Capacity/quality

Question 1

Capacity -

Answer 1

• the maximum it can produce given its existing resources; at any moment the capacity of a business is fixed, as there are a given level of resources. Overtime the capacity of a business might change as more resources become available. However, it might take time (like building more power nuclear plants). Increasing capacity is an investment and managers will want to consider the cost, the likely returns and the risk. The desired level of capacity will depend on the expected level of sales.

Question 2

Unit average costs -
Formula =

Answer 2

• this measures the cost per unit
  = total costs/total output

Question 3

Capacity utilisation -
Formula =

Answer 3

• measures existing output as a percentage of the maximum possible output
  = existing output/maximum possible output x 100

Question 4

Measures of the business (4)

Answer 4

1. Labour productivity
2. Unit average costs
3. Capacity
4. Capacity utilisation

Question 5

Labour productivity -
Formula =

Answer 5

• this measures the output per employee in a given period
  = total output/number of employees

Question 6

Low capacity utilisation (2)

Answer 6

1. It suggests that demand is relatively low
2. The cost per unit is likely to be high as fixed costs are going to be spread among less units => higher FC per unit that might result in lower profit margins, that is why the businesses try to achieve a high capacity utilisation

Question 7

Chain of capacity

Answer 7

Unit costs -> price -> sales -> volume of production

Question 8

The use of data in operational decision making

Answer 8

By analysing the operational data, managers may be able to identify problems or opportunities. This enables them to analyse different courses of action and decide what to do next. Operations data therefore informs operations decision making and planning.

Question 9

What can go wrong with capacity (4)

Answer 9

1. If labour productivity is low, (the managers can analyse this further to identify the cause. They might then consider whether to invest in training, change reward system or change the way the work is undertaken.)
2. If the unit costs are too high, (the managers might negotiate with suppliers or improve labour productivity, review levels of defects.)
3. If capacity is too low, (might consider whether it’s worth to invest to expand.)
4. If capacity is too high, (managers will consider whether to increase demand or whether the business should ‘downsize’ (reduce capacities by closing part of facilities).)

Question 10

Quality -

Answer 10

• is measured by the extent to which an operation meets its customer requirements

Question 11

Good quality process

Answer 11

A good - quality operations process delivers exactly what it is intended to produce and meets the targets that have been determined by the customer requirements. To achieve its targets and develop a quality process a business must develop appropriate systems; must monitor what is happening to ensure the targets continue to be achieved. If the targets are met -> quality process.

Question 12

Quality operations process (5)

Answer 12

1. A clear definition of what the targets are; these should be set to meet customer requirements
2. Systems to achieve these targets
3. Training of employees so that they have the necessary skills
4. Ongoing measurement of what is achieved relative to the targets
5. Action to be taken if performance does not meet the targets

Question 13

Importance of quality

Answer 13

To remain competitive and gain brand loyalty the businesses should provide good consistent quality of their products. The market became more competitive due to high number of businesses online and developments in technology.

Question 14

To improve quality (5)

Answer 14

1. Using market research to ensure the requirements of customers are clearly met and the action are appropriate for relative to what competitors are doing
2. The careful selection of suppliers
3. Training employees to check the work they receive and make sure it is acceptable, to do their job properly and check their own work
4. Investment in technology
5. Reviewing the way the work is done to see if the systems can be improved (kaizen groups as employees know what’s best for them)

Question 15

Quality assurance -

Answer 15

• the maintenance of target quality by attention to detail at every stage of the process

Question 16

Quality control -

Answer 16

• a system of maintaining standards by testing or inspecting the output against standards

Question 17

Benefits of improving quality (5)

Answer 17

1. The process is under control: doing what it should be doing and delivering what it should be delivering
2. Business will be competitive if the targets were set at an appropriate level
3. Providing services fast enough and reliably enough
4. Helps the brand image
5. Higher customer satisfaction/generates goodwill through word of mouth

Question 18

Difficulties of improving quality (employees 4)

Answer 18

1. Think that the business is doing well enough as it is and not see the need to set higher targets over time
2. See improving quality as extra work and not understand why they should do it unless they get higher wages/salaries
3. Unwilling to suggests improvements, believing this is management’s job
4. Unwilling to undertake all the administration required to measure and check progress

Question 19

Difficulties of improving quality (business 5)

Answer 19

1. Discussing issues with employees and getting them to agree to the process
2. Investing in training
3. Changing suppliers
4. Developing a culture where getting it right first time and continuously measuring performance is the norm
5. Incentives to encourage employees to value better quality as a target

Question 20

4 absolutes of quality

Answer 20

1. Quality is conformance to requirements (quality is about meeting targets)
2. Preventing defect is preferable to inspection and correcting mistakes
3. Zero defects should be the target
4. The cost of quality should be measured in terms of the costs of not conforming

Question 21

Poor quality is expensive (4)

Answer 21

1. It costs money to recall faulty products
2. It can damage brand’s reputation
3. It costs money to rework faulty items
4. May be legal costs if customers sue the company

Question 22

Scrap rate -

Answer 22

• refers to the percentage of produced units that are defective and have to be “scrapped”

Question 23

Defect -

Answer 23

• an imperfection or insufficiency, which may be present in a product, property, process, or legal document