Studied by 3 people
What is operational performance in a business context?
Operational performance refers to how well a company achieves its operational goals, focusing on efficiency, effectiveness, and the quality of its processes.
Efficiency measurements
Labour productivity, unit costs, capacity, capacity utilisation
Different operational objectives
Costs, Quality, Speed of response, flexibility, Dependability, environmental objectives, Added value
Quality
A measure of excellence which is free from defects or significant variations. A product or service whose features consistently satisfy consumers
Ways to measure quality
Customer satisfaction ratings, Customer complaints, Scrap rate, Punctuality
Punctuality equation
Punctuality = deliveries on time / total deliveries x 100
Speed of response and flexibility
The speed which they can respond to change and have the flexibility to do so
Dependability
Firms do not want to let customers down
Environmental objectives
reducing waste, reducing carbon footprint, minimising waste or products or materials, Increase recyclign
Added Value
Allows the firm to develop a USP
Labour intensive
When labour costs outweighs capital costs of a business. The firm will focus more on labour
Labour productivity
The amount of output that is obtained from each employe. This is a measure of efficiency
Labour productivity equation
Labour Productivity = Output per period / No. of employees in that period
How to achieve higher labour productivity
quality/investment of machinery and technology
Skills, motivation and ability of workforce
Methods of production used
Reliability of materials and suppliers
Increasing number of hours worked
Unit costs
The cost of producing one unit of output
Unit costs are influenced by
How many units a firm can produce
How efficient employees are with the resources available
How efficient the machinery is
How easily variable costs can be controlled
Capacity
The maximum total level of output or production that a business can produce in a given time period
Capacity utilisation
The percentage of a firm’s total possible production level that is being reached
Capacity utilisation formula
Capacity utilisation = Capacity output per annum / maximum possible output per annum
Causes of spare capacity
New rivals in the market causing demand to fall
Changes in taste causing demand to fall
Unsuccessful marketing
Seasonal demand
Over-investment in fixed assets
A merger or takeover causing a duplication of assets
Advantages of spare capacity
Allows firms to plan maintenance and repair time
Improvement can be planned in
Less pressure on employees to perform
Disadvantages of spare capacity
High proportion of FC per unit
Higher unit costs leading to lower profits
Negative image of being unsuccessful
With less work employees may become demoralised or bored
Increasing Capacity
Invest in capital machinary
Invest in employees through training
Hire more employees
Change production practices to be more efficient
Importance of labour productivity
Lower unit costs
Problems improving labour productivity
Training may take time to have an effect on productivity
Employing new people with appropriate skills can being timely and costly
Financial methods of motivation are short term
Non-financial methods of motivation is a long term strategy
Lean production
Aims to reduce all forms of waste in the production process
Aims of lean production
Zero stock
Zero delay
Zero mistakes
Zero waiting
Zero accidents
Lean production of techniques
Kaizen
Just-in-time production
Time based management
Cell production
Benchmarking
Time based management
where firms compete on the time taken to deliver goods. This is to ensure they operate as efficiently as possible
Cell production
Organising production around teams instead of production line
Advantages of cell production
Increases motivation because employees have control over work
‘Cell’ members can divide work and share expertise
Influences quality as one ‘cell’ can reduce poor quality products
They can spot defects before product is finished
Reduces waste
Reduces unit costs
Production happens all in one place
Disadvantages of cell production
Output may be lower than a ‘flow’ production
Different ‘cells’ within the system may work at different speeds which can cause conflict or tension
Businesses may need to invest heavily in machinery because cells may require same equipment
Less output because of the time taken to check quality
Just-in-time production (JIT)
Producing production to order. It involves reducing the stock held to make the firm more efficient.
