Operations Management

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  • Created by: Chantelle
  • Created on: 24-05-13 12:51

Operational Targets

the goals that must be achieved by the operations function in order to achieve the business's corporate objectives

Unit Cost - the average cost per unit of output 

total cost (fixed + variable)  / level of output

Capacity - the maximum level of output a business can produce within a particular period Capacity

Utilisation - a measure of the extent to which a firms capacity is being used

actual output per month / maximum possible output per month X 100

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Capacity Utilisation

Under capacity utilisation - a firms output is below the maximum possible, known as spare capacity

Capacity shortage - a firms capacity is not large enough to deal with the level of demand for its products

Causes for Spare Capacity

  • new competitors or new products entering the market 
  • fall in demand for the product due to changes in taste or fashion 
  • unsuccessful marketing 
  • seasonal demand 
  • over investment in fixed asset 
  • a merger ot take over leading to duplication of many resources and sites
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Capacity Utilisation

Advantages of Spare capacity

  • there is more time for maintenance and repair of machinery, for training and for improving existing system 
  • less pressure and stress for employees who may become over worked at full capacity 
  • under utilisation allows a company to cope with sudden increase in demand

Disadvantages of Spare capacity 

  • firms have a higher proportion of fixed costs per unit 
  • higher unit costs will lead to either lower profit levels or the need to increase price to maintain the same profit levels 
  • spare capacity can portray a negative image of a firm, suggesting that it is unsuccessful 
  • with less work to do, employees become bored, demoralised lowering their motivation and efficiency  
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Capacity Utilisation

Reducing capacity

  • selling off all or a part of its production area 
  • changing to a shorter working week or day 
  • laying off workers 
  • transferring resources from another area 

Increasing capacity

  • building or extending factories/ plants 
  • asking staff to work over time or longer hours 
  • hiring new staff 
  • a flexible workforce
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when a organisation ask another business to make all part of its product


  • businesses will be able to react to changes in demand more quickly 
  • subcontractors may be more specialised and therefore more efficient in a particular line of activity 
  • lets a firm focus on its core business and helps it to avoid becoming involved in activities in which less competent 
  • non-standard order can be given to a subcontractor so that the business benefits from the order but suffers no disruptions to its normal production 


  • must recognise that the quality of their service is no longer directly under their own control 
  • excessive subcontracting erodes a companies operations base and its ability to initiate research and make changes 
  • opportunity cost of subcontracting should be evaluated 
  • may require a firm to give confidential information to a suppler, e.g details of its method and patents  
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Operational Issues

Non-Standard Orders - orders for products or services that differ in some way to the usual product or service provided by the business

Stocks - consists of raw material and components, work in progress or finished goods

Stock Control - the management of levels of raw materials, work in progress or finished goods in order to reduce storage costs, while still meeting the demands of the customers

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those features of a product or service that allo it to satisfy or delight customers

Measures of Quality

  • appearance
  • reliability
  • functions
  • durability
  • after sales service, costs, promotions and effectiveness
  • repair and maintenance needs
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Quality System

the approach used by an organisation to achieve quality, either using quality control or quality assurance


  • impact on sales volume
  • creating a unique selling point
  • impact on selling price
  • pricing flexibility
  • cost reductions
  • the firms reputation


  • costs
  • training
  • disruption to production
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Quality Control

a system that uses inspection as a way of finding any faults in the good or service being provided


  • inspection at the end of the process can prevent a defective product reaching the customer
  • more secure system than one that trust every individual to do their do their job properly
  • inspectors may detect common problems throughout an organisation, mistakes can put right more efficiently


  • placing responsibility for quality failures on the inspector, it does little to encourage individuals to improve the quality of their output
  • employing an inspection team is an expense that could be viewed as unnecessary if the products are produced 'right the first time'
  • giving workers responsibility for their own work helps to increase the interest, variety and responsibility within a job and helps to motivate workers
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Quality Assurance

a system that aims to achieve or improve quality by organising every process to get the product 'right the first time' and prevent mistakes ever happening


