Operation Management

Operation Management

1. Often referred to as Production, is concerned with producing the right good and services in the right quantities at the right quality level

   • INPUTS: gold, silver and precious stones. PROCESSES: designing, cutting, bending, soldering and polishing OUTPUTS: rings, brooches, bangles, bracelets, necklaces.

2. Factors of Production

   • Five M´s – Materials, Manpower, Machines, Money and Management
   • Describe the inputs that are used in the production of goods or services in the attempt to make an economic profit.
   • Include land, labor, capital and entrepreneurship.
     • LAND
       • Things supplied by nature and use in the production of goods / services
     • LABOR
       • Human effort which goes intro the production of goods / services:
     • CAPITAL
       • Made by man and use to produce goods / services.
         • Fixed, social and working
     • ENTREPRENEURSHIP
       • Initiative involve in organizing land, labor and capital and which bares the risks involved.

3. Types of production

   • Primary
     • This includes all kinds of extractive industries such as agriculture, mining and fishing.
   • Secondary
     • This includes manufacturing such as assembling, refining and construction (building) industries.
   • Tertiary
     • This includes all kinds of service industries such as transportation, communication and tourism.

4. Production Decisions

   • What to produce (innovation, adaptation, addition)
   • What production method should be used
   • Where production should be located
   • How large the business should be (whether to grow or remain small)
   • How to ensure quality

5. How to Produce

   • Choice of factor combination
   • Selection of production factors
   • Choice of production method

6. Production Methods

   • There are several different ways in which goods and services can be produced.
     • They are usually classified into:
       • Job production
         • ADVANTAGES
           • Uniqueness. Product is according to customers specifications. There is no finished goods stock.
           • Motivation.Workers are motivated as they carry out the variety of tasks
           • Flexibility/Customization
           • Quality. Speciliazed and skilled labour.
         • DISADVANTAGES
           • Short production runs raise unit production costs.
           • Specialized equipment and skilled labour might be needed which may cost more to the business
           • Needs highly skilled labour not easily found.
           • It often takes a long time to complete which makes a long working-capital cycle.
       • Batch production
         • ADVANTAGES
           • Economies of scale if the batch is large enough
           • Less motivation because of repeated operation
           • It also allows each individual batch to be specifically matched to the demand
           • Employees can concentrate on one operation rather than the whole task (less cost in skilled employees)
         • DISADVANTAGES
           • There is often a need to clean and adjust machinery after each batch has passed through, which may be time consuming.
           • If batches are small, then unit costs are likely to remain high
           • High levels of work-in-progress stocks
           • The work may well be repetitive and boring, demotivating for workers
       • Flow/line production and mass production
         • DISADVANTAGES
           • The set-up costs are high
           • The work is likely to be monotonous and therefore boring; therefore, motivation is low
           • Any breakdown will cause major problems
           • Little flexibility or none
         • ADVANTAGES
           • Unit costs are reduced because of economy of scale
           • Low defect rate due to machinery
           • Labor costs are low
           • Easy to check the quality of products at various points throughout the process.
       • Mass customization
         • The use of flexible computer-aided production systems to produce items that meet individual customer requirements at mass production cost levels.
       • Cell production

7. STOCK CONTROL

   • Operational Decisions
     • The purchasing of stocks and their delivery;
     • The issue and handling of stocks;
     • The disposal of surpluses;
     • The storing and control of stocks;
     • The provision of information about stocks
   • Nature of stocks
     • Raw materials and components
     • Work-In-Progress
     • Finished goods
   • Cost of holding stocks
     • Opportunity Cost: money could have been used in something else Storage Cost Spoilage Cost: deterioration, obsolescence, perishability Administrative and Financial cost: cost of placing and processing orders/ failing to anticipate price increases Out-of-stock costs: customers cannot be supplied from stocks; lost revenue.
   • Stock Levels
     • Stockpiling
     • Working capital available
     • Cost of stock holding
     • Demand
     • Type of stock
     • Lead time
     • External factors
   • Stock management
     • Just in time (JIT)
     • First in, first out
     • Just In Case (JIC)

8. QUALITY

   • Those features of a product or service that allow it to satisfy customer´s wants.
     • Quality does not necessarily mean
       • Exclusive product
       • Prestige
     • Forces why a company makes quality a priority
       • To differentiate its products
       • Change in the laws to compete
       • Increase in the income of consumers
       • Increased competition
       • Increased awareness of consumers
     • Factors perceived by customers
       • Physical appearance and design of the product Image and reputation of manufacturing or selling Durability Security features Reliability Customer service Service after the sale
   • ASSURANCE
     • It refers to the method used by a company to reassure the customer about the quality of their products in compliance with certain standards of quality.

9. LOCATION

   • Geographical position of a company, the place where installed to operate. Where? cost - benefit Long-term decision (sometimes irreversible)
   • Depends on:
     • Nature of business
     • Nature of the product
     • Nature of human resources
   • Limitations
     • Cost Low moral and high anxiety for workers Loss of skilled and loyal Need to find new customers and suppliers Potential damage to corporate image Compensation for dismissal Problems during the transfer phase