OPERATIONSHigher Business Management

2014/15

CONTENTS

Methods of Production Job/Batch/Flow Capital/Labour Intensive

Stock Management Systems JIT Warehousing

Quality QM/Standards/

Benchmarking/Circles/Mystery Shopper

Ethical Fair Trade Environmental/Ethical

Issues/Solutions

Technology

METHODS OF PRODUCTION

METHODS OF PRODUCTION

The choice of production method will depend on:

the product being produced the size of the market the size of the business the finance available the technology available.

METHODS OF PRODUCTION - JOB

A single product is custom-made to a customer’s own specifications

Examples: Boat Building Bridge Building Wedding Cakes/Dresses

METHODS OF PRODUCTION - JOB

Advantages

“One-off” orders accommodated

High price Specifications can

be changed Motivated

workforce

Disadvantages

High labour costs Wide variety of

equipment needed Each job will require

individual design (time)

Lead times lengthy

METHODS OF PRODUCTION - BATCH

The production of a group of similar products. No item in a group goes to the next stage until all are ready.

Examples: Tinned Foods Bakery Houses in an Estate

METHODS OF PRODUCTION - BATCH

Advantages

Flexible production

Partly finished goods can be stockpiled and completed later

Reduced need for highly skilled staff

Machinery can be standardised

Disadvantages

Higher costs per unit (small batches)

Needs careful planning

High stock levels Less motivated

staff Delays in

changing/cleaning equipment

METHODS OF PRODUCTION - FLOW

Production items move continuously from one operation to the next. Products are produced to a standard specification.

Examples:CarsComputersWhite goods eg washing machines

METHODS OF PRODUCTION - FLOW

Advantages

Economies of Scale Automated

production lines save time and money – 24/7

Large quantities produced

Reduced stockholding eg JIT

Quality systems can be built in/standard products

Disadvantages

Large investment required

Mass consumption required

If one part of the system fails – shutdown

Lack of worker motivation - repetitive

METHODS OF PRODUCTION

Production will be either labour intensive or capital intensive and there are advantages and disadvantages of each method.

LABOUR INTENSIVE

Labour-intensive production is where a business uses a larger proportion of human input than machinery to complete the production process.

Example fruit picking, postal service and hospitality

industry.

LABOUR INTENSIVE

Labour-intensive production is used when:  Labour is cheaper than the cost of machinery

The process requires specific skills

The use of machinery would be impractical

The process relies on the ability of humans to think, use initiative, problem solve

the production process requires flexibility

LABOUR INTENSIVE

Advantages Additional flexibility More responsive to

change Lower start-up costs

than capital-intensive

The use of human judgment can improve the process

Disadvantages A skilled workforce

can be expensive No economies of scale Staff illness or

absence Additional quality

control measures may be required

Can be less efficient than capital-intensive production

CAPITAL INTENSIVE

Capital-intensive production is where the production process relies more on machinery and other capital equipment.

Example cars and washing machines.

CAPITAL INTENSIVE

Capital-intensive production is used when:

The supply of labour is limited

The process is routine and repetitive

The cost of the capital is relatively cheap

Machinery improves the quality and accuracy

Machinery improves efficiency and consistency

CAPITAL INTENSIVE

Advantages Operate 24/7 Higher volume of

goods can be produced

Quality of output is standardised and consistent

Removes human error Machines can do work

that would be dangerous

Disadvantages Large initial outlay to

purchase machines Cost of maintaining and

repairing equipment Only suitable for

standardised production Production time is lost if

machines break down Worker motivation is low

as they are de-skilled.

CAPITAL INTENSIVE

Mechanisation Where humans use machinery to help them

in the production process, often to replace the physical, muscular part of the process. Human judgement is still required.

Automation Control systems and IT are used to manage

production, reducing or replacing human intervention. Automation removes the need for human judgement.

 

QUALITY SYSTEMS

QUALITY

In today’s highly competitive global market quality has become one of the key decision areas in operations.

Quality is an extremely difficult term to define as it can mean different things to different people.

QUALITY MANAGEMENT

The main aim of Quality Management is to produce a perfect product or service every time in order to meet customer requirements.

In order to achieve ‘quality’, the requirements, and needs of the customer come above everything else.

QM assumes that the next person with ‘ownership’ of the good, or the next person to use the good, are customers.

E.g. on a production line in a factory, the next person down the line from you is your customer or client.

QUALITY MANAGEMENT

Quality management requires four elements to be managed:

1. The definition of ‘quality’ at each and every stage of the process

2. The commitment of all3. A system in which this quality can be

assured4. A measure of the ability to meet quality

requirements

QUALITY STANDARDS

Quality is often defined as conformity with a standard:

Fit for purpose, Appearance, Safety, Availability, Value for money, Ease of use, After sales, Reputation, Customer service

A quality standard is awarded to an organisation when it meets a particular specification or set of criteria.

QUALITY STANDARDS

BSI Kitemark

CE mark

ABTA

Wool Mark

Royal Warrant

Forest Stewardship Council

IIP

Financial Conduct Authority

ISO9000

Lion Mark

Red Tractor

Scotch Beef

BENCHMARKING

This involves comparing one product with another similar product, usually the market leader.

The organisation will then attempt to match these standards in their own production.

However this is not an easy process: Companies encounter resistance from

competitors You have to continually benchmark your

processes

QUALITY CIRCLES

A quality circle is a group that meets to identify and resolve problems about quality in the production process.

They must consider and recommend suitable alternative practices that are then put to management.

Benefits: Collaboration of different workers Job enrichment Increased motivation Shop-floor workers will give solutions managers

couldn't.

MYSTERY SHOPPER

Mystery shopping is the practice of using trained shoppers to anonymously evaluate:

customer experience, operational efficiency, employee integrity, use of merchandising, service/product quality.

