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
Efficiency of production —> keep low cost (competitive advantage)
Quality —> must be suitable for the purpose intended
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)
Design of the product or nature of the service
Higher price for better quality
Efficiency with the input management
Prove to consumers that you are reducing washer
Increase productivity (reduce cost per unit) —> Less price
Convive consumer to pay more for the old than the cost of input
Luxury brands
Triple Bottom line
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
Size of the market
Small and exclusive —> Job production
Market for similar and consistent (Throughout the year) products —> Flow production
Market that requires a large number of units at different times —> batch production
Ex. School products
Amount of capital available
Flow production is very expensive.
Job and batch production are less
Availability of other resources
Large flow production requires many unskilled workers and a large flat area
Job production needs skilled workers
Company must adapt to suit current resources
Market demand exists for products adapted to specific customer requirements
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)
Profit estimation (Estimate revenue and costs in this location)
Investment appraisal (used to identify locations with the highest potential returns over a number of years.
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