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Unit 2: Managing a business Operations management Making operational decisions Chapter 23.

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1 Unit 2: Managing a business Operations management Making operational decisions Chapter 23

2 Unit 2: Managing a business Operations management Operations management operations management: the process that uses the resources of an organisation to provide the right goods or services for the customer. In the context of the above definition, ‘right’ means ‘what the customer wants’. It may mean quality and price to one customer, but convenience and flexibility to another.

3 Unit 2: Managing a business Operations management Identifying operations issues Customers have many requirements, so operations management looks at a variety of issues. In the AQA AS Business Studies course it looks at: location (Unit 1) resources to use and converting them into outputs (Unit 1) capacity utilisation organising stock control quality customer service working with suppliers using technology

4 Unit 2: Managing a business Operations management Operational targets operational targets: the goals or aims of the operations function of the business. A business that achieves its operational targets would be described as ‘operating efficently’. This efficiency may mean low costs or high quality etc. Three examples of operational targets are: unit costs measures of quality capacity utilisation

5 Unit 2: Managing a business Operations management Unit costs unit cost: the cost of producing 1 unit of output. unit cost =total cost units of output The unit cost is also known as the average cost (AC) or average total cost (ATC). The target for a business is to achieve low unit costs. Example: A business produces 10 units of output at a total cost of £70. average (or unit) cost = £70/10 = £7

6 Unit 2: Managing a business Operations management Unit costs: calculations Based on the data above, calculate the unit costs of products A to D. Assuming these products are of the same quality, which product is manufactured most efficiently? Total costs (£)Units of outputUnit costs (£) Product A47020 Product B55830 Product C1,06050 Product D1,945100

7 Unit 2: Managing a business Operations management Unit costs: answers Order of efficiency:B – D – C – A Total costs (£)Units of outputUnit costs (£) Product A Product B Product C1, Product D1,

8 Unit 2: Managing a business Operations management Measures of quality Quality is defined as ’those features of a product or service that allow it to satisfy (or delight) customers’. Because ‘quality’ depends on people’s opinions, there will be different views on what is meant by quality. What measures of quality would you use for a business? Hint: they must be measurable! Some examples of measures of quality and a brief comment on the logic behind their use are provided on the following two slides. How do yours compare?

9 Unit 2: Managing a business Operations management Examples of measures of quality (1) Note that this is just a sample of quality measures — a good quality measure will be geared towards the specific needs of the individual firm. Customer satisfaction ratings A survey of customers can reveal customer opinions on a numerical scale (e.g. 1–10) or using qualitative measures (e.g. excellent — very good — good — etc.) As the purpose of a product/service is to satisfy the needs of the customer, this is an excellent way of measuring whether quality has been achieved. Customer complaints This calculates the number of customers who complain (it is sometimes measured as a percentage of the total number of customers). Although this might seem to be a negative approach, it is a good way of measuring whether a company has problems that it needs to solve.

10 Unit 2: Managing a business Operations management Examples of measures of quality (2) Scrap rate or wastage rate This calculates the number of items rejected during the production process as a percentage of the number of units produced. This will show the business whether its production methods are working effectively, guiding it towards areas that might need improvement. Punctuality This calculates the degree to which a business delivers its products (or provides its services) on time. It is often measured as a percentage: punctuality =deliveries on time× 100 total deliveries This measure is used by many businesses, especially those involved in transporting goods (e.g. haulage firms) or customers (e.g. rail franchises).

