OPERATIONS National 4/5 Business Management 2014/2015.

OPERATIONSOPERATIONS

National 45 Business Management

20142015

Learning Intentions0 What is operations0 Input process output0 Choosing a suitable supplier0 Factors affecting choice of supplier0 Management of stock0 Problems of too littletoo much stock0 Methods of production ndash job batch flow0 Advantages and disadvantages of each method0 Just-in-time production0 Quality ndash Quality Control Quality Management0 Ethical and environmental0 Effect of technology (throughout unit)

What is Operations

0 Everyone has needs and wants These can be goods or services

0 The operations area of the business is the manufacture of goodsproducts ie the transfer of raw materials into a finished article offered for sale

0 This is sometimes called Production

Operations

Factors of Production

Manufacturing

Finished product and distribution

Customer

INPUT

PROCESS

OUTPUT

Task

All production involves InputsProcessesOutputs For each of the following businesses suggest 3 Inputs 3 Processes and 3 Outputs

manufacturer of birthday cards

manufacturer of jam

a wedding photographer

Role of Operations

0 Making products This can involve people or machinery

0 Satisfying customers by making products that they want

0 Working with suppliers to ensure raw materials are available at the correct time

0 Managing levels of stock to make sure nothing runs out

Choosing a supplier

0A business has to buy raw materials from a supplier to be able to make something

Task

Think of a purchase you have made recently Why did you choose to buy it from a particular shopwebsite

Task

In pairs think of a local business

Discuss factors they would have to consider in choosing the right supplier

Make a list of 3 factors and why they are important if the business is to be successful

Factors to consider0 Price - the price charged by a supplier for raw

materials A cheaper price will reduce costs increase profits and improve cash flow

0 Quality ndash how good the raw materials are This will affect the quality of the finished product Low quality may lead to higher wastage

0 Lead timedelivery time ndash how long it takes to receive the raw materials after ordering Delays may mean production has to stop Some raw materials are perishable

Factors to consider

0 Quantity ndash how much is required Must be enough for production to continue

0 Reputation and reliability ndash will the supplier deliver when they say they will Do they have a good reputation

0 Location ndash how far away is the supplier located Deliveries may take longer and transport costs need to be considered

Management of Stock0 The purpose of holding stocks is to have a supply of

goods (raw materials) available for the production process and for distribution (finished goods) to customers when needed

3 main types of stock0 Raw Materials ndash purchases

from suppliers waiting to be used

0 Work in Progress ndash products that are currently being made (semi-finished goods)

0 Finished Goods ndash completed products waiting to be distributed

Task

Protecting stocks of raw materials and finished goods is very important For each of the following items suggest one example of what could happen if an organisationrsquos stock control system was poor

i frozen fishii mobile phonesiii fresh vegetablesiv new carsv printed booksvi jeans

Costsrisks of holding stock0 Costs money to store

stockWarehouseLightingSecurityInsurance

0 Risks areStock has a higher risk of

being stolenStock has a higher risk of

going out of dateRisk that the money

value of stock will fall eg due to changes in fashion

Too little stock

0 Production might stop0 Customers may not receive their orders on

time0 Any sudden increase in demand cannot be

met

Too much stock

0 Costs money to store stock ie warehouse lighting security insurance

0 Money which is tied up in stock might be put to better use

0 If social factors change (trendsfashion) the stock might be wasted

Technology in stock management

0 Most businesses have a computerised system that records how much stock there is at any one time eg using EPOS or a spreadsheet package

0 Internet is used to purchase raw materials

Methods of ProductionBusinesses must decide which method of production to use to make their products There are different factors to think about

0The actual product being made0The quantity of the product0How to ensure the product is of a high quality0The way stock is managed0The resources available (eg staff and machinery)

Methods of Production

0Job Production

0Batch Production

0Flow Production

Job Production0This is when a product is made individually to

meet specific orders from customers

0Often involves skilled labour or craftspeople

0It is labour intensive

Advantages and Disadvantages

ADVANTAGES

0It meets the customersrsquo needs and is produced to their own specifications

0High customer satisfaction

0High prices can be charged as product is unique

0More motivating for workers as they see the product through all stages of production

