Business Management Unit 3 AOS3 (Operations Management)

Operations Management

Operations management involves coordinating and organising the activities involved in producing the goods or services that a business sells to customers.

Business Objective

A desired outcome or specific result that a business intends to achieve

How effectiveness relates to operations management

The degree to which a business has achieved its objectives

How efficiency relates to operations management

How quickly and cheaply businesses uses its resources to produce outputs

What do improvements in efficiency and effectiveness cause for a business

The business will become more competitive and have a competitive advantage over its competition

Productivity

A measure of performance that indicates how many inputs (resources) it takes to produce an output (goods or services)

Examples of things that occur the more efficient and effective a businesses operations are, and how these things meet business objectives

- Higher productivity, which will reduce expenses and increase profits

- Lower prices, which will increase market share and sales

- Higher quality, which will increase market share and sales

- Reduced waste, which will better meet shareholder expectations

- Producing in a more timely manner, which will help fulfil market and social needs

Examples of things that occur the less efficient and effective a businesses operations are

- Poor quality products

- Slower production time

- Increased wate

- Lower productivity

- More expensive products

Three key elements of an operations system

- Inputs

- Processes

- Outputs

Input defintion

Resources used in the process of production

Types of inputs

- Natural resources

- Labour

- Capital equipment

- Financial resources

- Information

- Time

Processes

The conversion of inputs into outputs

Output definition

The service or good provided to the customer

6 Characteristics of a Manufacturing Business

- Produce goods that are tangible

- Goods can be stored for later use

- Little customer involvement

- Production and consumption occur at different times

- Goods tend to be homogenous

- Capital intensive production

6 Characteristics of a Service Business

- Produce services that are intangible

- Servicers can not be stored

- Customer involved in the production

- Production and consumption occur at the same time

- Services are tailored to individual customers

- Labour intensive production

What can improvements in technology result in

- Improved speed and efficiency

- Improved quality by reducing human error

- Reduced waste due to more precise measurements

- Improved health and safety of employees

- Improved information for consumers

- Enhanced availability of products and services

Six Strategies related to Tech development

- Automated production lines

- Robotics

- Computer-aided design

- Computer-aided manufacturing techniques

- Artificial Intelligence

- Online Services

Automated Production Lines

Comprises machinery and equipment arranged in a sequences with components added to a good as it proceeds through each step, with the process controlled by computers and monitored by humans as well as maintained by them.

Strengths of Automated Production Lines

- Produce at a faster rate increasing productivity

- Reduced costs due to lack of human labour

- Minimise wastage, which improves efficency

Weaknesses of Automated Production Lines

- High Setup cost

- Costly to maintain, repair and replace

- Loss of Human labour, wosering CSR

Robotics

Highly specialised form of robotics that can complete complex tasks, they can work for longer than human labour and do not need to be paid wages

Strengths of Robotics

- Improved efficiency relative to human labour

- Higher level of accuracy and safety, minimising defects

- Can preform tasks that human labour can't

Weaknesses of Robotics

- High setup costs

- Costly to repair, maintain and replace

- Loss of Human labour, wosering CSR

computer-aided design (CAD)

A computerised design tool that allows a business to create product possibilities from a series of parameters, the design material use and time taken can be calculated

Strengths of CAD

- Gives the business information regarding the cost and time taken, which assists in planning

- Designs can be easily shared throughout the business

- Redesigns and adjustments can occur quickly

Weaknesses of CAD

- High set up costs

- Costs and time taken to train employees on using new software

- Loss of Human labour, wosering CSR

Computer-Aided Manufacturing

The use of software to direct and control the manufacturing process, it involves an operator giving instructions to automated machinery, which performs the instructions with speed and precision.

Strengths of CAM

- Produces products at a faster rate

- Minimise defects and errors

- Higher quality products

Weaknesses of CAM

- High set up costs

- Software can crash and be unreliable

- Loss of Human labour, wosering CSR

Artificial Intelligence

Ability of a computer to simulate problem solving capacities of a human using programmed algorhythms

Examples of AI

- Chatbots on websites to answer commonly asked questions

- GPS navigation to optimise delivery times

Strenghts of AI

- Staff can focus on core business operations

- AI apps already exist

Weaknesses of AI

- Highset up costs

- Potentially Inhuman and annoying experiences for customers

- Loss of Human labour, wosering CSR

Online Services

Internet content allowing a business to interact with its customers, suppliers and employees

