4 - Decision-making to improve operational performance (Influences on the…
4 - Decision-making to improve operational performance
The value of setting operational objectives
Operaitonal objectives might include...
Speed of response and flexibility
taken for a customer
impact on the customer's perception
of a business and in turn on
- relates to the
of a business in terms of its
- quality product =
advantage. More than just
, it involves the
whole process of operations.
- greater consumer
, environmental objectives are much
- lowering costs =
. Relates to the
unit costs of production.
product and the
External influences on operational objectives
Political or legal influences
: businesses always have to be
- operations needs to be both
as demand will fluctuate during the e
(periods of growth and recession).
computer aided design
computer aided manufacture
has resulted in
speedier innovation and production
and better quality.
and demanding in terms of
with competition both at
. There is
Internal influences on operational objectives
will determine the
of any operational
, e.g. investment in new production technology.
will determine both
what has to be produced
of the workforce determine both
what can be produced
internal influence. An
higher production capacity
lowest unit costs
Analysing operational performance (4 main areas)
to which a business uses its
. It is usually
expressed as a %.
It is calculated by:
Actual output in time period / maximum possible output per period x 100.
Measures the output per worker in a given time period.
It is calculated by:
output per time period / number of employees.
Refers to the
amount a business can
working flat out.
It is the
cost of producing one unit
(item) of a
good or service
It is calculated by:
total cost / units of output.
The interpretation and use of data in operational decision-making and planning
capacity utilitation increases
labour productivity will rise
(assuming the number employed remains the
of production will be
, as the
fixed costs will be spread
over more units of output.
capacity utilisation decreases
The importance of capacity
that a business doesn't have
too much spare
actual production falls
below maximum potential production.
It is important that a
optimal level of capacity
, i.e. as
close to 100%
as possible, whilst
leaving sufficient spare capacity
to cope with
The importance of efficiency and labour productivity
increase in labour productivity
is likely to lead to a
reduction in the unit costs
of production and therefore could lead to a
business being more competitive
in terms of
How to increase efficiency and labour productivty
Investment in technology
improve the quality and reliability
of a product and result in
greater output from fewer employees.
Improvements in training and motivation
Aim of training is to
improve workforce skills
, likely to lead to
of training - employees feel
more involved in the process
which could lead to
quality and output.
changing job content
in terms of
duties and responsibilities
and may be executed in such a way as to
improve the overall performance
of the employee.
Reduction in the labour force
Automatically improve productivity
if the same level of
. This might be achieved through
The benefits and difficulties of lean production
is all about getting
more from less
. It's a
to management that focuses on
waste in terms of
Features include just-in-time (JIT) management, Kaizen, total quality management (TQM) and quality circles.
companies employ to
they are needed for production.
Benefits: reduces space as there is no need for storage warehouses; saves time; reduces no. of employees required.
Drawbacks: running out of stock - JIT relies on supplier delivering on time; transport problems can halt production.
Difficulties of increasing efficiency and labour production
in labour productivity will be
New technology is expensive
and workers who acquire new
- labour productivity improvement shouldn't come at the
expense of lower quality.
Resistance of employees
- employees can be
resistant to change
, especially where
are concerned and
New technology brings with it job losses.
How to choose the optimal mix of resources
Resources are the factors of production
- physical land and the natural resources;
- the workers employed by a business;
- the machines and equipment used in a business;
- the skill of combining the other factors of production.
Some businesses may employ a
approach to production where there is a
high level of capital equipment
used and a
lower emphasis on labour.
Other businesses might be more
, placing a
greater emphasis on labour
less on capital equipment.
How to utilise capacity efficiently
- may be achieved by
undertaking a new marketing campaign
introducing extension strategies
to find new uses or markets for a product.
and sell off some capacity. Such a decision should
not be taken lightly
as once done it
cannot be reversed.
- may be possible, could be used for
introduction of new products
or leasing it to
Lack of capacity?
- transferring portions of work to outside suppliers.
- into the permanent establishment of new capacity.
. Use of
has enabled businesses to control more
level of demand.
Types of technology used in operations
More advanced computer systems
- e.g. enabling automatic stock control systems and electronic data interchange.
enhances a business's ability to promote
and sell products and its ability to
(CAM) - manufacturers use
part of the
(CAD) - can be linked to CAM systems.
Benefits of new and updated technology
Reduces unit costs of production
, enhancing the competitiveness of the business concerned.
- offers the opportunity to
charge a premium price
until the competition catches up.
consistent standard of quality.
access to new markets.
Use of technology can
Costs of new and updated technology
Can be a
drain on an organisation's capital
to install high-tech stuff.
training of the existing workforce
Introduction may be
met with opposition
from existing employees especially if
job security is threatened
The importance of quality
Provides a USP
, gives consumers
Allows a business to
charge higher prices
increases profit margins.
Enable a business to
increase its sales.
Enhance reputation and brand loyalty.
Methods of improving quality
- ensuring the
desired level of quality
in the development, production and delivery of products or services.
Total quality management (TQM)
- where there is a
culture of quality
Follow the link for a diagram:
Japanese business philosophy
, where all employees are encouraged to identify and suggest possible
The benefits and difficulties of improving quality
may give a
due to higher sales and perhaps selling price;
in terms of price.
the cost of
of the system and
that may be needed; employees can be
resistant to change.
The consequences of poor quality
if goods are
Costs resulting from the
Ways and value of improving flexibility, speed of response and dependability
- ability of a business to
meet a customer's requirements
refers to the
ability to vary production levels
in order to
cope with variations
in the size of the order.
This latter is known as
specific customer requirements.
Speed of response and dependability
- speed of response refers to how
fulfils an order
refers to its
or whether it
fulfils the order on time.
may be used in order to
demand. May be possible to
increase demand by additional marketing.
or workers on
contracts. Allows business to
increase or decrease amount produced.
- if the
market is growing
in demand are
, it makes sense to
invest in further capacity
in order to
Produce to order
- some businesses produce to order, but for others this is more difficult.
to produce the
required in order to
satisfy the demand.
Influences on the amount of inventory held
Level of inventory held will depend on: nature of the product; nature of production; nature of demand; opportunity cost.
The inventory control chart. Its key features are...
order being made and its arrival in the business.
Maximum stock level
of inventory a business is able to hold.
: level of
at which a
new order is placed.
Buffer level of inventory
minimum amount of inventory held
, designed to cover for emergencies such as late arrival.
Link to diagram:
Influences on the choice of suppliers
Price and payment terms
How to manage the supply chain effectively and efficiently and the value of this
If a business can achieve having the
right good in the right place
then it is likely to be able to gain
It is about managers deciding
to produce it and
much to produce.
Getting this right requires
not only good communication
and relations with suppliers but also
coordination with other functional areas.
The value of outsourcing
One of the main benefits is that it enables a business to
respond quicker to any increase in demand,
thereby providing greater
dependability for customers
. It also means a business will
save on costs.
can sometimes be a problem - whether the outsourcing company produces at the
of quality. There's also
: outsourcing is likely to be
more costly than producing in house