Decision making to improve operational performance

Operational objectives

  • Operations management is concerned with those aspects of the business which are directly linked to the fulfilment of customer orders 
  • Operational objectives relate to how efficiently aspects od the prices are achieved

Operational objectives relate to a number of measures of efficiency including:

  • Cost 
  • Quality 
  • Speed of response and flexibility 
  • Dependability
  • Environmental 
  • Added value 

Internal influences on operational objectives 

  • FInance 
  • People
  • Effective marketing 
  • Capital 

External influences on operational objectives 

  • Target market 
  • Regulatory environment 
  • Geographical 
  • Benchmarking 
  • Environmental targets 
  • Innovation 
  • Price elasticity of demand 
  • Income elasticity of demand 

Operational data 

  • Operational data allows a business to measure the performance of the operations management function 
  • Performance can then be compared to quantifiable operation objectives 

Labour productivity 

  • Measures output per worker 

Total output

Number of employees

  • Can be influenced by; Training and skills of the workforce, motivation, complexity of the product 

Unit cost 

  • The average cost producing a single unit of output 

Total cost 

Output 

  • Targets will be linked to keeping unit cost as low as possible while not affecting quality 

Factors influencing unit costs

  • Number of units produced 
  • Labour productivity 
  • Suppliers 
  • Material usage 

Capacity 

  • The maximum amount of output achievable if all resources are fully utilised
  • Affects the ability of a firm to match supply to demand 

Capacity utilisation

  • A measure of the percentage of potential output being achieved 

Actual output x 100

Maximum output 

Importance of capacity

  • Ability to match supply to demand 
  • Inverse relationship between capacity utilisation and unit costs 
  • Workforce motivation 

Operational data is used to measure performance against predetermined targets 

Increasing efficiency 

  • Operational efficiency involves maximising the output achieved from given inputs including machinery, materials and people 

Efficiency can be improved by 

  • Increasing capacity utilisation 
  • Increasing labour productivity 
  • Lean production techniques 
  • Choosing the optimal resource mix 
  • Using technology

Labour productivity 

  • Increasing labour productivity lowers labour cost per unit and hence unit cost 

Labour productivity can be increased by 

  • Training 
  • Increasing motivation 
  • Better working practices

Difficulties increasing labour productivity 

  • May impact negatively on quality and customer satisfaction
  • Employees may feel exploited 

Lean production

  • Lean production techniques are working practices derived from japan that focus on cutting waste whilst maintaining, or improving quality

Lean production techniques

  • Just-in-time - a technique used to minimise…

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