You are on page 1of 80


Higher Business Management

 Role and Importance of Operations
 Production Planning
 Production Systems
 Key Factors
Role and Importance of Operations

 Access to raw materials, machines and

workers does not guarantee that you
will obtain the outcomes you desire.
 Organisation is essential.
 Procedures must be established to
control and direct what is done, whom it
is done by and when.
 This is the Operating System.


Operations Management is concerned with the way organisations

transform inputs into finished articles (outputs)
Production Planning
 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
Production Systems
 Nature of the final product
 Market size
 Resources available
 Stage of development of the business
 Labour-intensive v Capital-intensive
 Availability of technology - automation
Production Systems – Key Factors
 Natureof the final product – different products
produced in different ways e.g. agricultural
products compared to aircraft

 Marketsize – 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 – 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
What factors will influence the
type of production system that a
manufacturer chooses?
 Role and Importance of Operations
 Production Planning
 Production Systems
 Key Factors
 Use of Technology in Production
 C.A.D.
 C.A.M.
 Benefits of New Technology
 Costs of New Technology
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
 C.A.D is used in many different areas:
Architecture:Computer graphics can be used
to create ‘visionary architecture’
to assess plans and designs.
Enables the client to view their
‘virtual’ property.
Animation: Recent films produced using
computer animation include: Toy Story; Ants & Finding
Intelligence: The computer simulation gives the
impression of being in a real 3D environment. This
is used regularly by defence organisations to train
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
Costs of New Technology
 Training: staff will need to be trained so that they know how to
effectively and productively manage the machines/computers.
 Motivation: it may be difficult to motivate employees to be
productive if they feel that they are no longer actively involved in
the 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
 Control: it may be difficult to constantly monitor whether or not
the quality standards are being met.
 Use of Technology in Production
 C.A.D.
 C.A.M.
 Benefits of New Technology
 Costs of New Technology
 Purchasing Mix
 Stock
 Why is it important to control stock?
 Levels of stock
 Stock control diagram
 Cost/benefits of stock
 Bar codes
Purchasing – Materials Management


 Alternative suppliers
 Delivery time
 Price
 Quality
 Quantity
 Storage Facilities
Purchasing Mix
 Alternativesuppliers – 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
Purchasing Mix
 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
What are the main factors that
will affect purchasing
 Stock is a resource which is held in a specific location awaiting
 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  Money could be used
when you need them. more efficiently.
 Any increase in  Financial costs
demand can be met. associated with
 Discounts available for warehousing and
bulk buying. insurance.
 Customers’ orders can  Labour costs involved
be met immediately. in stock control.
 Value of stock may
decrease if fashions
change or passes sell
by date.
What are the 4 main decisions to
be made in minimising stock
holding costs?
Bar codes
 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.

 “Withoutbar codes our operations would not

work” – Nestle UK supply chain manager
Why are bar codes important in
modern business?
 Purchasing Mix
 Stock
 Why is it important to control stock?
 Levels of stock
 Stock control diagram
 Cost/benefits of stock
 Bar codes
 Toyota: a supermarket for cars
 Just in Time production
 Effective JIT
 Advantages and Disadvantages of
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!
Effective JIT
 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
Advantages Disadvantages
 Less space required for
 Production may be
stopped if supplies are
 Able to respond quickly
to changes in demand.
 Sales may be lost if not
 Closer relationship with
meeting customer
suppliers. demands.
 Capital can be used for  Increased ordering and
other priorities as admin costs.
opposed to being  Depending on the
tied up in stocks. efficiency of the supplier.
Explain why JIT systems can
reduce costs to business
 Toyota: a supermarket for cars
 Just in Time production
 Effective JIT
 Advantages and Disadvantages of
 Payment systems
 Distribution and delivery
Payment Systems
 Flat Rate
 Overtime
 Piecework
 Profit sharing
 Share save/share options
Flat Rate
 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
 Any time that the employee works above the
agreed number of hours per week may make
him eligible for overtime payments, often at
‘time 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 ‘piece’) 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.
Profit Sharing
 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
 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.
Share/save options
 A common form of payment in many PLCs is what is
termed ‘share 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.
Mechanical handling
 some warehouses have
specialist stock-handling
equipment built into their
 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
M e thods of T ransporting G oods in U K

24% ro a d
ra il
w a te r
7% 64% p ip e lin e
 Payment systems
 Distribution and delivery

 Types of production:
 Job
 Batch
 Flow
Job Production
 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 costs
production likely to be high
 Can customise orders  Production time
 ‘one-off’ orders can be may be longer
 Investment in
 Workers involved in
machinery may be
entire production
process from start to higher as specialist
finish equipment may be
Batch Production
 Batch production enables items to be
created in bulk (‘a 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 runs of small
batches can be
production expensive to produce
 Stocks of part-  If production runs are
different there may be
finished goods extra costs and time
can be held and delays in setting up
different equipment
completed later  Repetitive work for
 Workers can employees
Flow Production
 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)

 Carsare massed produced for a

large market using flow production
Flow Production +/-
 Economies of  Standard product
produced (opposite of
scale customised)
 Automated  High set-up costs of
production lines automated lines
save time and  Repetitive and boring
 Long production runs
 Quality systems may produce more than
can be built into is needed
the production
Using examples, describe the 3
types of production used by
 Types of production:
 Job
 Batch
 Flow
 Importance of quality
 Quality standards
 Quality control
 Quality assurance
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.
Quality Standards
 British Standards Institute Kite Mark

 ISO 9000


 Investors in People
Quality Control
 There are 3 stages in attempting to
improve on quality:

1. Quality Control

2. Quality Assurance

3. Total Quality Management

Quality Control
 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.
Quality Assurance
 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.
 Importance of quality
 Quality standards
 Quality control
 Quality assurance
 Kaizen
 Benchmarking
 Quality Circles
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
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.
What are the features of TQM?
 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:
1. Method Study – looks for the best way to
perform a task
2. 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
Quality Circles 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 to
display their knowledge and skill
How Do Quality Circles Work?
 Characteristics
Set Rules and Priorities
Decisions made by Consensus
Use of organized approaches to
How Do Quality Circles Work?
 Allmembers 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
 IncreaseProductivity
 Improve Quality
 Boost Employee Morale