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Topic Five: Operations Management - Coggle Diagram
Topic Five: Operations Management
5.1 The Roles of Operation Management
What is operation management?
an area of management that refers to developing, managing and improving the production process (one of the 4 business functions)
Oversees the processes and activities of an organisation to ensure efficient production of goods and services
Input-output model
Materials
Manpower
Money
Machines
Management
Operations management is all about
ADDING VALUE
Connection to business functions
Marketing implications
Production methods affect the quality and individuality of the product
Exclusive products can be marketed at high prices due to uniqueness and quality
By contrast, mass-produced products are more standardised
Finance and Accounts implications
Setting realistic budgets
Human Resources implications
hiring the most suitable people for the job in the production process
Sustainability implications
should think about sustainable ways of operations, providing services that the local community benefits from it, not harming environment
5.2 Operation Methods
On the Job production
refers to manufacturing of one off item. Every item produced is special
Advantages
flexible and allows for customisation
One of a kind allows to charge premium price
Employees are motivated since they are in charge
Disadvantages
Price for customer is higher
Production method is really slow and inefficient
High reliance on employee
Batch Production
Involves producing a limited number of identical products. Using the same machine and equipment to produce different batches of good
Advantages
also customisable in a batch
efficient in comparison to job production
Disadvantages
Keeps higher stock levels
requires maintenance
ONLY customisable in a batch
Mass Production and Flow production
is when there is large amounts of a standardized product
Mass
emphasises the amount of products,
Flow
looks at the 24/7 manufacturering
Advantages
most efficient since it is fast and automated
benefits from economies of scale
No need for super skillful employees
Disadvantages
Least customisable
High set up cost since it has a lot of machines
Employees tend to be demotivated
Mass customization
Occurs for businesses that produce large quantities of goods through batch or flow production but it can be tailored to the customer’s exact preferences.
Advantages
Benefits from mass production + customised
Disadvantages
Reliance on technology, reliant on design
High costs
Labour intensive production
Labour-intensive production uses a greater proportion of labour than any other factor input
A key benefit is the ability to offer personalised services
Essential in some industries like health
Are in the tertiary sector
Capital intensive production
Relatively high proportion of capital costs compared with labour costs
High levels of output are possible
Tend to be highly homogeneous so there is no USP
Good for firs that have goods that can be batch or mass produced and operate in larger volume
5.3 Lean Production
Lean production
is the process of streamlining operations and processes to reduce all forms of waste (or ‘muda’) and to achieve greater efficiency. It should lead to improved quality and reduced costs.
Methods of Lean Production
Kaizen
A method of lean production whereby small improvements are made regularly instead of random one-off improvements. They are usually progressive and make small changes so it’s easier to adapt. Employees helps to make suggestions on how to improve the efficiency. (down to top)
Advantages
Motivating, free to use, eliminates quality control
Lean production vs total quality management
lean production is about reducing waste and inefficiencies, total quality management is removing all the faulty productions
motivated workforce, zero defects, cost reduction in long term
resistance to change, less money in short term, only works with full commitment
Disadvantages
Takes time to develop Kaizen culture, works only with commitment and trust
Just in time
A method of lean production whereby inventory is delivered only as needed rather than buffer stocks
Advantages
Minimises storage costs
Improves efficiency
Disadvantages
Irresponsible to sudden increase in demand, requires thorough planning and negotiating with suppliers
Cradle to Cradle
is a sustainable approach to design and manufacturing whereby products can be recycled/reused after their lifespan. Waste is treated as a resource.
Advantages
Ecologically sustainable
Shifts the paradigm of the traditional approaches
Disadvantages
Hard to implement in reality, would only work with comprehensive commitment. (global)
What is Quality Management?
Function concerned with controlling business activities to ensure that products are fit for their purpose
Quality control
Make sure quality is maintained by testing a sample of the final output. It is a reactive approach.
Quality inspectors look for defects and are hired. The workers don’t have to look for it. Just looking at defects of the product.
Advantages
No need to develop kaizen culture
Methods of managing quality
Quality Cirlces
are a group of employees from all levels of the hierarchy meets regularly to discuss ways of improving quality.
(+)
increased motivation, kaizen, quality assurance.
( - )
having to take initiative and responsibility (not good for followers), reluctance to change, some employees refer being told what to do
Benchmarking
Assessing output against the standards set by the market leaders
(+)
point of reference, source of ideas for what to improve
( - )
puts the organisation in an inferior position, repeating competition's mistakes
Total quality management
a philosophy and process
that requires the dedication of everyone in an organization to
commit to achieving quality standards. It is at ALL levels of the organisation
(+)
Employee motivation improves since workers are empowered and involved in the decision making process
(+)
Eliminates wastage as things are done right the first time, Gains a better reputation
( - )
Bureaucracy it is a series of paper works, high compliance costs
1 more item...
