What’s the aim of production?
Added value: the difference between the cost of purchasing raw materials and the price of the finished goods.
What are the operations managers concerned with? (3)
- Efficiency of production - keeping the cost low
- Quality - The good or service must be suitable for the purpose intended
- Flexibility - the need to adapt to new processes and new products
What does the value of added value depend on? (3)
- The design of the products: does the quality enable high pricing?
- The efficiency with which the input resources are combined and managed.
- The impact of the promotional strategy on convincing consumers to pay more for the product that the cost of the inputs.
What are the stages of operations process before the selling of good or services? (4)
- Converting a consumer need into a product/service
- Organising operations so that production is carried out efficiently
- Deciding on suitable production methods
- Setting quality standards
What are the inputs of the production process? (3)
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Resources:
•Land: where the business would operate
•Labour: workers and they’re abilities
•Capital: tools, machinery, computers
Resources
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What is the difference between production and productivity?
•Production is the process of converting inputs into outputs
•Productivity is the ratio of outputs to inputs during production
e.g labour productivity = total output per time / total workers
Capital productivity = total output/capital employed
How to raise productivity levels? (4)
- Improve the training of staff to raise skill
- Improve worker motivation
- Purchase more technologically advanced equipment
- More efficient management.
Drawbacks of raising productivity? (3)
- Raising productivity may not guarantee business success considering if the products are not sold.
- Greater effort contributions from workers may require high wages
- Even though it is efficient, it may not be effective.
Difference between efficiency and effectiveness?
Example of an efficient but ineffective business.
- 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.
A business that has low unit costs and high level of outputs but low sales revenue.
Difference between labour intensive and capital intensive businesses?
- Labour intensive: involving high level of labour input compared with capital equipment. E.g furniture that is hand made. Tend to be applied in job production.
- Capital intensive: involving high quantity of capital equipment (such as machinery) compared with labour input. E.g Making soda drinks. Tend to be applied in flow production.
Which approach, between capital/labour intensity, depends on what? (3)
- The nature of the product and the product’s image
- The relative prices of the two inputs- if labour costs are high, then should use more capital equipment.
- The size of the firm and its ability to afford expensive capital equipment.
Def. Operation planning
Preparing input resources to supply products to meet expected demand.
What is the importance of the marketing mix?
• The future production levels needs to be estimated by the forecasted market demand in order to match the supply to the potential demand.
Def. Operational Flexibility
The ability of the business to vary both the level of production and the range of products following changes in customer demand.
How can operational flexibility be achieved? (4)
- Increase capacity by extending buildings and machinery - however it is expensive
- Hold high stocks - however can be damaged
- Have flexible labour force - using temporary or part time contracts
- Have mass customisation
Def. Process Innovation
The use of a new or much improved production method or service delivery method. e.g. Robots in manufacturing
What are the production methods?
- Job production
- Batch production
- Flow production
- Mass customisation
Def. Job production
Benefits and Limitations (3)
• Producing a one off item specially designed for the customer.
E.g Designed wedding rings
• Can be motivating for workers, because it allows job enrichment
• Is a very expensive method because takes a very long time to complete and is usually labour intensive. Requires highly skilled workforce.
Def. Batch production (3)
Benefits and Limitations
•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.
E.g making batches of bread. The stages may involve mixing and kneading the dough, then separating, then baking.
•May allow some gains of economies of scale. Allows each individual batch to be specifically matched to the demand (some flexibility).
•However, high levels of work in progress inventories. The work may be demotivating for employees. If batches are small, unit cost may be high.
Def. Flow production (3)
•Providing standardised items in a continually moving process
e.g soft drinks like coca-cola.
•Labour costs are low. JIT may be applicable. Quality can be consistent. Low unit costs. High productivity. Economies of scale.
• However, high initial set up cost because of capital intensive methods - machinery is expensive. Demotivating, repetitive work for employees.
Recent innovations in production methods?
• CAD (Computer aided design) and CAM(Computer aided manufacturing) have aided the developments of new products, can do the repetitive and demotivating tasks etc.
Def. Mass customisation (3)
• The use of flexible computer aided production systems to produce items to meet individual customer’ requirements at mass production cost levels.
E.g Dell computers that allow customisation
•Combines low unit cost with flexibility to meet customer’ individual requirements
•Expensive product redesign may require key components to be switched. Expensive flexible capital equipment needed.
Factors influencing which production method to adopt? (4)
- Size of the market: Small markets would be more suitable with job production, large markets would be more suitable with flow production.
- The amount of capital available: Flow production line is difficult and expensive.
- Availability of other resources: Flow production requires land. Job production requires skilled workers.
- Market demand exists for products adapted to specific customer requirements: If firms want high volumes of production but some customisation, mass customisation is the most suitable.
What are the problems of changing production methods? (3)
Job to batch:
• Cost of equipment
• Additional working capital needed to finance stock
• Staff demotivation - less emphasis on their skills
