Notizen
Operation management
Inhalt der Notizen (5)
Seite 1
Operation managements
operation managements is an area of management concerned with designing and controlling the process of production and redesigning business operation in production of goods and services
this involve responsibility:
Effective: meeting customer requirement
Efficient(business operation is efficient): few resources are used
1.1 REDESIGNING BUSINESS OPERATION(practicalities of production):
implementing production methods
designing equipment
selecting suppliers who can deliver the right quality and price
Ensuring health and safety standards are maintained
Deciding the appropriate levels of stock
Specific responsibilities of operation managements
Operational issues:
management inventory levels/Quality control/material handling/maintainance policies
1.2 FUNCTIONS OF OPERATION MANAGEMENT
Supply chains and logistics
management of inventory through supply chains
Acquisition of material plus use of labor TIMELY+COST EFFECTIVE MANNER = deliver customer expectation
Excessive quantity of inventory levels
find VENDORS (appropriate goods - reasonable price- ability to deliver)
This require understand of : -
local and global trend
consumer demand
available resources
Delivery Management
delivered within agreed time
follow customer to ensure product meet quality and funtionality needs
feedback means delivery relevant information to each department=process involvement
1.3 OPERATIONAL MANAGER
operational manager have concerned understand various process- this include about knowing the culture and environment of people -
MAIN AIM
They aim at producing goods at required quality,quantity and most cost effective way.
these managers are involved in coordinating and developing new processes while re-evaluating current structure
THEY CONCERN OVER:
Efficiency of production
keeping costs low
increase competitiveness and profitability if price remain constant
Quality
meet customer expectation
Flexibility and innovation
Dynamic environment
increase the needs to develop new processes and new products
1.4 IMPORTANCE OF OPERATION MANAGEMENTS/MANAGERS
Better Output
Higher output-lower defects-lower costs } improve processes
Competitive advantages
higher profit
improving company bottom line
Seite 2
Added value
added value is the difference between the cost of purchasing the raw material and the price of finished goods-
for example(!):
sales revenue{1000 units sold for $ 20 each}= $20000
costs to make 1000 units {raw material $7500/labor$5000/other production costs 2500}=total cost:$15000
Added value{20,000-15000}=$5000
for example(2):
TYRELLS POTATO CHIPS
Will chase has been farming potatoes for 20 years (loss making)
wanted to produce something with more value added
came up with idea to make hand fried chips with different flavors and different packaging
successfully created a premium product and turn tyrells into a profitable business
1.1 Marketing added value
Customer's added value :Additional value + basic product = persuasion {perceived value}
WAYS TO ADD VALUE:
building a brand: reputation for quality etc ...
delivery excellent customer service: high quality and attentive personal service and after sale service
product features and benefits:different functionality
offering convenience: save time
Discount price and extra quality assurance
BENEFIT OF ADDED VALUE:
Charge a higher price
creating a point of difference from competitors
protecting from competitors by trying to steal by lower prices
focusing a business closely to its target market segment
SIGNS-Businesses particularly start up using added value:
strong gross profit margin {strong indicator} gross profit/total sales
repeat customers:
signs of satisfied customers
suggests that customer feels that they are getting value for money
brand or name recognition
important for world of mouth recommendation
1.2 OPERATIONAL ADDED VALUE
transformation of inputs to outputs take place to produce goods and services is occur in a number of stages-
Each stage is more valuable than the one before work have been done on the input{Economic added value}
This value will also be the added value that consumers place on a finished product{Marketing added value}
sugarcane>sugar>cake mixture>cake baked>retail outlet>sold
1.3 OPERATION DECISION AND ADDED VALUE
why aims for added value :
push up efficiency and effectiveness
lower unit cost
increase sales revenue or profits
meet customer's value added needs
1.4 EXCEPTIONS that is the factors affecting the degree of added value
Design of product: allow> quality features means higher prices
Efficiency of resources: affect productivity such that reduction in waste > lower costs >push up value(price remain constant)
Ability to convince: exceed costs
Seite 3
Productivity and Production
1.1 PRODUCTION
production refers to the act of producing goods for their use of sales-
production is a measure of value of output of goods and service e.g measured by national GDP or an index of production in specific industry such as car manufacturing
1.2 PRODUCTIVITY
productivity refers to the rate at which goods are produced
Ratio of output to input
relate to the use of resources to produce goods and services
measure of efficiency of factors of production
1.2 (a) increase productivity:
input{same}=output{increase}
input{increase}<output{increase}
higher productivity allow businesses to pay higher wages and achieved increase profits at the same time
(b) decrease productivity:
input{increase}>output{increase}
a fall in labor productivity leads to a rise in firm's (units)costs of production {assuming that the level of wages remain the same}
labor productivity: total output in a given time period / total workers employed
capital productivity: output / capital employed
NOTES: an increase in production DOES NOT automatically mean an increase in productivity- it depend on how many factors input have been employed to supply extra output
(c) productivity over production concern { advantages }
Eliminate wastage
Facilitate comparisons(competitors>performance)
Efficient utilisation of all factors of production
Enable management to control(performance)
1.3 Difference between production and productivity
DEFINITION
