Operations management: the process that uses the resources of an organisation to provide the right goods or services for the customer.
Deciding on the location of the business.
Choosing the mix of resources to use in production
Managing capacity utilisation
Organising stock control to meet the needs of customers quickly and cheaply
Ensuring high quality of goods and services in an organisation
providing excellent customer service in order to meet customer expectations
Working closely with suppliers
Using technology in order to improve business operations
Definition: The goals or aims of the operations function of the business.
examples of operational targets:
1) unit costs
2) measures of quality
3) capacity utilisation
Unit cost: the cost of producing 1 unit of output. It is calculated by the formlua
unit cost = total cost
units of output
Measures of Quality
Customer Satisfaction ratings
Punctuality - Punctuality (%) = deliveries on time x 100
Capacity: the maximum total level of output or production that a business can produce in a given time period. A company producing at this level is said to be producing at full capacity.
Capacity Utilisation: the percentage of a firms total possible production level that is being reached. if a company is large enough to produce 100 units a week, but is actually producing 92 units, its capacity utilisation is 92%.
Capacity Utilisation = actual output per annum (month) x100
maximum possible output per annum (month)
Links between capacity utilisation and other opera
Capacity Utilisation and Unit costs - the higher the level of capacity utilisation the more efficient a business is using it's resources.
Capacity utilisation and quality: If i business is working to 100% capacity utilisation, there is no time for additional activities, such as regular maintenance of machinary or ensuring that staff are overworked. Consequently, the closer a business gets to 100% capacity the more likely it is that quality problems will occur.
Managing capacity utilisation
In terms of capacity utilisation, there are two types of situation that a firm needs to manage:
- Under-utilization of capacity (also known as excess or spare capacity)
- Capacity shortage
Under-Utilization of capacity: when a firm's output is below the maximum possible. This is also known as excess capacity or spare capacity. It represents a waste of resources and means that the organisation is spending unnecessarily on its fixed assets.
Capacity shortage: when a firm's capacity is not large enough to deal with the level of demand for its products. This means that certain customers will be disappointed. Further sales may be lost if unhappy customers decide not to buy from the firm again or if negative publicity results from the firms failure to supply.
advantages of spare capacity
it means that there is more time for maintenance and repair of machinery, for training and for improving existing systems. during a period of spare capacity for