11 Unit 2: Managing a business Operations management Using quality measures: question Based on the data below, decide which company is providing the best quality and which one is providing the lowest level of quality for its customers. Company Customer satisfaction (10 = excellent, 1 = poor) Customer complaints (%) Scrap rate (%) Deliveries on time (%) A B C D

12 Unit 2: Managing a business Operations management Using quality measures: answer (1) Rank order of firms for each quality measure: Worst performer Firm C has the lowest ranking in all four categories and is clearly the worst performer. Company Customer satisfaction (10 = excellent, 1 = poor) Customer complaints (%) Scrap rate (%) Deliveries on time (%) A3rd 1st B2nd C4th D1st 3rd

13 Unit 2: Managing a business Operations management Using quality measures: answer (2) Best performer Firms A, B and D all average second place, so a case could be made for each one. Factors to consider: the quality measure(s) deemed most important by customers the quality measure(s) deemed most important by the firm the numerical difference in ratings (e.g. B has a much higher rating for customer satisfaction than A, but is only slightly behind A on delivery times) (It could be argued that the first column is the crucial one because it measures the overall view of customers.)

14 Unit 2: Managing a business Operations management Capacity utilisation: key terms capacity: the maximum total level of output or production that a business can produce in a given time period. A company producing at this level is said to be producing at full capacity. capacity utilisation: the percentage of a firm’s total possible production level that is being reached. If a company is large enough to produce 100 units a week, but is actually producing 92 units, its capacity utilisation is 92%. under-utilisation of capacity: when a firm’s output is below the maximum possible. This is also known as excess capacity or spare capacity. It represents a waste of resources and means that the organisation is spending unnecessarily on its fixed assets. capacity shortage: when a firm’s capacity is not large enough to deal with the level of demand for its products. This means that certain customers will be disappointed and sales will be lost.

15 Unit 2: Managing a business Operations management Calculating capacity utilisation capacity utilisation: the extent to which the company’s maximum possible output is being reached. capacity utilisation (%) =actual output per annum (month) × 100 maximum possible output per annum (month) Example: a company can produce 5,000 units but is actually producing 3,800 units. Capacity utilisation is: 3,800 × 100 = 76% 5,000

16 Unit 2: Managing a business Operations management Spare capacity In the previous example, the company could increase production by 1,200 units or 24% of 5,000 units. This is known as its spare capacity. There is no one ideal target percentage, but many people believe that 90% capacity utilisation is a sensible target. At 100% there is no scope for maintenance and repair, to respond to sudden orders, or to deal with emergency situations that may occur. Thus firms like to have some spare capacity. BUT…spare capacity means ‘unused’ resources and higher fixed costs per unit.

17 Unit 2: Managing a business Operations management Managing capacity utilisation In terms of capacity utilisation, there are two types of situation that a firm needs to manage: under-utilisation of capacity (also known as excess capacity or spare capacity) capacity shortage Spare capacity is the more normal situation. What causes it?

18 Unit 2: Managing a business Operations management Causes of spare capacity (under-utilisation of capacity) new competitors or new products entering the market fall in demand for the product unsuccessful marketing seasonal demand over-investment in fixed assets

19 Unit 2: Managing a business Operations management Disadvantages of spare capacity Firms have a higher proportion of fixed costs per unit. These higher costs will lead to either lower profit levels or the need to increase price to maintain the same profit levels, and therefore to lower sales volume. Spare capacity can portray a negative image of a firm, suggesting that it is unsuccessful. With less work to do, employees may become bored and demoralised, lowering their motivation and efficiency.

20 Unit 2: Managing a business Operations management Advantages of under-utilisation Spare capacity means that there is more time for maintenance and repair of machinery, for training and for improving existing systems. There may be less pressure and stress for employees, who may become overworked at full capacity. Under-utilisation allows a company to cope with a sudden increase in demand.

21 Unit 2: Managing a business Operations management Achieving full or high capacity utilisation Methods include: increasing marketing to boost demand lowering price rationalisation — improving efficiency by cutting the scale of operations. This reduces the capacity of a firm and so increases capacity utilisation.

