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Higher Business Management
Operations Management is concerned with the way organisations transform inputs into finished articles (outputs)
Planning is crucial in helping a firm achieve its objectives. Ideally, production should be a constant level (exact number of workers required, materials to be used, and the number & type of machinery will be known in advance) Production in reality will vary due to changes in consumer demand, staff shortages and machine breakdowns and maintenance.
Nature of the final product Market size Resources available Stage of development of the business Labour-intensive v Capital-intensive production Availability of technology - automation
Production Systems ² Key Factors
Nature of the final product ± different products produced in different ways e.g. agricultural products compared to aircraft Market size ± mass markets can use standardised production systems like Reebok (left and right shoes made in different factories); whereas smaller or luxury markets may be customised Resources available ± finance, number of workers & their skills, machinery, factory capacity
Production Systems ² Key Factors
Stage of development of the business ± small or new firms normally produce small amounts, but as they grow their capacity, variety and output does too Labour-intensive v Capital-intensive production ± cost of workers v cost of machinery/equipment. Developing countries still labour-intensive due to paying workers very low wages
Use of Technology in Production
There have been significant changes in production techniques due to the advancement of technology. New technologies used in production include: CAD: Computer Aided Design; computers used to help design a product. CAM: Computer Aided Manufacture; computers used to control machines. CIM: Computer Integrated Manufacturing; computers used to control extensive parts of the production process. Robots: Machines which can be programmed and re-programmed to perform physical tasks. Automation has resulted in a large proportion of the production process being controlled by machines. The demand for multi-skilled and skilled workers is now greater resulting in the decrease in the need for unskilled workers.
Computer Aided Design (C.A.D)
C.A.D is the use of computers in creating and editing design drawings. The products are designed on a computer allowing the designer to change the design; make improvements; change details; or, change the specification completely. C.A.D is used in many different areas: Architecture: Computer graphics can be used to create µvisionary architecture¶ to assess plans and designs. Enables the client to view their µvirtual¶ property. Animation: Recent films produced using computer animation include: Toy Story; Ants & Finding Nemo Artificial The computer simulation gives the impression of Intelligence: being in a real 3D environment. This is used regularly by defence organisations to train soldiers.
Computer Aided Manufacturing (C.A.M)
C.A.M means that robots now perform the tasks once conducted by humans. Computers now control large parts of the production process to replace humans doing mundane repetitive tasks. Humans are now responsible for supervising the running of the machines ± it is their responsibility to program and maintain the computers. A result of C.A.M has been an increase in the levels of accuracy and quality in production. In order to keep up with the pace of technological change, there is an increase in demand for highly-skilled employees.
Benefits of New Technology
Companies are now able to increase their rate of productivity as computers and machines conduct the repetitive tasks required to produce the product. As a result, manufacturing costs are significantly reduced. The use of computers and machines ensures a high quality standard as they are able to produce at the same rate continuously. The only way in which quality may be affected if there has been a fault in the technology or wrong instructions have been inputted by the operator. Using new technology enables the company to offer a wider range of products to its customers.
Costs of New Technology
Training: the Motivation: staff will need to be trained so that they know how to effectively and productively manage machines/computers. it may be difficult to motivate employees to be productive if they feel that they are no actively involved in the
longer production process. Maintenance: it is important that the equipment is maintained to ensure that no faults occur in the production process. Capital: a large amount of capital is required in the set-up of the production process as the machinery/computers are extremely expensive. Control: it may be difficult to constantly monitor whether or not the quality standards are being met.
Purchasing ² Materials Management
THE PURCHASING MIX Alternative suppliers Delivery time Price Quality Quantity Storage Facilities
Alternative suppliers ± are suppliers dependable? Local or national suppliers? Additional costs? Delivery time ± lead times long or short? Reliability and keeping promises! Price ± discounts and bulk buying vs cost of keeping stock? Credit terms v discounts
Quality ± supplier guarantee of consistent quality materials Quantity ± storage adds 15-30% on to cost of purchasing. Storage Facilities ± storage capacity? Safety, security, other conditions of storage?
Stock is a resource which is held in a specific location awaiting use. Holding stock can be expensive to a business as there are a variety of costs associated to it eg. maintaining warehouse; employee wages etc. There are 3 basic categories which describe stock: Raw Materials: resources required to produce a product. Work-In-Progress: goods which are still to be completed (currently in the process of being produced). Finished Goods: final product which is waiting to be distributed to the end-user (customer).
Why Is It Important To Control Stock?
