Operational Decisions



Operations management

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

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Operational Targets

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

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Measures of Quality

Customer Satisfaction ratings
Customer Complaints
Scrap Rate
Punctuality - Punctuality (%) = deliveries on time    x 100
                                                  total deliveries 

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) 

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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. 

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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. 

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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 

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