DISADVANTAGES

0High labour costs as the process is labour intensive

0Specialist tools and equipment may be needed which can be expensive

0Costs are not recovered until the completion of the project

Batch Production0This is where a group of identical products are

made at one time All products in the batch move onto the next stage of production at the same time

0Machinery and equipment can be cleaned andor changed between batches

0Workers usually specialise in one job so become skilled in one area

Advantages and Disadvantages

ADVANTAGES

0Batches can be changed to meet the requirements of the customer

0Raw materials can be bought in bulk saving money

0Less skilled workers are required as only one part of the process is completed by a particular person so reduced costs

DISADVANTAGES

0Equipment and employees are not working between batches which costs money

0Any mistakes in one item can result in the whole batch being wasted which costs money and wastes time

0Workers motivation is reduced because they do not see the process from start to finish

Flow Production

0This is the continuous production of the same good

0It is used for making large quantities of an identical product

0Economies of scale can be made with this process

Advantages and Disadvantages

ADVANTAGES

0Economies of scales can be met due to the large production of goods

DISADVANTAGES

0A large amount of money is required for set up costs0Each product is identical0Lack of motivation for workers because they only work on a small part of the process

Flow production example

Car manufacturing uses flow production

Chassis of car

Engine Gearbox Seats Outer Shell

Dashboard and wiring

Windscreen and windows

Division of Labour

0Both batch and flow production use division of labour which means that each worker specialises in one job on the production line This makes the job very repetitive and boring

0Many of these jobs have been replaced by machinery This has caused unemployment for unskilled workers

Labour Intensive

0 Products made using mainly human effort

Advantages Disadvantages

Employees can be creative It is expensive to recruit and train employees

No need for expensive equipment Specialist skills require time to learn

Unique products can be made The quality of work can vary

Capital Intensive

0 Products made using mainly machines and equipment If it is made using only machinery this is called automation When it is a mixture of both humans and machines this is called mechanisation

Advantages Disadvantages

Can work 247 Expensive to purchase

The product will be of a consistent quality

Canrsquot meet individual customer requirements

Unskilled employees required (cheaper labour)

Breakdowns cause production to stop

Quality Products and Services

0 All businesses must ensure they provide a good quality product or service which meets customer needs in order to survive

0 The business must decide minimum quality levels and who is responsible for ensuring that quality is maintained at the lowest possible cost

Advantages of Ensuring Quality

0 Repeat purchases0 Improved reputation0 Competitive advantage0 Maximise salesprofits0 Increased market share0 Reduced wastage

Methods of Ensuring Quality

High Quality Raw Materials

0This will ensure only the best inputs are used in your production and lead to a higher quality product

0However the costs of these materials may be higher and a reliable supplier is required

Methods of Ensuring Quality

High Quality Employees

0Fewer errors are made and accidents are less likely to happen

0However it can be time consuming and expensive to train employees

Methods of Ensuring Quality

Quality Control

0Quality Control is the checking of a product or service by carrying out an inspection

0This usually happens at the end of the production process

0This is less time consuming than other methods of inspecting quality

0May lead to large amounts of waste as it is only checked at the end

Methods of Ensuring QualityQuality Management

0Quality Management is a method by which a business focuses on ensuring the product is made perfectly every time This requires a commitment by all employees

0Samples of products are tested at random and at different stages of the production process

0See Nissan diagramSee Nissan diagram

Methods of Ensuring Quality

Quality Management

0 Product constantly checked to minimise waste0 More thorough than other methods0 Improves team work and morale

0 However it requires a commitment from everyone0 Policies take time to implement and must be strictly

followed

Ethical and Environmental

0Businesses have to be socially responsible

0Means they will be seen in a positive way by not harming the local environment or community

0How can they do this

Businesses can

0 Try to minimise wastage by ensuring employees are trained ensuring machinery is kept in good condition and by not overstocking Could be expensive

0 Recycle as much as possible by encouraging employees to put rubbish in appropriately coloured bins and by re-using materials in the production process as much as possible

Businesses can

0 Try to minimise packaging by only using the necessary amount of packaging to maintain the productrsquos quality Cuts costs good for the environment

0 Prevent pollution by watching the materials it uses in production (eg fuel and chemicals) and by disposing of any harmful chemicals or products in the most environmentally friendly way