It is defined as the rate at which goods are producing {productivity}
It is defined as the act of manufacturing goods for sale{production}
USE
It is the utilization of resources to form goods{productivity}
it is the actual process of conversion{production}
WORK DONE
It is the amount of work one gets for a certain spending costs{productivity}
It is the amount of work done i.e the output{production}
MEASUREMENT
It is the measure of efficiency {productivity}
It is the measure of produced goods
1.4 RAISING the productivity level
Improve training of staff
fewer mistakes/faster work/Better problem solve > task efficient > more productive
improve worker motivation
emphasis on non financial
involvement in decision making/delegation/quality circle
advance technological equipment
fewer staff-more output
more efficient management
ineffective lead to lower productivity
Changing the culture
(processes} -EFFICIENCY improvement
1.5 Why raising productivity level:
Profitability
more profits without push up costs
sales increased and increase profit margin
Business Growth
necessary cash flow
Meeting consumer demand
improve in adapting to shift in demand e.g hiring temporary staff while increase in demand
competitiveness
1.6 IS RAISING Productivity the answer:
not guarantee success
unpopular=unprofitable even if raise productivity
Greater efforts/contribution
high productivity-higher wage demand-push up costs
Fearful due to dramatic changing to improvement of productivity
20%(RISE productivity)-0%(Sales) > 20%(lose jobs)-[workers and trade unions]
Quality Management
determine overall success of policy often based of culture of the workplace
Difference between efficiency{measure by productivity} and effectiveness
Notes[key concept]:
the quality and effectiveness of management is important determinant of operational efficiency
IMPORTANT FACTORS AFFECTING PRODUCTIVITY:
technical factors
these include proper location/layout and size of plant and machinery/correct design of machinery and equipment, research and development, automation and computerization
high productiveness > latest technology
Production factors
productivity is related to production factors
the production of all departments should be properly planned,coordinated and controlled
The right quality of raw material should be used in production
The production process should be simplified and standardised
Organizational factor
productivity correspond directly to the organizational factor
A simple type of organization should be used
Authority and responsibility for every individual and department should be defined properly
The line and staff relationship should be defined clearly
should be have division of labor and specialization
Personnel factor
productivity is directly related to personnel factor:
Right individual should be selected for suitable post
After selection, they should be given proper training and development
they should be given better working condition and safe environment
they should be properly motivated;financial/non financial this means incentive wage policy,job security should be given;opinions should be given
there should have a proper transfer,promotion
Finance Factors
finance is the blood life in business
there should have been a better control over both fixed capital and working capital
There should be proper Financial planning
Capital expenditure should be properly controlled-both over and under use of capital should be avoided
management should see if they get proper return on capital investment
Management factors
they should make optimal use of resources to get maximum output at the lowest cost
they should use recent technique of production
they should develop better relations with trade unions and employees
enable suggestion and provide safe environment
Government factors
management should have proper knowledge about the government rules and regulations
they should maintain good relations with the government
location factors
productivity depend on location factors;
law and order facilities/nearness to market/nearness of raw material/skilled workforce
ADVANTAGES/IMPORTANCE/BENEFITS OF HIGHER PRODUCTIVITY
Higher profits
enable to produce more output
result in more output
this lead expansion of activities
Employee welfare
more profits
this profits can be used to provide facilities and working condition for employees
this result to welfare for employees
Better return
get better return on investment because of higher productivity
better dividend {share of profits} to shareholders
the market share price will also increase
Nice relations
good working condition,facilities,and incentive to motivate employees to give their best to the organisation
Customer's satisfaction
customers can be provided to good quality at a lower price
this results in loyalty to the company
Good credit rate
result to good credit rating by financial institution
enable to get cheap funds from the market to meet fixed and working capital requirement
Goodwill
good corporate image{goodwill} in the mind of social entities
better credit terms
better terms from supplier{enable to get}
suppliers may give better credit terms due to goodwill
lower turnover
enable company to give better facilities and working conditions to the employees
make employees loyal
employees turnover and absenteism will reduce
Key difference
Production : is an organized activity where in step by step conversion of raw materials into useful output takes place Productivity : is an indicator of efficiency in the production in terms of optimum utilization of firm's resource in the creation of desired output
Production : is a process of value addition wherein at each level,some value is added to the level -Productivity: is a measure of efficiency
Production: show the number of units produced by the firm in a given period of time-Productivity: highlights the ratio of output to input consumed
production: is always expressed in absolute terms that is the volume of output produced-Productivity : is indicate in relative terms meaning that it determine the quantitative relationship between output generated and resource consumed
Production : examine the value of output generated -Productivity : determine the how well the resources are utilized by the firm in the generation of output.
