National 4/5 Business Management 2016/2017 OPERATIONS National 4/5 Business Management 2016/2017

Learning Intentions What is operations? Input, process, output Choosing a suitable supplier Factors affecting choice of supplier Management of stock Problems of too little/too much stock Methods of production – job, batch, flow Advantages and disadvantages of each method Just-in-time production Quality – Quality Control, Quality Management Ethical and environmental Effect of technology (throughout unit)

What is Operations? Everyone has needs and wants. These can be goods or services. The operations area of the business is the manufacture of goods/products ie the transfer of raw materials into a finished article offered for sale. This is sometimes called Production.

Operations INPUT PROCESS OUTPUT Factors of Production Manufacturing Finished product and distribution Customer

Task All production involves Inputs/Processes/Outputs. For each of the following businesses, suggest 3 Inputs, 3 Processes and 3 Outputs. manufacturer of birthday cards; manufacturer of jam; a wedding photographer.

Role of Operations Making products. This can involve people or machinery. Satisfying customers by making products that they want. Working with suppliers to ensure raw materials are available at the correct time. Managing levels of stock to make sure nothing runs out.

Choosing a supplier A business has to buy raw materials from a supplier to be able to make something. Task Think of a purchase you have made recently. Why did you choose to buy it from a particular shop/website?

Task In pairs, think of a local business. Discuss factors they would have to consider in choosing the right supplier. Make a list of 3 factors and why they are important if the business is to be successful.

Factors to consider Price - the price charged by a supplier for raw materials. A cheaper price will reduce costs, increase profits and improve cash flow. Quality – how good the raw materials are. This will affect the quality of the finished product. Low quality may lead to higher wastage. Lead time/delivery time – how long it takes to receive the raw materials after ordering. Delays may mean production has to stop. Some raw materials are perishable.

Factors to consider Quantity – how much is required. Must be enough for production to continue. Reputation and reliability – will the supplier deliver when they say they will? Do they have a good reputation? Location – how far away is the supplier located? Deliveries may take longer, and transport costs need to be considered.

Management of Stock The purpose of holding stocks is to have a supply of goods (raw materials) available for the production process and for distribution (finished goods) to customers when needed.

3 main types of stock Raw Materials – purchases from suppliers waiting to be used. Work in Progress – products that are currently being made (semi-finished goods). Finished Goods – completed products waiting to be distributed.

Task Protecting stocks of raw materials and finished goods is very important. For each of the following items, suggest one example of what could happen if an organisation’s stock control system was poor. frozen fish mobile phones fresh vegetables new cars printed books jeans

Costs/risks of holding stock Costs money to store stock: Warehouse Lighting Security Insurance Risks are: Stock has a higher risk of being stolen. Stock has a higher risk of going out of date. Risk that the money value of stock will fall eg due to changes in fashion.

Too little stock Production might stop. Customers may not receive their orders on time. Any sudden increase in demand cannot be met.

Too much stock Costs money to store stock ie warehouse, lighting, security, insurance. Money which is tied up in stock might be put to better use. If social factors change (trends/fashion), the stock might be wasted.

Technology in stock management Most businesses have a computerised system that records how much stock there is at any one time e.g. using EPOS or a spreadsheet package. Internet is used to purchase raw materials.

Methods of Production Businesses must decide which method of production to use to make their products. There are different factors to think about: The actual product being made. The quantity of the product. How to ensure the product is of a high quality. The way stock is managed. The resources available (eg staff and machinery).

The finance must be available if machinery is to be used in flow production. Very expensive to set up a production line. The technology available needs to be appropriate to make the product – is it available for you to use? The size of the premises needs to be big enough to support the use of a large amount of equipment – do you have it? Staff skills need to be sufficient to make the product, if not the cost of staff training will have to be met. The product being made needs to be made in the quantity required in the most efficient way.

Methods of Production Job Production Batch Production Flow Production

Job Production This is when a product is made individually to meet specific orders from customers. Often involves skilled labour or craftspeople. It is labour intensive.

