Business IB SL Unit 5

operations management

operations management

Produce goods and services of the required quality, In the required quantity, at the time needed, in the most cost-effective way

batch production

producing limited number of identical product

Concerns of an operations manager

1. Efficiency of production —> keep low cost (competitive advantage)

2. Quality —> must be suitable for the purpose intended

3. Flexibility and innovation —> develop and adapt new methods/processes

Add Value

Difference between the cost of purchasing raw materials and the price the finished goods are sold. (Only considers price of input and output NOT = Total cost and revenue)

How to add Value? (4)

1. Design of the product or nature of the service

   1. Higher price for better quality

2. Efficiency with the input management

   1. Prove to consumers that you are reducing washer

3. Increase productivity (reduce cost per unit) —> Less price

4. Convive consumer to pay more for the old than the cost of input

   1. Luxury brands

Triple Bottom line

Ecological, social and economic sustainability

When a business wants to be a CSR —> they must do this

Planet people profit

Ecological Sustainability

• Reducing waste,  water, and energy  use

• Energy from renewable sources

• Using recycled pricier/ ensuring materials can be recycled

Social Sustainability

• Designing phase and healthy production system

• Design workplace to allow social interactions

• Creation jobs in low income area

  • Relocation

• Reducing negative impact of production on communities

Economic Sustainability

• Efficient use of assets to maintain profitability

• Managing operational assets —> extend lifespan

• Increase efficiency of production process

  • Increase competitiveness by lowering prices

  • Maintain profitability

• Research and product development t to create value and customer interest

Job production (Customized)

Producing a one-off item specially designed for each customer

Pros of job production

;) Higher motivation

• they produce whole product and take pride in it

:) High value added

Cons of job production

:( High unit production costs

:( intensive production process

:( time-consuming

:( wide range of tools and equipment

:( no economy of scale

Batch production

Producing a limited number of identical products. Each item in the batch passes through one stage of production before passing on to the next stage

Pros of batch production

:) Some economies of scale

:) faster production with lower unit costs than job production

:) some flexibility in design of product in each batch

Cons of batch production

:( high level of stock in each stage (overstock)

:( unit costs tend to be higher than floe production

Flow/mass production

Mass production of standardized product is in a continually moving production line

Flow —> 24/7

Mass can stop production

Pros of flow/mass production

:) Low unit costs due to constant working of machines

• Economies of scale

Cons of flow/mass production

:( Inflexible

• can’t change from one product to another

:( Expensive to set up

Process production

Producing standardized good by using continuous input of materials and other resources

Pros of process production

:) Can be automated, reducing unit costs

:) large quantities can be produced

Cons of process production

:( heavy equipment requires

:( difficult to stop the process

:( little opportunity to make different versions

Mass customization

Use of flexible computer aided production systems to produce items to meet individual customer’s requirements at mass production level

Cellular manufacturing

Where employees working in teams in self contained mini production unit cells.

Pros of cellular manufacturing

• Production system is more flexible with multi-skilled workers

• Motivation might be high as group work builds team spirit

• All workers in the cell have close proximity with the equipment required: low handling costs and time is saved

Cons of cellular manufacturing

• Output is not high as traditional flow production

• Different cells may work at different speeds: potential tension between them and imbalance in number of units produced

• Employee training: high costs

• Investment in new machinery (each cell)

Factors to choose production method

1. Size of the market

   1. Small and exclusive —> Job production

   2. Market for similar and consistent (Throughout the year) products —> Flow production

   3. Market that requires a large number of units at different times —> batch production

      1. Ex. School products

2. Amount of capital available

   1. Flow production is very expensive.

   2. Job and batch production are less

3. Availability of other resources

   1. Large flow production requires many unskilled workers and a large flat area

   2. Job production needs skilled workers

   3. Company must adapt to suit current resources

4. Market demand exists for products adapted to specific customer requirements

   1. Cost advantages

Optimal location must have best comination of

quantitive and qualitative factors

Quantitative factors

Site and other capital costs such as building or shop-firing costs

Labor costs

Transport Costs

Market potential

Government grants

• Some countries may offer grants or lower taxes to put business in their country

high fixed site costs problems

• High break - even levels of production

• Low profit or even losses

• If operating at low-capacity utilisation, unit fixed costs will be high

high variable costs problem (ex. labor)

:( low contribution per unit

:( low profit

:( high unit variable costs

Low unemployment rate problems

:( problems recruiting staff

:( staff turnover may be a problem (easy to change jobs)

:( pay levels may be raised to maintain staff

high unemployment rate problems

Average consumer disposable incomes may be low - leading to relatively low demand for income

Poor transport problem

• Raises transport costs for both materials and finished products

• Relatively inaccessible to customers

Techniques to assist in location decision (3)

1. Profit estimation (Estimate revenue and costs in this location)

2. Investment appraisal (used to identify locations with the highest potential returns over a number of years.

3. Break even analysis (Lowest break even level of output level)

Qualitative factors (7)

Safety

• remote areas

• :( may increase transportation costs

Room for further expansion

• :( expensive to relocate if site is too small to accommodate an expanding business

Manager’s preferences

• Not valid for PLC

Labor supply

• availability of skilled or unskilled workers

Ethical consideration

• Countries with weaker control over worker welfare

• May create redundancies

Environmental concerns

• if there are strong environmental pressure groups

Infrastructure

• quality of local infrastructure, especially transportation and communication links

Other location issues (3)

Pull of the market:

• Their may be other factors (internet) that may decide which location is better

Planning restrictions:

• Local authorities may want businesses because of employment. Others many want to protect environment of town or village

External economies of scale

• places where there are cost reduction since companies around alr have economy of scale

Pros of multi-site locations

:) greater convenience for consumers

:) Lower transport costs

:) Production base companies reduce risk of supply disruption

:) opportunities for delegation

:) cost advantages

cons of multisite locations

:( coordination problems

:( potential lack of control and direction

:( different cultural standards and legal systems

:( danger of cannibalism (if sites are too close to each other) sales takes sales away from another

Outsourcing

Using another business to undertake a part of the production process rather than doing it within the business using the firm’s own employees

benefits of outsourcing

Reduction and control of operating costs

Increased flexibility

Improved company focus

Access to quality service or resources

Freed-up internal resources

drawbacks of outsourcing

Loss of jobs within the business

Quality issues

Customer resistance

Security

Offshoring

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

benefits of offshoring

Low-cost countries offer substantial benefits

Potential for higher profits despite the high setup costs of overseas operations

Low-wage economies

IN developing countries, due to shortage of jobs, the subcontracting businesses will find easy to recruit unskilled workers.

drawbacks of offshoring

Language and other communication barriers

Cultural differences (important for marketing, HR)

Level of service concerns

Supply-chain concerns

Ethical considerations

Reshoring (definition and why its happening)

Reverse of offshoring

Why?

• Labour costs may rise

• Quality control issues

• Companies had to fill a whole shipping container to get the per unit cost down and has to put goods waiting in expensive warehouses

• Working conditions under strict ethical codes