Operations Management

Operations Management

The management of resources and functions within a business to achieve efficient output of finished goods or services in a way that adds value for customers and creates a profit margin.

• Determines the cost of production, quantity produced, quality of the product, availability of staff, and resources required

• Involves coordinating and organising the activities involved in producing the goods and services that a business sells to customers

• Aims to maximise productivity and quality through the operations system.

Operations manager

Ensures the operations system supports organisational goals by planning its design and layout, organising key operational needs, and overseeing daily production activities

Aspects of Operations Management

• Inventory management (monitoring stock levels and materials needed, ensuring there is a continuous supply)

• Manufacturing (the process of making products, meeting output targets, managing cost and controlling waste)

• Quality (determining the minimum tolerance/acceptable standard required, compliance with codes of practice, policy and quality procedures)

• Maintenance/Engineering (reliability of equipment that is in working order and has been maintained regularly, maintaining maintenance records)

Efficiency

How productively a business uses its resources when producing a good or service; achieved by maximising the productivity of the operations system by implementing strategies

Effectiveness

The extent to which a business achieves its stated objectives; achieved selecting the most suitable strategies

how to make a profit

Implement technology in the production process → reduces labour requirements, lowers expenses, and increases profit

how to increase market share

check that products are not faulty (quality checks) → Improves product quality, increases customer satisfaction, boosts sales and industry share

how to meet shareholder expectations

Create an online purchasing website → Increases online sales, raises profit levels, and supports higher dividends for shareholders

how to fulfil a market need

Use technology to design new products → Creates innovative products, meets unmet or underdeserved customer needs

how to fulfil a social need

Recycle waste in the production process → Reduces waste, supports environmental preservation

how to improve efficiency

Automate the production process → Increases production speed, reduces resource waste, and improves productivity

how to improve effectiveness

Implement quality-improvement strategies → Increases customer satisfaction, boosts sales and revenue, and strengthens the achievement of business objectives

Productivity

the ratio of outputs produced compared to the inputs produced (e.g. units of production produced per employee)

Competitiveness

The ability for one business to outperform its rivals is improved when operations management is optimised

Productivity vs Competitiveness

Competitive advantage

Point of difference or superiority over one’s competitors

Optimisation

when an organisation is able to produce the greatest quantity of output possible from a set amount of inputs, increasing productivity and lowering per-unit costs. It creates customer value by improving productivity (more output at lower cost), quality, speed, reliability, and flexibility.

Inputs

the resources a business uses to produce its goods and services, which operations managers source to achieve high quality at low cost. Inputs include raw materials, component parts, utilities, labour/humans, capital resources, entrepreneurial resources, information and knowledge, and time

Processes

The actions performed by a business to transform inputs into outputs. Decisions should focus on optimising efficiency and effectiveness, which will increase organisational competitiveness

Outputs

the final goods or services produced by a business’s operations system and delivered to customers, either tangible or intangible, which should meet expectations of quality, price, and availability

Industry sectors

• Primary sector: Extracts raw materials from the natural environment (commodities), e.g. agriculture, mining, fishing

• Secondary sector: Transforms raw materials into finished goods through production processes, e.g. manufacturing, construction

• Tertiary sector: Provides services (intangible outputs) by selling labour and expertise, e.g. tourism, health, banking

Manufacturing businesses

Output: goods

Production process: highly automated processes that are capital-intensive

Production vs Consumption: occur at separate times

Storability: outputs can be stored as inventory

Tangibility: tangible

Customer contact: minimal interaction during production

Production technique: relies heavily on machinery, equipment, and other capital resources

Consistency: produce standardised goods through production

Service businesses

Output: services

Production process: labour-intensive processes

Production vs Consumption: occur simultaneously

Storability: services cannot be stored as inventory

Tangibility: intangible

Customer contact: high degree of customer contact during production

Production technique: relies mainly on labour rather than machinery

Consistency: not standardised; customised to individual customer needs

Automated production lines

Use machinery and equipment arranged in a sequence to develop a product step-by-step; each product usually passing on a conveyor belt through each stage that performs a specific operation controlled by a computer

how apl improves efficiency

work faster than humans, reducing production time and improving productivity

how apl improves effectiveness

lines are highly accurate, reducing errors and improving product quality and customer satisfaction.