Less faulty products sent to customers
Disadvantages
Less motivating for employees
causes of defect are hard to be found
Quality Assurance
Making sure quality is maintained by putting employees in charge of their output at every stage of production.
No inspectors, zero defects (ideal), focus on manufacturing quality products only
Advantages
motivating for employees
quality inspectors is not needed
less wastage from reworking faulty products as they are checked at every datge of output
Disadvantages
Takes time to build the culture and trust
it can cost a lot as there are a lot more training to do.
5.4 Location
what is location?
Location refers to the geographical position of a business. The location decision depends on many factors that can be generally grouped under quantitative and qualitative.
Footloose Industries:
Industries that can be located anywhere without being affected by factors of production
Bulk-increasing Industries:
Prefer locating near customers to reduce transportation costs
Bulk-reducing industries:
Prefer locating near suppliers of raw materials to reduce transportation costs.
ways of re-organizing production
Outsourcing
is transferring business functions to an external firm within the same country, allows them to focus on core activities. Usually, they exist in the same country. Examples are catering, audit, recruitment call centres, security and advertising
Advantages
Improved quality output
Cost reduction production or labour
opportunities to focus on the core
Workforce flexibility
Disadvantages
Substandard quality output can happen without close supervision
Quality management can be difficult
Time spent supervising will increase
Redundancies may occur to negatively impact staff motivation
Historically negative associations with unethical practices
Insourcing
use of a firm’s own people and resources to accomplish a certain function or task which would have otherwise been outsourced. Bringing outsourced operations back using “backwards outsourcing” For example firing an advertising agency in favour of an internal marketing department.
Full control over the operations
Having to deal with new tasks
Offshoring
An extension of outsourcing which transfers business functions to an external firm located overseas. Examples include manufacturing goods in China.
Advantages
cost reduction
multinational companies might avoid protectionism
Disadvantages
exchange rates might not always be in favour
Cultural differences
Reshoring
Bringing offshored operations back to the home country. Not necessarily involved in insourcing! Such as rising labour costs in China
enhance the brand image of an organisation since provide job opportunities in home country
Deal with new tasks
Quantitative factors
Availability, suitability and cost of land
Availability, quality and cost of labour
Proximity to the market (customers)
Proximity and access to raw materials
Government incentives and regulations such as tax allowances, grants and subsidies to help reduce the cost of production
Feasibility of e-commerce
Qualitative factors
Management preferences
Managers may prefer a certain location due to personal reasons, familiarity, gut feelings (instinct) or because they feel that the location will serve workers and the local community better.
Local knowledge
businesses may be located in a certain area because they know the location and its culture. This inside information makes it easier and less risky for a business to establish itself and have a competitive advantage
Infrastructure
Looking at factors such as transportation networks, communication networks, support networks
Government restrictions and regulations
difficulty obtaining licenses, permits, copyrights and planning permission may lead to businesses looking to locate in alternative countries.
Political stability
Ethical issues
Comparative shopping (Clustering)
5.6 Production Planning
What is the global supply chain
The supply chain refers to the different stages of activities from the production of a good or service to it being distributed to the end customer
Supply chain management
is the art of managing and controlling these activities which must be efficient and cost-effective for a business to be profitable
What are the reasons for using supply chain management?
Ensure that the supply chain runs smoothly as long supply chains tend to result in mistakes and inefficiencies which would otherwise be bad for the company
Global supply chains can make it easier for businesses to sell to customers around the world.
Ensure that an appropriate supply of stocks is used to meet the level of customer demand. Not having too much stock or too little stock
Having a broad global supply chain allows the business to run even under severe risks in one region such as a natural disaster
a tool for achieving lean production and helping an organization to identify areas of wastage and inefficiencies
All suppliers in the supply chain are interdependent so suppliers have to work collaboratively
What are some disadvantages of using a supply chain management system?
The growing globalisation has led the process to become more complicated due to cultural clashes and time lags which can delay the process
Greater interdependence indicates that a single error can cause the following supply chain to break down.
greater need for partners to share information and to collaborate in the supply chain process also involves building trust among the partners which needs a lot of trust
may require more time and resources devoted to managing supply chains.
Just in time
is a stock control system based on stocks being delivered as and when they are needed in the production process. Buffer stocks are NOT needed.
Advantages
Eliminates the cost of holding stocks such as rent and insurance and stockpiling
Prevents fresh produce from spoiling, can't have spoiled good.
