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OPERATIONSHigher Business Management
2014/15
CONTENTS
Methods of Production Job/Batch/Flow Capital/Labour Intensive
Stock Management Systems JIT Warehousing
Quality QM/Standards/
Benchmarking/Circles/Mystery Shopper
Ethical Fair Trade Environmental/Ethical
Issues/Solutions
Technology
METHODS OF PRODUCTION
METHODS OF PRODUCTION
The choice of production method will depend on:
the product being produced the size of the market the size of the business the finance available the technology available.
METHODS OF PRODUCTION - JOB
A single product is custom-made to a customer’s own specifications
Examples: Boat Building Bridge Building Wedding Cakes/Dresses
METHODS OF PRODUCTION - JOB
Advantages
“One-off” orders accommodated
High price Specifications can
be changed Motivated
workforce
Disadvantages
High labour costs Wide variety of
equipment needed Each job will require
individual design (time)
Lead times lengthy
METHODS OF PRODUCTION - BATCH
The production of a group of similar products. No item in a group goes to the next stage until all are ready.
Examples: Tinned Foods Bakery Houses in an Estate
METHODS OF PRODUCTION - BATCH
Advantages
Flexible production
Partly finished goods can be stockpiled and completed later
Reduced need for highly skilled staff
Machinery can be standardised
Disadvantages
Higher costs per unit (small batches)
Needs careful planning
High stock levels Less motivated
staff Delays in
changing/cleaning equipment
METHODS OF PRODUCTION - FLOW
Production items move continuously from one operation to the next. Products are produced to a standard specification.
Examples:CarsComputersWhite goods eg washing machines
METHODS OF PRODUCTION - FLOW
Advantages
Economies of Scale Automated
production lines save time and money – 24/7
Large quantities produced
Reduced stockholding eg JIT
Quality systems can be built in/standard products
Disadvantages
Large investment required
Mass consumption required
If one part of the system fails – shutdown
Lack of worker motivation - repetitive
METHODS OF PRODUCTION
Production will be either labour intensive or capital intensive and there are advantages and disadvantages of each method.
LABOUR INTENSIVE
Labour-intensive production is where a business uses a larger proportion of human input than machinery to complete the production process.
Example fruit picking, postal service and hospitality
industry.
LABOUR INTENSIVE
Labour-intensive production is used when: Labour is cheaper than the cost of machinery
The process requires specific skills
The use of machinery would be impractical
The process relies on the ability of humans to think, use initiative, problem solve
the production process requires flexibility
LABOUR INTENSIVE
Advantages Additional flexibility More responsive to
change Lower start-up costs
than capital-intensive
The use of human judgment can improve the process
Disadvantages A skilled workforce
can be expensive No economies of scale Staff illness or
absence Additional quality
control measures may be required
Can be less efficient than capital-intensive production
CAPITAL INTENSIVE
Capital-intensive production is where the production process relies more on machinery and other capital equipment.
Example cars and washing machines.
CAPITAL INTENSIVE
Capital-intensive production is used when:
The supply of labour is limited
The process is routine and repetitive
The cost of the capital is relatively cheap
Machinery improves the quality and accuracy
Machinery improves efficiency and consistency
CAPITAL INTENSIVE
Advantages Operate 24/7 Higher volume of
goods can be produced
Quality of output is standardised and consistent
Removes human error Machines can do work
that would be dangerous
Disadvantages Large initial outlay to
purchase machines Cost of maintaining and
repairing equipment Only suitable for
standardised production Production time is lost if
machines break down Worker motivation is low
as they are de-skilled.
CAPITAL INTENSIVE
Mechanisation Where humans use machinery to help them
in the production process, often to replace the physical, muscular part of the process. Human judgement is still required.
Automation Control systems and IT are used to manage
production, reducing or replacing human intervention. Automation removes the need for human judgement.
QUALITY SYSTEMS
QUALITY
In today’s highly competitive global market quality has become one of the key decision areas in operations.
Quality is an extremely difficult term to define as it can mean different things to different people.
QUALITY MANAGEMENT
The main aim of Quality Management is to produce a perfect product or service every time in order to meet customer requirements.
In order to achieve ‘quality’, the requirements, and needs of the customer come above everything else.
QM assumes that the next person with ‘ownership’ of the good, or the next person to use the good, are customers.
E.g. on a production line in a factory, the next person down the line from you is your customer or client.
QUALITY MANAGEMENT
Quality management requires four elements to be managed:
1. The definition of ‘quality’ at each and every stage of the process
2. The commitment of all3. A system in which this quality can be
assured4. A measure of the ability to meet quality
requirements
QUALITY STANDARDS
Quality is often defined as conformity with a standard:
Fit for purpose, Appearance, Safety, Availability, Value for money, Ease of use, After sales, Reputation, Customer service
A quality standard is awarded to an organisation when it meets a particular specification or set of criteria.
QUALITY STANDARDS
BSI Kitemark
CE mark
ABTA
Wool Mark
Royal Warrant
Forest Stewardship Council
IIP
Financial Conduct Authority
ISO9000
Lion Mark
Red Tractor
Scotch Beef
BENCHMARKING
This involves comparing one product with another similar product, usually the market leader.
The organisation will then attempt to match these standards in their own production.
However this is not an easy process: Companies encounter resistance from
competitors You have to continually benchmark your
processes
QUALITY CIRCLES
A quality circle is a group that meets to identify and resolve problems about quality in the production process.
They must consider and recommend suitable alternative practices that are then put to management.
Benefits: Collaboration of different workers Job enrichment Increased motivation Shop-floor workers will give solutions managers
couldn't.
MYSTERY SHOPPER
Mystery shopping is the practice of using trained shoppers to anonymously evaluate:
customer experience, operational efficiency, employee integrity, use of merchandising, service/product quality.
