IB Business - Operations Management

Define Operations Management

provision of goods and services in the right quantities and quality in a cost effective and timely manner

- turn inputs into outputs

what are the five m's

- useful for making marketing and production plans

- materials

- money

- manpower

- machines

- management

how does production affect marketing

- production methods affect the quality of the product

- high quality products can be marketed at high prices

how does production affect HR

- size of workforce

- training and development

- recruitment and selection of different skills

how does production affect finance

- capital investment

- investment appraisal

- contingency funds for emergencies

define efficiency

maximise output with min costs per unit of output

define productivity

the rate at which businesses transform inputs into outputs

- used to measure efficiency

define job production

individual product, tailor made, one-off items ex. wedding dresses

adv and dis of job production

a - high quality

- usp

- flexibility and customization

d - time consuming, labour intensive

- few eos

define batch production

producing a limited number of identical products

- each batch is fully completed before switching to a new batch

ex. bakeries, shoes in diff sizes

adv and dis of batch production

a - economies of scale

- specialization, increased productivity

- higher sales

- can still be tailored

d - inflexible

- storage costs

- repetitive work

- equipment costs

define mass production

- large amts of standardized product

- assembly of individual components

define flow production

like mass production but more continous using automated systems

adv and dis of mass/flow production

a - large scale output

- eos

- standardized quality

- low labour costs

d - low levels of motivation, boredome

- breakdowns cause major issues

- capital intensive

- lot of storage

3 factors to consider when selecting an appropriate method

- cost of capital and labour

- size of market

- corporate objectives

define labour intensive production

- greater proportion of labour

- personalized services

ex. healthcare, farming

define capital intensive production

high proportion of capital costs compared to labour costs

- no usp

define mass customization

large quantities are produced using batch, mass and flow but still can be tailored

ex. custom shoes

define location

refers to the geographical position of a business

name the 6 quantitative factors for location decisions

- cost and availability of land

- same w/ labour

- proximity to customers

- same w/ raw materials

- gov incentives

- e-commerce

name the 7 qualitative factors for location decisions

- management preferences (personal)

- local knowledge

- infrastructure (communication, transportation and support networks)

- political stability

ethical issues

- clustering (clos to other related businesses)

- gov restrictions

- economic freedom

define reorganizing production

- taking adv of the best thar locations nationally and internationally have to offer

define outsourcing

moving to another company

- production and services outsourcing

adv and dis of outsourcing and offshoring

a - better quality

- reduced production costs

- reduced labour costs

- flexibility

- develop struggling economies

d - can be worse quality

- quality management is difficult

- culture clashes

reason for insourcing

to improve quality in-house

reasons for reshoring

close supervision and quality of output

- bring jobs back to economies

- rising transportation costs

limits of relocating

- relocation costs

- low morale

- damage to corporate image

define break-even analysis

- firm does not make a profit or loss

formula for unit contribution

selling price - variable cost

formula for break even quantity

fixed cost / unit contribution

total revenue

Price x Quantity

total costs

fixed costs (variable costs x quantity)

break even point

tr = tc

profit or loss

tr - tc

margin of safety

level of demand - break even quantity

target profit quantity

(Fixed cost + target profit) / (Price - variable cost per unit)

define contribution

money left after costs have been taken away from revenue (paying for costs)

unit contribution vs total contribution

uc

- proportion price per unit of output going towards paying off total fixed costs

tc

- output needed to pay off

purpose of contribution analysis

- Determine pricing strategies

- Prioritise products in their portfolio

- Decide on whether to make or buy in products

- Perform break-even analysis

break even chart

A graphic presentation of the break-even analysis that shows when total revenue and total cost intersect to identify profit or loss

what is the margin of safety

measures the amt of demand for a product and how much it exceeds the BEP

causes of changes in break even

- external factors

- level of risk (more risk higher BEP)

- innovation

- trends

dis of BEP

- assumes revenue and costs are linear

- not useful for a dynamic business env

- useful for single product