Chapter 10 Operations (The final chapter!!!)

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Chapter 10 Operations(The final chapter!!!)

What you already knowThe difference between job production and batch productionWhat are they?The importance of customer serviceWhat is that?How customers are protected by law?

Efficiency

Production methods for growing businessesThe production methods used by small businesses have disadvantagesJob production can be slow and only suitable for small levels of productionBatch production takes time to switch between different batches and can lead to high stock levelsBatches of school uniforms may only be produced once a year and some of the stock will be held for this length of time before another batch for this school is producedThe alternative method used by many growing and large businesses is flow productionSee how its made videoWhat do you think are the main features of flow production?

Production methods for growing businessesFlow production is also known as mass productionThe main features areLarge scale productionEquipment is expensive and only worthwhile if output is large e.g. robotsStandardised productThe key features of the product do not changeChanges of colour or extras are possibleE.g. colour of a carSpecialisationThe workers or machines used in flow production are often specialised in one task e.g. machine focussing on one aspect of the car assemblyThis means work will be faster Division of labour the complete job is divided up into a large number of small tasks which allows specialisation

Flow production: large scale production where each stage of production is carried out one after the other, continuously, on a production linespecialisation: work is divided into separate tasks or jobs that allow workers to become skilled at one of themDivision of labour: breaking a job down into small, repetitive tasks that can be done quickly by workers or machines specialised in one task

Production methods for growing businesses

Advantages of flow productionHigh output and higher efficiency means cost per unit is lowerDivision of labour means automation (machinery) can be used giving consistency and high standards of qualityLess need to hold stocks Unlike batch production this is continuous production so it is not necessary to hold high stocks for a long timeLower costsLess room needed for stock

The main limitations of flow productionSet up costs are high especially if computer controlled robots are usedIf there are production problems they can be costly as the whole production line may need to be stoppedWorker motivation can be low because they are only involved in one part of the production process which can be very repetitiveThe product has to be standardised - it cannot be changed to meet customer needs without costly and time consuming changes in the machinery

Lean productionBusinesses have to find a way of dealing with rising costs and increased competition They have to keep their prices as low as possibleOne way of doing this is to become more efficient in productionLean production involves using less of all resourcesSpace, materials, stock, time and labourThe Japanese car manufacturer Toyota was the first to fully adopt this production approachIt is now the worlds largest and most successful car manufacturerSome of the methods areKaizenJust in time manufacturingLean designCell productionLean production: a production approach that aims to use fewer resources by using them more efficiently

KaizenKaizen is a Japanese word that means continuous improvementThere are 2 main elementsMost kaizen improvements are based around people and their ideas rather than investment in new technologyEach change on its own may be of little importance but if hundreds of changes are made the cumulative effects can be substantial

Continuous ImprovementAccording to the Kaizen institute the goal of any kaizen programme should be to convince all employees that they have two jobs to doDoing the job and then looking for ways to improve itThe culture is based on the belief that the production line worker is the real expertThe companys greatest resource is its staffTeams work together in cells and are responsible for the quality of work in their sectionThe members regularly meet to discuss problems and come up with solutions

Continuous improvement is better than delayed perfection Mark Twain

JITMoney tied up in stocks is money wasted according to the JIT principleIf stocks of materials, spare parts and completed products are reduced to the absolute minimum then money can be savedThis can be achieved byArranging with suppliers that all supply orders are only brought to the business on the day required (not in advance)Producing to order, not for stock this means only making products when they have been ordered by the customer

Just in time manufacturing: ordering supplies so that they arrive just when they are needed and making goods only when ordered by customers

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Lean DesignThere is a big advantage in launching a new product ahead of your competitorsThink about the benefits Apple gained by launching their iPhone months before its competitorsSome of the feature of lean design areSaving development time and launch means high prices can be charged and high profits made before the competitor launches their product (price skimming)Lean design means teams of designers working on different parts of a product simultaneouslyUsing involves using computer aided design (CAD)