Just-in-case production (JIC)
Holding stock in case of a sudden increase in demand
Disadvantages of JIC
Holding stock held means holding cash
Advantages of JIT
They do not have to pay storage costs which reduces unit costs
Cash is not tied up in stock which improves liquidity
It reduces waste because you only order to produce
Reduction of perished goods
Less stolen or less damaged stock
Leads to a better relationship with suppliers
Disadvantages of JIT
If suppliers are late to deliver customers will get delayed goods
Cannot benefit from economies of scale
Employees can get demotivated from the pressure
Delivered goods can be faulty or broken
How to choose the optimal mix of resources
Deciding the best way of producing goods
Deciding the best resources to use and the combination of resources
Deciding where to get the resources
Deciding how many resources to hold in stock
Factors influencing resource mix (It depends on)
The type of operations process and the operations strategy
Relative price of the resources
Availability of resources
State of technology
Ethics
Becoming capital intensive
Raising finance to invest in machinary
Changeover - introductions new equipment
Innovation - Improving productivity with new equipment
Using technology
Robotics
Automation
Controlling the quality of the goods produced
Stock controls
Communication
Design
Electric POS
Benefits of using technology
Reducing costs
Improving quality
Reducing waste
Increasing productivity
Flexibility
Financial monitoring
New and better products
Better working conditions
Quality characteristics
Reputation
Dependability
Exclusivity
Durability
Image & Brand
Reliability
Functions
Appearance
Repair and maintenance needs
Consumer Right Act 2015
Satisfactory quality
Fit for purpose
Not as described
Benefits of quality
Impact on sales
Creating a USP
Impact on selling price - higher prices
Price flexibility
Cost reduction - less waste
Firm’s reputation
Quality control
A system that uses inspections to check the quality of work at different stages of the manufacturing process
quality control methods
Sampling and testing products after production
Inspecting manufacturing plants during production
Advantages of Quality Control
quality checks at the end can stop faulty goods reaching customers
Inspectors can spot common problems and put them right
Disadvantages of Quality control
Does not encourage team responsibility
Expensive to operate
Responsibility tests with the inspectors, therefore staff take no responsibility, which can reduce motivation
Quality Assurance
A system that improves quality by arranging every process to get products right the first time
Quality Assurace methods
Developing quality control plans and documentation process
Auditing internal quality assurance procedures during production
Training employees to keep quality high
Advantages of quality assurance
Workers take responsibility over ensuring quality
Motivates employees
Reduced costs because less waste
Greater consistency of quality because responsibility is spread throughout workforce
Disadvantages of Quality Assurance
Needs a change in the culture of the firm
Can take time to embed the system because of culture change
Could increase costs in the short term
Quality Assurance systems
Total Quality Management
Kaizen
Total Quality Management (TQM)
An approach to long term success that aims for improvements continually throughout every functional area of a business
Advantages of TQM
Getting it the right the first time is adopted
A culture of quality that involves all employees
TQM allows consistent and flexible approach to quality
Consistent quality can allow for higher prices
Kaizen
A policy of implementing small incremental changes in order to achieve better quality and greater efficiency. It encourages employees to identify possible ways of improvements
Consequences of poor quality
Lower Productivity
Profitability falls
Customer dissatisfaction- customers are more vocal, bad reviews and it is easier for them to complain
Increased costs
Reducing capacity
Selling fixed assets
Changing to shorter working days
Making employees redundant
Transferring resources to another area
Increasing capacity
Extending factories
Overtime or longer hours
Higher in new staff
Flexible welfare
Subcontracting (outsourcing)
Rationalisation
A process by which a firm improves its efficiency by cutting the scale of its operations.
Outsourcing (subcontracting)
When a business asks another business to make all, or part of their products
Advantages of outsourcing
Improved productivity
Reduced costs - reduced space and labour
Increased focus on strategy and core competencies
Increased efficient
Maintain operational control
Developing internal staff
Business can react to changes in demand quickly
Specialisation can be brought in
Disadvantages of outsourcing
No direct control over quality
Too much subcontracting can damage a firm’s operational base
Profit margins can be affected
Lower employee morale - risk of losing their job
Lead time
The time taken between the order being placed with the supplier and the stock arriving at the factory
Re-order levels
When stock falls to this point then it is time to reorder
Buffer level inventory
The amount of stock held just in case
Re-order quantities
The quantity of stock which is re-ordered once stock falls to this level
