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Flashcards

Chatper 23: Operations Planning

HRYN red AS Business A Level English 90 cards

Cards in this deck (90)

  1. 1Operations Planningpreparing input resources to supply products to meet expected demand.
  2. 2What factors influence the decisions taken by operation managers? 3Marketing Factors
    Availability of Resources
    Technology
  3. 3What are hte marketing factors? If sales forecasts are reasonably accurate. what should hte operations managers be able to do? 5The key information needed by an operations manager when planning future production levels is the estimated or forecast market demand – trying to match supply to potential demand – this is operations planning.
    o Match output closely to demand levels – may require holding of inventories
    o Keep inventory levels to a minimum efficient level
    o Reduce wastage of production eg take away products being rejected due to being too old
    o Employ and keep busy a stable, appropriate number of staff
    o Produce right product mix
  4. 4What important oepration decisions will be influenced by the availability of resources? Give 3 exampleso Location: may locate in country or region that has abundant supply of necessary raw materials
    o Nature of production method: if supply of suitable employees is good and wage costs low then business may decide to operate a labor intensive production method
    o Automation: if cost of automated/robotic computer controlled equipment falling then business could decide to change production methods in favor of IT based systems
  5. 5Describe the technology factorProduction methods have changed dramatically as cheap digital technology has made possible the application of IT throughout the typical operations department. Perhaps 2 most important technological innovations have been CAD and CAM. CAD software may be specialized for specific applications eg architectural designs. It is widely used for computer animation and special effects in movies, advertising and other applications where the graphic design itself is the finished product. Also used to design products in a wide range of industries where the software preforms calculations for optimum shape and size.
  6. 6What are the benefits of CAD? 7o Lower product development costs
    o Increased productivity
    o Improved product quality
    o Faster time-to-market
    o Good visualization of the final product and its constituent parts
    o Great accuracy so errors are reduced
    o Easy re-use of design data for other product applications
  7. 7What are the limitations of CAD? 3o Complexity of programs
    o Need for extensive employee training
    o Large amounts of amount of computer processing power required- can be expensive
  8. 8What are the benefits of CAM? 4o Precise manufacturing and reduced quality problems – compared to when controlled by people
    o Faster production and increased labor productivity
    o More flexible production allowing quick changeover form one product to another
    o Integrating with CAD allows more design variants of a product to be produced, means niche products can be produced as well as mainstream mass market products. This increased customization increases competitiveness of businesses in both small and large market segments
  9. 9What are the limitaitons of CAM? 3o Cost of hardware, programs and employee training – costs may mean smaller businesses cannot access benefits of CAM – although technology is becoming cheaper
    o Hardware failure – breakdowns can and do occur and they can be complex and time consuming to solve
    o Quality assurance still needed – errors in programs can produce faults that have to be spotted and rectified before being passed on to the next stage of production
  10. 10CAD Computer Aided Designthe use of computer programs to create 2 or 3 dimensional (2D or 3D) graphical representations of physical objects.
  11. 11CAM Computer Aided Manufacturingthe use of computer software to control machine tools and related machinery in the manufacturing of components or complete products.
  12. 12Operational Flexibilitythe ability of a business to vary both the level of production and the range of products following changes in customer demand.
  13. 13Operational flexibility can be achieved in a number of ways. A brief outline of these methods is? 4- Increase capacity by extending building’s and buying more equipment – expensive option
    - Hold high stocks – but these can be damaged and there is opportunity cost to capital tied up
    - Have a flexible and adaptable labor force – using temporary, part time contracts reduces fixed salary costs buy may reduce worker motivation
    - Have flexible flow line production equipment
  14. 14Process Innovationthe use of a new or much improved production method or service delivery method.
  15. 15What is the main benefit of process innovation?The main benefit of process innovation is cheaper production methods, making the business more competitive. It is also possible that if the innovation involves patents of new techniques, that theses could be sold or licensed to other businesses.
  16. 16Job ProductionProducing a one off item specially designed for the customer.
