SG BUSINESS MANAGEMENT

OPERATIONS

Learning Outcomes

Input, process, output Purchasing mix choice of supplier Factors affecting choice of supplier Purchasing stock Stock control Just-in-time production Methods of production job, batch, flow Advantages and disadvantages of each method Quality Quality Control, Total Quality Management, Quality Circles, Benchmarking

What is Operations?

Everyone has needs and wants. These can be goods or services. The operations area of the business is the transfer of raw materials into a finished article offered for sale. This is sometimes called Production.

Operations
Raw Materials Manufacturing

INPUT

PROCESS OUTPUT
Finished product and distribution Customer

Which supplier?

A business must consider the following when choosing the right supplier of materials:

Which supplier? cont

Price Quantity Quality Reliability Delivery Time the best price possible - a cheaper price will reduce costs and increase profits ability to supply quantity required needs to be consistent confidence that delivery quantities delivered to a deadline Some raw materials may be perishable and require speedy delivery

STOCK CONTROL

The purpose of holding stocks is to have a supply of goods (raw materials) available for the production process and for distribution (finished goods) to customers when needed.

3 main types of stock are

Raw Materials resources waiting to be used Work in Progress semi-finished goods in the process Finished Goods products waiting to be distributed

Benefits of holding stocks are

Supplies are available when needed Any increase in demand can be met Discounts - for bulk buying Customers orders can be met immediately

Costs of holding stocks are

Money which is tied up in stock might be put to better use

Warehousing Insurance Labour costs involved in stock control Risk that the money value of stock will fall eg due to changes in fashion

Businesses will have an effective stock control policy. Decisions will be made on Maximum Stock Level, Minimum Stock Level and Reorder Level. Depending on usage and Lead Time.

Businesses must have an effective stock control policy for each item of stock:

Maximum level decided by the space available, the production needs, buffer stock and delivery time Minimum level this is decided by the need for a buffer stock to allow new supplies to be delivered before old stock runs out Re-order level the point when new stock is automatically re-ordered, determined by delivery times etc.

Stock

Maximum Level

Reorder Level Minimum Level Lead Time Time

Just In Time Stock Control (JIT)

This is a Japanese way of controlling stock which is now used by many companies in the UK. The characteristics of this system are:

Materials are only ordered when required for production No emergency or back-up stocks are held Close linkage with the firm and suppliers Cost savings are made as stock levels are almost nonexistent Computers can be used to connect demand, production and delivery

PRODUCTION

METHODS OF PRODUCTION

Job Production Batch Production Flow Production

JOB PRODUCTION

This is when a product is made individually to meet specific orders from customers. Often involves skilled labour or craftspeople. It is labour intensive. EXAMPLE: A designer dress is made from start to finish

Advantages and Disadvantages of Job Production

ADVANTAGES It meets the customers needs and is produced to their own specifications More motivating for workers as they see the product through all stages of production

DISADVANTAGES High labour costs as the process is labour intensive. Higher wage bill as the workers are highly skilled Costs are not recovered until the completion of the project

BATCH PRODUCTION

This is where a range of similar products are made. Workers usually specialise in one job, so become skilled in one area. EXAMPLE: one batch of white bread is made from start to finish, then a batch of brown rolls will be made from start to finish.

Advantages and Disadvantages of Batch Production

ADVANTAGES Batches can be changed to meet the requirements of the customer Less skilled workers are required as only one part of the process is completed by a particular person

DISADVANTAGES Careful planning is needed for the operation to run smoothly Workers motivation is reduced because they do not see the process from start to finish

FLOW/MASS PRODUCTION

This is the continuous production of the same good. It is used for making large quantities of an identical product. Economies of scale can be made with this process.

Advantages and Disadvantages of Flow Production

ADVANTAGES Economies of scales can be met due to the large production of goods

DISADVANTAGES A large amount of money is required for set up costs Each product is identical Lack of motivation for workers because they only work on a small part of the process

Flow production example

Car manufacturing uses flow production
Chassis of car Engine Gearbox Windscreen and windows Seats Outer Shell Dashboard and wiring

Division of Labour

Both batch and flow production use division of labour which means that each worker specialises in one job on the production line this makes the job very repetitive and boring. Many of these jobs have been replaced by machinery. This has caused unemployment for unskilled workers. It is more common for workers to be multi-skilled and do different jobs, or work in teams.

Quality Products and Services

All businesses must ensure they provide a good quality product or service which meets customer needs in order to survive. The business must decide minimum quality levels and who is responsible for ensuring that quality is maintained at the lowest possible cost.

Quality Control

Quality Control is the checking of a product or service by carrying out an inspection. This usually happens at the end of the production process. May lead to large amounts of waste.

Quality Standards

Many products are made to standards which are laid down by quality assurance bodies, such as the British Standards Institute (BSI). The organisation draws up a standard for a wide range of products such as the ISO 9000 award and the Kitemark.

Total Quality Management

TQM is a method by which a business focuses on quality by making it an important aim of every worker in the organisation. Samples of products are tested at random and at different stages of the production process.

See Nissan diagram

TQM
Benefits

Barriers

Improved product Increased productivity Reduced wastage of resources Increase in profitability/market share

Lack of management commitment/unwilling to change Culture change Lack of planning

Quality Circles

Working group consisting of representatives from both management and employees. Aim is to discuss ways of improving the production process. Benefits are:

Employees are engaged and motivated New ideas which improve efficiency Increased productivity Improved employee relations

Benchmarking

This is where one business compares itself to another similar organisation, usually the market leader. By doing this a business can identify what it is required to do to remain competitive.

Customer Service

Customers need to be treated well by all employees Any queries or complaints should be dealt with in a calm and knowledgeable manner otherwise pass to a senior colleague Customer Service Departments will have set procedures to deal with after sales; complaints and to give information and advice. Poor customer service can lead to

Bad reputation Loss of customers Loss of Sales/Profits Loss of Market Share

Good Customer Service will result in:

Loyalty and repeat sales Customers recommendations leading to new customers Good Reputation leading to increased sales etc.