The Nature of Operations

DO NOW Introducing the Topic Page 381 Answer the questions we will discuss shortly.

Operations Management Operations is concerned with the use of resources called inputs – Land Labor and capital, which provide outputs in the form of goods and services. Operations managers are concerened with the following three factors. Efficiency of Production Efficiency of Production Quality Quality flexibility flexibility

The Production Process Inputs Outputs Production Process Resources Land Labor Capital Finished Goods Services Components for other firms

Added Value The production process adds value to the inputs to ensure the goods and services can be sold at a profit. The degree of added value depends on the following factors.

Added Value The Design of the product – economic manufacture with quality features so it can be sold at a high price. Efficiency – Reducing waste or increasing productivity. Low cost higher profits. Promotion – low cost items like chocolate or soft drinks you will pay more based on the perceived value.

Production and Productivity Production and Productivity should not be confused however they often are PRODUCTION is the output a firm produces over time and PRODUCTIVITY is how efficiently inputs are converted into outputs. Productivity measures Labor Productivity Total output over a period Total number of workers Capital Productivity Output Capital Employed

Productivity All businesses want to increase there productivity levels, because it usually leads to a reduction in the unit costs of production, and this could give a firm a competitive advantage. Company Number of units produced Workers employed productivity Pay per worker Labor Cost Company A $4 Company B $3.33

Raising Productivity Levels Train Staff to raise Skill Level – The more training provided the higher likelihood of productive and motivated staff. Improve Worker Motivation – ie Decision Making Ability Invest in Technologically advanced equipment – You will need less workers to perform duties so the production process becomes more efficient.

Raising Productivity Levels Efficient Time Management – ensuring the materials are available and the workforce which can eliminate down time, to much down time equals lost revenue.

Raising Productivity This alone will not always mean instant success for a business, particularly if your product is unpopular. Also if workers are becoming more productive they are likely to demand more money which will then reduce any productivity gains.

Efficiency and Effectiveness Being efficient is one thing, but as always it is important that the customers needs are met, there is little value in pumping out a product efficiently if the customers don’t want it…. This is not effective operations management.

Labor or capital intensity When would it be appropriate to have a Labor intensive production process? What are the advantages and disadvantages of this approach? When would it be appropriate to have a capital intensive production process? What are the advantages and disadvantages of this?