  17. 17Describe job production What normally used for? How production work? Advantages 2.5 and disadvantages 4Normally used for production of single, off-of products. May be small or large and are often unique. Each individual produce has to be completed before the next product is started. At any one time, there is only one product being made. Enables specialized products to be produced and tends to be motivating for workers as they produce the whole product and can take pride it in. However, tends to be expensive, takes a long time to complete and is usually labor intensive. The labor forces also needs to be highly skilled and this is not always easy to achieve. Can be slow but rewarding for workers.
  18. 18Batch ProductionProducing a limited number of identical products – each item in the batch passes through one stage of production before passing on to the next stage.
  19. 19Describe Batch Production What normally used for? How production work? Advantages 4 and disadvantages 4Involves the production of products in separate groups, where the products in the batch go through the whole production process together. The production process involves a number of distinct stages and the defining feature of batch production is that every unit in the batch must go through an individual production stage before the batch as a whole moves on to the next stage. Eg baking bread rolls. Allows firms to use division of labor in their production process and enables some gain from economies of scale if the batch is large enough. Allows each individual batch to be specifically matched to the demand, and the design and composition of batches can be easily altered. However, tends to have high level of work-in-progress stocks at each stage of production and the work may be boring and demotivating for workers. If batches are small, then unit costs are likely to remain high. There is a need to clean and adjust machinery after each batch has been passed through. Batches must wait unlike flow.
  20. 20Flow ProductionProducing items in a continually moving process.
  21. 21Describe flow production What normally used for? How production work? Advantages 5 and disadvantages 2Used where individual products move from stage to stage of the production process as soon as ready, without wait for other products. Capable of producing large quantities of outputs in relatively short time and so suits industries where demand for the product in question is high and consistent. Suits production of large numbers of a standardized item and only requires minimal alterations. Often referred as mass production. In a perfect system, the production process would be broken down so all of stages were of equal duration and producing equal output levels. Labor costs relatively low, as much of the process is mechanized, little physical handling of the products. The constant output rate should make planning of inputs relatively simple and this can lead to minimization of input stocks through the use of JIT stock control. Quality tends to be consistent and high and it’s easy to check quality of products at various points throughout process. However, there is a high initial set-up costs. Also, the work tends to be boring demotivating and repetitive.
  22. 22Mass CustomizationThe use of flexible computer – aided production systems to produce items to meet individual customers’ requirements at mass-production cost levels.
  23. 23What does mass customization doCombines the latest technology with multi-skilled labor forces to use production lines to make a range of varied products. This allows focused or differentiated marketing to be used, which allows for higher added value – an essential objective to all operations managers. By changing just a few of the key components – but keeping rest the same – low unit costs are maintained with greater product choice.
  24. 24What are recent innovations in production methods?CAD and CAM have allowed much quicker developments of new products, designs that feature many common components and robotic machinery that can be switched to making a range of parts. Also, developments in the organization of the production flow line has reduced the alienating effects of typical mass production.
  25. 25What are factors in making the choice on which production method? 4Size of the market
    amount of capital available
    availability of other resources
    market demand exists for prodcuts adapted to specific cusotmer requirements
  26. 26Describe size of the market and amont of capital available factors- Size of the market: If market very small then job production likely. Flow production is most efficiently adopted when market for similar or identical products is very large and consistent throughout year. If mass production used this way then mass-marketing methods will also be adopted to sell the high output levels that can be manufactured. They may be market niches for batch. If market demands a large number of units but at different times of the year then batch may be used.
    - Amount of capital available: purpose-built flow production line is difficult and expensive to construct. Small firms unlikely to be able to afford this and so are more likely to use job or batch production.
  27. 27Deescribe Availability of other resources and market demand exists for products adapted to specific customer requirements factors- Availability of other resources: large-scale flow production often requires a supply or relatively unskilled workers and a large, flat land area. Job production needs skilled craftspeople.
    - Market demand exists for products adapted to specific customer requirements: if firms want cost advantages of high volumes combined with the ability to make slightly different products for different markets then mass customization would be most appropriate.
