-improvement in unit costs -- measured by a reduction in costs, potentially leading to increased profits.
-improvement in quality -- meausred by a reduction in wastage, decrease in level of complaints etc.
-increased capacity utilisation -- measured by an increase in actual output as a percentage of maximum possible output. (efficiency)
all of these should increae the businesses profit margin therefore increasing the competitiveness of the business
Unit Costs = total cost/ units of output
Eg. £60/ 40 = £1.50
- As a way to measure efficiency, the business can compare its unit costs with those of its competitors.
-The lower the unit costs the more efficient the business.
- All firms use different measures of quality according to the individual needs of the firm or its customers.
-Customer satisfaction ratings - a survey of customers can reveal customer opinions on a numerical scale (1-10)
-Customer complaints - this calculates the number of customers who complain (sometimes measured as a % of total number of customers)
-Scrap rate (%) - number of items rejected during the production process as a percentage of the number of units produced
-Punctuality - This calculates the degree to which a business delivers its products on time, often measured as a percentage.
Deliveries on time/total deliveries x 100 = punctuality
Calculating Capacity Utilisation
Capacity Utilisation measures the % of a firms total possible production level that is being reached at present.
Actual output per annum / maximum possible output per annum x 100
= Capacity Utilisation
No ideal capacity utilisation but 90% capacity utilisation is a sensible level.
- 100% = no scope for maintenance, repair & dealing with emergency situations.
- Percentage below 100% = unused resources and higher fixed costs
Causes of Under - Utilisation
*Causes of under-utilisation
-New competitors/new products entering the market.
- Fall in demand for the product due to changes in customer taste
- Unsuccessful marketing
- Seasonal demand
- Over Investment in fixed assets
- A merger leading to duplication of many resources&sites
Impacts of Under - Utilisation
- A higher proportion of fixed costs per unit
- Lower profit levels or the need to increase price to maintain the same levels
- A negative image&the perception that the company is unsuccessful
- Employee boredom
- More time for maintenance of machinery, training, improving existing systems
- Less stress for employees, unless utilisation is very low that they fear job loss
- The ability to cater for a sudden increase in demand
- Motivational issues, can be + / -
Increasing Capacity Utilisation
Ways of increasing the Capacity Utilisation of a Business
- Stimulate the demand for the product (link to marketing strategies&marketing mix)
- Rationalise production (improve efficiency by reducing the scale of operations)
- A firm can acheive this by:
- leasing or selling off part of the production area
- moving towards a shorter working week or shorter day
- laying off workers or reducing their hours
Links to motivation- Under Utilisation may lead to boredom & decreased motivation levels, / However can depend upon the situation of the business. (MASLOW/HERZBERG)
Operational issues dealing with non-standard order
Overcoming problems of temporary increases in demand, an organisation can:
-ask employes to work overtime
-hire in temporary/part time employees
-use staff from agency
*Methods will increase costs in the short term, they tend to reduce the long term costs of employing a person on a full-time contract.
-Outsourcing&sub-contracting the work to another organisation. Removing the problem by passing it to someone else, less issues over control and quality.
-Stocks also need to be managed efficiently to ensure there are adequate supplies of raw materials to satisfy sudden surges in demand, requires good links with suppliers.
Developing Effective Operations: Quality
Measures of quality include:
- Functions (added extras)
- After- sales service
- Image and brand
Quality System - Benefits
- Impact on sales volume - if a productor service meets the needs of the customers, then demand for the product will increase
- Creating a USP - businesses can use the level of quality of their products of services as a unique selling point in order to increase demand
- Impact on selling price - having a USP created by quality allows a business to charge a higher price
- Pricing flexibility - a reputation for quality gives a firm the ability to be more flexible in its pricing in order to target different market segments
- Cost reductions - a quality system can reduce costs by improving production methods and reducing waste and the no of faulty products
- The firms reputation - a good quality system can preven problems and help a business to avoid any damage to its reputation
Issues involved in introducing and managing a QS
- Costs -- quality procedures require a great deal of administrative expense to set up
- Training -- may be costly and extensive
- Disruption to production -- in the short run the training programme provided can be quite disruptive to existing production methods
Quality Control Vs Quality Assurance
Benefits of QC:
- As inspection is at the end of the production process, it can prevent a defective product reaching the customer --- thus eliminating a problem with a whole batch of product.
- It is more secure than a system that relies on an individual.
- It may detect some common problems throughout the organisation.
- Cheaper in the short term - due to reduced training/responsibility.