22 Unit 2: Managing a business Operations management Ways of reducing capacity Methods include: selling off all or a part of its production area changing to a shorter working week or shorter day laying off workers transferring resources away from an area of the business (e.g. moving workers away from a branch with low capacity utilisation)

23 Unit 2: Managing a business Operations management Managing capacity shortage If there is a shortage of capacity, the firm will try to increase its capacity. Ways of increasing capacity include: building or extending factories/plants asking staff to work overtime or longer hours recruiting more temporary or part-time staff hiring new full-time staff subcontracting

24 Unit 2: Managing a business Operations management Subcontracting subcontracting: when an organisation asks another business to make all or a part of its product. Many businesses use subcontracting as a way of reducing capacity utilisation problems. By asking other firms to supply goods, the original firm can increase supply to match demand without needing to increase its own factory size. It can then reduce the amount of work that it subcontracts if it needs to cut output.

25 Unit 2: Managing a business Operations management Advantages of subcontracting Businesses can react to changes in demand more quickly if they have access to a number of different firms’ production plants. Subcontractors may be more specialised and therefore more efficient in a particular activity. Subcontracting lets a firm focus on its core business and helps it to avoid becoming involved in activities in which it is less competent. A one-off (non-standard) order can be given to a subcontractor so that the business benefits from the order but suffers no disruption to its normal production.

26 Unit 2: Managing a business Operations management Disadvantages of subcontracting Quality is no longer directly under the firm’s own control. Excessive subcontracting erodes a company’s operations base and its ability to initiate research. The subcontractor wants to make a profit, so it is possible that it will be more expensive to subcontract. Subcontracting may require a firm to give confidential information to a supplier, such as details of its methods and patents.

27 Unit 2: Managing a business Operations management Stock control and capacity utilisation stock control: the management of levels of raw materials, work-in-progress and finished goods to reduce storage costs, while still meeting the demands of the customer. Stock control can overcome capacity utilisation problems: Holding high stock levels enables a business to release additional products on to the market when demand increases. During periods of low demand, the level of stocks can be replenished by producing more than is being demanded.

28 Unit 2: Managing a business Operations management Dealing with non-standard orders non-standard orders: a business decision relating to a one-off contract. Often the non-standard order requires a response to a request to supply a fixed quantity of a product at a particular price (invariably a lower price than usual). A decision on a non-standard order will be taken primarily on the basis of its financial consequences, but the firm will also need to look at the impact on the functional aspects of the firm, such as operations.

29 Unit 2: Managing a business Operations management Non-standard orders: operational factors the level of spare capacity available the scope for subcontracting the impact on costs is there potential for future (profitable) orders? the effect on staff morale

30 Unit 2: Managing a business Operations management Chapter 24 Developing effective operations: quality

31 Unit 2: Managing a business Operations management Quality quality: those features of a product or service that allow it to satisfy (or delight) customers. Quality is subjective — a matter of personal opinion — and views of it will vary from individual to individual. Think of a product and list five ways of measuring the quality of that product.

32 Unit 2: Managing a business Operations management Some measures of quality Possible measures of quality are listed below (like quality itself, these measures are subjective): appearance reliability and durability functions (added extras) after-sales service brand/image/reputation environmental friendliness How do these compare with your list? Why are there differences between your list and this list?

33 Unit 2: Managing a business Operations management Benefits of quality to a business increase in sales volume creating a unique selling point (USP) and enhancing the firm’s reputation greater scope for increasing the selling price pricing flexibility, as customers will want to buy the product even if price is changed possible reduced manufacturing cost and reduced wastage if high-quality materials and processes improve the efficiency of the production process

34 Unit 2: Managing a business Operations management Issues involved in introducing and managing a quality system Costs. Quality procedures require a great deal of administrative expense to set up and monitor. Training. This can be a major issue in the introduction of a new quality system, as a system of quality assurance relies on a well-trained workforce that is able to understand and implement the quality system that the business uses. Disruption to production. In the short run, the training programme provided can be quite disruptive to existing production methods.

35 Unit 2: Managing a business Operations management Distinction between quality control and quality assurance Quality control This is a system that uses inspection as a way of finding any faults in the good or service being provided. Inspectors are employed to check the accuracy of completed work. Quality assurance This is a system that aims to achieve or improve quality by organising every process to get the product ‘right first time’ and prevent mistakes ever happening. Quality assurance concentrates on the process of production. The idea of self- checking is crucial to quality assurance.