  28. 28What is the main feature and essential requirements of job production?Single one-off items
    Highly skilled workforce
  29. 29What are the main advantages of job production? 2-able to undertake specialist projects or jobs, often with high added value
    -high levels of worker motivation
  30. 30What are the main disadvantages of job production? 4-high unit production costs – only one product being made at a time
    -time consuming
    -wide range of tools and equipment needed
    -labor intensive – need to be highly skilled – high pay and hard to find
  31. 31What is the main feature and essential requirements of batch production?Group of identical products pass thorough each stage together
    Labor and machines must be flexible to switch to making batches of other designs
  32. 32What are the main advantages of batch production? 4-some economies of scale
    -faster production with lower unit costs than job production
    -some flexibility in design of production in each batch
    -use division of labor
  33. 33What are the main disadvantages of batch production? 4-high levels of stocks at each production stage
    -unit costs likely to be higher than with flow production
    -may be demoting and boring for workers
    -often need to clean and adjust machinery after each batch
  34. 34What are the main feature and essential requrements (2) of flow production?Mass production of standardized products
    -Specialized, often expensive, capital equipment – but can be very efficient
    -High steady demand for standardized products
  35. 35What are the main advantages of flow produciton? 4-low unit costs due to constant working of machines, high labor productivity and economies of scale
    -large production
    -low labor costs
    -quality tends to be high and consistent and easy to check
  36. 36What are the main disadvantages of flow produciton? 3-inflexible – often very difficult and time consuming to switch from one type of product to another
    -expensive to set up flow-line machinery
    -work tends to be boring, demotivating and repetitive
  37. 37What is the main feature and essential requirements (3) of mass customization?Flow production of products with many standardized components but customized differences too
    -Many common components
    -Flexible and multiskilled workers
    -Flexible Equipment – often computer controlled to allow for variations in the product
  38. 38What are the main advantage of mass customization?-combines low unit costs with flexibility to meet customers’’ individual requirements
  39. 39What are the main disadvantages of mass customization? 2-expensive product redesign may be needed to allow key components to be switched to allow variety
    -expensive flexible capital equipment needed
  40. 40What are the problems of changing production methods from job to batch production? 3- Cost of equipment need to handle large number sin each batch
    - Additional working capital to finance stocks and work in progress
    - Staff demotivation – less emphasis placed on an individual’s craft skills
  41. 41What are hte problems of changing production methods from job or batch to flow produciton? 3- Cost of capital equipment needed for flow production
    - Staff training to be flexible and multiskilled – if not then may end up on one boring repetitive task – could be demotivating
    - Accurate estimates of future demand to ensure output matches demand
  42. 42noteThe flexibility offered by technology to large businesses could put at risk the survival of small firms. However, likely to be demand form wealthy consumers for original and specialist products.
  43. 43location decision notes what location decisions concerned about? 2Deciding on the best location for a new business or a relocating/expanding one is crucial as it is concerned with input decisions – land and labor supply – and how these will affect the productive efficiency of the business. Location decisions for an existing firms will have an effect on many departments of the business and the profitability and chances of success of the firm.
  44. 44What are hte 3 key characteristics of location decisions?1. Strategic in nature – as they are long term and have an impact on the whole business
    2. Difficult to reverse if an error of judgment is made – due to costs of relocation
    3. Taken at the highest management levels – not delegated
  45. 45Optimal Locationa business location that gives the best combination of quantitative and qualitative factors.
  46. 46Should maximize long term profits of the business. An optimal location is likely to be a compromise that? 4- Balances high fixed costs of the site and buildings with convenience for customers and potential sales revenue
    - Balances the low costs of a remote site with limited supply of suitably qualified labor
    - Balances quantitative factors with qualitative ones
    - Balances the opportunities of receiving government grants in areas of high unemployment with risks of low sales as average incomes in area may be low
  47. 47'What are the disadvantages to a business of non-optimal location decisions? 5 could be'sHigh fixed site costs
    high variable costs
    low unemployment rate
    high unemployment rate
    poor transport infrastructure
  48. 48What are the disadvantages to a business of non-optimal location decisiosn to a high fixed site costs? 3- High break-even level of production
    - Low profits – or even losses
    - If operating at low capacity utilization, unit fixed costs will be high
  49. 49What are the disadvantages to a business of non-optimal location decisiosn to a high variable costs? 3- Low contribution per unit produced or sold
    - Low profits – or eve losses
    - Hugh unit variable costs reduce competitiveness
  50. 50What are the disadvantages to a business of non-optimal location decisiosn to low unemployment rate? 3- Problems with recruiting suitable staff
    - Staff turnover likely to be a problem
    - Pay levels may have to be raised to attract and retain staff
  51. 51What are the disadvantages to a business of non-optimal location decisiosn to a high unemployment rate?- Average consumer disposable incomes may be low – leading to relatively low demand for income-elastic products
  52. 52What are the disadvantages to a business of non-optimal location decisiosn to poor transport infrastructure? 3- Raises transport costs for both materials and finished products
    - Relatively inaccessible to customers
    - Difficult to operate JIT due to unreliable deliveries
  53. 53Quantitative Factorsthese are measurable in financial terms and will have a direct impact on either the costs of a site or the revenues from it and its profitability.
