Higher Business Management Unit 2 Learning Outcome 5 Operations BM Unit 2 - L05

Operations/Production Three distinct phases Inputs  Process  Outputs   BM Unit 2 - L05

Inputs Raw materials Labour BM Unit 2 - L05

Process Converting raw materials into something useful Use of machinery and other processes Assembly BM Unit 2 - L05

Output The finished product! Packaging Storage Distribution Transport BM Unit 2 - L05

Factors Affecting Production Systems Nature of the product Quantity to be produced Resources available Labour Capital BM Unit 2 - L05

Methods of Production Job Production Batch Production Flow Production MASS PRODUCTION IN LARGE FACTORY BM Unit 2 - L05

Job Production A house built to your own design A custom-built boat A piece of artwork A hand-turned wooden bowl BM Unit 2 - L05

Batch Production A number of similar products (repeated jobs) The same house repeated on a building site Bakery produce - each batch may differ slightly BM Unit 2 - L05

Flow Production Mass production of almost identical products Cars Washing machines BM Unit 2 - L05

Quality Control ‘Bolting the door after the horse has gone’ Leads to waste and scrap Can be very “costly” BM Unit 2 - L05

Quality Assurance Making sure the horse cannot bolt Getting it right first time All aspects of the business including the commitment of the workforce BM Unit 2 - L05

Quality - A Definition Those features of a product or service that allow it to satisfy customers’ requirements BM Unit 2 - L05

Measuring Quality Tangible Intangible Appearance Reliability Durability Functions Suitability After sales service Maintenance Intangible Image and brand (‘street cred’) Reputation Exclusivity BM Unit 2 - L05

Quality Systems Total quality management Benchmarking Quality circles BM Unit 2 - L05

Total Quality Management (TQM) Right first time Consistent, clear message on quality Staff commitment to ongoing improvement Partnership with suppliers Educate and train staff Supervisors encourage and help Eliminate fear of failure Departments integrate and share problems Set clear, achievable goals Help employees to take pride in their work Train and educate Establish a structure and culture to support these aims BM Unit 2 - L05

Features of TQM Commitment to customer needs Close links with the supply chain Personal responsibility by employees Company-wide policy for all staff Emphasis on teamwork Clear measures of “quality” Information gathering to support these measures Well-used 2-way communication systems BM Unit 2 - L05

Benchmarking - A Definition Benchmarking is the process of setting competitive standards, based on the achievements of other firms, against which an organisation will monitor its progress. Benchmarking tends to focus on the “best in class” companies, but for specific functions a company may compare itself to an organisation in a different industry. BM Unit 2 - L05

Types of Benchmarks Internal - comparison with a function within the organisation External - comparison with other organisations Competitive - direct comparison with a competitor Generic - comparing general business activities (eg recruitment) Customer - contrasting the level of fulfillment of customer expectation BM Unit 2 - L05

Quality Circles Production workers know more about the production process than “managers” Workers are motivated by being involved and consulted about production problems (empowerment) BM Unit 2 - L05

Types of Stock Raw materials, components, etc Work in progress (unfinished work) Finished goods BM Unit 2 - L05

The Importance of Stock Control “Stock out” = lost sales and poor reputation Excess stock = high storage costs Excess stock runs risk of damage, obsolescence, “opportunity costs” (alternative use for the money tied up in stock) BM Unit 2 - L05

Factors Influencing Stock Levels The level of demand Unpredictability of demand Degree of spoilage/perishability Rental costs for storage Bulk-buying discounts Reliability of suppliers Competition - luxury/necessity BM Unit 2 - L05

Elements of Stock Control Maximum stock levels Minimum stock levels Rate of consumption Lead time - ordering to receipt Re-order level BM Unit 2 - L05

Just-in-time (Kanban System) Advantages Stock exactly matches production Improves cash flow (less tied up) Savings on purchase and storage costs Less stock wastage Production delays prevented Can respond to changes in demand Close ties with suppliers established BM Unit 2 - L05

Just-in-time (Kanban System) Disadvantages High dependency on suppliers to meet delivery and quality standards Suppliers must be willing to participate (can be high-risk - ‘all the eggs in one basket’ - M&S suppliers) Increase in order processing costs BM Unit 2 - L05

The Purchasing Function Having sufficient stock available Avoiding wastage of stock Having the correct quality In the factory when needed Competitive prices paid Building good relationship with suppliers BM Unit 2 - L05

The Purchasing Mix Best quality Lowest price Delivered in correct quantities Delivered at the correct time BM Unit 2 - L05