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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
Note
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