CIE As Level Business | 4.1 The Nature of Operations - Operational Management

Production

The process that transforms inputs into outputs

What are the 4 factors of production?

1. *Land* - natural resources

2. *Labour* - human input

3. *Capital* - man-made resources

4. *Enterprise* - risk taking abilities

Transformational process

An activity / group of activities that transforms one or more inputs, adds value to them, and produces outputs for customers.

Efficiency

Producing output at the highest ratio of output to input.

Intellectual property

The *intangible capital* of a business that includes human capital, structural capital (databases + information systems), and relational capital (to suppliers + customers).

Effectiveness

Meeting the objectives of the business by using inputs productively to meet customer needs.

What are the ways in which a business can add value? (name 3)

1. Convenience

2. Branding

3. Quality

4. Design

5. USP's

How does *convenience* increase added value?

More convenient —> improved customer satisfaction —> justifies higher price

How does *branding* increase added value?

Unique identity —> increase in customer loyalty + trust + recognition (improved perceived value) —> justifies higher price

How does *quality* increase added value?

Higher quality —> improved customer satisfaction —> justifies higher price

How does *design* increase added value?

Enhanced aesthetics / functionality —> improved user experience —> improved perceived value —> justifies higher price

How does *USP's* increase added value?

Unique + compelling benefit —> improve perceived value / user experience —> justifies higher price

Productivity

The ratio of outputs to inputs during production (e.g. output per worker per time period).

Level of production

The number of units produced during a time period

Formula for *productivity*

Outputs / Quantity of Inputs

Formula for *labour productivity*

Output / Number of employees

Sustainability of Operations

The management and implementation of business processes that meet *current production needs* without compromising the ability of *future generations* to meet their own needs.

What are the methods of improving sustainability?

1. Using *renewables* in production (e.g. recycled plastic)

2. *Reducing water use* in industrial processes

3. Using *green transportation*

4. Avoiding the use of *toxic substances*

5. Using *renewable energy* such as solar

6. Implementing *recycling*

What are the benefits of improving sustainability?

1. *BRAND IMAGE*

—> Attract environmentally conscious consumers + build loyalty.

—> ✅: *Higher sales + market share*

2. *COST-SAVING*

—> Energy-efficient machinery + reduced waste lowers energy + material costs.

—> ✅: *Reduced average costs*

3. *LAWS & REGULATIONS*

—> Reduced risks of fines, legal actions, or forced shutdowns.

—> ✅: *Reduced unnecessary costs*

4. *INVESTORS & EMPLOYEES*

—> Attract ethical investors + skilled workers

—> ✅: *Better financial access + employee motivation*

What are the drawbacks of improving sustainability?

1. *HIGH INITIAL COSTS*

—> Installing renewable energy and new tech is expensive

—> ❌: *Reduced short term profits*

2. *HIGHER PRODUCTION COSTS*

—> Sustainable materials may be more expensive.

—> ❌: *May have to raise prices, reducing competitiveness.*

3. *OPERATIONAL DISRUPTION*

—> Changing suppliers or production methods can disrupt operations.

—> ❌: *Reduced efficiency in the short-term*.

Labour intensive

Involving high level of labour input compared with capital equipment.

What are the *advantages* of *labor intensive operations*?

- *Low initial costs* as fewer machines are required.

- *Greater flexibility* as workers can be retrained / reassigned more easily than machines —> respond quickly to changes in demand / design.

- Greater *attention to detail* from human skills —> improved perceived quality.

What are the *disadvantages* of *labour intensive operations*?

- *Higher labour costs* as wages, training, and benefits are expensive —> reduced competitiveness.

- *Lower productivity* as humans work slower than machines

- *Inconsistent quality* as human error may occur —> reduced customer satisfaction.

Capital intensive

Involving a high quantity of capital equipment compared with labour input

What are the *advantages* of *capital intensive operations*?

- *Higher output* as machines and automation can produce large quantities quickly —> can supply large / growing markets.

- *Lower average costs* as output increases —> higher profits.

- *Consistent quality* as machines can produce standardized products with fewer errors —> improved customer satisfaction.

What are the *disadvantages* of *capital intensive operations*?

- *High initial costs* from installing machinery and technology —> increased financial risk.

- *High fixed costs* from depreciation, maintenance, and repairs of machinery —> raises break-even level of output.

- *Lack of flexibility* as machines are often designed for specific tasks —> slow to respond to changes in design.

- Technology can become *outdated* quickly —> fall behind in comparison to competitors with more up-to-date machinery.

What are the four main methods of production?

1. Job production

2. Batch production

3. Flow production

4. Mass customisation

Job production

The production of a one-off item specially designed for the customer.

Benefits of using *job production*

- High customisation meets unique *customer needs*.

- *Personalised experience* —> customers involved in design, increasing loyalty.

- *Flexible* —> can adapt to changes in demand or trends.

- *High quality* —> greater attention to detail and control.

Drawbacks of using *job production*

- More *expensive* due to customisation.

- *Longer lead times* —> not ideal for urgent orders.

- *Complex to manage* —> requires close coordination with customers.

- *Low volume* —> limits ability to achieve economies of scale.

Batch Production

The production of a limited number of identical products - each item in the batch passes through one stage of production before passing on to the next stage.

Benefits of using *batch production*

- Allows manufacturers to *cater for varying customer demand*.

- Can be *cost-effective* than flow production (reduce excess).

- Some *purchasing economies* as larger quantities of stock purchased.

- *Quality issues / defects* can be identified before moving onto the next stage —> minimising waste.

Drawbacks of using *batch production*

- Setting up for each batch can be *time-consuming*.

- Often leads to *accumulation of inventory* which requires storage + careful management.

- *Not as adaptable as other production methods* (i.e. flow) —> difficult to manage rapid changes in product demand.

- Frequent start-up + shutdown can put additional *stress on equipment* —> more maintenance + repair needed.

Possible human resource problems a business may experience by introducing batch production?

- *Lower morale/job satisfaction* - workers are used to working on unique clothing and will have immense pride in their work. This may fall if working on a batch production line.

- *Deskilling* - if machinery is being used, this may replace the skills of the employees used to make unique clothing.

- *Training needs* - the new machinery will involve training. This needs to be financed. Can the business afford it?

- *Fear of change* - the communication of this business decision will be important - employees are likely to be fearful of the new machinery/batch production. Khaleal needs to have a clear communication and employee participation strategy.

Flow Production

The production of identical items in a continually moving process. It is sometimes called 'mass production'.

Benefits of *flow production*

- *Reduced energy consumption* + *minimised material waste* as machinery do not need to be frequently started-up + shutdown.

- *Lower labour costs* due to automation.

- Enables *fast production* —> respond more quickly to market demands.

Disadvantages of *flow production*

- Requires *significant capital investment*

- Relies on *reliability of equipment & machinery* —> break-downs lead to costly down time.

- *Defects* may cause a *pause in entire production line*

Mass Customisation

The use of flexible computer-aided technology on production lines to make products that meet individual customers' requirements for customised products.

Benefits of *mass customisation*

- *Meets individual customer needs* as they can personalise features —> greater satisfaction + loyalty.

- *Higher perceived value* as customers are usually willing to pay for personalised products.

- *Maintains economies of scale* as standardised components are still used.

Drawbacks of *mass customisation*

- *High setup + maintenance costs* in IT systems, machinery, and software.

- Managing multiple product variations *increases complexity* —> increase *errors & delays* in comparison to mass production.