36 Unit 2: Managing a business Operations management Quality control: benefits Inspection at the end of the process can prevent a defective product reaching the customer, thus eliminating a problem with a whole batch of products. It is a more secure system than one that trusts every individual to do his or her job properly, particularly if workers want to avoid responsibility. Inspectors may be highly skilled in detecting problems and may spot quality problems that are being repeated by different workers.

37 Unit 2: Managing a business Operations management Quality control: problems By placing responsibility for quality failures on the inspector, quality control does little to encourage individuals to improve the quality of their output. Employing an inspection team is an expense that could be viewed as unnecessary if the products are produced ‘right first time’. Giving workers responsibility for their own work helps to increase the interest, variety and responsibility of their job, and thus helps to motivate them.

38 Unit 2: Managing a business Operations management Quality assurance: benefits Ownership of the product or service rests with the workers rather than with an independent inspector, giving them greater responsibility. Theorists such as Herzberg argue that the responsibility will motivate workers. Costs are reduced because there is less waste — any faults are discovered during the process. Because an individual will not want to be blamed for a faulty product, each worker checks what he or she receives, reducing the possibility of a faulty product.

39 Unit 2: Managing a business Operations management Systems of quality assurance: TQM The most widely recognised quality assurance system is total quality management, often known as TQM. TQM is a culture of quality that involves all employees of a firm. Key features of TQM are: The quality chain. Each person involved in production treats the receiver of their work as if they were an external customer. ‘Right first time’. Employees aim for defect prevention rather than detection. All staff share a commitment to continuous improvement. Partnerships are built with suppliers. Staff are educated and trained to take responsibility for their own quality. Employees are encouraged to take pride in their work.

40 Unit 2: Managing a business Operations management Kaizen The Japanese philosophy of kaizen has given rise to quality systems based on continuous improvement. Kaizen (or ‘continuous improvement’) is a policy of implementing small, incremental changes in order to achieve better quality and/or greater efficiency. These changes are invariably suggested by employees and emanate from a corporate culture that encourages employees to identify potential improvements.

41 Unit 2: Managing a business Operations management Quality standards ISO 9001: the international standard of quality assurance that is equivalent to BS BS 5750: a British Standards award granted to organisations which possess quality assurance systems that meet the standards set. These standards aim to increase quality throughout an organisation. Firms must show that they have quality systems that cover the quality of their working methods, services and processes as well as the quality of their products.

42 Unit 2: Managing a business Operations management Benefits of quality standards Marketing advantages from having ‘proof’ of high quality standards. Assurance to customers that products meet certain standards. Some organisations insist on these awards before agreeing to trade with a firm, as this helps to guarantee the quality of their supplies. Greater employee motivation from the sense of recognition. Financial benefits from the elimination of waste and the improved reputation of the firm.

43 Unit 2: Managing a business Operations management Chapter 25 Developing effective operations: customer service

44 Unit 2: Managing a business Operations management Customer service customer service: the overall activity of identifying and satisfying customer needs and the delivery of a level of service that meets or exceeds customer expectations. customer expectations: what people think should happen and how they think they should be treated when asking for or receiving customer service. Higher expectations among customers mean that better customer service must be provided. customer satisfaction: the feeling that the buyer gets when he or she is happy with the level of customer service that has been provided and the degree to which customer expectations have been met.

45 Unit 2: Managing a business Operations management What do customers want? Customers do not always want the same service from a business. Consequently, most businesses use their own measurements of customer satisfaction, to make it relevant to their own customers. A survey by the Institute of Customer Service (ICS) found that customers had ten top priorities that affected customer satisfaction. Remember: you are all customers! Make a list of five factors that you believe would fit into the top ten. See whose list is closest to the results of the ICS survey on the next slide.