Conclusion
production is a conversion process in which the firm is engaged whereas the productivity os all about how efficiently the company allocates its factors of production to produce the output with least amount of wastages and essential quality-
in short,the efficiency in production is the firm's productivity
Seite 4
Efficiency and Effectiveness
Efficiency refers to the ability to produce maximum output from a given input
producing output at the highest ratio to input
ability to do things in a well mannered way,to achieve standard output
involve a parameter to calculate performance and productivity by making comparisons between budgeted output and the actual outputs produced with the fixed number of inputs
essential element for resource utilisation as they are in very less number and they have alternative uses so they must utilized in the best possible way
efficient producers use fewer inputs for a given quantity of output so that unit costs are lower
1.1 INCREASING efficiency{particularly employees}
Delegation : give responsibilities to qualified employees > gain skill and leadership experience
Match tasks to skill
Incentive employees
1.2 Linking productivity and efficiency
a garage employs six mechanics to work for nine hours a day and paid $60 per day each-in one day,they can on average repair or service 15 cars
labour productivity:15/6=2.5 cars per mechanics per day
Productivity and costs of production
total cost per day for 15 cars: 6*60=$360
average labor cost:360/15=$24 per car
Productivity rises that each mechanics can deal with the three cars per day -COSTS:
total costs per day for 18 cars:6*60=$360
Average labour costs:360/18=$20 per car
This means :
business become more competitive
able to reduce its price and maintain its profit margin
more efficient factors of production
EFFECTIVENESS
effectiveness is the output that a resource is able to GENERATE:
Employees
from the view of an employee,effectiveness is how much output that employee is able to generate-
if the employee generate a large amount of outputs,this is known as as effective employee
Measure~how well final products meet the needs of customers
Function : ability for the product to do the job it design
Availaility : how easy to obtain the product
Price: relate to the efficiency of production{cost}
Value for money: PRICE + FUNCTION
1.1 Characteristics:
Thus :
Effectiveness refers to the extent to which something has been done, to achieve the targeted outcome
this means closeness of the objective reached while comparing to the predetermine objective {puissance}
Effectiveness has outward look :
expose relationships between the business organisation with the macro environment of the business
focus on reaching competitive position in the market
Effective is a result oriented : shows how excellency the result is
1.2 Improving Effectiveness
make use of Human resource
helping to develop new business strategies
right professional to achieve goals
focus on education and growth
effective team with the capable skill and position
keep customers in mind
adapt to changing need through market research
Work on quality service or product
Balance quality with cost effective solutions
participation in decision making >ideas
Use technology
Difference between efficiency and effectiveness
Efficiency:the ability to produce maximum output with limited resources -Effectiveness:the level of nearness of the actual result with planned result
Efficiency:is "'to do things perfect" Effectiveness:is "to do perfect things"
Efficiency: has a short run perspective-Effectiveness:has a long run point of view
Efficiency: is yield oriented -Effectiveness:is result oriented
Efficiency: is to be maintained at the time of strategy implementation-Effectiveness:require strategy formulation
Efficiency: is measured in operations of the organisation-Effectiveness of strategies is measured which are made by the organisation
Efficiency: is the outcome of actual output upon given the numbers of input-Effectiveness: has relationships with means and end
Example of the difference between efficiency and effectiveness
effectiveness vs efficiency
scenerio:"where a sale representative from a company has to make cold calls to make sales "
if each phone calls costs Rs 5 , and each sales worth Rs 100 to the company:
Sale representative A make 25 phone calls and is able to convert 5 of them into sales for the company-this means A spent RS 125 on phone calls and in return he got Rs500 for the company
Calculate the return for rupee he spent: he made RS 4 for each oney he spent
Sale representative B make just 16 phones call and converted them into 4 of them-this means that he spent RS 80 on making calls and in return got business worth Rs 400
Return for every rupee spent is RS 5
B makes fewer calls than A and also fewer number of sales but his return on the cost incurred is higher than B-
in this case:
A is more effective
B is more efficient
Conclusion:
success lies within both elements-Efficiency has an
introspective approach:
that is it measures the performance of operations,processes,workers,cost,time etc inside the company
it has a clear focus on reducing the expenditure/wastage/eliminate unnecessary cost to achieve ouput with stated number of inputs