It is important for businesses to have an effective stock control system to ensure that there is minimal wastage and expense. Furthermore, businesses must ensure that the stock held matches the resources required. An effective control system would have the following factors: Regular stock checks to ensure that records are accurate and up-to-date. If an order were to be placed it is imperative that the business is aware if they can fulfil the demand. Security of storage must be of a high standard to prevent stock being damaged or stolen. Ensure that costs are minimised whilst also ensuring that the correct level of stock is held.
Levels of Stock
A business which holds stock will implement the following stock levels in order to meet customer demand at all times. Minimum Level: this is the minimum amount of stock needed in case the required supply were to be delivered late. The business will never allow the stock level to drop below a certain point in order to prevent a resource shortage. Maximum Level: this is the maximum amount of stock which can be held in the warehouse at any given time. This level is restricted by factors such as space; cost; and, delivery time. Re-Order Level: this is when the stock level drops to a certain point and the process will automatically re-order the required stock. In order to decide at what point to re-order, businesses must consider the following: how long is the delivery time? how reliable is the supplier?
Stock Control Diagram
Cost/Benefit Analysis of Holding Stock
Benefits Of Holding Stock Costs Of Holding Stock
Supplies are available when you need them. Any increase in demand can be met. Discounts available for bulk buying. Customers¶ orders can be met immediately.
Money could be used more efficiently. Financial costs associated with warehousing and insurance. Labour costs involved in stock control. Value of stock may decrease if fashions change or passes sell by date.
Bar codes have now become the global language of business, and are standardised so no two companies will pick the same bar code for different products. They make it easy to describe the raw materials and products being bought and sold. ³Without bar codes our operations would not work´ ± Nestle UK supply chain manager
Toyota: a supermarket for cars
Just In Time Production (JIT)
JIT production is a Japanese approach to production that involves keeping the stock levels to a minimum. Stocks arrive just in time to be used in production. As a result, costs are cut by reducing the amount of stocks held by the business. Goods are not produced unless the business has an order from the customer. JIT strives to eliminate waste by producing the right part in the right place at the right time!
In order to be effective and efficient JIT requires the following factors to be in place: Highly skilled and flexible workforce which are able to respond to the challenges of JIT. Absolute certainty regarding delivery times to ensure that production runs to schedule (if the delivery was late this would halt production). If suppliers provide sub-standard items the whole system fails as there isn¶t an alternative resource waiting in stock.
Advantages & Disadvantages of JIT
Less space required for stock. Able to respond quickly to changes in demand. Closer relationship with suppliers. Capital can be used for other priorities as opposed to being tied up in stocks.
Production may be stopped if supplies are delayed. Sales may be lost if not meeting customer demands. Increased ordering and admin costs. Depending on the efficiency of the supplier.
Flat Rate Overtime Piecework PRP Profit sharing Share save/share options
This payment method involves the employee receiving a basic rate of pay per time period that he works (e.g. £5 per hour, £50 per day, £400 per week). The pay is not related to output or productivity.
Any time that the employee works above the agreed number of hours per week may make him eligible for overtime payments, often at µtime and a half¶ (e.g. £7.50 per hour instead of £5 per hour). Double time is paid after a certain number of hours of overtime and would be £10 per hour in our example.
This payment method involves the employee receiving an amount of money per unit (or per µpiece¶) that he produces. Therefore his pay is directly linked to his productivity level. However, it is possible that in order to boost his earnings, an employee may reduce the quality and craftsmanship per unit, so that he can produce more output in a given period of time.
Performance Related Pay
This is a method of giving pay rises on an individual basis, related to the employee achieving a number of targets over the past year. This is common with managerial and professional workers. Appraisals may be linked to PRP.
This involves each employee receiving a share of the profit of the business each year, effectively representing an annual pay rise. It aims to increase the levels of effort, motivation and productivity of each employee, since their annual pay-award will be related to the profitability of the business. However, if the business makes low profits (or even a loss) then this is likely to have a detrimental effect on the level of motivation of the employees.
A common form of payment in many PLCs is what is termed µshare options¶. This basically involves each employee receiving a part of each month¶s salary in the form of shares (usually at a discounted price). This forms a profitable savings-plan for the employee, and he can sell them after a given period of time. This should motivate the employees to work harder and increase their efforts, since the share price will rise as the company becomes more profitable, therefore increasing the capital gain on their shares.