apl advantages

faster production, higher quality, less waste, lower labour costs

apl disadvantages

job losses, high setup/repair costs, and breakdowns can stop production

Robotics

Programmable machines designed to perform specific tasks; complete tasks with high levels of precision and accuracy, and are often used in automated production lines

how robotics improve efficiency

perform tasks quickly and accurately, reducing wasted time and resources and improving productivity

how robotics improve effectiveness

complete tasks with high precision, reducing errors and improving product quality and customer satisfaction

robotics advantages

high accuracy, faster production, improved safety, lower labour costs

robotics disadvantages

job losses, high setup and maintenance costs, and training needed

Computer-Aided Design (CAD)

Digital design software used to create, modify, and optimise product design; helping businesses streamline and improve their product design process

how cad improves efficiency

prototypes help identify the best design, so resources can be used more productively

how cad improves effectiveness

choosing the best prototype allows the business to produce a higher-quality product that better satisfies customers

cad advantages

more accurate designs, faster process, allows customisation, improves quality and sales

cad disadvantages

job losses, high setup and update costs, training required

Computer-Aided Manufacturing (CAM)

Uses software to control and direct production processes by coordinating machinery and equipment through a computer, ensuring tasks are completed automatically

how cam improves efficiency

reduces time and labour by automatically controlling machinery and minimising waste through accurate production

how cam improves effectiveness

coordinates tasks with high accuracy, ensuring consistent quality and increasing customer satisfaction and sales

cam advantages

high-quality output, faster production, lower labour costs, safer work

cam disadvantages

job losses, expensive setup/maintenance, breakdowns can stop production

Artificial Intelligence (AI)

Uses computerised systems to simulate human intelligence and mimic human behaviour, enabling machines to perform tasks that would normally require human input

how ai improves efficiency

reduces the time of Lab and needed for complex tasks, allowing resources to be used more productively

how ai improves effectiveness

provides fast, high-quality customer assistance, improving customer satisfaction and increasing sales and market share

ai advantages

24/7 service, fast data analysis, improves efficiency, produces labour costs

ai disadvantages

job losses, high setup and maintenance costs, potential reputation issues

Online services

Services delivered by the internet, existing or business-made, such as booking platforms, online marketplaces, ordering platforms, price comparison platforms, and cloud-based storage

how online services improve efficiency

reduces the need for employees to perform some tasks, allowing labour to be used more efficiently

how online services improve effectiveness

improve customer convenience, increasing satisfaction, sales, and market share

online services advantages

faster service, greater customer reach, improved convenience and sales

online services disadvantages

tech issues can disrupt operations, costly set-up/fees, may exclude some customers

Forecasting

A materials planning tool that predicts customer demand for an upcoming period, using data and market trends to estimate future needs.

how forecasting improves efficiency

reduces excess materials and production delays, helping resources be used more efficiently and improving productivity.

how forecasting improves effectiveness

businesses meet customer demand, increasing customer satisfaction, sales, and market share.

forecasting advantages

helps businesses make better decisions about ordering materials, reducing waste and storage costs while improving their ability to meet customer demand and maintain a positive environmental reputation

forecasting disadvantages

can be time-consuming and costly, and if predictions are inaccurate it may lead to insufficient materials, production delays, or difficulty responding to unexpected demand

Master Production Schedule

A plan that outlines what a business will produce, in what quantities, and when, breaking down the production process and setting output targets based on predicted customer demand. Includes details such as location, timing, and quantity of production

how mps improve efficiency

prevents overproduction and reduces errors, minimising waste and interruptions to improve productivity.

how mps improves effectiveness

businesses produce the right quantity to meet customer demand, improving customer satisfaction, sales, and market share.

mps advantages

Helps businesses make informed ordering decisions, reducing waste and storage costs while improving ability to meet customer demand and maintain a good reputation.

mps disavantages

Can be time-consuming and costly, and inaccurate forecasts may lead to insufficient materials, production delays, or difficulty meeting unexpected demand.

Materials Requirement Planning

A process that lists the types and quantities of materials needed to meet the production targets in the MPS, creating a detailed plan of the exact materials required for production.

how mrp improves efficiency

having the exact materials needed reduces production delays and excess stock, allowing operations to run smoothly and reduce waste.

how mrp improves effectiveness

ensuring enough materials are available helps meet customer demand, increasing customer satisfaction and sales.

mrp advantages

Ensures only the required materials are ordered, reducing waste, storage costs, environmental impact, and the risk of production delays.

mrp disadvantages

Can be time-consuming to update and may increase administrative and training costs, with errors potentially causing production delays.