46 Unit 2: Managing a business Operations management Calculating your score Score 10 marks if you had the number one factor, 9 marks for the second most important factor… down to 1 mark for the tenth factor. Customer priorities/expectations were: Quality of the product or service 10 marks Friendliness of staff 9 marks Efficiency in dealing with problems/complaints8 marks Speed of service or delivery7 marks Helpfulness of staff in general6 marks Effectiveness in handling enquiries 5 marks Extent to which customers felt ‘valued/important’4 marks The competence of staff in completing their tasks3 marks The ease with which the transaction was completed2 marks The extent to which the customer was kept informed1 mark

47 Unit 2: Managing a business Operations management Other findings of the ICS survey Service businesses (e.g. hairdressers and decorators) and professional services (e.g. architects) are best at satisfying customers. The public sector and utilities (e.g. electricity suppliers) bring up the rear. The survey also highlighted the importance of employee satisfaction. Typically, the more satisfied employees are, the more highly motivated they are to provide a good service. This leads to a higher level of customer satisfaction.

48 Unit 2: Managing a business Operations management Methods of meeting customer expectations Customer expectations can be met through a series of stages: Stage 1: Conduct market research to find out customer expectations so that customer service targets the right factors. Stage 2: Introduce relevant training in customer service into the organisation so that the workforce can meet and surpass customer expectations. Stage 3: Set up quality procedures and set quality standards so that the organisation is geared towards the needs of its customers. Stage 4: Monitor performance against these standards so that high quality and good customer service are maintained.

49 Unit 2: Managing a business Operations management Meeting customer expectations through market research The standard for ‘quality’ is set by the customer, who is therefore the best place to start. Primary market research can be used to get comments from consumers. Secondary market research can help a firm to discover successful measures used by other businesses. The Department for Business, Enterprise and Regulatory Reform (BERR) can provide data on the factors and features that are most valued in the marketplace. Other sources of secondary market research are surveys such as the UK Customer Satisfaction Index and the annual CompariSat survey provided by FDS International.

50 Unit 2: Managing a business Operations management Meeting customer expectations through training A look at the top ten factors shows how many depend on the quality of the employees. Training helps employees to be good at their jobs. Companies often provide specific training in customer care. Vocational qualifications in customer care help employees to improve customer service.

51 Unit 2: Managing a business Operations management Meeting customer expectations through quality control, quality assurance and monitoring quality standards Quality control can ensure that faulty goods are identified and rejected as a result of the inspection process. Quality assurance helps to improve customer satisfaction by ensuring that goods and services are ‘right first time’. Any business that subscribes to a quality standard, such as ISO 9001, must regularly monitor its activities to ensure that it is still meeting the standards that have been set. This will normally be sufficient to ensure that high-quality customer service is offered.

52 Unit 2: Managing a business Operations management Main benefits of high levels of customer service Impact on sales volume. High-quality service that exceeds the expectations of customers will lead to increased demand for the goods and services provided by a business. Creating a unique selling point (USP). The quality of customer service can be used as a USP to enhance a company’s uniqueness and individuality. Impact on selling price. The USP will enable a business to charge higher prices and thus earn higher profits. The firm’s reputation. Companies with a reputation for good customer service are likely to gain repeat business and have a solid base of loyal customers.

53 Unit 2: Managing a business Operations management Additional benefits of high levels of customer service A motivated workforce. Good relations with customers may make the workplace a happier working environment. Lower costs. Costs may be reduced because a high level of customer service is likely to mean fewer complaints to handle. References. In some cases, organisations will insist on proof of high levels of customer service (e.g. testimony from other customers) before agreeing to trade with a firm. Public relations. Positive publicity arising from good customer service can be used for PR.

54 Unit 2: Managing a business Operations management Customer service: follow-up exercise Complete the practice exercise and the questions in the case study at the end of Chapter 25.