It is more cost-effective to retain a customer than attract a new one, therefore making sure customers receive the appropriate level of service is a good investment.
MYSTERY SHOPPER
Benefits:
Feedback can be used to improve processes. Training needs can be identified. Improves customer retention. Monitors quality of products and service. Improves employee awareness. offers an incentive-based reward system to
employees and managers.
QUALITY SYSTEMS
Reduce wastage Improve reputation Competitive
advantage Increase market
share Customer loyalty Employee
motivation
Time-consuming Costly processes Must maintain
standard Poor quality still
exists
ADVANTAGES DISADVANTAGES
STOCK MANAGEMENT
STOCK MANAGEMENT
Stock refers to: Raw Materials Work in Progress Finished Goods
Stock must be managed to ensure there are sufficient quantities of RM and FG’s.
STOCK MANAGEMENT
Factors to consider:
The quantity required The volume that can be produced at one
time Working practices e.g. health and safety The storage available Quality procedures
STOCK MANAGEMENT SYSTEMS
Maximum Stock Level – The highest amount of stock that can be held at one time. Stock is readily available No production delays Ensures no overstocking or wastage
Minimum Stock Level – The lowest amount stored at one time. Below this level there is a danger that stock levels will fall too low and production will stop.
STOCK MANAGEMENT SYSTEMS
Re-order Level – The quantity at which more stock is ordered. This level is set so that stock does not fall below the minimum level by the time new stock arrives
Re-order quantity – Quantity needed to take stock back to maximum level.
Lead time – the time between the order being placed and it arriving.
STOCK MANAGEMENT SYSTEMS
JUST IN TIME (JIT) – KANBAN SYSTEM
Method that keeps costs to their minimum.
Stock arrives just in time for it to be used and goods are only manufactured when an order is received.
The system of storing stock in this way is known as Kanban
JUST IN TIME (JIT) – KANBAN SYSTEM
Less cash tied up in stock
Less storage and warehousing
Wastage reduced PESTEC factors
impact is reduced
Reliable supplier is needed
Production can stop if delays are late
Environmental impact
High delivery costs No economies of
scale
ADVANTAGES DISADVANTAGES
STORAGE - CENTRALISED
Maintain security in one location
Consistent procedures implemented across the organisation
Specialist staff Economies of Scale
Cost of dedicated storage area, staff etc.
Time wasted going to and from stores
ADVANTAGES DISADVANTAGES
STORAGE - DECENTRALISED
Stock is always there when required
Less chance of wastage
Can account for local preferences
Security difficult to maintain across the organisation
Less control of stock
ADVANTAGES DISADVANTAGES
WAREHOUSING
This is the name given to the place where finished goods are held before distribution
They must be designed to ensure the most efficient movement of stock
Aspects of warehouse planning: Design & Layout Mechanical Handling Transportation
LOGISTICS
This is concerned with getting the finished product to the customer
How the product gets to the customer depends on the distribution mix
Factors to consider: Reliability of other organisations Legal restrictions Finance available The product The image of the product Stock management system being used The distribution capability of the manufacturer
ETHICAL & ENVIRONMENTAL
FAIRTRADE
Fairtrade is about achieving better prices and fair terms of trade for farmers in the developing world.
Farmers pay their workers a fair wage, health and safety improves, and the local community becomes more sustainable.
Firms can be awarded the Fairtrade Mark for products that meet its strict criteria.
Examples: coffee, chocolate, bananas, sugar
FAIRTRADE
diverse market place - more market segments demand ethically sources products.
Customer Loyalty Good public image Good employer –
attract staff
High price for consumer
Small scale production – no EoS
Tariffs exist on some goods
Concern shifted to climate change/food miles
ADVANTAGES DISADVANTAGES
ENVIRONMENTAL RESPONSIBILITY
Businesses are under increasing pressure to show environmental responsibility not only because it is viewed as being ethical but because it is also required by law.
Legislation is in place to control factors such as:
Emissions Storage and disposal of waste Causes of nuisance, for example noise,
smoke, fumes, light pollution
ENVIRONMENTAL RESPONSIBILITY
What can businesses do to prevent these problems?
Minimise wastage Recycle Minimise packaging Prevent pollution & omissions Be sustainable Fair Trade Use renewable energy
ETHICAL OPERATIONS
Working ethically means doing the right thing and acting in a way that is both fair and honest to all stakeholders.
‘A business that makes nothing but money is a poor business.’
Henry Ford 1903
ETHICAL OPERATIONS
Examples of unethical practices include:
The use of child labour The use of sweatshops for production, for
example hot conditions, long working hours The violation of workers’ rights The violation of health and safety standards.
ETHICAL OPERATIONS
Increased sales from ethically motivated customers
Improved reputation Easier to access
finance Improved employee
motivation Increase contracts
from other firms e.g. Govt.
Labour & material costs increase
Overheads increase e.g. training
Standards vary between countries
ADVANTAGES DISADVANTAGES
TECHNOLOGY IN OPERATIONS
TECHNOLOGY
Computer-aided design (CAD)
The use of computer software to assist in the creation, modification and analysis of a product during the design process e.g. car design
Advantages More accurate; images can be saved, modified
and shared easily. Disadvantages
Cost of software; staff training
TECHNOLOGY
Computer-aided manufacture (CAM)
The use of computers in the manufacturing process.
Advantages 24/7 production; reduces waste
Disadvantages High initial costs; breakdowns stop production
TECHNOLOGY
Electronic Point of Sale (EPOS)
Allows a business to maintain accurate stock and financial records, as well as providing valuable information about customers’ buying habits.
It uses barcodes to: record products received into stock and sold update stock levels frequently identify demand for products