  54. 54What are the quantitative factors influsincing location decisions? 5- Site and other capital costs such as building or shop-fitting costs: vary from region to region within a country and between countries.
    - Labor costs: depends if business capital or labor intensive. Lower wage rates overseas.
    - Transport costs: if use heavy and bulky raw materials ie steelmaking – will have high transport costs if suppliers a great distance from steel plant. Goods that increase in bulk during production will traditionally reduce transport costs by locating close to the market. Otherwise not very significant ie hotels
    - Sales revenue potential: Convenience to potential customers. Certain locations can add status and image to a business and this may allow value to be added.
    - Government grants: governments keen to attract new businesses so may offer grants, especially areas of high unemployment.
  55. 55What are 3 techniques that help in location decisions?Pofit Estimates
    Investment Appraisal
    Break-even analysis
  56. 56How do profit estimates help in location decisions?By comparing the estimated revenues and costs of each location, the site with the highest annual potential profit may be identified. However, annual profit forecasts alone are of limited use – need to be compared with the capital costs of buying and developing the site.
  57. 57How do Investment Appraisal help in location decisions?Can be used to identify locations with highest potential returns over a number of years. The simplest techniques is the payback: can be used to estimate the location most likely to return the original investment quickest. This could be of particular benefit to a business with a capital shortage or in times of economic uncertainty. Calculating the annual profit as a percentage of the original cost of each location is another useful measure. However, these methods require estimates of costs and revenues for several years for each potential location.
  58. 58How do Break-even analysis help in location decisions?It compares 2 or more locations. It calculates the level of production that must be sold from each site for revue to equal total costs. The lower this break-even level of output, the better the site is. This may be important for businesses that face high levels of fixed costs and may benefit from a location with lower overheads. However, it should be used with caution and the normal limitations of this technique apply.
  59. 59Qualitative FactorsNon-measurable factors that may influence business decisions.
  60. 60What are some qualitative factors for location decisions? 6Safety
    Room for further expansion
    Manager's preferences
    Ethical considerations
    Environmental concerns
    Infrastructure
  61. 61Describe qualitative factors of safety, Roof for fruther expansion and managerss preferences- Safety: to avoid risk to public and damage the company’s reputation in case of an accident, some industrial plants will be located in remote areas even though it may increase transport and other costs
    - Room for further expansion: may be consideration if important in the long term
    - Managers’ preferences: in a small business managers preferences may be desirable work and home environments. However, in larger organizations, earning profits and increasing returns to shareholders will be key objectives and will take priority in location decisions.
  62. 62Describe qualitative facotors of ethical considerations, envrionmental conerns, infrastructure- Ethical considerations: if relocating may make workers redundant. This can cause bad publicity and be contrary to the ethical code of the business and may be viewed by stakeholders as immoral especially if relocating to a country with weaker controls over worker welfare and the environment.
    - Environmental concerns: may be reluctant to set up in an area that is sensitive from a environmental viewpoint as could lead to poor public relations and action from pressure groups.
    - Infrastructure: quality of local infrastructure, especially transport and communication links will influence location choice. IT varies around the world – if need stronger communications... The growing popularity of online shopping in developed countries may lead to some retailers opening fewer high street stores and more warehouse operations.
  63. 63What are 3 other location issues? Describe them- The Pull of the Market: Very important for service industries. Cinema good example. Internet changing norm
    - Planning Restrictions: local authorities have duty to serve the interest of their population. They want business and industry for employment but want to protect environment.
