Operations management1


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Operations management1

  1. 1. EFFICIENCY Business Studies
  2. 2. Introduction  Efficiency, Productivity and competitiveness are linked. Better productivity means increased efficiency which results in a higher level of competitiveness.
  3. 3. Efficiency is about making the best possible use of resources. Efficient firms maximise outputs from given inputs, and so minimise their costs. By improving efficiency, a business can reduce its costs and improve its competitiveness.  There is a difference between production and productivity. Production is the total amount made by a business in a given time period. Productivity measures how much each employee makes over a period of time. It is calculated by dividing total output by the number of workers. If a factory employing 50 staff produces 1000 tables a day, than the productivity of each worker is:  1,000 tables/50 staff = 20 tables 
  4. 4. Graph showing Staff Efficiency An increase in productivity from 20 tables to 25 tables, without any increase in costs, means the firm has improved efficiency. The resultant lower unit costs increase profit margins. Staff productivity depends on their skill, the quality of machines available and effective management. Productivity can be improved through training, investment in equipment and better management of staff. Training and investment cost money in the short term, but can raise long – term productivity.
  5. 5. Other methods of Cutting Costs • • • • • • As well as improving productivity, a business can cut costs by: Reducing overheads such as administration, e.g. making some support staff redundant. Customer service may suffer as a result of this. Relocation to countries where staff with appropriate skills can be hired at lower wages. Improving management so staff are motivated to work harder, or are better used. Redesigning the product so an item is easier and cheaper to make. Lean Production is set of measures that aim to reduce waist during production. Waste reduction methods, such as just in time of ordering the stock, will increase efficiency.
  6. 6. Ways to measure employee performance efficiency
  7. 7. Labour Productivity, Labour Turnover, Absenteeism and Health and Safety At the end of todays lesson you will be able to: • Measure Employee Performance/Productivity • Calculate and measure absenteeism • Calculate and describe Labour Turnover • Describe Health and Safety Measure and analyse time lost through accidents at work.
  8. 8. • Managers need to assess the impact of any changes they may make. • It is no good implementing workforce planning, rewards systems, appraisals etc if the impact of these changes cannot be measured. • There are many ways in which employee performance can be assessed/measured. These are called ‘Key Performance Indicators’.
  9. 9. Key Performance Indicators Labour Productivity = Output per period No. of employees at work This measures the performance of a group of employees. However it is important to remember that productivity can also depend upon other factors such as talents and motivation of the workforce and capital equipment used.
  10. 10. Key Performance Indicators Absenteeism = Number of staff absent on 1 day Total Number of Staff X 100 Absenteeism is a term used to describe a situation where an employee is absent from work frequently and without good reason, and therefore is a good indicator of the levels of morale within the workforce. High Absenteeism means……. Low absenteeism means……
  11. 11. Key Performance Indicators Labour Turnover = Number of Staff leaving during the year Average Number of Staff X 100 This ratio measures the proportion of people leaving a business over a period of time (usually one year). Poor morale can lead to high labour turnover and this can be caused by low wages, inadequate training and ineffective recruitment procedures. This can cost the business a lot of money. Businesses require some levels of labour turnover to bring new ideas into the business.
  12. 12. Operations Management 26th March 2010
  13. 13. Learning Objectives  To identify and define the key terminology required for the topic  To describe the purpose of operations managements within business  To explain the utilisation of capacity  To differentiate between economies and diseconomies of scale  To assess the 4 methods of production  To explain the purpose of lean production and the impact on effectiveness
  14. 14. Operations Management The purpose of operations management is to ensure that the business provides the right goods, at the right time, at the right cost and of the right quality. Thus improving competitiveness.
  15. 15. Capacity      The maximum output which a business can produce at any moment in time given its resources. What will this depend on? How could it increase its capacity? Capacity utilisation measures the amount it is producing compared to the amount it could produce. Capacity utilisation (%) = Actual level of output x 100 maximum possible output  If firm produces 60,000 in given period and its full capacity would allow 80,000 items to be produced, what is the capacity utilisation?  Answer = 75%
  16. 16. Capacity….  why might firms have to produce less than the maximum capacity level?  How could a firm increase its capacity?  What problems could be encountered if over producing?
  17. 17. Economies of Scale  EoS occur when the cost of producing a unit falls as output increases.  DoS occur when a business increases its output and the cost per unit increases too.  Why might diseconomies of scale occur?  What is the difference between internal and external economies of scale?
  18. 18. Production When talking about production, it can be labour intensive or capital intensive. Refer back to your match it cards and decide whether the following would be LI or CI:  Wedding dress maker  Oil refinery  Hotel  Factory making crisps
  19. 19. Activity - Methods of Production  Job  Batch  Flow – – – Ramy, Tamara, johny Abdulwahab, Khadija Sarah, Mariyah, Khalid Activity Each pair must create a revision sheet for a specific method, explaining what it is and the advantages and disadvantages associated with using the particular Method.
  20. 20. Which Production Method? What would influence the type of production method they use?
  21. 21. Which method to use?  Type of product  Demand for the product  Quality level demanded by the customer  Size of firm  Availability of technology
  22. 22. Activity  Read through the exam pre-release case study and answer the following:  What is the current method of production at Hoiles Crisps?  What capacity is Hoiles currently operating at?  What are the advantages and disadvantages of the new production method explained in line 61?  Discuss which production method you would recommend Hoiles to introduce (if need be)?
  23. 23. Lean Production  A collection of techniques designed to eliminate the amount of ‘waste’ on the shop floor. This could be wastage of materials, energy, time, or human effort.  In turn, this reduces costs and improves efficiency and overall competitiveness  Lean production includes:      Continuous improvement / Kaizen Cell production Just in time stock management Time-based management benchmarking We will look at these in more depth next week
  24. 24. Lean production Advantages  Increased motivation  Increased quality of output  Improvement in cash flow  Higher level of participation  Increased output Disadvantages  Reduces EoS  Requires all staff to be committed  May not be able to meet customer demand  Relies on a good supply chain
  25. 25. Activity  Complete the Kodak case study on page 273 of textbook.
  26. 26. Plenary  Pictionary for keywords learnt today  http://www.tutor2u.net/business/quizzes/