It is more cost-effective to retain a customer than attract a new one, therefore making sure customers receive the appropriate level of service is a good investment.

MYSTERY SHOPPER

Benefits:

Feedback can be used to improve processes. Training needs can be identified. Improves customer retention. Monitors quality of products and service. Improves employee awareness. offers an incentive-based reward system to

employees and managers.

QUALITY SYSTEMS

Reduce wastage Improve reputation Competitive

advantage Increase market

share Customer loyalty Employee

motivation

Time-consuming Costly processes Must maintain

standard Poor quality still

exists

ADVANTAGES DISADVANTAGES

STOCK MANAGEMENT

STOCK MANAGEMENT

Stock refers to: Raw Materials Work in Progress Finished Goods

Stock must be managed to ensure there are sufficient quantities of RM and FG’s.

STOCK MANAGEMENT

Factors to consider:

The quantity required The volume that can be produced at one

time Working practices e.g. health and safety The storage available Quality procedures

STOCK MANAGEMENT SYSTEMS

Maximum Stock Level – The highest amount of stock that can be held at one time. Stock is readily available No production delays Ensures no overstocking or wastage

Minimum Stock Level – The lowest amount stored at one time. Below this level there is a danger that stock levels will fall too low and production will stop.

STOCK MANAGEMENT SYSTEMS

Re-order Level – The quantity at which more stock is ordered. This level is set so that stock does not fall below the minimum level by the time new stock arrives

Re-order quantity – Quantity needed to take stock back to maximum level.

Lead time – the time between the order being placed and it arriving.

STOCK MANAGEMENT SYSTEMS

JUST IN TIME (JIT) – KANBAN SYSTEM

Method that keeps costs to their minimum.

Stock arrives just in time for it to be used and goods are only manufactured when an order is received.

The system of storing stock in this way is known as Kanban

JUST IN TIME (JIT) – KANBAN SYSTEM

Less cash tied up in stock

Less storage and warehousing

Wastage reduced PESTEC factors

impact is reduced

Reliable supplier is needed

Production can stop if delays are late

Environmental impact

High delivery costs No economies of

scale

ADVANTAGES DISADVANTAGES

STORAGE - CENTRALISED

Maintain security in one location

Consistent procedures implemented across the organisation

Specialist staff Economies of Scale

Cost of dedicated storage area, staff etc.

Time wasted going to and from stores

ADVANTAGES DISADVANTAGES

STORAGE - DECENTRALISED

Stock is always there when required

Less chance of wastage

Can account for local preferences

Security difficult to maintain across the organisation

Less control of stock

ADVANTAGES DISADVANTAGES

WAREHOUSING

This is the name given to the place where finished goods are held before distribution

They must be designed to ensure the most efficient movement of stock

Aspects of warehouse planning: Design & Layout Mechanical Handling Transportation

LOGISTICS

This is concerned with getting the finished product to the customer

How the product gets to the customer depends on the distribution mix

Factors to consider: Reliability of other organisations Legal restrictions Finance available The product The image of the product Stock management system being used The distribution capability of the manufacturer

ETHICAL & ENVIRONMENTAL

FAIRTRADE

Fairtrade is about achieving better prices and fair terms of trade for farmers in the developing world.

Farmers pay their workers a fair wage, health and safety improves, and the local community becomes more sustainable.

Firms can be awarded the Fairtrade Mark for products that meet its strict criteria.

Examples: coffee, chocolate, bananas, sugar

FAIRTRADE

diverse market place - more market segments demand ethically sources products.

Customer Loyalty Good public image Good employer –

attract staff

High price for consumer

Small scale production – no EoS

Tariffs exist on some goods

Concern shifted to climate change/food miles

ADVANTAGES DISADVANTAGES

ENVIRONMENTAL RESPONSIBILITY

Businesses are under increasing pressure to show environmental responsibility not only because it is viewed as being ethical but because it is also required by law.

Legislation is in place to control factors such as:

Emissions Storage and disposal of waste Causes of nuisance, for example noise,

smoke, fumes, light pollution

ENVIRONMENTAL RESPONSIBILITY

What can businesses do to prevent these problems?

Minimise wastage Recycle Minimise packaging Prevent pollution & omissions Be sustainable Fair Trade Use renewable energy

ETHICAL OPERATIONS

Working ethically means doing the right thing and acting in a way that is both fair and honest to all stakeholders.

‘A business that makes nothing but money is a poor business.’

Henry Ford 1903

ETHICAL OPERATIONS

Examples of unethical practices include:

The use of child labour The use of sweatshops for production, for

example hot conditions, long working hours The violation of workers’ rights The violation of health and safety standards.

ETHICAL OPERATIONS

Increased sales from ethically motivated customers

Improved reputation Easier to access

finance Improved employee

motivation Increase contracts

from other firms e.g. Govt.

Labour & material costs increase

Overheads increase e.g. training

Standards vary between countries

ADVANTAGES DISADVANTAGES

TECHNOLOGY IN OPERATIONS

TECHNOLOGY

Computer-aided design (CAD)

The use of computer software to assist in the creation, modification and analysis of a product during the design process e.g. car design

Advantages More accurate; images can be saved, modified

and shared easily. Disadvantages

Cost of software; staff training

TECHNOLOGY

Computer-aided manufacture (CAM)

The use of computers in the manufacturing process.

Advantages 24/7 production; reduces waste

Disadvantages High initial costs; breakdowns stop production

TECHNOLOGY

Electronic Point of Sale (EPOS)

Allows a business to maintain accurate stock and financial records, as well as providing valuable information about customers’ buying habits.

It uses barcodes to: record products received into stock and sold update stock levels frequently identify demand for products