OPERATIONSHIGHER BUSINESS MANAGEMENT

Importance of OperationsCore activities of any business

Operations

Purchasing Raw Materials

Appropriate methods of production Warehousing

and distribution

Managing stock control

Quality techniques to ensure quality

Operations/Production3 Distinct Phases

Inputs Process Outputs

InputsRaw Materials

Labour

ProcessConverting raw materials into something usefulUse of machinery and other processesAssembly

OutputThe finished product!PackagingStorageDistributionTransport

Factors Affecting Production Systems

Nature of the productQuantity to be producedResources availableLabourCapital

Labour Intensive vs Capital Intensive (machines)Most manufacturing companies use

a mix of labour-intensive and capital-intensive production.

The mix used determines the degree of automation. The greater reliance on machines, the greater the automation.

Labour-intensive production

Labour is cheap and readily availableProduct requires craftmanship or expertiseBusiness is small and cannot afford expensive machinery

Labour-intensive production Costs

Skilled labour force expensive to pay and trainMay be limited to small scale productionProduction could halt due to absencesQuality has to be closely monitored

Capital-intensive production

A standard product is being produced with standard operationsLabour supply is scarce or expensiveConsistency and quality of product is requiredEconomies of scale desirableContinuous production required

Capital-intensive costs Set-up costs of machinery is highLost production time due to machine breakdowns is costlyIndividual customer needs cannot be metWorker motivation can be low

Labour vs CapitalIdentify an example of an organisation that would use labour intensive productionIdentify an example of an organisation that would use capital intensiveGive reasons for why each organisation would use that production

Methods of ProductionJob Production

Batch Production

Flow Production

Job ProductionEach job completed before another job is started A custom built boat A piece of artwork A house built to your own

design A hand crafted bowl A custom designed

wedding gown

Batch ProductionAll stages of production process completed at same timeA number of similar products (repeated jobs)Each batch may differ slightly Tinned foods i.e Heinz Bakery goods Wallpaper rolls

Flow ProductionMass production of almost identical products Cars White goods i.e

washing machines, fridges etc

Newspapers

Production VideosAudi T8 productionKia car production

Coca ColaHow is Coca Cola made and bottled?

Use their website and virtual plant animation to write a short report on how Coca Cola is produced.

OR – pick any product/brand of your choice!

Quality ManagementConsumers

Satisfaction of consumer needs

Reliability Durability Special features Availability of parts,

repairs and maintenance

After care service Perceived qualities

Producer Meets exact specifications – manufactured

quality Complaint free – design quality Production is cost effective Can be produced under current conditions

Measuring QualityTangible

AppearanceReliabilityDurabilityFunctionsSuitabilityAfter sales

serviceMaintenance

IntangibleImage and brand (“street cred”)ReputationExclusivity

Quality Management“A quality product or process is one which

provides satisfaction of consumer needs (through design quality) and sufficient reliability (through manufactured quality) relative to cost.”

Eg. A Bic biro is a quality product because as a disposable pen it does what consumers want (ie writes) and is reliable relative to cost.

Quality ControlA sample is checked to

ensure they meet agreed standards. Unacceptable products are discarded.

ReactiveLeads to scraps, waste and re-working of productsWorks by failureCan be costly

Quality AssuranceProducts are checked at regular

points in the production process.

Based on preventionRequirements determined in advanceMinimises risk of error, or non-conformity to specificationsQuality checked at checked at every stage of productionKnown to reduce wastage and scrap“Right first time, every time”

Quality SystemsTotal Quality Management (TQM)

Benchmarking

Quality circles

Total Quality Management (TQM)

This is a system of doing things right first time – no errors are tolerated.

Consistent, clear message on qualityStaff commitment to ongoing improvementPartnership with suppliersEducate and train staffSupervisors encourage and help

Eliminate fear of failureDepartments integrate and share problemsSet clear, achievable goalsHelp employees to take pride in their workTrain and educateEstablish a structure and culture to support these aims

Features of TQM Commitment to customer needsClose links with supply chainPersonal responsibility by employeesCompany-wide policy for staffEmphasis on team workClear measures of “quality”Good 2-way communication systems

BenchmarkingIs the process of setting competitive standards, based on the achievements of other firms against which an organisation will monitor its progress

Benchmarking tends to focus on the “best of class” companies, but for specific functions a company may compare itself to an organisation in a different industry

Types of BenchmarksInternal – comparison with a function within the organisationExternal – comparison with other organisationsCompetitive – direct comparison with a competitorGeneric – comparing general business activities (eg recruitment)Customer – contrasting the level of fulfilment of customer expectation

Quality CirclesSmall groups of workers meet at

regular intervals to discuss where improvements can be made in production.