    - External Economies of Scale: cost reductions that can benefit a business as the industry grows in one region. Common for same firm to be clustered in same region as will benefit from pool of qualified labor area, local college course, suppliers who own scale economies should offer lower costs. Will be easier to arrange cooperation and joint ventures when business are located close to each other.
  64. 64Capacity Utilizationthe percentage of total capacity that is actually being achieved in a given period
  65. 65What is the equation for capacity utilization?Capacity Utilization = actual level of output / maximum possible output *100
  66. 66Multi-site Locaitona business that operates from more than one location.
  67. 67What are the advantages of multi-site locations? 5Greater convenience for consumers
    Lower transport costs
    Production based companies reduce the risk of supply disruption if there are technical or industrial relations problems in one factory
    Opportunities for delegation of authority to regional managers from head office – helps to develop staff skills and improve motivation
    Cost advantages of multi-sites in different countries
  68. 68What are the disadvantages of multi-scale lcoations? 4Coordination problems between the locations – excellent 2 way communication systems will be essential
    Potential lack of control and direction from senior management based at head office
    Different cultural standards and legal systems in different countries – must adapt to differences
    If sites too close to each other there may be a danger of ‘cannibalism’ where one restaurant or store takes sales away from another owned by the same business
  69. 69OffshoringThe relocation of a business process done in one country to the same or another company in another country.
  70. 70MultinationalA business with operations or production bases in more than one country.
  71. 71What difference between outsouring and offshoringOutsourcing is transferring a business function, such as HR, to another company. It is only offshoring if this company is based in another country.
  72. 72What are 4 reasons for international location decisions?1. Reduce costs: Major reason, businesses that want to remain competitive consider relocation to low-wage economies.
    2. Access global markets: Some Western Europe products have reached saturation and further sales growth can only be achieved by expanding abroad.
    3. Avoid Protectionist Trade Barriers: Necessary to et up operations within the country or trading bloc concerned to avoid tariff barriers.
    4. Other Reasons: Include substantial government financial support to relocating business, good educational standards and highly qualified staff and avoidance of problems resulting from exchange rate fluctuations. Fluctuating currency problem so if locate in country wouldn’t be a problem.
  73. 73Trade BarriersTaxes (tariffs) or other limitations on the free international movement of goods and services.
  74. 74What are 5 issues and potential problems with international location?1. Language and other communication barriers
    2. Cultural differences: effective staff training may be necessary to ensure cultural differences don’t prevent success overseas expansion as have different cultural aspects in the workplace.
    3. Level-of-service concerns: some consumer groups argue that offshoring of some services has led to inferior customer service due to time difference problems, time delays in phone messages, language barriers and different practices and conventions.
    4. Supply-chain concerns: may be loss of control over quality and reliability of delivery with overseas manufacturing plants. JIT may become more risky if supplies have to be shipped far.
    5. Ethical considerations: may be loss of jobs when a company locates all or some of its operations abroad and this may lead to a consumer boycott or give negative publicity which could cancel out the competitive advantage of low-cost supplies.
  75. 75Scale of OperationThe maximum output that can be achieved using the available inputs (resources) – this scale can only be increased in the long term by employing more of all inputs.
  76. 76What are some factors that influence the scale of operation of a business? 5- Owners’ objectives – may wish to keep the business small and easy to manage
    - Capital available – if this is limited, growth will be less likely
    - Size of the market the firm operates in – a very small market will not require large-scale production
    - Number of competitors – the market share of each firm may be small if there are many rivals
    - Scope for scale economies – if these are substantial, like water, each business is likely to operate on a large scale
  77. 77note on expansionThe decisions to expand the scale of operations of a business has many costs involved – purchasing land, buildings, equipment, employing more staff and the capital needed for this will always have alternative uses. Business expansion by employing more of all factors of production is referred to an increase in the scale of production. Firms expand to increase capacity to avoid turning business away but they also benefit from the advantages of large-scale production – economies of scale.
  78. 78Economies of scaleReductions in a firm’s unit (average) costs of production that results from an increase in the scale of operations.
