BUSS 2: Operations Management

BUSS 2: Operations Management

1. Making Operational Decisions

   • Key Terminology
     • Operational Targets: Specific & usually measurable - set for each operational activity.
     • Capacity: Maximum output a firm can produce with existing resources.
     • Capacity Utilisation: Proportion that current output is of full capacity output.
     • Unit Cost: Average cost per unit of output.
     • Excess Capacity: Greater production capacity than likely to use in foreseeable future.
     • Overtime: Staff working beyond contracted hours in exchange for a higher wage.
     • Temporary Staff: Staff employed for a fixed time period. Contract may not be renewed.
     • Part-time Staff: Staff employed for a less than full weekly hours contract.
     • Sub-Contracting: Using suppliers to manufacture part or all of a firms product.
     • Stocks: Materials/finished goods held by a firm as needed to supply customer demand.
     • Rationalisation: Recognising resources to cut-costs leads to cut back in capacity.
   • Operational Targets
     • Think 'SMART' - Purpose is to improve operational efficiency. We must consider: Cost, New Products, Quality, Delivery Time, Productivity, Capacity Utilisation, etc.
   • Capacity Utilisation
     • It is useful to measure proportion of maximum capacity achieved. From this, we can manage unit costs. Unit costs hold great significance, particularly in a competitive market.
   • Non-standard Orders
     • Management must decide: 1.Do we accept the order? - Revenue gained compared to standard/enhance further orders/customer importance. 2.How do we cope with the operational problems? - Sub-contract/Outsource/hire machinery &temporary staff/job-production-meet demand.
   • Matching Production to customer demand: Methods
     • Overtime
       • Increase output as staff are available. D: Staff paid higher wage = Increased costs & staff may slow.
     • Temporary-Staff
       • Employed to cope with higher demand. D: Need recruiting & training = EXPENSIVE.
     • Part-Time
       • Called to cover. D: Reduced loyalty & commitment.
     • Sub-Contract
       • Temporary/ permanent: Also known as 'Outsourcing'. D: May be more expensive - will have a profit margin & quality assurance.
     • Managing Stocks
       • Act as a buffer between production & demand. D: Expensive/ Opportunity cost & can expire/ perish.
     • Rationalisation
       • Cutting back on production capacity for lower demand. D: Redundancy: rewards job security & motivation.

2. Quality & Working with Suppliers

   • Key Terminology
     • Quality Product: Product/service meeting customers expectations - 'Fit for purpose'.
     • Quality Standards: Expectations of customers expressed as minimum service standards.
     • Quality Control: Inspection of product or sample of products.
     • Quality Assurance: System of agreeing/meeting quality standards at each production stage ensuring customer satisfaction.
     • ISO 9000: Internationally recognised certificate acknowledging the existence of a quality procedure, meeting certain conditions.
     • Total Quality Management: Approach to quality, aiming to involve all employees.
     • Internal Customers: People within the organisation who depend on quality of work by others.
     • Supplier Relationship: Links with companies supplying businesses goods & services.
     • Service Level Agreement: Contract with suppliers: Clearly lays down service expected.
   • 'A quality product doesn't have to be the best possible. If a product meets high 'quality standards', the high cost will almost become insignificant. Quality service is taken into account usually from: response time, time tracking & reliability of this, contract with same person, no. of errors & quality of advice.
   • Quality Assurance Systems
     • Examples: ISO 9000 - Awards given to firms with QA in place. To achieve this: clear & appropriate targets, system to check targets are met, measuring system recording actual results & resources available. / TQM - Approach that involved all employees (internal customers) in the process.
     • Costs: Market research for customer requirements, staff training costs to ensure standards, material costs - rejecting low quality, equipment costs - to check, inspection costs, rejection wastage & stopping production to trace & correct.
     • Benefits: Customer satisfaction & repeat custom, good publicity, rep. for quality encourages retailers, easier to establish new products, building of branding, may allow for premium pricing = USP.
   • Quality of Supplier
     • Product quality, Special requirement flexibility, Delivery reliability, Value for money, Financially secure, Good communication, Operating same computer software = immediate orders/requests.
   • How to choose a Supplier
     • 1.List of potentials. 2.Meet & see how each operate. 3.Reliability & Flexibility. 4.Payment Terms. 5.Prices-Value for money. 6.Capacity-future orders. 7.Quality-Verified system? 8.Reliability of delivery. 9.Establish 'Service Level Agreement'.
   • Service Level Agreement
     • Standards, delivery timetable, payment terms, quality levels, sources of suppliers, IT systems, termination of contract & settle disputes.
   • Operational Benefits of a good supplier
     • 1.Better customer service. 2.Fewer production delays. 3.Lower costs. 4.More constant quality. 5.Flexibility to cope with unusual requirements. 6.Improved communications & IT systems.

3. Customer Service & Technology

   • Key Terminology
     • Customer Service: Provision of service to customers before, during & after purchase to standards that meet customer expectations.
     • Information Technology: The use of electronic technology to gather, store, process and communicate information.
     • Robot: Computer controlled machine able to perform a physical task.
     • Supply Chain: All stages in the production process from obtaining raw materials to selling to the consumer - from point of origin to point of consumption.
     • Sustainability: Production systems that prevent waste by using the minimum or non-renewable resources so that levels of production can be sustained in the future.
   • 3 stages of customer service
     • 1. Pre-sales: Advice on range available & options inc. advantages & disadvantages.
     • 2. Service at time of purchase: Final assessment that product meets customer expectations.
     • 3. After-sales service: Helpline/web-service answering important queries about set-up/operation - future upgrades - repair & maintenance.
   • Methods of meeting Customer Expectations
     • Market Research
     • Putting customer service as no.1 priority
     • Quality Standards
     • Use of quality assurance & control
     • Training
   • Monitoring & Improving Customer Service
     • Monitoring
       • Satisfaction level surveys. / Tracking Surveys. / Focus Groups. / Encouraging instant feedback - using IT.
     • Improving
       • 1.Overall Quality. 2.Treated/valued as customer. 3.Speed of service. 4.Friendliness of staff. 5.Handling of complaints. 6.Accurate info in response to enquiries. 7.Compretence of staff. 8.Ease of doing business. 9.Being kept informed. 10.Helpfulness of staff.
   • Benefits of good Customer Service
     • Competitive advantage = higher profits. / Differentiates the business from others in the market. / Slashed pricing - special promotion:New customers..return due to service? / Passing of positive feedback: word of mouth. / can become a 'USP' - Justification of high price. e.g. Apple.
   • Types of technology used in ops. management
     • Robots / Automated stock control systems/programs / supply chain management programs: plan, manufacture, deliver & returns / Communications Technology: Internet, Intranet, email, etc. / Design Technology: CAD (Computer Aided Design).
     • Benefits of New Technology
       • Lower unit costs of Production. / Better communications & management information systems. / Quicker & more flexible operations. / Better customer service. / Improvement in quality & reduction in wastage.
         • Introducing & updating Technology
           • Staff resistance to change. / Training costs. / Maintenance & updating costs. / Breakdown costs & disruption by systems not working. / IT based communication systems can create information overload.