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3.4 Decision making to improve operational performance - Coggle Diagram
3.4 Decision making to improve operational performance
3.4.5 Managing Supply Chains
Supply chain consists of groups of firms that are involved in all various processes required to make a product or service
Begins with raw materials, finishes with firm selling the product
All members of the chain need to be dependable
Businesses need to be flexible with time taken to supply goods and volume of goods
Peripheral workers - Employees who are not essential to the business, employed when need more staff, Keep fixed costs down
Outsourcing, When a business contracts out some activities to other businesses if they do not specialise in but sometimes need
Advantages
Accept contracts
Specialised knowledge
Disadvantaged
No quality control
Could result in bad reputation
Mass Customisation, Method of producing to order. It combines flexibility of custom made products with a low cost of mass production
Advantages
Increase in customer choice
Competitive Advantage
Disadvantage
Expensive
Long time
Luxury Items only
Influences on choice of supplier
Price, Total costs of acquiring the products, Cheaper the supplier more added value to the final product. Cheapest isn't always better as may offer lower quality products
Payment Terms, New companies will often pay for their supplies up front as well established business may be given credit (30 days)
Quality, Needs to be consistent
Capacity, Able to meet demand, Big businesses usually opt to buy in bulk
Reliability, Supplier needs to be reliable so business can get products out to customers
Flexibility, Businesses need to be able to react quickly to a change in demand, Suppliers need to be flexible
Trade credit = where a business buys goods and servicers from a supplier and pays for them later (e.g. 60 days)
Extending trade creditor terms is a way of improving cash flow (delays cash outflows)
3.4.3 Increasing efficiency and productivity
Capacity Management
The capacity of a business is a measure of how much output it can achieve in a given period
Capacity can change eg when a machine is having maintenance, capacity can reduce
Capacity needs to take into account of seasonal or unexpected changes in demand
eg Chocolate factories need capacity to make Easter Eggs in November and December before shipping them to shops after Christmas
Capacity Utilisation
The proportion (percentage) of a business’ capacity that is actually being used over a specific period
Capacity Utilisation Formula
Actual level of output / Maximum possible output x100
Why Capacity Utilisation Matters
It is a useful measure of productive efficiency since it measures whether there are idle (unused) resources in the business
Average production costs tend to fall as output rises – so higher utilisation can reduce unit costs, making a business more competitive
Businesses usually aim to produce as close to full capacity (100% utilisation) as possible in order to minimise unit costs
A high level of capacity utilisation is required if a business has a high break-even output due to significant fixed costs of production
Dangers of Operating at Low Capacity Utilisation
Higher unit costs - impact on competitiveness
Less likely to reach breakeven outcome
Capital tied up in under-utilized assets
Problems with working at high capacity
Negative effect on quality
Employees suffer
Loss of sales
In general, high capacity utilisation is better then low, Capacity has a cost and it needs to be used
Labour Productivity
Labour costs are usually a significant part of total costs
Business efficiency and profitability are closely linked to productive use of labour
In order to remain competitive, a business needs to keep its unit costs down
Calculating Labour Productivity -the Formula
Output per period (units) / Number of employees at work
Ways to Improve Labour Productivity
Measure performance and set targets
Streamline production processes
Invest in capital equipment (automation + computerisation)
Invest in employee training
Improve working conditions
Overall labour productivity is the result of several complex factors – not just about how hard employees work
Lean Production
An approach to management that focuses on cutting out waste, whilst ensuring quality. This approach can be applied to all aspects of a business – from design, through production to distribution.
Time-Based Management
An general approach that recognises the importance of time and seeks to reduce the level of wasted time in the production processes of a business
Cell production
A form of team working where production processes are split into cells. Each cell is responsible for a complete unit of work
Potential Benefits of cell production
Closeness of cell members should improve communication
Workers become multi-skilled and more adaptable to the needs of the business
Greater employee motivation, from variety of work, team working and responsibility
Quality improvements as each cell has ‘ownership’ for quality on its area
Just-in-time (“JIT”) aims to ensure that inputs into the production process only arrive when they are needed
Unit costs and Efficiency
Economies of scale arise when unit costs fall as output increases
Labour Intensive - Production relies on using labour resources
Capital Intensive - Production relies on using capital resources
3.4.4 Quality Management
Definition of Quality - A product or service is of good quality if it meets the needs & expectations of the customer
Quality Management - Concerned with controlling activities with the aim of ensuring that products and services are fit for their purpose and meet the specifications
Quality Control - The process of inspecting products to ensure that they meet the required quality standards
Quality assurance - The processes that ensure production quality meets the requirements of customers
Definition of Quality control - The process of inspecting products to ensure that they meet the required quality standards
Definition: Quality Assurance
The processes that ensure production quality meets the requirements of customers