UNIT 5 - IB BUSINESS MANAGEMENT: OPERATIONS

operations management

the management process of creating good s and services that people want to purchase, using the resources that are available to the organisation in question

raw material (input materials) use operations to turn into

finished product (output materials)

factors of production

land, labour, capital, entrepreneurship

land

natural resources needed to produce goods and services

labour

human effort used to produce goods and services

capital

non-natural resources used in the production process

entrepreneurship

knowledge, skills, experiences of individuals who have the capability to manage the overall production process

productivity

measure of firm’s efficiency level in terms of how well things are done within the organisation

capital-intensive process

an operations process that has a high proportion of capital compared to labour

labour-intensive process

an operations process that has a high proportion of labour compared to capital

production methods

job production, batch production, mass production, mass customization

job production

the production of a special one-off product made to a specific order

job production is associated with

high end products, high quality, market-oriented firms, products with originality

advantages of job production

client gets exactly what they want, motivates skilled workers, flexible

disadvantages of job production

expensive, time consuming, labour intensive

batch production

the manufacture of a group of identical products

batch production is associated with

quality, affordability, firms that are market oriented

advantages of batch production

more customer choice, achieve economies of scale, help deal with unexpected orders

disadvantages of batch production

may lose production time when changing products, large amounts of stock, batches dependent on machinery capacity

mass production

process which involves the production of a high volume of identical standardised products

advantages of mass production

maintenance only, large orders, labour costs will be lower

disadvantages of mass production

set up costs are high, machine breakdowns can be costly, can be demotivating for employees, inflexible

mass customisation

large-scale mass production but with the flexibility to adapt to different customer needs and produce different models

advantages of mass customisation

higher customer retention, higher price point, higher profit

disadvantages of mass customisation

wait time for delivery increases, increased costs

factors a business should consider when deciding on a method

target market and its size, state of technology, availability of resources, government regulations

factors to consider when starting up or relocating a business

competition, type of land, markets, labour pool, infrastructure, government, costs

benefits of the optimal location

lower costs, closer to the customer, overcoming trade barriers, may add to the brand image

businesses need to consider where their competitors

are located

e-commerce does not need to be

close to customers

labour pool

consider the type of labour they need

infrustructure

locate themselves close to the infrastructure they need

suppliers

some businesses may be located close to their suppliers

government in location

may consider a country’s or region’s law and tax system

qualitative factors affecting location

cultural and language comfort, attraction of successful hubs, personal and image factors

way of reorganising production

outsourcing, insourcing, offshoring, re-shoring

outsourcing

hiring a party outside a company to perform services or create goods

insourcing

assignment of a project to a person or department instead of hiring an outside person or company

offshoring

basing some of a company’s processes or services overseas to cut costs

re-shoring

returning the production and manufacturing of goods. back to the company’s original company

contribution

how many units of a product need to be sold to cover the costs

break even quantity

fc/ sp - avc

contribution per unit

price per unit - variable cost per unit

total contribution

total revenue - total variable cost

total contribution

contribution per unit * number of units sold

profit

total contribution - total fixed costs

break even point

the point at which total revenue is equal to total costs

break even point calculation

fixed costs/contribution per unit

margin of safety

current output - breakeven output

when p x q = tfc +tvc the business has

broken even

target profit output

level of output that is needed to earn a specified amount of profit

target profit output

fc + target profit/ contribution per unit

break even revenue

fixed costs/ contribution per unit * price per unit

benefits of breakeven analysis

breakeven charts, visual adjustments, accurate date, strategic tool

limitations of breakeven analysis

assumptions may not hold, complexity increases, reliability depends on data accuracy