  79. 79What are hte 5 main reasons cost benefits arise?Purchasing Economies
    Technical Economies
    Financial Economies
    Marketing Economies
    Managerial Economies
  80. 80Describe Purchasing EconomiesOften known as bulk-buying economies. Suppliers will often offer substantial discounts for large orders. This is because it is cheaper for them to process and deliver one large order than several small ones. Also, they will be keener to keep a very large customer happy due to the profits made from the large quantities sold. Big firms employ specialist buyers who may travel the globe to strike the best possible deals at the lowest possible prices for materials and components. Recently there has been a growing trend towards firms buying supplies over the internet – B2B trading. Cheaper deals are offered for a greater quantities ordered.
  81. 81Descibe Technical Economies What are hte 2 main sources?There are 2 main sources. Large firms are more likely to be able to justify the cost of flow production lines. If these are worked at a high capacity level, then they offer lower unit costs than other production methods. The latest and most advanced technical equipment is often expensive and can usually only be afforded by big firms. Such expense can only be justified when output is high so that fixed costs can be spread thinly – a small firm, even if it could afford the equipment, would be unlikely to keep it operating for very long each week and this would raise the unit fixed costs – indivisible.
  82. 82Descibe Finanical economies What are the 2 distinct cost advantages?large organizations have 2 distinct cost advantages when it comes to raising finance. First, banks and other lending institutions often show preference for lending to a big business with a proven track record and a diversified range of products. Interest rates charged to these firms are often lower as well. Secondly, raising finance by going public or by further public issues of shares for existing plc.’s is very expensive. Professional advisers’ fees, prospectus publishing costs and advertising charges will not vary greatly whether it is a large or a small issue of shares. Therefore, the average costs of raising the finance will be lower for larger firms selling many millions of dollars’ worth of shares.
  83. 83Descibe marketing economiesRise with the size of a business, but not at the same rate. These costs can be spread over a higher level of sales for a big firm and this offers a substantial economy of scale.
  84. 84Descibe Managerial EconomiesSmall firms often employ general managers who have a range of management function to perform. As a firm expands, it should be able to afford to attract specialist functional manager who should operate more efficiently than general managers. The skills of specialist managers and the chance of them making fewer mistakes because of their training is a potential economy for larger organizations.
  85. 85Diseconomies of ScaleFactors that cause average costs of production to rise when the scale of operation is increased.
  86. 86What are the main causes of management problems which create diseconomies of scale? 3Communiation Problems
    Alienation of the workforce
    Poor coordination
  87. 87Descibe communicaion prolemslarge scale operations will often lead to poor feedback to workers, excessive use of non-personal communication media, communication overload with the sheer volume of messages being sent, distortion of messages caused by the long chain of command. These communication inefficiencies may lead to poor decisions being made due to inadequate or delayed information. Poor feedback reduced worker incentives. Communication overload may prevent the really important messages being acted upon first.
  88. 88Describe alieation of the workforcethe bigger the organization the more difficult it becomes to directly involve every worker and to give them a sense of purpose and achievement in their work. They may feel so insignificant to the overall business plan that they become demotivated and fail to give their best.
  89. 89Describe poor coordinationBusiness expansion is often associated with a growing number of departments, divisions and products and the number of countries a firm operates in may increase too. A major problem for senior management is to coordinate and control all of these operations. Coordination really means all divisions of the business are aiming to achieve the same objectives by adopting similar ethical standards and by producing goods that are consistent with each other. Poor publicity could be made if one division does something seen as unethical. Production costs could be substantially higher ie if there are 2 research departments- wasteful duplication.
  90. 90What are 3 appraoches that could be used to overcome the impact of potential diseconomies? Describe them1. Management by Objectives: By giving each division and department agreed objectives to work towards that are components for the long-term aims of the whole business.
    2. Decentralization: Gives division’s considerable degree of autonomy and independence. They will be operated more like smaller business units as control will be exercised by managers closer to the action. Only really significant strategic issues may need to be communicated to the center.
    3. Reduce Diversification: the recent movement towards less-diversified businesses that concentrate on core activities may help to reduce coordination problems and some communication problems.

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A Level AS Business (Unit 4: Operations and Project Management) Flashcards on Chatper 23: Operations Planning, created by HRYN red on 08/04/2022.
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