Topic 5 - Operations Management

Topic 1 -
Social sustainability
Social interactions and structures that are necessary for sustainable development – the
ability of the society to develop in a way that it meets the social wellbeing needs of the
current and future generations
It enable society to optimise the quality of life for people and their descendants
Economic sustainability
The development that meets the economic needs of the present generation using
existing available resources without compromising the ability of future generations to
meet their needs
Threats
Overuse of resources – fossil fuels as energy sources
Rapid economic development in China/India (change, globalisation) – pollution,
environment damage

5.2 Production methods

Job production
- Highest Quality
- Has highest motivation
- Is most flexible when customer needs change
- Can provide the most unique products
- Can offer most choice.

- Most time-consuming
- Is most labour-intensive
- Has the longest working capital cycle
- Has fewest economies of scale
- Has the most irregularity of orders

Mass Production
- Output is on a much larger scale
- Technical economies of scale
- Standardised quality
- Low labour costs

- Unskilled workers monotonous work

- Inflexible in terms of changing customer requirements
- Huge set-up costs
- Any halts in production will cause major problems
- Cannot rework substandard products
- Need for an effective stock storage system

Labour intensive - production that uses people

Capital intensive- production that uses machinery

Batch production - involved producing a set of identical products. Work on each batch is fully
completed before production switches to another batch. It is used where demand for a product
is frequent and steady.

Cell production - organized workers into independent ‘cell’s’ with each team comprising of
multi-skilled staff with responsibility and autonomy for completing a whole unit of work in the
production process.

Factors affecting choice

- Appropriateness of labour/capital for the task.
- Cost of labour/technology in that area
- Level of demand for the product
- Types of skills available in the area

Which production method?

What is lean production?

lean production is the process of streaming operations and processes to reduce all forms of
waste and to achieve greater efficiency.

Types of waster
-materials
-time
-energy
-human effort

Lean production principle

- Waste minimisation
- Right first time approach
- Flexibility
- Continuous improvement
- Supply chain management
-

Benchmarks, staff can go to learn about lean practices, how to meet benchmarks. Think about
issues and try to solve them. - solve problems at the level of the company. Problems get
solved in a way that makes sense in the process.

Just-in-time

Built it and it iwll come.

Kaizen-conitinous improvement - eliminating all the waste. Everyone participates,

Cradle to cradle
- minimise/reduce resources cosumption energy
- Reduce waste - recycle,reuse all materials.

What is quality?
- Quality means that a good or service must be fit for its purpose, by meeting or
exceeding the expectations of customers
- Products that do not meet standards/expectations are said to be sub-standard
products.

Quality and perceptions

Factors considered with quality
- Physical appearancea and design
- Image and reputation of brand
- Reliability
- Durability
- Fit for purpose
- Safety features
- Customer service
- After-sales service
Importance of quality
- Quality is an essential requirement in the process of satisfying a customer
- Driving forces, why quality is important to businesses
Customer awareness, Competition, Legislation, Customer incomes

Benefits of Quality
- Customer loyalty
- Reduced costs
- Longer life cycles
- Stronger brand/reputation
- Premium pricing
- Ability to control costs

costs of poor quality

- rework
- Breakdowns
- Late delivery
- Unsafe
- Complaints
- Reputation
Quality management
2 main categories:
Quality control
- Traditional
- Inspecting
- Detecting defective output
Quality assurance
- Management process ensuring everything is done ‘right the first time’
- Preventing poor quality

Total Quality Management (TQM)

- An ongoing process
- Philosophy of the entire organization
- Every function and every employee is responsible for quality
- Zero defects is the goal
- Quality is viewed from the customer perspective

Quality circles : small groups of people who meet often to examine issues relating to quality
- Make recommendations
Benchmarking - comparing standards to others in an industry.
5.4 Location

Factors affecting location decisions

What may location depend on?
Nature of business, product, human resources
Quantitative reasons for location decisions
- Availability
- Sustainability
- Cost of land
- Cost of labour
- Proximity to the market (customers)
- Proximity and access to raw materials
- Government incentives and limitations
- Feasibility of e-commerce
Quantitative reasons for location decisions
- Management preferences
- Local knowledge
- Infrastructure
- Transport networks
- Communications networks
- Support networks
- Political stability
- Government restrictions/regulations
- Ethical issues
- Clustering
Where is land likely to be more expensive?

