Operations Management

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

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

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  

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

when a organisation ask another business to make all part of its product

Advantages

• 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 

Disadvantages

• 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  

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

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

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

Benefits

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

Problems 

• costs
• training
• disruption to production

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

Benefits

• 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

Problems

• 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

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

Benefits

• 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

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

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

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

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

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

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

• 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

• 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

• 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

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

Aspects of technology

• Robotics
• Automation
• Communication (ICT)
• Design

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