Advantages and Disadvantages It meets the customers’ needs and is produced to their own specifications. High customer satisfaction. High prices can be charged as product is unique. More motivating for workers as they see the product through all stages of production. DISADVANTAGES High labour costs as the process is labour intensive. Specialist tools and equipment may be needed, which can be expensive. Costs are not recovered until the completion of the project

Batch Production This is where a group of identical products are made at one time. All products in the batch move onto the next stage of production at the same time. Machinery and equipment can be cleaned and/or changed between batches. Workers usually specialise in one job, so become skilled in one area.

Advantages and Disadvantages Batches can be changed to meet the requirements of the customer. Raw materials can be bought in bulk, saving money. Less skilled workers are required as only one part of the process is completed by a particular person, so reduced costs. DISADVANTAGES Equipment and employees are not working between batches, which costs money. Any mistakes in one item can result in the whole batch being wasted, which costs money and wastes time. Workers motivation is reduced because they do not see the process from start to finish.

Flow Production This is the continuous production of the same good. It is used for making large quantities of an identical product. Economies of scale can be made with this process.

Advantages and Disadvantages Economies of scale can be met due to the large production of goods Large quantities can be produced = high sales DISADVANTAGES A large amount of money is required for set up costs Each product is identical Lack of motivation for workers because they only work on a small part of the process

Flow production example Car manufacturing uses flow production Chassis of car Engine Gearbox Seats Outer Shell Dashboard and wiring Windscreen and windows

Division of Labour Both batch and flow production use division of labour which means that each worker specialises in one job on the production line. This makes the job very repetitive and boring. Many of these jobs have been replaced by machinery. This has caused unemployment for unskilled workers.

Labour Intensive Products made using mainly human effort. Advantages Disadvantages Employees can be creative It is expensive to recruit and train employees No need for expensive equipment Specialist skills require time to learn Unique products can be made The quality of work can vary

Capital Intensive Products made using mainly machines and equipment. If it is made using only machinery this is called automation. When it is a mixture of both humans and machines this is called mechanisation. Advantages Disadvantages Can work 24/7 Expensive to purchase The product will be of a consistent quality Can’t meet individual customer requirements Unskilled employees required (cheaper labour) Breakdowns cause production to stop

Quality Products and Services All businesses must ensure they provide a good quality product or service which meets customer needs in order to survive. The business must decide minimum quality levels and who is responsible for ensuring that quality is maintained at the lowest possible cost.

Advantages of Ensuring Quality Repeat purchases Improved reputation Competitive advantage Maximise sales/profits Increased market share Reduced wastage

Methods of Ensuring Quality High Quality Raw Materials This will ensure only the best inputs are used in your production and lead to a higher quality product However the costs of these materials may be higher and a reliable supplier is required

Methods of Ensuring Quality High Quality Employees Fewer errors are made and accidents are less likely to happen However it can be time consuming and expensive to train employees

Methods of Ensuring Quality Quality Control Quality Control is the checking of a product or service by carrying out an inspection. This usually happens at the end of the production process. This is less time consuming than other methods of inspecting quality May lead to large amounts of waste as it is only checked at the end.

Methods of Ensuring Quality Quality Management Quality Management is a method by which a business focuses on ensuring the product is made perfectly every time. This requires a commitment by all employees Samples of products are tested at random and at different stages of the production process. See Nissan diagram

Methods of Ensuring Quality Quality Management Product constantly checked to minimise waste More thorough than other methods Improves team work and morale However it requires a commitment from everyone Policies take time to implement and must be strictly followed

Ethical and Environmental Businesses have to be socially responsible. Means they will be seen in a positive way by not harming the local environment or community. How can they do this?

Businesses can: Try to minimise wastage by ensuring employees are trained, ensuring machinery is kept in good condition and by not overstocking. Could be expensive. Recycle as much as possible by encouraging employees to put rubbish in appropriately coloured bins and by re-using materials in the production process as much as possible.

Businesses can: Try to minimise packaging by only using the necessary amount of packaging to maintain the product’s quality. Cuts costs, good for the environment. Prevent pollution by watching the materials it uses in production (eg fuel and chemicals) and by disposing of any harmful chemicals or products in the most environmentally friendly way.