The nature of operations

In this chapter Understand what is meant by operations management Appreciate the nature of the production process and how value ca be added Understand the difference between production and productivity, efficiency and effectiveness Evaluate the different advantages and limitations of labour intensity and capital intensity

The nature of operations The production process Added value = the difference between the cost of purchasing raw materials and the price the finished goods are sold for Resources Production = converting inputs into outputs The level of production = is the number of units produced during a time period Productivity = the ratio of outputs to inputs during production, e.g. output per worker per time period Raising productivity levels Is raising productivity levels always the answer? Efficiency and effectiveness Efficiency = producing output at the highest ratio of output to input Effectiveness = meeting the objectives of the enterprise by using inputs productively to meet customers’ needs

Labour intensity and capital intensity Labour intensive = involving a high level of labour input compared with capital equipment Capital intensive = involving a high quantity of capital equipment compared with labour input

Operations planning

In this chapter Understand the need for operations planning Analyse the influence of marketing, resources and information technology on operations planning Understand the need for flexibility and process innovation Differentiate between different production methods: job, batch, flow, mass customisation Evaluate the factors that determine the production methods used in different situations and understand the problems in changing method Assess the importance of location decisions to the success of a business and evaluate the factors that influence location and relocation decisions Understand why the business may want to increase scale of production Analyse the importance of economies and diseconomies of scale and the impact on unit costs Understand enterprise resources planning (ERP)

Introduction to operations Operations planning = preparing input resources to supply products to meet expected demand Operations planning - the importance of the marketing link The need for flexibility Operational flexibility = the ability of a business to vary both level of production and the range of products following changes in customers demand Process innovation Process innovation = the use of a new or much improved production method or service delivery method Production methods Job production = producing a one-off item specially designed for the customer Batch production = producing a limited number of identical products – each item in the batch passes through one stage of production before passing on to the next stage Flow production = producing items in a continually moving process Mass customisation = the use of flexible computer-aided production systems to produce items to meet individual customers’ requirements at mass-production cost levels

Recent innovations in production methods Mass customisation Job production Batch production Flow production Recent innovations in production methods Mass customisation Production methods – making the choice Problems of changing production methods Final evaluation Location decisions The benefits of an optimal location Optimal location = a business location that gives the best combination of quantitative and qualitative factors Factors influencing location decisions Quantitative factors = these are measurable in financial terms and will have a direct impact on either the costs of a site or the revenues from it and its profitability Qualitative factors = these are non-measurable factors that may influence business decisions

Advantages and disadvantages of multi-site locations Other location issues Advantages and disadvantages of multi-site locations Multi-site locations = a business that operates from more than one location Offshoring = the relocation of a business process done in one country to the same or another company in another country Multinational = a business with operations or production bases in more than one country International location decisions Trade barriers = taxes (tariffs) or other limitations on the free international movement of goods and services Issues and potential problems with international location Scale of operation Scale of operation = the maximum output that can be achieved using the available inputs (resources) – this scale can only be increased in the long term by employing mare of all inputs

Increasing the scale of operations Economies of scale = reductions in a firm’s unit (average) costs of production that result from an increase in the scale of operations Diseconomies of scale = factors that cause average costs of production to rise when the scale of operation is increased Large-scale production – unit costs of production Are diseconomies avoidable? Enterprise resource planning (ERP) Enterprise resource planning = the use of a single computer application to plan the purchase and use of resources in an organisation to improve the efficiency of operations Supply chain = all of the stages in the production process from obtaining raw materials to selling to the consumer – from point of origin to point of consumption Sustainability = production systems that prevent waste by using the minimum of use – renewable resources so that levels of production ca be sustained in the future

The nature of operations

In this chapter Understand why business hold stocks (inventories) and the costs of stock holding Analyse the advantages and disadvantages of traditional stock – management systems Discuss the just-in –time (JIT) stock – management system

Why business hold stocks Stock management Stock – holding costs Stock (inventory) = materials and goods required to allow for the production and supply of products to the customer Why business hold stocks Stock management Stock – holding costs Costs of not holding enough stocks Optimum order size Economic order quantity = the optimum or least-cost quantity of stock to re- order taking into account delivery costs and stock-holding costs Controlling stock levels a graphical approach Buffer stocks = the minimum stocks that should be held to ensure that production could still take place should a delay in delivery occur or should production rates increase Re-order quantity = the number of number ordered each time Lead time = the normal time taken between ordering new stocks and their delivery