Cash is not tied up in stocks, working capital can be better used somewhere else and improve the cash flow position
Can reduce the break-even point since less fixed costs + variable
Firms can be more flexible in times of changing demands
improve motivation of staff by promoting teamwork
Reduces waste
Strengthens the relationship with suppliers
Buffer stock
- the predetermined minimum level of stock of raw materials, semi-finished goods and finished goods, also referred to as the reserve stock
Disadvantages
Huge reliance on external suppliers
Little room for mistakes
Can be inflexible in times of increased demand
Few opportunities to exploit economies of scale since you're buying less quantity
Stock must be of good quality
Relies on sophisticated computer technology
The philosophy must be embedded in the culture, no wastage.
Just in case
The traditional stock control method recognizes the need to maintain large amounts of stock in case there are supply or demand fluctuations
Advantages
Businesses can meet sudden changes in demand
Increased flexibility
Can speed up production if necessary
Economies of scale since you buy in large quantities
No need to wait for the delivery of stocks
Disadvantages
Higher costs of storage
Some stocks are perishable so buffer stocks are wasteful (e.g, flowers, fruits)
Stock can be subject to damage or theft
Purchasing large volumes of stock can be detrimental to cash flow
Stock control charts
Lead Time:
measures the duration between placing an order and receiving it. The longer the lead time, the higher buffer stocks tend to be.
Re-order level:
refers to the level of stock when a new order is placed
Buffer Stock:
refers to the minimum stock level held by a business in case there are unexpected events, e.g. late deliveries of components or a sudden increase in demand.
Re-order quantity:
refers to the amount of new stock ordered.This can be seen from a stock control chart by calculating the difference between the maximum and minimum stock levels.
Order quantity = Max stock - min stock
Factors influencing the amount of stock held
Demand
fast-moving consumer goods (shampoo) = more available stock
Lead Times
. Short lead time Allow business to have minimal buffer stocks
Value of product
Higher opportunity cost of stockpiling
Such as jewellers since high price + risk of theft
Calculations
Capacity utilisation rate
Defect rate
Productivity
Labour
Capital
Operating leverage
5.7 Contingency Planning
Crisis -
is a situation of instability which results in major problems for a business.
The factors that affect effective crisis management
Transparency -
refers to being open and honest with all stakeholders during a crisis. It is about disclosing the truth, such as the scale or severity of the crisis.
It is much more beneficial in the long term for a company to responsibly handle the crisis in a clear and socially responsible manner
disclose everything but not at once
Communication -
refers to the transmission of information, by informing internal an external stakeholders to help them to know about and understand the issue.
Reassure the different stakeholders by holding press releases, contacting etc. People might panic with no information
keeping people informed about the actions
Speed -
response time is critical in crisis management. Making prompt decisions and taking swift actions in order to return the business to normal operations as soon as possible.
more likely to happen if managers have an effective contingency plan and can act swiftly in emergency situations.
Need to communicate with crucial stakeholders
Control -
the use of a crisis management (or critical incident) team to handle an emergency situation and to ensure there is leadership and governance.
Quick and effective decision-making, good communication under pressure, if there is TOO MUCH there could be resistance to change.
Centralised decision making is the best solution
Crisis Management -
refers to the response of an organisation to a crisis situation. It is a reactive response
Required to minimize the impact on the business
Radical measures
Centralised decision making
Autocratic style of leadership
Contingency Planning -
anticipates probable threats to the organisation and is a proactive approach and response to crises
Contingency planning involved developing a plan before an unwanted or unlikely event occurs by using ‘what if’ questions to identify all probable threats.
Predictable and quantifiable situations
Situations for which there is advanced notice
Unexpected and often wanted events.
The impact of contingency planning for a given organization
Costs
(+) Can minimise financial damage and damage to the reputation of a business
(-) The opportunity cost in terms of time and fiance could have been better used as crises may never happen.
Time
(+) Planning takes time but we will save valuable time in a crisis
(-) The opportunity cost in terms of time and finance could have been better used as crises may never happen
Risk
(-) Reduces the impact of a crisis
(-) Plans may be inappropriate
Safety
(+) Reassures staff, therefore reassuring the safety needs of employees
(-) Contingency plans depend on the accuracy of risk assessments which need to be reviewed on a regular basis.
5.8 Research and Development
What is research and development?
refers to the technological and scientific research that helps generate a flow of new commercial ideas and processes
Purpose:
Provide continual advancement, and improvements to existing products and launch new products that satisfy customer needs in a profitable way
Involves research, testing, and development of prototypes
Limitations
Time-consuming and drains the resources of a business
High failure rate – most are not commercially feasible
High costs – requires sufficient labour and financial resources
Budgetary constraints – held back by funding problems, preventing the project from being undertaken
What is the importance of research and development?