55 Unit 2: Managing a business Operations management Chapter 26 Working with suppliers

56 Unit 2: Managing a business Operations management Working with suppliers supplier: an organisation that provides a business with the materials that it needs to carry out its business activities. For a manufacturer, suppliers mainly provide the raw materials and components needed to produce the finished good. For a retailer, suppliers invariably provide the finished goods that the retailer sells.

57 Unit 2: Managing a business Operations management Choosing effective suppliers A business may improve its efficiency to a large extent by choosing effective suppliers. When choosing suppliers, the main factors that a business will consider are: prices payment terms quality capacity reliability flexibility

58 Unit 2: Managing a business Operations management Choosing suppliers: prices A business will seek value for money from its suppliers. If the supplier offers low prices, a business can benefit in two ways: The business can reduce the final selling price of its own product and therefore gain a competitive advantage. The business can keep its final selling price the same, but enjoy the benefit of a higher profit margin/higher added value. BUT…a business must be cautious when choosing a supplier that is offering low prices.

59 Unit 2: Managing a business Operations management Potential problems from low-price suppliers The prices charged by the supplier may be low because: the quality of the raw materials is low the supplier may be unreliable in terms of meeting delivery dates the supplier may be inflexible if a sudden change is needed the supplier is in financial trouble and desperate to get a contract Overall, the business must consider how important price is to its own customers. If they are willing to pay high prices, low-price supplies are less important.

60 Unit 2: Managing a business Operations management Choosing suppliers: payment terms payment terms: arrangements made concerning the timing of payment and any other conditions agreed between buyer and seller. It is normal practice in the business world for credit to be offered to the buyer of supplies of materials. This means that payment is delayed, often by 28 or 30 days. There are two major reasons for this type of agreement: Buyers will want this type of agreement because there will be a delay between the purchase of the materials and the receipt of sales revenue from selling of the final product. This delay may cause cash-flow problems for the buyer. Suppliers will offer payment terms in order to get business. Offering payment terms to buyers should boost the supplier’s sales, as they will be chosen in preference to those not offering credit.

61 Unit 2: Managing a business Operations management Importance of payment terms This will depend on the situations of both buyer and supplier. If the supplier is manufacturing a component that takes a long time to produce, it is likely to need cash immediately and so it will not want to offer payment terms. If it is an organisation such as a wholesaler that has been given credit by the manufacturers, it will not be under pressure to get cash quickly. Therefore it can offer credit terms to its buyers. Conclusion Credit is most likely to be offered when buyers of supplies face cash-flow difficulties because the end product takes a long time to sell. Payment terms are less likely to be needed if the final product brings in sales revenue quickly.

62 Unit 2: Managing a business Operations management Choosing suppliers: quality In many industries, price competitiveness is being superseded by quality considerations. Therefore, quality is a critical factor to consider when choosing and working with a supplier. Key benefits of high-quality supplies are that they enable a business to produce high-quality products. These will: increase the volume of its sales increase its selling price and probably its profit margin create a unique selling point (USP) enhance its reputation and its customer and brand loyalty reduce its manufacturing costs through elimination of waste

63 Unit 2: Managing a business Operations management Importance of quality For buyers, a poor-quality component or product can cause major damage to a manufacturer’s reputation. Overall, the significance of quality will depend on the product in question: For an economy brand that is sold on the basis of its low price, quality will be relatively unimportant. For a product being sold on the basis of its quality, the product itself and its components must meet high standards.

64 Unit 2: Managing a business Operations management Choosing suppliers: capacity capacity: the maximum possible output of an organisation. An organisation will need to be reassured that a supplier can meet the quantity of supply that it requires. If the supplier is providing a unique component or material that cannot be obtained from other sources, failure to supply might seriously damage the reputation of the buyer. If the supplier is providing a component or material that can be sourced from other suppliers, its capacity may be less critical.