Distribution & Delivery
Design and layout Mechanical handling Transportation Scheduling
Design and layout
warehouses should be on ground level to reduce handling times from delivery to storage. Stock rotation should be in operation.
some warehouses have specialist stock-handling equipment built into their warehouse. Tesco has a conveyor belt which can link up with their trucks to take the cages inside the factory. Other methods would be using pallets and forklifts to transport them inside the warehouse
businesses can use their own transport which gives them complete control over delivery, but has high investment and running costs; or it can hire transport which is cheaper and can deal with changes in volume, but gives less control; and finally public transport which although very cheap is highly unreliable and no control
this makes sure all factors of production are taken into account and working in harmony. To ensure smooth delivery from supplier to manufacturer to end user
Methods of Transporting Goods in UK
5% 24% road rail water 7% 64% pipeline
Job Production concentrates on producing one product from start to finish. Once one product is complete, another can begin. It is extremely labour intensive Some examples:
Wedding dress Painting House extension
Job Production +/Easy to organise production Can customise orders µone-off¶ orders can be accommodated Workers involved in entire production process from start to finish Production costs likely to be high Production time may be longer Investment in machinery may be higher as specialist equipment may be needed
Batch production enables items to be created in bulk (µa batch¶) General purpose equipment and methods are used to produce small quantities of items that will be made and sold for a limited time only Commonly used in food production
Big Macs Gregg¶s Rolls
Batch Production +/Allows flexible production Stocks of part-finished goods can be held and completed later Workers can specialise Production runs of small batches can be expensive to produce If production runs are different there may be extra costs and time delays in setting up different equipment Repetitive work for employees
Aka continuous production, flow production enables products to be created in a series of steps. Large amounts of goods produced and is highly capital intensive (machinery, automation) Cars are massed produced for a large market using flow production
Flow Production +/Economies of scale Automated production lines save time and money Quality systems can be built into the production Standard product produced (opposite of customised) High set-up costs of automated lines Repetitive and boring work Long production runs may produce more than is needed
Importance of Quality
Quality is ensuring that the end-to-end customer requirements are met to the highest possible standard. It is imperative to businesses that their production process meets quality standards throughout so that the end result delivers customer satisfaction. Quality focuses on reducing errors, faults and cutting out flaws. It is important that all employees are informed of the quality levels and standards expected of the company. Eg. IBM produces weekly quality reports indicating current performance levels.
British Standards Institute Kite Mark ISO 9000 ABTA Investors in People
There are 3 stages in attempting to improve on quality:
1. 2. 3.
Quality Control Quality Assurance Total Quality Management
This process was a traditional method of quality control, whereby inspectors were required to spot check the final products. Whenever sub-standard products were found it was the duty of the inspector to remove the items and discard them. This proved to be an extremely costly exercise as it resulted in a high level of wastage. At no point in the process were the production workers involved in determining what was the expected level of quality.
This process of quality control made the production workers aware of the standard which was required by the business. Quality checks would be conducted at each stage of production. The workers would operate as a team to check and monitor the progress and accuracy of the production process.
Total Quality Management
The main principle of TQM is that every employee is motivated to think about their personal contribution to providing quality to customers. Every employee has a responsibility to ensure that a quality product leaves the workplace. To encourage this level of participation in the quality process, management give more independence to the workforce and constantly seek their opinions and comments on ways in which quality can be improved in the business.
Total Quality Management
As no errors are tolerated, tasks must be completed correctly first time! In order for TQM to be effective the following factors must be implemented: Clearly defined policy on the required levels of quality. Every employee must be focused on customer satisfaction. Staff must be provided with appropriate training to ensure they know how to meet the set standard. People should be appointed to constantly check and monitor that the process is working. Teamwork, at all levels, should be encouraged.
TQM - Kaizen
The Japanese have perfected the concept of total involvement in the life of the organisation. Workers are part of a team; there are team songs and team competitions. Everyone is expected to strive towards continual improvement.
Benchmarking is a form of quality assurance which takes the best performers in an industry as the standard to be aimed for. Benchmarking involves using different sources such as customers, trade journalists and business analysts.
Other Methods of Ensuring Quality
Work Study ± analysis of work methods which has two main types:
Method Study ± looks for the best way to perform a task Work Measurement ± looks at the time taken to do specific tasks
Other methods include: incentive schemes and quality circles.
A group of 6-12 people who meet to identify quality problems, consider solutions & recommend suitable outcomes to management. Members drawn from factory floor but include engineers, quality inspectors & salesmen to offer different viewpoints. (Managers may or may not be included) Why use Quality Circles? No-one knows production problems better than the workers Workers appreciate the chance
How Do Quality Circles Work?
Volunteers Set Rules and Priorities Decisions made by Consensus Use of organized approaches to ProblemSolving
How Do Quality Circles Work?
All members of a Circle need to receive training Members need to be empowered Members need to have the support of Senior Management
How Can They be Used in an Organization?
Increase Productivity Improve Quality Boost Employee Morale