should not overdo such extent of efficiency:
lose a profitable opportunity to grow and invest in a potentially bright future
some actual opportunity such as invest and process changes might not as profitable in the upcoming future
Effective has an
Extroverted approach:
highlights the relationship of the business organisation with the rest of the world to attain a competitive position in the market that is
it helps the organisation to judge the potency(potential) of the whole organisation by making strategies and choosing the best means for the attainment result
Effective + Efficiency make sense when:
goals are clearly defined
good thought after on the flow of processes
Efficiency and Productivity
Productivity:
by the term productivity, we mean the measure,which helps in measuring the efficiency of an organisation/person/machine etc.. in producing something-It can be measure by
identifying the number of output produced with the given set of inputs
it confirm how effectively the resources are combined and used by the firm for getting a maximum possible outcome with available resources
in other words, productivity closely related to the yield that is the larger the yield,the higher would be the productivity of the organisation
Productivity: INPUT OBTAINED/OUTPUT CONSUMED
There are two types of productivity:
Total productivity: when the change in inputs is caused by changed in the quantity of all or more than one variable- it is called as total factor productivity
partial productivity: when there is a change in outputs due to the change in one input,it is called as partial factor productivity
Efficiency:
Efficiency is used to mean a state of producing the maximum number of quality with limited input {i.e : money,time,material etc..
it reflects the firm's ability to achieve the best from the available resources with no to minimum wastages of efforts and expenses
Efficiency determine how the output is produced or objective is atttained as planned with minimum costs
it is always measured against a defined standard
the actual output will be compared with standard output in order to verify the efficiency of the production process
Efficient producers target to reduce the units of costs of production and to achieve this:
the firm look for different ways to do the same things:
change the production process
material uses
time allowed
labour employed etc..
Efficiency: ACTUAL OUTPUT/STANDARD OUTPUT
productivity : means the rate at which goods are produced by the organisation that is the higher the number of goods produced,the greater would be the productivity- Efficiency : describe as the use of energy,time and money and other resources,in a way that the rate of wastages is minimum and the output achieve is maximum
Productivity: is a used to measure the number of output produced with the given input-Efficiency: refer to the optimum utilisation of the firm's resources to obtain better results with least wastages
Productivity: attempt on the quantity of products produced -Efficiency : emphasize the quality of products produced
Productivity: can be calculated by dividing the total output obtained with the input consumed in the process of production-Efficiency : can be expressed as the ratio of actual output to the standard output
Conclusion:
efficiency is all about smart, to get more out of less
productivity is nothing than that of increasing yields and this is done by raising the performance level to achieve better results
Seite 5
Labor vs capital intensity
labor intensive means using more labor than capital so labor costs are a higher proportion of the total costs than capital costs :
The degree of labor intensive is typically measured in terms of proportion of capital to produce the goods
The higher the proportion costs of labor required,the more labor intensive the business
1.1 Breaking down labor intensive
labor intensive industries requires large amount of physical efforts to complete the necessary task
In labor intensive industries, the costs associated with securing the necessary personnel outweigh the capital costs in regards to importance and volume
not all industries requires workers at a low education position{FALSE EVIDENCE}
worker productivity and advances in technology has shift the labor intensive status
labor intensive include restaurant,hotel, agriculture and mining
1.2 Example of labor intensive industries
Agriculture industries
this refers to job cultivating food stuff with the minimal damage possible: for example,picking fruits from trees
Constructive industries
this job require hand on activities-Even the use of certain tool,the person involved in major activities
Hospitality in service sectors {labor intensive}
plus personal care industries-
1.3 Labor costs
labor costs take in all the costs necessary to secure the human capital necessary to complete work
human capital refers to the skill/knowledge/experience possessed by an individual viewed in terms of their value or cost to an organization
these costs can include:
funds directly towards based wage along other benefits
Labor costs are considered as variable - capital costs are considered as fixed
because labor costs can be adjusted during market downturns through layoffs or reduction in benefits
