CH 23 - Operations Planning

CH 23 - Operations Planning

1. What are the factors that affect operations decisions?

   • Marketing factors: if the sales are reasonably accurate, operational managers should be able to:
     • match output closely to demand levels - this may require the holding of inventories.
     • keep inventories levels to a minimum efficient level.
     • reduce wastage of production, e.g. by perishable products being rejected due to being too old.
     • employ and keep busy a stable, appropriate number of staff.
     • produce the right product mix
   • The availability of resources
     • Location
     • Nature of production method
     • Automation
   • Technology
     • CAD - computer aided design: the use of computer programs to create 2D or 3D graphical representations of physical objects. Benefits include:
       • Benefits
         • lower product development costs
         • increased productivity
         • improved product quality
         • faster time-to-market
         • good visualization of the final product and its constituent parts
         • great accuracy
         • easy re-use of design data for other product applications.
       • Limitations
         • complexity of the programs
         • need for extensive employee training
         • large amounts of computer processing power required; costly
     • CAM - computer aided manufacturing: the use of computer software to control machine tools and related machinery in the manufacturing of components or completed products.
       • Benefits
         • precise manufacturing and reduced quality problems
         • faster production and increased labour productivity
         • more flexible production allowing quick changeover from one product to another
         • integrating with CAD, CAM allows more design variants of a product to be produced, whcih means niche products and mainstream products can be produced
       • Limitations
         • cost of hardware, programs and employee training
         • hardware failure
         • quality assurance is still needed

2. Operational flexibility: the ability of a business to vary both the level of production and the range of products following changes in customer demand.

   • Process innovation: the use of a new or much improved production method or service delivery method.
     • Optimal location: a business location that gives the best combination of quantitative and qualitative factors.
       • Quantitative factors: these 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.
         • Qualitative factors: non-measurable factors that may influence business decisions.
           • (1) a. Safety b. Room for further expansion c. Managers' preferences d. Ethical considerations e. Environmental concerns f. Infrastructure
           • (2) Other locational issues: a. the pull of market b. planning restrictions c. external economies of scale
           • Scale of operation: the maximum output that can be achieved using the available inputs.
             • Economies of scale: reductions in a firm's unit cost of production that result from an increase in the scale of operations.
               • Diseconomies of scale: factors that cause average costs of production to rise when the scale of operation is increased.
         • (1) a. Labour costs b. Government grants c. Transport costs d. Sales revenue potential
         • (2) a. Profit estimates b. Investment appraisal c. Break even analysis

3. Production methods

   • job production: producing a one-off item specially designed for the customer
   • batch production: producing a limited number of identical products
   • flow production: producing items in a continually moving process
   • mass customisation: the use of flexible computer-aided production systems to produce items to meet individual customers' requirements at mass-production cost levels.

4. Factors that influence adoption of production methods

   • size of market
   • the amount of capital available
   • availability of other resources
   • market demand exists for products adapted to specific customer requirements

5. Multi-site location

   • Advantages
     • greater convenience for consumers
     • lower transport costs
     • reduced risk of supply disruption
     • opportunities for delegation of authority to regional managers from head office
     • cost advantages of multi-sites in different countries
   • Disadvantages
     • coordination problems between locations
     • potential lack of control and direction from head office
     • different cultural standards and legal systems
     • danger of 'cannabilism'

6. International location decisions

   • Reasons to do it: a. to reduce cost b. to access global markets c. to avoid protectionist trade barriers etc.
   • Issues with international locations: a. language and other communications barrier b. cultural differences c. level-of-service concerns d. supply-chain concerns e. ethical considerations

7. Scale of operations

   • Factors
     • owner's objectives
     • capital available
     • size of market
     • number of competitors
     • scope for scale economies
   • Increasing the scale of operations: Large scale production benefits from economies of scale. The cost benefits arise due to:
     • Purchasing economies
     • Technical economies
     • Financial economies
     • Marketing economies
     • Managerial economies
   • Diseconomies of scale
     • Communication problems
     • Alienation of workforce
     • Poor coordination
     • Avoiding diseconomies of scale
       • Management by objectives
       • Decentralization
       • Reduce diversification