Access to raw materials, machines and workers does not guarantee that you will obtain the outcomes you desire.
Organisation is essential .
Procedures must be established to control and direct what is done, whom it is done by and when.
This is the Operating System .
I P O INPUTS PROCESS OUTPUT Operations Management is concerned with the way organisations transform inputs into finished articles (outputs)
Planning is crucial in helping a firm achieve its objectives.
Ideally, production should be a constant level (exact number of workers required, materials to be used, and the number & type of machinery will be known in advance)
Production in reality will vary due to changes in consumer demand, staff shortages and machine breakdowns and maintenance.
Nature of the final product
Stage of development of the business
Labour-intensive v Capital-intensive production
Availability of technology - automation
Production Systems – Key Factors
Nature of the final product – different products produced in different ways e.g. agricultural products compared to aircraft
Market size – mass markets can use standardised production systems like Reebok (left and right shoes made in different factories); whereas smaller or luxury markets may be customised
Resources available – finance, number of workers & their skills, machinery, factory capacity
Production Systems – Key Factors
Stage of development of the business – small or new firms normally produce small amounts, but as they grow their capacity, variety and output does too
Labour-intensive v Capital-intensive production – cost of workers v cost of machinery/equipment. Developing countries still labour-intensive due to paying workers very low wages
Purchasing – Materials Management
THE PURCHASING MIX
Alternative suppliers – are suppliers dependable? Local or national suppliers? Additional costs?
Delivery time – lead times long or short? Reliability and keeping promises!
Price – discounts and bulk buying vs cost of keeping stock? Credit terms v discounts
Quality – supplier guarantee of consistent quality materials
Quantity – storage adds 15-30% on to cost of purchasing.
Storage Facilities – storage capacity? Safety, security, other conditions of storage?
Stock is a resource which is held in a specific location awaiting use.
Holding stock can be expensive to a business as there are a variety of costs associated to it eg. maintaining warehouse; employee wages etc.
There are 3 basic categories which describe stock:
Raw Materials: resources required to produce a product.
Work-In-Progress: goods which are still to be completed (currently in the process of being produced).
Finished Goods: final product which is waiting to be distributed to the end-user (customer).
Why Is It Important To Control Stock?
It is important for businesses to have an effective stock control system to ensure that there is minimal wastage and expense.
Furthermore, businesses must ensure that the stock held matches the resources required.
An effective control system would have the following factors:
Regular stock checks to ensure that records are accurate and up-to-date. If an order were to be placed it is imperative that the business is aware if they can fulfil the demand.
Security of storage must be of a high standard to prevent stock being damaged or stolen.
Ensure that costs are minimised whilst also ensuring that the correct level of stock is held.
Levels of Stock
A business which holds stock will implement the following stock levels in order to meet customer demand at all times.
Minimum Level: this is the minimum amount of stock needed in case the required supply were to be delivered late. The business will never allow the stock level to drop below a certain point in order to prevent a resource shortage.
Maximum Level: this is the maximum amount of stock which can be held in the warehouse at any given time. This level is restricted by factors such as space; cost; and, delivery time.
Re-Order Level: this is when the stock level drops to a certain point and the process will automatically re-order the required stock. In order to decide at what point to re-order, businesses must consider the following: how long is the delivery time? how reliable is the supplier?
Stock Control Diagram
Cost/Benefit Analysis of Holding Stock
Supplies are available when you need them.
Any increase in demand can be met.
Discounts available for bulk buying.
Customers’ orders can be met immediately.
Money could be used more efficiently.
Financial costs associated with warehousing and insurance.
Labour costs involved in stock control.
Value of stock may decrease if fashions change or passes sell by date.
Benefits Of Holding Stock Costs Of Holding Stock
Just In Time Production (JIT)
JIT production is a Japanese approach to production that involves keeping the stock levels to a minimum.
Stocks arrive just in time to be used in production.
As a result, costs are cut by reducing the amount of stocks held by the business.