Outsourcing (subcontracting) - is the practice of transferring internal business activities to an

external organization to reduce costs and increase productivity.
Offshoring- is an extension of ousourcing which invovled relocating business functions and
processes overseas. This means that offshored functions can ream
Insourcing
WHy might a location decision be said to be ‘irreversible’?
What is the difference between outsourcing and offshoring?
Distinguish between bulk-buying increasing and bulk-reducing industries
5.5 Production Planning
What is worse?
Stockpiling and Stock -out
Suplly chain Management (logistics)
Stock control- Plan, implement and monitor the movement and storage of stocks
Quaity control - Adding value to make quality products
supplier networks - which suppliers or intermediaries. Collabration can facilitate improvements
Transportation- cost effective methods of distribution. Factors to consider - speed, frequency,
relability. Use of subcontractors or couriers if necessary.
The SUPPLY CHAIN refers to the sequence of activities from the production of a good or
service to it being delivered to the end customer.

Supply chain management SCM- the art of managing

Importance
- Long supply chain increase chances of things going wrong
- Can help ensure that appropriate quantity and quality of stocks are received.
- Can identify areas of waste to support lean production
Issues
- International sourcing is very complex
- Often many partners in the supply chain to deal with
- Language issues
- Time lags
- One problem in the supply chain can cause more later on
- Trust needs to be built between partners.
Stock (inventories) - materials, components and products used in the production process
Raw materials- natural resources used for production
Work-in-progress- semi finished products
Finished goods - Complete units of output that are ready for sale
Stockpiling - holding too much stock
Stock-outs- holding insufficient stock
Stock control chart - graphically illustrate a simplistic system of stock control
Maximum stock level - upper limit of stock a business wishes to hold
Re-order level - level of stocks when new order is placed
Re-order quantity - amount of new stock ordered
Lead time - time lag between placing order and receiving order
Minimum stock level/buffer stock - lowest amount of inventory a business wishes to hold
Usage rate - speed at which stocks are used up
5.5 Production planning
Capacity Utilisation

Actual level of output/Maximum possible output x 100

Capacity Utilisation
- Measure of existing level of output to maximum level
Important when:
- High fixed costs
- Low profit margins
- High BE
- Low marginal costs
High Capacity Utilisation
Benefits
- More efficient
- Spread of fixed costs
- Can lead to higher sales/revenue/profit
Drawbacks
- No time for servicing on machinery
- Stress on workers
- Longer wait times and poor customer service
- Diminishing marginal returns (overcrowding and overtime pay)

Productivity
A measure of how well resources are being used in production process.

Importance of 4 Es
- Economies of scale
- Earnings
- Efficiency
- Evolution
Determinants of
- Technology
- Rivalry
- Innovation
- Entrepreneurship
- SKills and experience
5.6 Research and development
Prototype - create trial/test products
Sunrise industry - rapid growth potential
Sunset industry- slow/declining growth
Product innovation- refers to new creations or development of existing products. - iphone,
google glass
Paradigm innovation- refers to innovative change, often radical, and changes the nature of
certain markets. - invention of touch screen, ipod
Process innovation- Refers to change in the way production or delivery takes place. - amazon ,
book depository, computerised tracking system.
Position innovation- the repositioning of the perception of an established product. - levi jeans

Benefits of R&D

- R&D can elad to improved perfromance of an organisation

- It can lead to higher sales growth
- Value added is likely to improve
- THere is the possbility of increased market value
- IT can give a business a first mover advantage
- Greater employment opportunities
- Social benefits

Creativity
- Process of generating new ideas
Adaptive
- Adjust or develop something that already exists
Innovative
- Creating something new

5.7 crisis management and Contingency planning

Crisis management - the response to a crisis situation

Contingency planning - developing a plan to change the business environment to avoid crisis
and plan procedures to follow in the event of a crisis.

What’s the link?

Advantages of Contingency planning

- Careful planning - reduce risks since most if not all eventualities have been accounted
for.
- Reduce impact of crisis
- Reassure staff
- Effective communication
- Enhance productivity and motivation
- Used in marketing
Disadvantages of Contingency planning
- Increasing costs
- May never ahppen
- Outdated or inaccurate data
- Totally unexpected ones can’t be prepared for.
Factors affecting crisis management
Transparency

Communication

Speed

Control