Production workers know more about the production process than “managers”

Workers are motivated by being involved and consulted about production problems (empowerment)

BSIAn organisation that produces national standards for certain products. When a business produces a product and proves it meets agreed quality and safety standards specified by the BSI it is approved and marked with the Kitemark symbol. Competitive Advantage Consumer confidence Process and paperwork lengthy Expensive

BSI and Other Trade Organisations1. Identify 3 other quality assurance

standards such as Red Lion Quality mark on eggs

2. How do you apply for the BS Kitemark?

www.bsigroup.com

Stock Control

Types of StockRaw materials, components etcWork in progress (unfinished work)Finished goods

The Importance of Stock Control

“Stock out” = lost sales and poor reputationExcess stock = high storage costsExcess stock runs risk damage of obsolescence, “opportunity costs” (alternative use for the money tied up in stock)

Factors Influencing Stock Levels

Level of demandUnpredictability of demandDegree of spoilageRental costs for storageBulk-buying discountsReliability of suppliersCompetition – luxury/necessity

Elements of Stock ControlMaximum stock levelsMinimum stock levelsRate of consumptionLead time – ordering to receiptRe-order level

SEE PAGE 78 – COPY OUT DIAGRAM

Storage of StockCentralised storage

Decentralised storage

Just-In-Time (– Kanban system)

Centralised Storage - Warehouses in which all stock is held before being dispatched

Advantages Improved security Supervised by specialist staff Agreed procedures for issue/receipt Agreed procedures for ordering Bulk ordering/storage may be cheaper Increased efficiency in distribution

Disadvantages Time wasting going to and from stores Cost of specialist staff Cost of dedicated storage area

Decentralised Storage – stock is held in smaller quantities at more locations, closer to the customer

Advantages Stock always ‘on hand’ when required Orders of stock will reflect actual usage Faster turnover of smaller amounts of stock

reduces the likelihood of deterioration/decay

Disadvantages Less rigid control – theft and loss more likely Takes up space in production areas

Just-In-Time (JIT)Just-in-time aims to get the highest

volume of output at the lowest unit cost. It is really a method of production control.

If there is no demand for the product there is no production. Finished goods are produced just in time to be sold to the customer. Component parts are assembled just in time to become finished goods. Materials are purchased just in time to make component parts.

JIT AdvantagesStock exactly matches productionImproves cash flow (less tied up)Savings on purchase and storage costsLess stock wastageProduction delays are preventedCan respond to changes in demandClose ties with suppliers established

JIT DisadvantagesHigh dependency on suppliers to meet delivery and quality standardsSuppliers must be willing to participate – can be high risk (“all the eggs in one basket”)Increase in order processing costs

The Purchasing FunctionHaving sufficient stock availableAvoiding wastage of stockHaving the correct qualityIn the factory when neededCompetitive prices paidBuilding good relationship with suppliers

The Purchasing MixBest qualityDependabilityLowest priceDelivered in correct quantitiesDelivered at correct timeLocation

PRODUCTIONRead the Dell Case Study on P80

Read and summarise the information on the Kanban Stock Control system on P80

Employers ObjectivesMotivationCostPrestige

Employees ObjectivesPurchasing powerRecognition and fairnessHow payments are made up

Payment Systems£ Time rate payment systems£ Overtime£ Piece rate payment systems£ Piece rates plus a basic/fixed pay

element£ Commission payments£ Fringe benefits and non-financial

payments£ Bonuses£ Incentives to professionals£ Contract employment£ Profit sharing schemes

Definitions P81

Distribution and DeliveryWarehousing Design and layout Mechanical handling Transportation

Transport and delivery

Scheduling

DistributionRight goodsRight placeRight quantitiesRight time

The right channel of distribution must be chosen to ensure the above happens (market)

Distribution Mix – The route which a manufacturer distributes products is known as the Distribution MixManufacturer’s distribution capacityThe product itselfDesired image for productFinance availableReliability of other organisationsLegal restrictionsCreditors

Distributed viaRoadRailAirSea

What are the advantages and disadvantages of each?

SchedulingA schedule or production plan is often drawn up to show the order of production, what staff and materials are required and when they are required for.

Eliminates staff and machines being idle whist waiting for previous stage of production to be completed

Ethical and Environmental Issues1. What unethical or immoral decisions

might a business be tempted to do?2. How has the UK Government

encouraged businesses to be ethical and environmentally friendly?

3. Research Fairtrade. Write a short report with your findings.

RecyclingHouseholders and businesses recycle waste

New products Save energy Protect

environment No need for landfill

COSTS:• Providing bins,

bags etc• Staff to collect

waste• Transporting• Recycling sites

PackagingReducing Packaging+ Less packaging+ Less waste+ Less litter- May get damaged- Less attractive packaging

1. Identify a brand that uses attractive packaging. Do you think sales would be affected if packaging was reduced?

2. What advice would you give your employer on packaging?