65 Unit 2: Managing a business Operations management Choosing suppliers: reliability reliability: the extent to which the supplier meets the requirements of the buyer. Typically, reliability can be measured by the percentage of deliveries on time or the degree to which a supplier meets the terms of the contract to supply. For a manufacturer, an unreliable supplier can lead to the whole production line coming to a halt because a crucial material or component is not available. For a retailer, a failure to supply can affect its reputation. Customers will blame the retailer if they are unable to buy a product that they want.

66 Unit 2: Managing a business Operations management Choosing suppliers: flexibility There may be situations where an organisation radically needs to change its orders from suppliers — for example: sudden changes in demand for a product the liquidation of a rival supplier, leaving buyers short of a product or component In these circumstances, an organisation will want its suppliers to be flexible enough to adapt to the changing circumstances. Flexibility is a reason why many large organisations do not buy all of their materials from one single source, even where one supplier could provide all of their needs.

67 Unit 2: Managing a business Operations management Role of suppliers in improving operational performance Suppliers can help a business to achieve each of its three main operational targets: Lower unit costs. An efficient supplier can offer low-priced materials, helping a customer/business to keep its own costs low. Higher quality. If the supplier is able to meet quality standards consistently, the buyer of the materials will find it easier to produce high-quality products. High capacity utilisation. A flexible supplier can allow a business to increase its capacity utilisation suddenly by supplying more supplies. Other possible benefits include: Suppliers may develop new products or materials. Suppliers may find ways of extending the life of a product.

68 Unit 2: Managing a business Operations management Porter’s value chain and suppliers According to Michael Porter in his book Competitive Advantage, a business can gain a competitive advantage in one of two ways: cost advantage differentiation Working with suppliers, a business can achieve both of these benefits. The cost advantage comes from finding the supplier offering the lowest prices. Differentiation is achieved if a supplier is able to provide a unique product or material.

69 Unit 2: Managing a business Operations management Chapter 27 Using technology in operations

70 Unit 2: Managing a business Operations management Using technology in operations technology: the applications of practical, mechanical, electrical and related sciences to industry and commerce. Technology influences industry and commerce in many ways. Examples are: robotics automation (e.g. stock control) communications design In groups, identify five aspects of business that have been affected by technology in recent years. Produce a report, based on your five aspects, highlighting: the benefits of the technology to businesses any problems for businesses using new technology any benefits and problems for other people or organisations

71 Unit 2: Managing a business Operations management Robotics Uses of robotics: handling operations welding other production applications (e.g. dispensing liquid, painting and coating materials) assembling packaging and palletising measurement, inspection and testing hazardous applications

72 Unit 2: Managing a business Operations management Automation: key terms automation: the use of machinery to replace people in the production process, usually to carry out routine activities. computer-aided manufacturing (or manufacture) (CAM): the use of computers to undertake activities such as planning, operating and controlling production.

73 Unit 2: Managing a business Operations management Areas of operations management benefiting from technology Planning and controlling Computers can be used to plan the most efficient way of producing a product. Production can be monitored by the computer and remedial action taken if problems arise. Operating CAM (computer-aided manufacture) has increased productivity and reduced the problems arising from human error. Flexible programming allows a fully automated line to produce different varieties.

74 Unit 2: Managing a business Operations management Technology and stock control Stock control is aided by technology in the following ways: Computer programs linked to statistics on patterns of consumer purchases allow firms to anticipate changes in stock levels more accurately. This reduces the possibility that a firm will run out of stock or build up unnecessarily high levels. Computerised systems allow organisations to recognise their current stock levels immediately, reducing the need for time-consuming manual checks. EPOS (electronic point of sale) systems monitor stock levels and can also order new stock from suppliers automatically when the stock has been reduced to a certain level (the ‘reorder level’). Organisations with many branches can also use technology to establish the locations where stock is being held.