Lean Design: producing new designs as quickly as possible

Cell ProductionThis is a variation on pure flow productionInstead of each individual worker just doing one repetitive task the total job is split into complete units of work that can be done by teams or cellsA team of workers might assemble a complete washing machine rather than each worker just adding one partNeeds flexible and well trained staff they need to be able to make decisions and problem solveCell production is said to be more motivating and rewarding for workers than traditional flow productionLean production in general may need more staff training and staff may be motivated to be part of helping the business cut waste and become more efficient

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Bottling plantWhat do you think a company might think about before investing in a bottling plant like this one?

Answers might include:the required capacitythe investment coststhe running coststhe expected salesthe likely returns

The Model TOne of the most famous cars ever made is the Model T, which was produced by Ford from 1918. The car is famous because it was the first to be produced using flow production techniques. The cars moved along the assembly line and at each stage another part of the car was fitted. The introduction of flow production increased the number of cars being made and meant they were much cheaper to produce. Ford cars were sold at a price much lower than anyone elses and meant this was the first car that was affordable for millions of people.Why do you think the Model T Ford is not being made any more?

Answers might include:technology has improved so it is possible to build better carscustomers expect more from a carthere is greater demand for a choice of features

The Toyota Production SystemThe Toyota Motor Corporations vehicle production system, known as the Toyota Production System (TPS), has the objective of making the vehicles ordered by customers in the quickest and most efficient way, in order to deliver the vehicles as quickly as possible. It is based on:Jidoka. This means that when a problem occurs, the production line stops immediately, preventing defective products from being produced.Just-in-time. This occurs when each process produces only what is needed by the next process in a continuous flow.Based on the basic philosophies of jidoka and just-in-time, the TPS can efficiently and quickly produce vehicles of sound quality, one at a time, that fully satisfy customer requirements.What is the advantage of the jidoka system highlighting a defect immediately?Answers might include:means that problems get fixed quickly rather than being hidden and possibly not discovered for a long timemeans that employees will want to get it right rather than having errors shown up immediately

Recognising challenges of growthBenefits of business growthMarketing and financial advantagesBigger market shareIncreased revenue leading to greater profit if costs do not rise a higher levelOperations management advantagesReductions in unit costs which can make a business more competitiveLarge businesses normally have unit cost advantages over smaller business in the same industryIf we compare Waitrose and TescoTescos annual sales are much higher than Waitrose but so are its costsHowever the cost per unit sold is much lowerThis is due to economies of scale

Economies of scale: As the business makes more output the unit costs decrease

Main economies of scaleBulk-buying or purchasing economiesTesco is able to order thousands of boxes of breakfast cereal at a time so the manufacturer will offer more discount than a supermarket that buys lessFor the manufacturer it will be cheaper to deliver one very large order than delivering many smaller orders Tesco will have storage space so can take large ordersTechnical economiesA large business is likely to be able to buy the latest and most productive machinesThe large business can also keep these machines used most of the time reducing average costsSpecialist managersA large firm may be able to afford specialist managers who should improve efficiency

Possible disadvantages of growthThere are problems that most large businesses face which can lead to increases in average costs. These are called diseconomies of scalePoor communicationWhen an organisation gets better there are more levels and messages from top to bottom or bottom to top take longer to get there and get distortedIT becomes more widely used rather than face to face meetings Issues take longer to resolvePeople spend too much time doing email

Possible disadvantages of growthPoor MotivationAlthough there is more chance of promotion in a larger company workers may also feel unimportant and unmotivated leading to low productivityPoor co-ordinationWith locations in different areas or countriesIt becomes difficult to make sure all major decisions fit in with the aim of the head officeThis can lead to duplication of resources and higher costsIf production processes are in different locations there could be delays during transportation