Ways online services can be used by a business

- Selling goods and services on an online store

- Market research through social media

- More efficient payment methods such as Paypal

Strengths of Online Services

- Can be used to ensure communication with customers and suppliers

- Accessing a worldwide market which can increase sales

- Gaining customer feedback through reviews and surveys

Weaknesses of Online Services

- Operating websites requires a team of staff which can divert time away from the core business

- Websites can crash and go down resulting in lost sales

- High setup costs to establish online services

Material Management

The use, storage and delivery of materials to ensure the right amount of inputs are available when required in the operations system

Why do we need material management strategies

- Production ceases if materials aren't available

- Inferior inputs result in inferior outputs

- If quantity is too low demand can't be met

- If quantity is too high there are additional storage costs

Costs of storing inventory

- Potential wastage

- Damages can occur

- High storing costs

4 Material Management Stratagies

- Forecasting

- Master Production Scheduling

- Material Requirement Planning

- Just in Time

Forecasting

Relies on data from the past and present as well as analysis of trends to attempt to determine future events

Why use forecasting

- The business knows the amount of materials needed to meet customer demand

- Not overbuy materials and deal with high storage costs

Qualitative Forecasting

Subjective and gathers info that is based on the opinions of people

Quantitative Forecasting

Makes use of numerical data such as sales from a previous period

Strengths of Forecasting

- Ensures businesses maintain appropriate inventory on hand without overproducing goods and services

- Ensures businesses have enough stock to meet customer demand

Weaknesses of Forecasting

- Unforeseen events may occur, making forecasted date useless

- Forecasting is inaccurate as it is just a guess

The production plan and what it consists of

A production plan that outlines the activities undertaken to create G&S using resources. Includes Master Production Schedule and Material Requirement Planning.

Master Production Scheduling

A plan that details what to be produce, in what quantities, how and when. Planning above the businesses productive capacity will result in the plan not being met.

Material Requirement Planning

Producing an itemised list of all materials involved in production to meet the specified orders.

Strengths of a Production Plan

- Prevents a business from overproducing as too much inventory leads to storage costs

- Prevents a business from under producing, leading to missed sales

- Is flexible and can be changed to fit future production and new products.

Weaknesses of a Production Plan

- Information must be accurate or else errors will occur

- High cost to set up for both training and software

- Once production begins it can be hard to interrupt the process

Just-In-Time

A material management strategy that ensures the right amount of materials and other inputs arrive just as they are needed in the operation process

Strengths of Just in Time

- Reduces costs involved with storage

- Less of the businesses finances are held in stock, better liquidity

- Reduce risk of wastage occuring in storage

Weaknesses of Just in Time

- Suppliers must be reliable, a supplier failing to deliver can hold up production

- Increasing delivery costs as orders are arriving in smaller quantities

- Costly and time consuming to establish

Quality

The degree of excellence of a good or service and its fitness for its stated purpose

How does quality improve a businesses competitiveness

- More consistent, reliable and durable products

- Reduced defects and waste

- Reduces production costs and lowers prices

How will businesses manage quality

- Minimising waste and defects

- Strictly conform to set standards

- Reduce variance in final products

Three Quality Management Strategies

- Quality Control

- Quality Assurance

- Total Quality Management

Quality Control

The use of inspections at various points in the production process to check for any problems or defects.

What type of approach is Quality Control

Reactive, as it detects faults after the error occurred

Check and Reject Technique for Quality Control

- Establish Internal Standards

- Inspect output at regular intervals

- Compare output against standard

- Take corrective action when necessary

Strengths of Quality Control

- Improves effectiveness as better quality will lead to higher sales

- Enhanced business reputation relative to competitors, leading to better marketshare

Weaknesses of Quality Control

- Inspections occur at random intervals so defects can still slip through

- It is reactive, therefor wastage will occur due to more resources needed to fix defects or throwing out defects

Quality Assurance

The quality of an organisation's procedures is endorsed by an external agency

What type of approach is Quality Assurance

Proactive, as it is process oriented and doesn't let defects occur

Systems to ensure Quality assurance

- Process checklists

- Audits

- Developing Standards

Types of endorsements a business can receive regarding quality

- Energy ratings

- International Organisation for Standardisation

Strengths of Quality Assurance

- Waste is reduced, more efficient use of resources

- Higher quality leads to higher sales

- Better customer trust

Weaknesses of Quality Assurance

- Expensive to ensure systems comply with standards

- Employees that maintain standards have a lot of stress and pressure

- Time consuming to apply for endorsements

Total Quality Management

An ongoing, business wide commitment to excellence that is applied to every aspect of the businesses operations

What type of approach is total quality management

Proactive as it prevents quality issues before they occur

4 Approaches for a business to achieve TQM

- Quality Assurance and Control

- Employee Empowerment

- Continuous Improvement

- Customer Focus

Employee Empowerment

Development of quality circles to discuss ways to improve quality of products, they then present their discussions to managers to improve business performance

Continuous Improvement

The belief no process is every perfect and that things can always be improved by benchmarking against the worlds best practice techniques.

