Unit 4: Operations Management

Production

The process of converting inputs (land, capital, labour) into saleable goods.

Operation management

Managing business resources throughout the production process to make finished products.

Goal of operations management

To use resources cost-effectively, produce required output to meet consumer demand, and meet quality standards expected by customers.

Productivity

A measure of how efficiently inputs are changed into outputs, typically represented as the number of units produced in a period of time.

Labour productivity formula

Total output divided by the number of production employees.

Methods of improving productivity

Increasing the skill level and motivation of employees, utilizing quality automation and technology, and making efficient quality management decisions.

Inventories

The stock of raw materials and finished goods held by a business.

Opportunity cost

The cost associated with forgoing the next best alternative when making a decision.

Lean production

The production of goods and services with minimum waste of resources.

Just-in-time production (JIT)

A strategy where raw materials are purchased just as they are needed in the production process.

Kaizen

A philosophy of continuous improvement which encourages employee suggestions to enhance productivity.

Job production

A production method where a single product is worked on until completion, often used for unique items.

Batch production

A production method where a group of similar products is worked on at one stage at a time until completion.

Flow production

A production method where products are made in vast quantities using a continuously moving process.

Fixed cost

Costs that do not change with the amount of output produced.

Variable cost

Costs that change in direct proportion to the level of output.

Economies of scale

The reduction in average costs that arises when an increase in the scale of production leads to lower per-unit costs.

Diseconomies of scale

Factors that cause average costs to increase as the scale of production rises.

Margin of safety

The amount by which sales exceed the break-even point.

Quality control

The process of ensuring that the quality of a product meets the desired standards through inspection.

Quality assurance

Setting standards for every part of the production process to ensure quality and minimize errors.

Factors in choosing a location

Cost of site, labour cost, transportation costs, market potential, government incentives, and legal controls.

Limitations of relocating to another country

Challenges such as market research costs, workforce motivation, and compliance with different laws.