Quality assurance in growing businessesA quality product is?It does not necessarily mean the best product possibleThe best light bulb could be made to last 20 years but would customers be prepared to pay 10 for it?A 1 light bulb that lasts 2 years is enough quality to meet expectationsThere is no point in spending money on making one that lasts 20 yearsThe main causes of quality problems in growing businesses arePoorly motivated workers who are not well managed who do not care about the customerThe reputation of the business will be damagedThere will be the cost of replacing faulty goods or repeating customer service to a higher standard

Quality product: goods or service that meeting customers expectations and is therefore fit for purpose

Quality assurance in growing businessesMore causes of quality problems in growing businesses areNo clear responsibility for qualityWhose job is it to make sure high quality levels are met? the quality inspector, the workers or the managers?If there is no clear guidance goods and services may fail the quality testLack of consistency a business with many branches may fail to give consistent serviceOne branch may change or exchange unwanted goods with no time limit and another may do something differentOutsourcingAs a firm grows it might decide to outsource divisions of its businessFor example a business may outsource its after sales service to a call centre companyIf they dont provide a good service this will affect customer relationships

Outsourcing: using other businesses to make all or part of a product or provide an aspect of customer care

Quality assurance in growing businessesAnother cause of quality problems in growing businesses isInspection costsUnless every worker is accountable for quality inspectors or checkers will need to regularly check quality standardsThis might be a mystery shopper in a retail businessIn factories they may have a quality control inspectorThis is called quality assurance

Quality standards: the expectations of customers expressed in terms of the minimum acceptable production or service standards

Quality assurance: setting and trying to meet quality standards throughout the business

Main methods of maintaining qualitySetting agreed quality standardsOnce customer expectations are known minimum quality standards have to be set at each stage of a businessExamplesBank maximum waiting timeQuality assurance would mean checking this time was being kept toFast food delivery maximum time for deliveriesQuality assurance would mean recording delivery timesJet engines maximum failure of each componentThere would be strict quality standards at each stage of the production processBatteries minimum number of hours of continuous operationQuality assurance would mean testing a certain number after a set number had been producedSometimes these quality standards will be printed so that customers are aware

Main methods of maintaining qualityTotal Quality Management (TQM)This requires the involvement of all employeesIt is based on the principle that everyone within a business can contribute to the overall quality of the finished product or serviceEach worker has to think about keeping his internal customer happyThe internal customer is the person or division that he is handing his work toExamplesA truck driver drops off supplies to retailers Goods have to be handled carefully and loaded in the right orderThe truck driver has to face the retailer if goods are damaged or the wrong ones are deliveredThe retailer is the truck drivers internal customerA computer assembly team is the internal customer of the team that is producing the individual componentsThey must make sure their component meets quality standards or accept responsibility TQM needs a lot of staff training

Total quality management (TQM): an approach to quality that aims to involve all employees in the quality improvement process

Daimler-Benz and ChryslerThe Daimler-Benz and Chrysler companies merged in 1998. The deal was a terrible failure because the way the firms did business and what they valued turned out to be very different. Daimler focused on top of the range cars while Chrysler aimed more at the mass market. If sales were falling, one company would want to improve the quality to help sell more, while the other wanted to cut the price. Which do you think was which?Answer:Daimler focused more on quality; Chrysler focused more on price cutting.

Google and YouTubeThe founders of YouTube, Chad Hurley and Steve Chen, sold the business to Google 20 months after they set it up for 880 million. Hurley and Chen were both aged under 30 years and set up the business in a garage in California. Google had its own service showing peoples films but YouTube was much more popular and had a market share of over 60%. People watch films on YouTube more than 100 million times daily.How do you think Google decided on the amount it paid for YouTube?Answers might include:existing advertising revenueexpected advertising revenuefunds availablewhether there are other buyers

What does the table suggest about the quality of Ryanairs services?Answers might include:good performance: it has the highest proportion of planes leaving on time and the lowest proportion of bags missingthis should lead to customer satisfaction

The end of GCSE Business Studies!!!