Vital for long-term survival and success
Pays off for businesses that operate in sunrise industries
First mover advantage (e.g, new innovative products) for premium pricing → boost brand image
Types of innovation
Incremental innovation
refers to minor improvements to products, services or work processes.
Disruptive innovation
refers to any major innovation that introduces a new good or service designed to replace an existing one by radically altering the market.
The process of commercially pioneering new ideas and creations in the production process.
R&D and customers’ unmet needs
The role of R&D in meeting people's needs
Discovery of new production processes
Successful exploitation of creative ideas
Entering new markets
Introduction of new products
Intellectual property protection – (IPRs)
are the legal and exclusive ownership claims to certain creations, inventions or pieces of work. They act to prevent other parties from replicating the ideas of the inventor or creator
Copyrights –
provide legal protection for artists and authors by preventing others from using or replicating their published works without permission.
Patents –
the legal right to be the exclusive producer or user of a newly invented process or product, for a finite period of time.
Trademarks –
a sign, slogan or logo that represents a business or a product belonging to that business.
Used as a form of branding
5.9 Information Systems
AO1
Data analytics
is the process of transforming raw data into usable information for businesses. It can help determine trends etc to improve overall efficiency of the company
Database
A database is a computerized system that makes it easy to store, search and select data and information.
Cybersecurity
refers to the protection of computer systems and networks from unwarranted information disclosure such as theft
Cyber crime
This refers to any illegal activity carried out using computers or the internet by deliberately and maliciously targeting computers, computer networks or networked devices.
Keeping computer software, network structures and operating systems updated.
Using anti-virus software to prevent or limit the volume of cyber attacked.
Training staff about the importance of cybersecurity.
AO2
Critical infrastructures, including artificial neural networks, data centres and cloud computing
Critical infrastructures
refers to the essential and interrelated physical structures and facilities needed for the effective function of a business.
Artificial neural networks (ANN)
are a form of machine-learning that uses learning algorithms that can independently adapt as they receive new input.
A data centre is a physical facility
or space of networked computers and component resources that support businesses in housing their critical applications and data.
Cloud computing
is similar to data centres except that it is a virtual resource or online space that enables businesses to store, organize and retrieve data in safe and efficient ways.
Virtual reality
is an artificial three-dimensional environment created by software. It allows people to explore and interact with others in a near-reality way.
Big data
is the process of collecting and analyzing large amounts of data sets in order to identify trends and patterns that can be used in strategic planning and business decision making.
Marketing
Tracking and monitoring
Dynamic pricing
Tailored customer experience
The Internet of Things
refers to a broad system of physical objects embedded with electronics, software and sensors that connect to the internet.
Advantages
Removes the need to depend on human intervention to collect, process and interpret data.
Works faster and more accurately, in real-time.
Disadvantages
Data security and privacy concerns mean that firms need to operate within the law governing the collection, storage and transfer or sharing of data.
Concerns on the growing dependency on the internet that could render firms unable to function efficiently without it.
Artificial Intelligence
is an aspect of computer science that focuses on the ability of smart machines to perform tasks that typically require human intelligence. Boosts organisational efficiency
Data analysis
Financial management
Automated customer services
AO3
Customer loyalty programmes
refers to any customer-retention strategy that incentivizes customers to continue buying the same products and brands of the business, instead of switching to those provided by competitors.
Advantages
Customer retention is cheaper than trying to reach new customers.
Likelihood of success as they make customers feel special and valued, leading to repeat purchases.
Disadvantages
CLPs must be well designed so customers feel they are getting value for money. Otherwise, there is little incentive to remain loyal.
Data analytics must be performed purposefully to avoid drawing irrelevant conclusions from the sheer volume of big data that is generated.
Digital Taylorism
This is a modern approach to F.W. Taylor’s scientific management theory on motivation. Firms use staff monitoring systems to track what employees are doing.
The data gathered allows a firm to continuously evaluate and measure the performance of its employees.
Advantages
Improved coordination and control.
Training and development needs can be identified easily.
Improved productivity and efficiency
A clearly defined system to appraise employees and determine their rewards.
Prevention of illegal behaviour in the workplace.
Disadvantages
Monitoring employees without their knowledge or consent is considered unethical and/or illegal in most parts of the world.
Thus, employers have to have ethically and legally justifiable reasons to perform such monitoring, surveillance and data collection.
Data mining
Data mining is the process of extracting raw data from large amounts of different data sets and summarizing this into useful (usable) information in a coherent structure.
Management information systems
refers to the study of advanced computer technologies and their impact on organizations, people and the relationships among them.The biggest issue facing the use of MIS in business management are ethical considerations in the collection, use and sharing of data.