75 Unit 2: Managing a business Operations management Technology and communications information and communication technology (ICT): the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications. Benefits of ICT are: It allows a firm to improve both internal and external communications, improving efficiency and the firm’s understanding of its market. Internal information can be processed and amended more quickly. Company intranets enable employees and, where necessary, suppliers and customers to access company information continually. Technology increases the speed of communication and the scope for greater responsibility. It allows firms to delayer and operate wider spans of control. Loyalty cards allows firms to accumulate information on the buying habits of their customers.

76 Unit 2: Managing a business Operations management The internet and operations The internet brings many possible advantages to firms that use it: It can eliminate the need for expensive high street premises. It can reduce the need for staff. It adds flexibility to business operations, which no longer need to fit in with traditional business structures. Data can be stored more cheaply and accessed more quickly.

77 Unit 2: Managing a business Operations management Technology and design: key terms computer-aided design (CAD): the use of computers to improve the design of products. CADCAM: an approach that combines computer-aided design and computer-aided manufacture, using IT to aid both the design and the manufacture of an item.

78 Unit 2: Managing a business Operations management Benefits arising from CAD or CADCAM Different ideas can be introduced and compared faster in a CAD system than in a manual one. Two-dimensional drawings can be transformed into three-dimensional images and rotated in order to demonstrate the whole range of possible views. Programs can simulate testing (e.g. wind tunnel simulations). This can save considerable sums of money by eliminating the production and testing of expensive prototypes. New products have been created by technology (e.g. mobile phones).

79 Unit 2: Managing a business Operations management Benefits of using technology in operations The main benefits are: reducing costs improving quality reducing waste increasing productivity

80 Unit 2: Managing a business Operations management Technology: reducing costs The use of technology to replace manual systems in areas such as planning, office work, manufacturing and stock holding has greatly reduced labour costs. ICT can be used in production planning in order to devise the most cost-effective way of manufacturing a product. Use of the internet enables businesses to locate away from expensive sites.

81 Unit 2: Managing a business Operations management Technology: improving quality Computer-based quality assurance systems can overcome the possibility of human error and also provide more rigorous scrutiny of quality. ICT enables businesses to understand customers’ requirements more fully and to adapt their products. The flexibility of IT (e.g. 24-hour access to automated teller machines) can improve the quality of the product and/or customer service.

82 Unit 2: Managing a business Operations management Technology: reducing waste Stock control systems ensure that orders are placed at the most appropriate time so that excessive stock levels do not build up. Integrated systems of stock control can also identify branches holding stock that may be needed by other branches. Many business activities can be carried out quicker with the benefit of technology, saving valuable time and money.

83 Unit 2: Managing a business Operations management Technology: increasing productivity Machines can work at a faster speed than humans. Computerised systems allow organisations to keep closer control over their stock levels, reducing the need for time-consuming manual checks and therefore reducing wage bills. ICT may be used to plan the most efficient approach to production. This enables the business to improve productivity.

84 Unit 2: Managing a business Operations management Other benefits of technology Flexibility. The adaptability of technology is now enabling businesses to provide an immediate response to consumers’ demands or sudden changes. Financial monitoring. ICT greatly improves the budgeting process and the monitoring of variances. New products. New and better products and services can be created through technology. Better working conditions — through factors such as reductions in the level of noise and greater control over working temperatures.

85 Unit 2: Managing a business Operations management Issues in introducing and updating technology (1) The use of new technology can also cause problems: People are often concerned by change. ICT can lead to job losses for workers in traditional skilled crafts. This causes stress for workers, so productivity may fall. ICT can undermine group morale by breaking up teams. For many firms, the most significant problem is the cost of new technology. Not only is it expensive to introduce, but also it needs regular updating.

86 Unit 2: Managing a business Operations management Issues in introducing and updating technology (2) The nature of technology is changing constantly. Consequently, there is a constant need to replace hardware and software, and to provide continuous training for staff, again adding to costs. Consumers can use the internet to compare prices. ICT has the potential to force prices and profits down. Summary An organisation needs to weigh up the pros and cons before deciding whether it should introduce or update its technology. Usually the short-term problems and costs must be weighed up against the long-term benefits.


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