvantages

- It can be time consuming to constantly update and maintain the materials plan

- Implementing and maintaining the materials plan can incur additional administrative and training costs.

Just-in-time (JIT)

Just-in-time is an inventory control approach that delivers the correct type and quantity of materials just as they are needed for production.

Effect of JIT on efficiency

- Holding minimal stock can free up areas in the workspace that can be utilised to increase production.

- Minimising the amount of stock held can prevent resources from becoming damaged or expiring, allowing resources to be used optimally.

Effect of JIT on effectiveness

- Costs saved from reducing storage space can be used in other areas of the business, such as sales and marketing, which can meet the objective of increasing sales.

- A reduction in idle stock can reduce expenses associated with waste which can meet the objective of increased profits.

JIT advantages

- JIT eliminates idle stock, therefore limiting the amount of stock wasted from expiry or damage in storage. This can help minimise the business's impact on the environment and improve its reputation.

- Allows a business to switch to the production of a different product without wasting resources as there are minimal materials on hand to go through.

- Reduces storage costs and expenses associated with waste, meaning this money can be used in other areas of the business.

JIT disadvantages

- A business may fail to meet customer demand from a lack of reserves stock which may cause damage to a business's reputation.

- There may be less time to check the quality of stock as it must be used as soon as it arrives, which could result in errors in products.

- If suppliers are unreliable and fail to deliver the correct materials at the right time, production may be brought to a halt.

- Discounts from bulk buying supplies may be reduced.

- Delivery costs may increase due to more frequent deliveries.

Quality

Quality is a good or service's ability to satisfy a customer's needs.

Quality control

Quality control is inspections at various stages of the production process to ensure products meet designated standards and unsatisfactory products are discarded. This strategy is reactive as it detects and eliminates defects after they occur.

Effect of quality control on efficiency

- Identifying and fixing the cause of an error prevents the error from reoccurring which results in less waste being created during production. Reducing waste is an optimal use of resources

- Identifying and fixing an error also reduces the need to halt production, enabling the operations system to flow without interruptions.

Effect of quality control on effectiveness

Eliminating errors prevents customers from receiving faulty products which can meet the objectives of satisfying customers and increase the number of sales.

Quality control advantages

- Preventing customers from receiving a faulty good or service can improve a business's reputation for having consistently high quality products.

- Can reduce the number of refunds required for faulty goods or services

Quality control disadvantages

- Businesses can develop a poor reputation as environmentally harmful as this strategy does not actively attempt to reduce waste

- It can be time consuming to identify the causes of errors

- Errors are eliminated after they happen which can incur costs associated with waste.

Quality assurance

Quality assurance is a business achieving a certified standard of quality in its production after an independent body assesses its operations system. This strategy is proactive as it aims to improve quality in work processes.

Effect of quality assurance on efficiency

- Preventing errors before they occur reduces the number of faulty products produced, which reduces the amount of waste generated.

- Reducing waste is an optimal use of resources.

Preventing errors before they occur also reduces the number of halts to production.

Effect of quality assurance on effectiveness

Customers are more likely to purchase a good or service with a certified standard of quality which can meet the objective of increasing a business's number of sales.

Quality assurance advantages

- Reduces waste from errors, which improves the environmental reputation of the business

- Receiving external certification can improve a business's competitiveness

- Likely to improve the safety standards at the workplace

- Reduced number of errors enable production to flow smoothly

- Can be used as a marketing tool to increase sales

- The proactive prevention of errors can reduce waste and its associated expenses

Quality assurance disadvantages

- Employees may have to be trained and comply with the new procedures

- Documenting the operations system for the external body to check could be time consuming

- It can be expensive to organise an external body to assess an operations system

Total quality management (TQM)

Total quality management is a holistic approach where all employees are committed to continuously improving a business's operations system to enhance the quality for customers. A proactive strategy that includes features: continuous improvement, employee empowerment and customer focus.

Continuous improvement

the business uses regular evaluation to have ongoing improvement into the future. The business will continue to set higher standards that it aims to achieve. It is based on the principle that the business understands that quality is an ongoing journey that can always be improved.

Employee empowerment

employees are given responsibility to improve the quality of the business. They can do this through quality circles. Quality circles are where small groups of employees meet together to discuss new ways of improving the quality of their processes. It helps to generate new ideas that management can then implement to help improve the quality of the final output for consumers.

Customer focus

the entire focus of TQM is on the end customer. With TQM, all employees play a role in delivering quality outputs. Employees need to ask themselves "how can they meet the needs and expectations of the customers?". If TQM is implemented correctly, every employee will understand their role in helping the business to meet or exceed the quality expectations from customers.

Effect of TQM on efficiency

Continuously improving the quality of the production system to prevent errors reduces the number of faulty products that go to waste. Reducing waste is an optimal use of resources.

Effect of TQM on effectiveness

By determining the needs and wants of a customer, TQM can meet the objectives of improving customer satisfaction and increasing sales.

TQM advantages

- Improves a business's reputation by having a minimal impact on the environment. This reputation is achieved as TQM aims to prevent errors from occurring altogether which reduces the amount of waste from defects.

- Employees feel valued and satisfied by being empowered in the process of improving quality.

- Being proactive prevents errors from occurring which reduces waste and its associated expenses.

TQM disadvantages

- Employees may feel confused about their role in improving quality if managers fail to communicate the TQM strategy clearly.

- It can take a long time for a business to enjoy the benefits of TQM as it requires shifts in culture.

- May incur costs as employees have to be trained to continuously identify methods to improve quality.

Quality control and quality assurance similarities

- Both strategies reduce the amount of faulty products reaching customers.

- Both strategies require a good or service meeting set standards.

Quality control and quality assurance differences

- QC is reactive as it identifies and eliminates errors after they occur. QA is proactive as it prevents errors occurring.

- QC does not involve external certification. QA is a business receiving certification after they meet standards set by an external body.

Quality control and TQM similarities

- Both strategies can be implemented to see notable improvements in quality in the final output.

- Both strategies are internally controlled and involve employees assessing quality.

Quality control and TQM differences

- QC focuses on setting predetermined standards of quality in the first stage of this strategy. TQM focuses on continuously developing and improving standards.

- QC is reactive as it identifies and eliminates error after they occur. TQM is proactive as it aims to prevent errors.

Quality assurance and TQM similarities

- Both strategies are proactive as they prevent errors from occurring.

- Both strategies improve the processes of producing a good or service.

Quality assurance and TQM differences

- QA focuses on meeting set standards of quality to gain external certification, whereas TQM focuses on internally developing and improving standards within the business.

- TQM does not involve external certification. QA is a business receiving certification after they meet standards set by an external body.

Waste

Waste is any resource (raw material, labour, time) which is discarded after use, or it is worthless, defective or of no use.

Waste minimisation

Waste minimisation is the process of reducing the amount of resources that are misused or discarded by the business during its operations.

Effect of waste minimisation on efficiency

- By minimising the amount of time wasted in operations a business produces goods and services at a quicker rate, increasing efficiency.

- By reducing the number of materials discarded, a business optimises its use of resources and increases efficiency.

Effect of waste minimisation on effectiveness

- By minimising the amount of time wasted in operations a business produces goods and services at a quicker rate, increasing efficiency.

- By reducing the number of materials discarded, a business optimises its use of resources and increases efficiency.