Just In Time

An inventory control approach that delivers materials as soon as they are needed for production, ensuring the business only has the correct type and quantity of materials at the right moment

how jit improves efficiency

holding minimal stock frees up workspace and reduces damage or expiry of resources, allowing resources to be used more efficiently.

how jit improves effectiveness

reducing storage and waste costs allows money to be used in other areas, helping increase sales and profits.

jit advantages

Minimises idle stock, reducing waste and storage costs while improving environmental impact and allowing the business to adapt production more easily.

jit disadvantages

Increases the risk of production delays or unmet demand if suppliers are unreliable, and may raise delivery costs while reducing opportunities for bulk discounts on materials.

Quality

the degree of excellence in a product, and its ability to satisfy a client or customer

Quality management

the management of the production process that ensures the outputs produced are consistently satisfactory to the client/customer and still contribute to the fulfilment of business objectives

Quality control

A reactive process that involves inspecting products at various stages of production to ensure they meet quality standards

Steps in quality control:

1. Quality standards are established

2. Regular inspections are carried out

3. Each product is compared against the standards

4. Any product that does not meet the standards is removed

5. The cause of the error is identified and fixed to prevent it from happening again

how quality control improves efficiency

identifying and fixing the cause of errors reduces waste and prevents production interruptions, improving productivity.

how quality control improves effectiveness

emoving defective products prevents customers receiving faulty goods, helping increase customer satisfaction, sales, and market share.

Quality Assurance

A proactive approach where an independent body certifies a business as meeting a national or global quality standard, helping prevent errors through continuous improvement and increasing customer confidence through official endorsement.

how quality assurance improves efficiency

preventing errors before they occur reduces faulty products and production halts, allowing a business to optimise resources and reduce wasted time in the production process.

how quality assurance improves effectiveness

certified quality standards make customers more likely to purchase from the business, helping it increase sales and achieve objectives such as higher profit and market share

Total Quality Management

A holistic, proactive approach where all employees work together to continuously improve the operations system and enhance quality for customers by improving inputs, processes, and outputs

Three key features of TQM

1. Customer focus - identifying and meeting the exact needs and wants of customers

2. Continuous improvement - constantly evaluating processes and finding ways to achieve a higher standard.

3. Employee empowerment - involving employees in problem-solving and quality improvements

how tqm improves efficiency

continuously improving the quality of the production system can prevent errors and reduce discarded products, allowing a business to optimise its use of resources

how tqm improves effectiveness

determining the needs and wants of customers can improve customer satisfaction and help a business achieve objectives such as increasing sales and profit.

Waste Minimisation

The process of reducing unused materials, time, or labour in a business, aiming to reduce defective, unused, returned, or discarded materials, lowering production costs and increasing profit margins

aspects a business prevents from wasting

TIMWOODS: Transport, inventory, motion, waiting, overproduction, overprocessing, defects, skills

Reduce

A waste minimisation strategy that lowers the amount of resources, labour, and time wasted in production, improving efficiency, reducing costs, and increasing profit.

• e.g. changing processes to use fewer materials, removing unnecessary packaging, JIT, high-quality materials, implementing tech

Reuse

A waste minimisation strategy that aims to make use of items that will otherwise be discarded, promoting the optimal use of resources, increasing productivity, lowering production and waste removal costs, and supporting efficiency and environmental sustainability

• e.g. repair broken equipment, repurpose multi-use items (not single-use), using waste from one product as raw materials for another, donate equipment

Recycle

A waste minimisation strategy that aims to transform items that would otherwise be discarded, reducing the need for new resources and lowering both production and waste disposal costs.

• Businesses should try to focus on the other two strategies first, as recycling can require a significant amount of energy and resources to collect/sort/process

How the 3 Rs Improve Efficiency

• Using fewer resources to produce goods

• Reducing and reusing materials leads to more efficient processes

How the 3 Rs Improve Effectiveness

• Lower long-term costs for the business

• Reduced environmental impact

• Enhanced reputation with stakeholders and customers

Limitations of the 3 Rs

• High initial cost and complexity of implementation

• Recycling can increase energy use

Pull

A lean management strategy where customer demand determines how much a business produces, the business only producing goods or services when customers order them, preventing the waste of making products that no one wants

how pull improves efficiency

reduces overproduction and waste of materials, time, and labour, increasing productivity.

how pull improves effectiveness

minimises discarded materials and production costs, helping a business achieve its objective of making a profit.

One-piece flow

A lean management strategy where one product is processed at a time through each stage of production; a product is completed at one stage and immediately moved to the next stage before the next product begins

how opf improves efficiency

reduces errors by producing one unit at a time, increasing productivity.

how opf improves effectiveness

enables faster production of higher-quality products, improving customer satisfaction and helping increase market share.