lower break even output
labor intensive has some flexibility over controlling their expenses-
But however limited economies of scale
as a firm cannot pay a worker less by hiring more
sensible to wage forces within the labor market
firms benefit from access to sources of low costs and often job production e.g hairdresser
1.4 Benefits and Drawback of labor intensive
Benefits of labor intensive:
Labor is a flexible resources-through multi-skilled and training
well delivered personal service
low start cost
unit costs may be still low in low wage location
lower unit costs if labor is relatively cheap
labor at the heart of the production process-can help continuous improvements
possible to produce custom made product
easy to alter labor force by recruitment
Drawback of labor intensive
greater risks of problem with employer/employee relationship
potentially high cost of labor turnover{recruitment}
Need for continuous training and investment
difficult to produce at a large scale
economies of scale difficult to achieve
capital intensive production means using relatively more capital than labour so that capital costs are a higher proportion of the total costs than labor costs -
capital intensive production refers to business processes or industries that requires large amount of investment to produce a good or service
have a high percentage of fixed assets which are also known as property,plant and equipment
companies in capital industries are marked by high level of depreciation
`1.1 Breaking capital intensive
capital intensive industries tend to have a high level of operating leverage which is the ratio of fixed costs to variable costs
As a result, capital intensive industries need a high volume of production to provide an adequate return on investment
This also means that a small change in sales can lead to a big change in profits and return on investment
these high operating leverage make capital intensive industries much more vulnerable to economic slowdown compared to labor intensive
BECAUSE they still have to pay the fixed costs such as overhead on the plant that house the equipment/depreciation of the equipment/other fixed costs associated with a capital intensive businesses even the industry is n a recession
1.2 Example:
all these industries requires capital expenditure:
automobile manufacturing/oil production and refinery/steel production/transport
infrastructure
1.4 Measurement of capital intensity
capital intensity can be measured by by calculating how many assets are needed to produce a dollar of sales which is total assets divided by sales
Another way is to compare capital expenses to labor expenses
If a company spent $ 100000on capital expenditure and $30000
this mean the industries is likelt to be capital intensive industries
is a company spent $300000 labor costs and only $10000 on capital expenditure
this mean the industries is more service-or-labor oriented
1.5 Impact of capital intensity on earnings:
capital intensive firms generally use lots of financial leverage
as they can use plants and equipment as collateral
both financial leverage and operating leverage is very risky when :
when sales fall unexpectedly
Because capital intensive industries have high level of depreciations costs
Analysts{ often add depreciation back to net income using a metric called Earning before interest/taxes/depreciation and amortization (EBITDA)
By using EBITDA : a non cash expense vs {instead of} net income on performance ratios
it is easier to compare the performance of companies in the same industry
costs are mainly fixed =higher breakeven output
firms benefits from low costs and long term financing
1.6 Benefits and Drawback of capital intensive"
Benefit of capital intensive
Mass production is possible on assembly line
lower unit costs if capital relatively cheaper
economies of scale is possible
labor force is less skilled so recruitment is easy and labor costs are low
potentially significant for better productivity
better quality and speed<depend on product>
Drawback of capital intensive
significant investment
HIGH startup cost due to the cost of machinery
not suitable for personal service
Potentially lost competitiveness to obsolescence
may generate resistant to change from workforce
machine dependency
breakdown are expensive
may stop production
not suitable for varying product types
cannot vary capital in the short run
lack of variety might lead unmotivated labor
factors in deciding between capital or labor intensity
NATURE of product and the product image firm wishes to establish
mass production-capital intensive
labor intensive-craft products
Relatively costs of labor and capital
low labor costs: labor intensive
high labor costs:capital intensive
Business size
larger-have more finance to afford to be more capital intensive
Level of personal service
involve in the delivery of the product for example manicure
customer's need
market where personal service is important to the customer tend to be more labor intensive
Informationen
- Beschreibung
- This is the Nature of operations
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- farhaan jugon
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