Please enable JavaScript.
Coggle requires JavaScript to display documents.
Chapter 12 - Nature of operations - Coggle Diagram
Chapter 12 - Nature of operations
Transformational process
Operations management focusses on transforming inputs into outputs
Outputs can be physical products or services
Operations covers a range of activities dealing with practicalities of production
Contribution to decision on product ranges, implementing production methods, designing equipment, selecting suppliers that deliver quality, ensure health and safety standards are met
Large businesses may have a defined Operations department with dedicated managers, while smaller businesses may make these decisions less formally
Operations deals with the process by which an idea is turned into a finished item or service that is put on sale
A key part is identifying and bringing together all necessary inputs in the most effective and efficient way
Factors of productions: Land, Labour, Capital and Enterprise
Operations deals with the way in which inputs of land, labour, capital and enterprise are combined to give an output of a product or service
Land is land, buildings, minerals, oil and wood
Labour is the work done by people, manually or mentally in managing and decision making
Capital is machinery, equipment including intellectual capital like qualifications
Enterprise: the entrepreneur who manages all other factors to make a successful business
Stages of the transformational process
Inputs combined into differing qualities
Labour-intensive production uses relatively more labour than capital, so labour costs are at a higher proportion of total costs
Captial intensive is more capital than labour, so capital costs are a higher proportion of total costs, than labour costs
Combination of land, labour, capital will determine how the transformation process leads to the final product
Contribution of operations to added value
A business adds value when it transforms inputs to outputs
The partly finished good is worth more at each stage than the previous stage
The operations process transforms a number of inputs to outputs via a number of stages
Each stage becomes more valuable than the previous stage, because of the work that has been done, stages may take place within one organisation or across several
Added value and operations decisions
Operations decisions aim to achieve a target added value or to maximise added value
Increases efficiency and effectiveness
Increases sales revenue and profits
Lower unit costs
Meets customers value-added needs
Efficiency, effectiveness, productivity and sustainability
The importance of efficiency, effectiveness, productivity and sustainability
Operations effectiveness is a measure of how well the final product meets the needs of consumers
Operations effectiveness is a measure of how well the final product meets the needs of consumers
Availability: How easy it is to obtain the product
Value for money: a combination of price and function
Function: How well the product does the job it is designed for
Price: related to the efficiency of production
Operations efficiency measures the quantity of resources used in producing a given quantity of product
Efficient producers use fewer inputs for a given quantity of outputs, so their unit costs are lower
Productivity is output per worker per time period: measure of labour efficiency
Measuring labour productivity
Productivity is an efficiency measure usually applied to labour
Labour productivity = output is units per time period/ number of employees
Linking productivity and efficiency
Productivity helps determine the costs of production
Business has become more competitive, and may be able to reduce its price and maintain its profit margin, or maintain price and increase profit margin
If any factors of production can be made efficient the same will be true
Ways to increase productivity
More efficient capital or better maintenance, and use of existing capital
More training for employees so there are fewer mistakes, faster working and better problem solving (could be expensive)
Improving employee motivation
Changing the culture to build efficiency improvements into all processes
All these incur costs, such as buying new machinery, training costs, wage increases, costs of implementing change
Impact on a business of measures to improve sustainability of operations
Sustainable resources are those that may be used in production without being depleted, so they are still available for future use
Sustainability may be improved by using fewer resources, or encouraging recycling
Positive impacts
Many consumers, employees and 'ethical' investors are becoming environmentally aware and will welcome changes
Increase in sustainability may avoid negative media publicity or gain positive comments
Laws will make the use of non-renewable resources illegal, so proactive change will avoid the need for reactive and chaotic measures
Negative impacts
Increase in costs if new equipment is needing to be sources
Need to plan ahead for changes that will be involved
Capital-intensive and labour intensive operations
Products may be produced with a variety of combinations of capital and labour
Mass produced cars are built on assembly lines with large investment in machinery, where as sports cars are largely build by hand, and have higher use of labour
Factors deciding capital or labour intensive are: Production methods (mass is capital, craft is labour), relative costs, business size, level of personal service, customers needs
Benefits of capital intensive operations
Mass production is possible on an assembly line
Lower unit costs if capital is relatively cheap
Economies of scale are possible (Cost saving with increased production level)
Labour force is less skilled, so recruitment is easy and labour cost is low
Limitations to capital intensive operations
Not suitable for varying product types
Not suitable for personal services
High start up costs due to cost of machinery
Lack of variety leads to unmotivated employees
Benefits to labour intensive operations
Personal services can be delivered well
Possible to produce one-off or custom made products
Low start up costs
Low unit costs if labour is cheap
Limitations to labour intensive operations
Difficult to produce on a large scale
Economies of scale are difficult to achieve
Operation methods: job, batch, flow, mass, customisation
Job production
Job production involves the production of unique, or small scale products one at a time by skilled workers
Advantages is flexibility and meeting customers needs
Disadvantages is labour intensive, slow and has high unit costs
Batch Production
Batch production is production in stages, where several of the same items are put together at the same time
Each batch goes through one stage of production process before moving onto the next
Advantages are lower unit costs, equipment producing a range of products
Disadvantages is time taken for machine rests, higher inventory costs, less flexibility
Flow production
Continuous production
Products pass directly from stage to stage, in an assembly line for standardised products
Advantages are low unit costs, quality easy to monitor, mechanised and automated
Disadvantages are high capital start up costs, limited flexibility, 1 fault stops whole line, not motivating
Mass production and customisation
Mass production produces high output at low unit costs using standardised parts, machines and products, usually in flow production
Advantages are low unit costs, but high volumes
Disadvantages are lack of flexibility, lack of motivation
To overcome the disadvantages, mass customisation meets individuals needs by setting workstations to produce a range of pre-set options
IT systems enable products to differ as tey pass each stage
Problems of changing from 1 method to another
Redesign of the product
Redesign and re-equipping of production equipment
Training of employees
Difficulty in meeting quality standards in a different methods