Goods are not produced unless the business has an order from the customer. JIT strives to eliminate waste by producing the right part in the right place at the right time!
Advantages & Disadvantages of JIT
Less space required for stock.
Able to respond quickly to changes in demand.
Closer relationship with suppliers.
Capital can be used for other priorities as opposed to being tied up in stocks.
Production may be stopped if supplies are delayed.
Sales may be lost if not meeting customer demands.
Increased ordering and admin costs.
Depending on the efficiency of the supplier.
Job Production concentrates on producing one product from start to finish. Once one product is complete, another can begin.
It is extremely labour intensive
Job Production +/-
Easy to organise production
Can customise orders
‘ one-off’ orders can be accommodated
Workers involved in entire production process from start to finish
Production costs likely to be high
Production time may be longer
Investment in machinery may be higher as specialist equipment may be needed
Batch production enables items to be created in bulk (‘a batch’)
General purpose equipment and methods are used to produce small quantities of items that will be made and sold for a limited time only
Commonly used in food production
Batch Production +/-
Allows flexible production
Stocks of part-finished goods can be held and completed later
Workers can specialise
Production runs of small batches can be expensive to produce
If production runs are different there may be extra costs and time delays in setting up different equipment
Repetitive work for employees
Aka continuous production, flow production enables products to be created in a series of steps.
Large amounts of goods produced and is highly capital intensive (machinery, automation)
Cars are massed produced for a large market using flow production
Flow Production +/-
Economies of scale
Automated production lines save time and money
Quality systems can be built into the production
Standard product produced (opposite of customised)
High set-up costs of automated lines
Repetitive and boring work
Long production runs may produce more than is needed
Importance of Quality
Quality is ensuring that the end-to-end customer requirements are met to the highest possible standard.
It is imperative to businesses that their production process meets quality standards throughout so that the end result delivers customer satisfaction.
Quality focuses on reducing errors, faults and cutting out flaws.
It is important that all employees are informed of the quality levels and standards expected of the company. Eg. IBM produces weekly quality reports indicating current performance levels.
British Standards Institute Kite Mark
Investors in People
There are 3 stages in attempting to improve on quality:
Total Quality Management
This process was a traditional method of quality control, whereby inspectors were required to spot check the final products.
Whenever sub-standard products were found it was the duty of the inspector to remove the items and discard them. This proved to be an extremely costly exercise as it resulted in a high level of wastage.
At no point in the process were the production workers involved in determining what was the expected level of quality.
This process of quality control made the production workers aware of the standard which was required by the business.
Quality checks would be conducted at each stage of production.
The workers would operate as a team to check and monitor the progress and accuracy of the production process.
QA is based on prevention .
Total Quality Management
The main principle of TQM is that every employee is motivated to think about their personal contribution to providing quality to customers.
Every employee has a responsibility to ensure that a quality product leaves the workplace.
To encourage this level of participation in the quality process, management give more independence to the workforce and constantly seek their opinions and comments on ways in which quality can be improved in the business.
Total Quality Management
As no errors are tolerated, tasks must be completed correctly first time!
In order for TQM to be effective the following factors must be implemented:
Clearly defined policy on the required levels of quality.
Every employee must be focused on customer satisfaction.
Staff must be provided with appropriate training to ensure they know how to meet the set standard.
People should be appointed to constantly check and monitor that the process is working.
Teamwork, at all levels, should be encouraged.
Benchmarking is a form of quality assurance which takes the best performers in an industry as the standard to be aimed for.
Benchmarking involves using different sources such as customers, trade journalists and business analysts.
A group of 6-12 people who meet to identify quality problems, consider solutions & recommend suitable outcomes to management.
Members drawn from factory floor but include engineers, quality inspectors & salesmen to offer different viewpoints. (Managers may or may not be included)
Why use Quality Circles?
No-one knows production problems better than the workers
Workers appreciate the chance to display their knowledge and skill