  • ownership of the product or service rests within the workers rather than with an independent inspector, giving them greater responsibility
  • positive effects on motivation because of this sense of ownership and recognition of workers responsibility
  • costs are reduced because there is less waste and less need fir reworking of faulty products
  • with all staff responsibility for quality there should be a higher and more consistent level of quality, which can lead to marketing advantages for the firm
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Total Quality Management (TQM)

a culture of quality that involves all employees of a firm

Potential Benefits

  • minimise cost, of poor quality - materials, labour, lost sales
  • improve motivation & efficiency, in the long run
  • attract/retain good staff - easier, cheaper recruitment, lower labour turnover

Issues Involved

  • staff reluctance
  • management reluctance
  • training
  • changing attitudes
  • ongoing investment in market research
  • costs
  • adapting recruitment and selection policies
  • disruption to production
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Quality Standard

a set of criteria for quality established by an organisation. The standard also requires an organisation to have systems for implementing and monitoring its standards

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Customer Service

identifying and satisfying customers needs and delivering a level of service that meets or exceeds customer expectations

Customer expectations - what people think should happen and how they think should be treated when asking for or receiving customer service

Customer satisfaction - the feeling that the buyer gets when he or she is happy with the level of customer service that has been provided 

Based on

  • what people see and hear
  • what customers read and what organisations tell them about their service
  • what happens during the customer experience
  • what has happened to them in previous customer service experience
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Customer Service

What customers expect from customer service of a business

  • the overall quality of the product or service supplied
  • friendliness of the staff
  • efficiency with which problems and complaints were handled
  • speed of the service or delivering of the product
  • helpfulness of staff in general
  • customer being treated as a valued customer
  • ease of transaction
  • kept informed of development

Methods of meeting customer expectations

  • conduct market research
  • introduce relevant training in customer service
  • set-up quality procedures
  • monitor performance
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Customer Service

Benefits of high level of customer service

  • impact on sales
  • creating a USP
  • impact on selling price
  • the firms reputation
  • employee motivation
  • reduced costs
  • trade between businesses
  • public relations
  • strengths and weaknesses
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an organisation that provides a business with its materials it needs in order to carry out its business activities

Main factors when buying supplies

  • prices

If a supplier offers low prices this enables the business to benefits in two different ways

It can reduce the final selling price of its own products and therefore gain a competitive advantage

It can keep its final selling price the same but enjoy the benefits of higher added value

  • Payment terms

the arrangement made about the timing of payment and any other conditions agreed between buyer and seller

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  • Quality

- increase the volume of its sales

- increase its selling price and probably its profit margin

- create a USP

- enhance its reputation and its customers brand loyalty

- reduce its manufacturing costs through elimination of waste

- needs to work closely with its suppliers, both maintain the quality expected by customers and to achieve consistency of quality

  • Capacity

an organisation needs to be reassured that a supplier can provide the quantity of materials that it requires

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  • Quality

- increase the volume of its sales

- increase its selling price and probably its profit margin

- create a USP

- enhance its reputation and its customers brand loyalty

- reduce its manufacturing costs through elimination of waste

- needs to work closely with its suppliers, both maintain the quality expected by customers and to achieve consistency of quality

  • Capacity

an organisation needs to be reassured that a supplier can provide the quantity of materials that it requires

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  • Reliability

is the extent to which the supplier meets the requirements of the buyer

- 'just in time' , a system where items of stock arrive just in time for production or sale

- it reduces or eliminate the need for businesses to hold large amounts of stock

  • Flexibility

 situations when an organisation needs to make radical changes to its orders from suppliers such as..

- sudden changes in demand for a product

- negative publicity concerning the ingredients or components of a product or the way it was manufactured

- transport difficulties preventing delivery of supplies from other sources

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the application of practical, mechanical, electrical and related sciences to industry and commerce

Aspects of technology

  • Robotics
  • Automation
  • Communication (ICT)
  • Design
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Benefits of using technology in operations

  • reducing costs
  • improving quality
  • reducing waste
  • increasing productivity

Issues in introducing and updating technology

  • resistance to change
  • lower morale
  • costs
  • keeping up with changes
  • lower barriers to entry
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