Benefits of QA:
- Ownership of product rests with production operatives rather than with an independent inspector
- It can have a positive effeton motivation - due to the sense of ownership
- There is less need for reworking faulty products
- There is better quality first time - therefore less waste/scrap
- Provides cost savings
- It helps to ensure consistent product quality
Main method of Quality Assurance - TQM
TQM - quality culture throughout the whole organisation. It is based on the "right first time".
(Focuses on prevention of defects, ensures that good teamwork exists and adequate support systems are in place)
Benefits of this award are:
- marketing advs from the acknowledgement of higher quality standards
- assurance to customers that products meet certain standards -- some organisations insist on these awards before agreeing to trade with a firm, as this helps guarentee the quaity of their suppliers
- greater employee motivation from the sense of responsibility&recognition
- financial benefits in the long term, from elimination of waste and the improved reputation of the firm
Customer Service : methods of meeting customer exp
- Ensuring the organisation is selling what the customer wants. This can be monitored by undertaking market research
- Ensuring that the product or service sold is of a high quality
- Ensuring that staff are friendly, helpful and knowledgeable about the product/service being offered
- Ensuring that staff are efficient in dealing with customers
- Ensuring that genuine customer complaints are dealt with efficiently and courteously
Benefits / improving customer service
- Customers return
- Competitive advantage
- creates a USP
- ensures good brand image
- ensures long term viability
Monitoring/Improving Customer Service:
- Using Quality Assurance and Quality Control
- Training for employees to ensure product/service knowledge and customer service skills
- setting up systems for customer feedback, customer surveys and suggestion boxes to assess customer satisfaction.
- Using focus groups, mystery shoppers or observation methods to monitor employees customer service skills and knowledge of product and service
- Ensuring that improvements are made in light of comments and information received as part of the monitoring process
Working with suppliers
Choosing effective suppliers:
- Price of raw materials -- important for profit
- Quality of raw materials -- to ensure the end product also has good quality
- Trade credit terms -- favourable terms may enable an organisation to delay payments and improve cash flow - payment terns
- Reliability of supplier -- they must be able to satisfy demands efficiently
- Length of lead times -- to ensure production is not held up
- Flexibility of supplier -- they may need to be able to satisfy sudden increases in demand
- Technological investments
Role of suppliers in improving operational performance:
- Suppliers play an important role in improving operational performance.
- This is done by ensuring that the right raw materials of the best quality of the optimum price are available to the organisation in time for it to fulfil its customers' orders
Benefits:- Flexible/ Lower costs/ Improved customer service
Types of technology in operations management
- ROBOTICS -- used in many production situations (in the production of the mini, the body building process is highly automated with the use of robotics)
- AUTOMATED STOCK CONTROL -- enables accurate records to be kept of stock levels of raw materials and finished goods. Automatics reordering can take place as part of this process, ensuring greater efficiency. (JIT)
- COMMUNICATIONS -- methods can involve any or all of intranet, internet, e-mail, teleconferencing etc. These speed up communication processes and enable communication with different sections or organisation to be more efficient
- DESIGN TECHNOLOGY -- involves using computer aided design (CAD), which enables designs of new products to be produced and modified on screen n three dimensional format.
Benefits of technology
- Technology replaces labour and therefore reduces labour costs
- Brings improvements in quality, as organisations are more likely to get it right 1st time
- Reduces waste, as organisations more likely to get it right 1st time
- Increases productivity and therefore reduces the costs of production
- Makes monitoring stock levels much easier
- Ensures that stock is automatically reordered, removing human error
- Makes it easier to update product design
- Makes for ease of communication
Drawbacks of technology
- Initial costs of investing will be high
- Technology will constantly have to be updates costing money
- Employees will need to be trained in the use of new technology
- Maintenance costs may be high
- It can lead to motivation problems, if employees fear beig replaced by machines
- It can lead to information overload, eg employees not reading emails
Using budgets & Benefits
3 Types of Budget are: Income budget, Expenditure Budget & Profit Budget
Benefits of using budgets:
- To establish priorities by indicating the level of importance attached to a particular policy or division
- To provide direction and coordination by ensuring that spending is geared towards the firms aims
- To assign responsibility by identifying the person who is directly responsible for any success or failure
- To motivate staff by giving them greater responsibility and recognition when they meet targets
- To improve efficiency by investigating reasons for failure and success
- To encourage foreward planning by studying possible outcomes
Drawbacks of using budgets
- Incorrect allocations - A budget that is too generous may encourage inefficiency. A budget that is insufficient will demotivate staff and hinder progresss through a lack of money. eg NHS
- External factors - Changes outside the budget holder's control may affect their ability to stick to the plan.
- Poor communication - Budgets must be agreed betwen people who understand the area in question and also other factors that might influence the budgets.