Operational Strategies

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  • Created by: Soph
  • Created on: 07-06-14 12:00

Operational strategies: location

The location of a business depends upon a variety of factors: 

  • The proximity of natural resources, components and other supplies 
  • The local infrastructure 
  • The whereabouts of the market in which the company operates
  • Government actions for example grants and other forms of financial support 

Qualitative factors such as the quality of life that senior employees might expect from working and living in that place Profit making business seeks to identify the least cost location, it is quite usual for firms to use financial techniques to assess suitability of one or more locations 

Breakeven analysis can be used to calculate costs and revenues of possible locations  Investment appraisal techniques can be used to select the location offering the greatest return over some specified period of time

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Multi site location

It is not unusual for large businesses to operate on more than one site. This can be in a single country or in many. Multi site location can create a number of advantages and disadvantages.

Advantages are:

  • It permits businesses to be closer to its markets and to monitor market trends better
  • Gives businesses a prestigious address as well as the benefits of cheaper sites elsewhere
  • Some large businesses are in effect several smaller businesses operating as a conglomerate. Having a number of locations allows each element of the business to be in its optimal place
  • It becomes possible for firms to operate on a large scale without all the potential problems of diseconomies of scale

Disadvantages:

  • Communication is more problematic as employees are unable to meet face to face
  • The business may incur greater operating costs if materials need to be transported between various sites
  • It may be necessary to relocate employees which could create resistance from those who are settled with family ties in a particular location.
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International location

Firms taking on international locations will consider a number of important factors:

  • Effective communications and transport networks

  • Trained and productive labour available at competitive rates of pay

  • Low rates of taxation levied on business profits

  • Grants and support available from local and national governments to support the heavy investment necessary

  • Whether support services are readily available

  • Is the country politically stable?

  • Is the company likely to suffer from exchange rate fluctuations as a consequence of its decision

  • Will the company avoid tariffs or other trade barriers?

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Operational strategies: lean production

The concept of lean production is increasingly used to describe the organisations goals of manufacturing industry. This term describes a range of measures designed to use fewer inputs and resources:

  • JIT production

  • Kaizen

  • Time based management and simultaneous engineering

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How businesses manage time effectively

Time based management seeks to shorten all aspects of production to reduce costs and make it easier to meet the needs of customers.

Lean producers are characterised by short product development times. Toyota for example habitually develops products from the drawing board to the marketplace more quickly than its rivals

Having short product development times offers a number of benefits:

  • It may prove less costly sales time and fewer resources are devoted to research
  • A firm that is first to launch a product on to the market can charge a higher price and enjoy higher profits
  • Being the market leader in this way can motivate the workforce

Simultaneous engineering manages the development of new products in the shortest possible time. Some aspects of production development can be carried out at the same time, enabling products to get on to the market faster, cutting costs and generating revenue earlier than would otherwise have been the case.

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CPA

Critical path analysis is one type of network analysis. It is a method of calculating and illustrating how complex projects can be completed as quickly as possible. CPA shows...

  • The sequence in which tasks must be undertaken
  • The length of time taken by each task
  • The earliest time at which each stage can commence.

A CPA network consists of two elements:

  • Activities, this is part of a project requiring time and the firm’s resources. The lines show the sequence of tasks
  • Nodes. These are the start of finish of an activity and are represented by circles. Each node is numbered and also states the earliest start time and latest finish time.

The earliest start time shows the earliest times at which particular activities can be commenced. The EST on the final node shows the earliest date at which whole project can be concluded.

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CPA

Advantages of CPA:

  • It involves managers in detailed planning which helps to reduce the risk of delays and other problems
  • Resources needed for each activity may be made available at the appropriate time, thus reducing costs and the need for working capital
  • Time can be saved by operating certain activities simultaneously
  • The information from this assists managers in making high quality decisions

Disadvantages:

  • Complex activities may be impossible to represent accurately on a network
  • The project still requires management even after the initial network is drawn up as external factors may change
  • Relies on estimates for the expected duration of activities
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JIT

JIT manufacturing is a Japanese management philosophy that involves having the right items of the right quality in the right place at the right time. It is a central component in lean production. It is based around eliminating waste. Thus JIT means using the minimum amount of resources to satisfy customer demand.

Key characteristics are:

  • It allows an organisation to meet consumer demand at whatever level it exists. It is a pull system of production
  • Based on demand pull production-demand signals when a product should be manufactured
  • Suppliers of components and other materials must be very responsive to orders from the manufacturers
  • Allows a reduction in raw materials, work-in-progress and finished goods inventories. This frees up a greater amount of space in factories.
  • Requires high levels of training to give workers the skills necessary to carry out a number of tasks
  • Employees engage in self inspection to ensure that their products are of high quality and that value has been added
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Kaizen or continuous improvement

It entails continual but small advances in production techniques.

  • Kaizen groups meet regularly to discuss problems and to propose new ideas
  • The improvements proposed cost relatively little but have a substantial impact
  • Lean production invites shop floor ideas to produce regular and small scale improvements in productivity which are less likely to create job losses.

It has implications for the business workforce:

  • All employees should be continually seeking new ways to improve their performance
  • Team working is an integral element
  • Empowerment gives the employees control over their working lives. Increases confidence
  • Training is an important component of kaizen. Employees need new skills if they are to fulfil a number of roles within the team.
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