Customer Focus

Attempts to improve quality by viewing products and process through a customer perspective. Employees must only provide customers with the highest quality

Strengths of TQM

- Reduces costs and reduces defects, improving efficiency

- Improved cost competitiveness and quality along with higher customer satisfaction allows the business to be more effective

Weaknesses of TQM

- Costly and time consuming

- Employees may resist change as they need to change their thinking and attitude

- Staff needs to be retrained

Comparison of Quality Control and Quality Assurance

Similarities

- Both improve quality

- Both establish standards

Differences

- QC is not certified, QA is certified

- QC checks the output, QA checks the processes

Comparison of Quality Control and Total Quality Management

Similarities

- Both improve quality

- Both are ongoing

Differences

- QC is internal only, TQM is internal and external

- QC is product based, TQM is more broad

Comparison of Total Quality Management and Quality Assurance

Similarities

- Both improve quality

- Both use external standard

Differences

- QA is certified, TQM is not certified

- QA process focused, TQM focuses on customers aswell

Waste Minimisation

A process involving the reduction of the amount of unwanted or unusable resources produced by a business in an attempt to improve efficiency and effectiveness of operations

Reduce

Creating less waste by stopping waste generation at its source

Reduces links to efficiency and effectiveness

- Decreases costs associated with waste removal and loss of products which improve efficiency

- Lower cost of production improves sales and effectiveness

Ways to reduce waste

- Using Just in time to prevent waste from storing inventory

- Using a proactive quality control strategy to prevent defects before they occur

- Using technology to reduce human error and defects

Reuse

Taking older or unwanted items, usually thrown away and finding a new purpose for them

Reuse links to efficiency and effectiveness

- Reusing items reduces waste associated with discarding items

- Reusing can also generate a second revenue stream for businesses

Recycle

Changing discarded materials into new products in order to avoid using more natural and new resources

Recycle links to efficiency and effectiveness

- Recycled materials are cheaper, leading to lower production costs, improving efficiency

- Recycled materials help the environment and improve CSR, increasing customers and improving sales through more effectiveness

Ways to use Recycling

- Purchase new inputs made up of recycled materials

- Purchase input that can be recycled

- Inventing new ways to recycle different items

- Avoid buying materials that are difficult to recycle

Lean Management

An approach to operations management that attempts to improve efficiency and effectiveness by eliminating waste and improving quality, this is done by removing all unnecessary process which do not add to customer value

How does Lean Management Increase efficiency and effectiveness

- Reduces Waste

- Increases speed of production

- Lowers costs

- Improves Quality

Seven wastes a business should work towards eliminating (TIMWOOD)

- Reduce excess transport

- Avoid excess inventory

- Avoid excess motion

- Eliminate waiting times

- Avoid overprocessing

- Avoid overproducing

- Reduce defects

Four Principles of Lean Management

- Pull

- One Piece Flow

- Takt

- Zero Defects

Pull

Customers pull the amount of outputs produced as customer demand dictates the rate at which products are delivered, this reduces waste as the business will only produce products that will be sold

One Piece Flow

Eliminating waiting or idle time by focusing on one part of production at a time and removing unnecessary and wasteful activities, more efficient use of time and better quality as each process is done to a high standard

Takt

the rate of production needed to meet customer demand, it establishes a consistent and smooth workflow to meet consumer demand

Zero Defects

Striving for perfection by identifying errors as they occur and not accepting defects, this reduces waste levels, improving efficiency and improving quality

Lean Managements Link to Efficiency and Effectiveness

- Eliminating waste reduces cost and increases profit

- Better quality leads to higher customer satisfaction and better sales

- Reducing waste results in a more efficient use of resources

Strengths of Lean Management

- Increased worker productivity

- Increased customer satisfaction

- Reduces uncertainty in the businesses production