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THE NATURE OF OPERATIONS

• OPERATIONS OR OPERATIONS MANAGEMENT IS CONCERNED WITH PLANNING THE USE OF RESOURCES (INPUTS - LAND, LABOUR, CAPITAL) PRODUCTIVELY AND EFFECTIVELY TO PROVIDE OUTPUTS (GOODS AND SERVICES)
• OPERATIONS MANAGERS MUST BE CONCERNED WITH
• EFFICIENCY OF PRODUCTION - AIM IS TO KEEP COSTS AS LOW AS POSSIBLE AND GIVE BUSINESS COMPETITIVE ADVANTAGE
• FLEXIBILITY AND INNOVATION - IN A DYNAMIC BUSINESS ENVIRONMENT ITS IMPORTANT FOR BUSINESS TO BE ABLE TO DEVELOP AND ADAPT TO NEW PRODUCTION METHODS AND NEW PRODUCTS
• QUALITY - GOOD OR SERVICE MUST BE SUITABLE FOR PURPOSE INTENDED AND IMPORTANT TO ENSURE QUALITY STANDARDS ARE SET AND MAINTAINED AND A SYSTEM OF QUALITY CHECKS IS INTRODUCED
• AIM OF OPERATIONS MANAGERS IS TO PRODUCE GOODS AND SERVICES OF REQUIRED QUALITY, IN REQUIRED QUANTITY AT THE TIME NEEDED IN THE MOST EFFECTIVE WAY

PRODUCTION TRANSFORMATION PROCESS

• INPUTS ARE CONVERTED OR TRANSFORMED INTO OUTPUTS -SOMETIMES CALLED TRANSFORMATION PROCESS
• PROCESS APPLIES TO BOTH MANUFACTURING AND SERVICE INDUSTRIES
• PRODUCTION - MAKING OF TANGIBLE GOODS AND PROVISION OF INTANGIBLE SERVICES
• AIM IN ALL CASES IS TO ADD VALUE TO INPUTS BOUGHT IN BY BUSINESS SO THAT RESULTING OUTPUT CAN BE SOLD AT PROFIT
• DEGREE OF VALUE CREATED AND ADDED TO INPUTS WILL DEPEND ON NUMBER OF FACTORS:
• DESIGN OF PRODUCT - DOES THIS ALLOW FOR ECONOMIC MANUFACTURE WHILE APPEARING TO HAVE QUALITY FEATURES THAT WILL ENABLE A HIGH PRICE TO BE CHARGED?
• EFFICIENCY WITH WHICH INPUTS ARE COMBINED AND MANAGED - EFFICIENT OPERATIONS PROCESSES AND OPERATIONS DECISIONS ARE CLOSELY LINKED TO VALUE ADDED
• BEING ABLE TO CONVINCE CUSTOMERS TO PAY A HIGHER PRICE THAN THE COST OF INPUTS

Folie 3

• OPERATIONS PROCESS CAN INVOLVE MANY STAGES BEFORE PHYSICALLY SELLING THE GOOD OR SERVICE
• CONVERTING A CUSTOMER NEED INTO A PRODUCT THAT CAN BE PRODUCED EFFICIENTLY
• ORGANISING OPERATIONS SO THAT PRODUCTION IS CARRIED OUT EFFICIENTLY
• DECIDING ON SUITABLE PRODUCTION METHODS
• SETTING QUALITY STANDARDS AND CHECKING THEY ARE MAINTAINED
• ALL BUSINESS OPERATIONS REQUIRE PRODUCTION RESOURCES - INPUTS
• - LAND ALL BUSINESSES NEED SOMEWHERE TO OPERATE FROM
• -LABOUR ALL BUSINESS ACTIVITY REQUIRES SOME LABOUR INPUT WHICH CAN BE MANUAL LABOUR OR MENTAL SKILLS
• - CAPITAL REFERS TO TOOLS, MACHINERY, COMPUTERS AND OTHER EQUIPMENT THAT FIRM USES TO PRODUCE GOODS AND SERVICES THEY SELL ALSO INCLUDES INTELLECTUAL CAPITAL

PRODUCTION AND PRODUCTIVITY

• PRODUCTION IS ABSOLUTE MEASURE OF QUANTITY OF OUTPUT A FIRM PRODUCES IN A GIVEN TIME PERIOD
• PRODUCTIVITY IS A RELATIVE MEASURE AND IS CONCERNED WITH HOW EFFICIENTLY INPUTS ARE CONVERTED INTO OUTPUTS
• MEASURES OF PRODUCTIVITY ARE
• 1. LABOUR PRODUCTIVITY - NUMBER OF UNITS PER WORKER = TOTAL OUTPUT IN GIVEN TIME PERIOD / TOTAL WORKERS EMPLOYED
• 2. CAPITAL PRODUCTIVITY = OUTPUT / CAPITAL EMPLOYED
• BUSINESS CAN INCREASE PRODUCTIVITY BY
• EMPLOYING FWER BUT BETTER SKILLED WORKERS AND USING FEWER BUT MORE TECHNOLOGICALLY ADVANCED MACHINES
• IMPROVEMENTS IN PRODUCTIVITY USUALLY LEADS TO FALL IN UNIT COSTS OF PRODUCTION IF COST OF LABOUR AND CAPITAL INPUTS DONT CHANGE THEN ANY INCREASE IN OUTPUT PER WORKER OR OUTPUT PER MACHINES WILL LEAD TO FALL IN UNIT COSTS WHICH IS A BENEFIT IN COMPETITIVE MARKETS