Just-in-time (JIT) stock control Just-in-time = this stock-control method aims to avoid holding stocks by requiring supplies to arrive just as they are needed in production and completed products are produces to order JIT evaluation

Capacity utilisation

In this chapter Understand the meaning calculation of capacity utilisation Analyse the problems of excess capacity and capacity shortages Evaluate the different approaches to overcoming these problems Assess the reasons for the rapid growth of outsourcing Evaluate the benefits and limitations of outourcing

Capacity utilisation – impact on average fixed costs Capacity utilisation = the proportion of maximum output capacity currently being achieved Capacity utilisation – impact on average fixed costs Excess capacity – what are the options? Excess capacity = exists when the current levels of demand are less than full capacity output of a business – also known as share capacity Rationalisation = reducing capacity by cutting overheads to increase efficiency of operations, such as closing a factory or office department, often involving redundancies Working at full capacity Full capacity = when a business produces at maximum output Capacity shortage Outsourcing Capacity shortage = when the demand for a business’s products exceeds production capacity Outsourcing = using another business (a ‘third party’) to undertake a part of the production process rather then doing it within the business using the firm’s own employees Business-process outsourcing (BPO) = a form of outsourcing that uses a third party to take responsibility for certain business functions, such as HR and finance Outsourcing evaluation

Lean production and quality management

In this chapter Analyse the importance of lean production to competitive business Evaluate the main lean production techniques Explain the concept of quality Understand the difference between quality control and quality assurance Explain the importance of business establishing quality – assurance systems Evaluate the effectiveness of total quality management Assess the costs and benefits of managing quality Explain how managing quality effectively can improve the competitiveness of business

Just-in-time stock-control principle Kaizen – continuous improvement Lean production Lean production = producing goods and services with the minimum of waste resources while maintaining high quality Simultaneous engineering = product development is organised so that different stages are done at he same time instead of in sequence Cell production = splitting flow production into self-contained groups that are groups that are responsible for whole work units Flexible specialisms Just-in-time stock-control principle Kaizen – continuous improvement Kaizen = Japanese term meaning continuous improvement Continuous improvement (Kaizen) – an evaluation Mai advantages of lean production Are lean production and JIT appropriate in all business situations?

Managing operations - quality Quality product = a good or service that meets customer’s expectations and it therefore ‘fit for purpose’ Quality standards = the expectations of customers expressed in terms of the minimum acceptable production or service standard Quality – how can it be achieved? What are the differences between quality control and quality assurance? Quality-control techniques Inspecting for quality Quality assurance Quality control = this is based on inspection of the product or a sample of products Quality assurance = a system of agreeing and meeting quality standards at each stage of production to ensure consumer satisfaction ISO 9000 = this is an international recognised certificate that acknowledges of a quality procedure that meets certain conditions

Total quality management (TQM) Total quality management = an approach to quality that aims to involve all employees in the quality-improvement process Internal customers = people within the organisation who depend upon the quality of work being done by others Zero defects = the aim achieving perfect products every time What are the costs and benefits of introducing and managing quality systems? How can he competitiveness of a business be improved by managing quality effectively? Benchmarking Benchmarking = it involves management identifying the best firms in the industry and then comparing the performance standards – including quality – of these business with those of their own business Benchmarking – an evaluation Quality circles Quality issues – an evaluation

Project management

In this chapter Understand the purpose of project management Analyse the key elements of project planning Analyse how critical path analysis (CPA) and network diagrams can be used to help with project management Apply CPA to different projects Evaluate the usefulness of the technique

Critical path analysis Project management Project = a specific and temporary activity with a starting and ending date, clear goals, defined responsibilities and a budget Project management = using modern management techniques to carry out and complete a project from start to finish in order to achieve per-set targets of quality, time and cost Planning operations Critical path analysis = a planning technique that identifies all tasks in a project, puts them in the correct sequence and allows for the identification of the critical path Critical path analysis Network diagram = the diagram used in critical path analysis that shows logical sequence of activities and the logical dependencies between them – and the critical path can be identified Critical path = the sequence of activities that must be completed on time for the whole project to be completed by the agreed date Using critical path analysis

How the critical path is determined: a more complex example What is the latest finish time and how is it calculated? What is the critical path for this project? Dummy activities The advantage of critical path analysis (CPA) Critical path analysis – evaluation