RAISING PRODUCTIVITY LEVELS

• IMPROVING TRAINING OF STAFF TO RAISE SKILL LEVELS -STAFF WITH HIGHER AND MORE FLEXIBLE SKILL LEVELS SHOULD BE MORE PRODUCTIVE, THEY WILL BE ABLE TO PERFORM TASKS MORE EFFICIENTLY, THEY COULD BECOME MORE INTERESTED IN WORK SINCE THEY HAVE ABILITY TO DO DIFFERENT JOBS. TRAINING CAN BE EXPENSIVE AND TIME-CONSUMING AND HIGHLY QUALIFIED STAFF COULD JOIN ANOTHER BUSINESS
• IMPROVE WORKER MOTIVATION - MOTIVATION CAN BE IMPROVED USING MOTIVATIONAL THEORIES OR FINANCIAL/ NON-FINANCIAL MOTIVATORS
• PURCHASE MORE TECHNOLOGICALLY ADVANCED EQUIPMENT - MODERN MACHINERY SHOULD ALLOW INCREASED OUTPUT WITH FEWER STAFF . SUCH EXPENSIVE EQUIPMENT WILL ONLY BE WORTHWHILE IF HIGH OUTPUT LEVELS ARE MAINTAINED
• MORE EFFICIENT MANAGEMENT -MANY WAYS OF INEFFICTIVE MANAGEMENT CAN REDUCE OVERALL PRODUCTIVITY OF FIRM LIKE FAILURE TO PURCHASE CORRECT MATERIALS , POOR MAINTAINANCE SCHEDULES FOR MACHINES AND HEAVY HANDED MANAGEMENT OF STAFF. MORE EFFICIENT OPERATIONS AND PEOPLE MANAGEMENT COULD GO LONG WAY TO IMPROVE PRODUCTIVITY LEVELS

LIMITATIONS OF RAISING PRODUCTIVITY

• INCREASING PRODUCTIVITY DOESNT ALWAYS GUARANTEE SUCCESS OF BUSINESS, IF PRODUCT IS UNPOPULAR WITH CUSTOMERS IT MAY NOT SEL PROFITABLY NO MATTER HOW EFFICIENTLY ITS MADE
• GREATER EFFORT ANF CONTRIBUTIONS COULD LEAD TO WORKERS HAVING HIGHER WAGE DEMANDS AND IF THESE ACTUALLY LEADS TO INCREASING UNIT COSTS, PRODUCTIVITY GAINS MAY NOT ACHIEVE THEIR GOAL
• WORKERS AND THEIR UNIONS BECOMING FEARFUL OF DRAMATIC IMPROVEMENTS IN LABOUR PRODUCtIVITY, IF PRODUCTIVITY INCREASES WITHOUT INCREASE IN SALES, SALES WORKERS MAY BE AT RISK OF LOSING THEIR JOBS
• PRODUCTIVITY IN WORKPLACE GREATLY DEPENDS ON OVERALL MANAGEMENT AND THEREFORE IF ITS MOTIVATING PRODUCTIVITY IS LIKELY TO INCREASE
• MAYBE DIFFERENCE BETWEEN EFFICIENCY AS MEASURED BY PRODUCTIVITY AND EFFECTIVENESS

EFFICIENCY AND EFFECTIVENESS

• Effectiveness is only achieved if the customer needs are met
• Effectiveness means meeting objectives other than just being efficient in operations, meeting customer needs profitably and being efficient in production is only 1 part of this
• Long term future of business satisfying customers needs profitably is much more important than just producing at lowest possible unit cost however it's not concerned with wasting inputs, it's putting them to productive use to achieve objectives of firm
• Efficiency is measured by productivity

Labour intensive and capital intensive

• Labour intensive
• If firms insist on maintaining high degree of labour it may be because of marketing benefits due hand built image or due to lack of finance
• As long as consumers are prepared to pay for traditional craft made hoods that create sense of distinction then labour intensive methods will remain profitable in certain industries
• Benefits
• It's possible to charge higher prices for hand built products
• There flexibility in production unlike machines whose flexibility is limited and thus can give business competitive advantage
• Could help In achieving the social objective of business by creating employment opportunities in local area
• Disadvantages
• Health and safety issues increases cost of production
• Unhealthy environment may limit production
• Productivity may vary depending on level of staff motivation
• Capital intensive
• Firms that supply mass produced goods are capital intensive due to the nature of production process
• Like aluminium smelting or electricity generation can only be economically undertaken by vast and very expensive capital equipment
• Benefits
• Opportunities of economies of scale and unit cost reduction offered by large scale equipment
• Can be cheaper as health and safety may not be strict
• Can lead to productivity not changing because it's not subject to motivation levels
• Disadvantages
• Fixed costs can be very high at beginning and cost of financing purchase can be beyond some firms
• Maintainable costs can be very high and might require skilled engineers to monitor and adjust performance of equipment
• Technology changes rapidly which can increase cost to firm
• Which approach chosen depends on
• Nature of product and product image firm wishes to establish
• Prices of both inputs
• Size of firm and it's ability to afford expensive capital equipment