Operations v3

8/8/2019 Operations v3

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OperationsOperations

Higher Business Management


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I P OI P O

INPUTS PROCESS OUTPUT

Operations Managementis concernedwiththe wayorganisations

transforminputsintofinishedarticles (outputs)


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Production PlanningProduction Planning Planning is crucialin helping a firm achieve

its objectives.

Ideally,production should be a constantlevel(exact number of workers required, materialsto be used, and the number & type ofmachinerywillbe known in advance)

Production in realitywillvarydue to changesin consumer demand, staff shortages andmachine breakdowns and maintenance.


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Production SystemsProduction Systems Nature of the finalproduct

Market size Resources available

Stage of development of the business

Labour-intensive v Capital-intensiveproduction

Availabilityof technology- automation


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Production Systems Key FactorsProduction Systems Key Factors

Nature of the finalproduct differentproductsproduced in different ways e.g. agriculturalproducts compared to aircraft

Market size mass markets can use standardisedproduction systems like Reebok (left and rightshoes made in different factories); whereas smaller

orluxurymarkets maybe customised

Resources available finance, number of workers &their skills, machinery, factorycapacity


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Production Systems Key FactorsProduction Systems Key Factors

Stage of development of the business smallor new firms normallyproduce smallamounts,but as theygrow their capacity, varietyand

output does too

Labour-intensive v Capital-intensive

production cost of workers v cost ofmachinery/equipment. Developing countriesstilllabour-intensive due topaying workersverylow wages


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Useof Technologyin ProductionUseof Technologyin Production There have been significant changes inproduction techniques due to

the advancement of technology. New technologies used inproduction include:

CAD: Computer Aided Design; computers used to help

design aproduct.

CAM: Computer Aided Manufacture; computers used tocontrolmachines.

CIM: Computer Integrated Manufacturing; computers

used to controlextensiveparts of theproduction

process.

Robots: Machines which can beprogrammed and re-programmed

to performphysicaltasks.

Automation has resulted in a largeproportion of theproduction

process being controlled bymachines. The demand for multi-skilled

and skilled workers is now greater resulting in the decrease in the


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Computer Aided Design (C.A.D)Computer Aided Design (C.A.D) C.A.D is the use of computers in creating and editing design

drawings.T

heproducts are designed on a computer allowing thedesigner to change the design; make improvements; change details;or, change the specification completely.

C.A.D is used in manydifferent areas:

Architecture: Computer graphics can be used

to create visionaryarchitectureto assessplans and designs.Enables the client to view theirvirtualproperty.

Animation: Recent filmsproduced using

computer animation include: ToyStory; Ants &Finding Nemo

ArtificialIntelligence: The computer simulation gives the impression of

being in a real3D environment. This is

used regularlybydefence


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Computer Aided Manufacturing (C.A.M)Computer Aided Manufacturing (C.A.M)

C.A.M means that robots nowperform the tasks onceconducted byhumans.

Computers now controllargeparts of theproductionprocess to replace humans doing mundane repetitive

tasks. Humans are now responsible for supervising the running

of the machines it is their responsibilitytoprogram andmaintain the computers.

A result of C.A.M has been an increase in the levels ofaccuracyand qualityinproduction.

In order to keep up with thepace oftechnologicalchange, there is an increase

in demand for highly-skilled employees.


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Benefitsof New TechnologyBenefitsof New Technology

Companies are now able to increase their rate ofproductivityas computers and machines conduct therepetitive tasks required toproduce theproduct. As aresult, manufacturing costs are significantlyreduced.

The use of computers and machines ensures a highqualitystandard as theyare able toproduce at the same

rate continuously. The onlywayin which qualitymaybeaffected if there has been a fault in thetechnologyor wrong instructions have been

inputted bythe operator. Using new technologyenables the company

to offer a wider range ofproducts to itscustomers.


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Purchasing Materials ManagementPurchasing Materials Management

THEPURCHASINGMIX

Alternative suppliers

Deliverytime

Price

Quality Quantity

Storage Facilities


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Purchasing MixPurchasing Mix

Alternative suppliers are suppliers

dependable? Localor nationalsuppliers?

Additionalcosts?

Deliverytime lead times long or short?

Reliabilityand keepingpromises!

Price discounts and bulk buying vs cost of

keeping stock? Credit terms v discounts


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Purchasing MixPurchasing Mix

Quality supplier guarantee of consistent

qualitymaterials

Quantity storage adds 15-30% on to cost of

purchasing.

Storage Facilities storage capacity? Safety,

security, other conditions of storage?


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StockStock

Stock is a resource which is held in a specificlocationawaiting use.

Holding stock can be expensive to a business as there are avarietyof costs associated to it eg. maintaining warehouse;

employee wages etc. There are 3 basic categories which describe stock:

Raw Materials: resources required toproducea product.

Work-In-Progress: goods which are stillto be completed(currentlyin theprocess of being

produced).

FinishedGoods: finalproduct which is waiting to be

distributed to the end-user


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Why Is It Important ToControl Stock?Why Is It Important ToControl Stock?

It is important for businesses to have an effective stock control

system to ensure that there is minimalwastage and expense.

Furthermore, businesses must ensure that the stock held matches

the resources required.

An effective controlsystem 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 theycan fulfil

the demand.Securityof storage must be of a high standard toprevent

stock being damaged or stolen.

Ensure that costs are minimised whilst also ensuring

that the correctlevelof stock is held.


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Levelsof StockLevelsof Stock

A business which holds stock willimplement the following stocklevels in order to meet customer demand at alltimes.

Minimum Level: this is the minimum amount of stock neededin case the required supplywere to be deliveredlate. Thebusiness willnever allow the stocklevelto drop below acertainpoint in order toprevent a resource shortage.

Maximum Level: this is the maximum amount of stock whichcan be held in the warehouse at anygiven time. This levelisrestricted byfactors such as space; cost; and, deliverytime.

Re-Order Level: this is when the stockleveldrops to a certainpoint and theprocess willautomaticallyre-order the requiredstock. In order to decide at whatpoint to re-order, businessesmust consider the following: howlong is the deliverytime?how reliable is the supplier?


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StockControl DiagramStockControl Diagram


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Cost/Benefit Analysisof Holding StockCost/Benefit Analysisof Holding Stock

Supplies are available whenyou need them.

Anyincrease in demand can

be met. Discounts available for bulk

buying.

Customers orders can bemet immediately.

Moneycould be used more

efficiently.

Financialcosts associated

with warehousing andinsurance.

Labour costs involved in

stock control.

Value of stock maydecreaseif fashions change orpasses

sellbydate.

Benefits Of Holding Stock Costs Of Holding Stock


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Bar codesBar codes Bar codes have now become the global

language of business, and are standardised

so no two companies willpick the same barcode for differentproducts. Theymake iteasyto describe the raw materials andproducts being bought and sold.

Without bar codes our operations would notwork Nestle UK supplychain manager


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Toyota:asupermarketfor carsToyota:asupermarketfor cars


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Just In Time Production (JIT)Just In Time Production (JIT)

JITproduction is a Japanese approach toproduction thatinvolves keeping the stocklevels to a minimum.

Stocks arrive just in time to be used inproduction.

As a result, costs are cut byreducing the amount ofstocks held bythe business.

Goods are notproduced unless the business has anorder from the customer.

JITstrives to eliminate waste byproducingthe rightpart in the rightplace at the right time!


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Effective JITEffective JIT In order to be effective and efficientJITrequires the

following factors to be inplace:

Highlyskilled and flexible workforce which are able to

respond to the challenges ofJIT.

Absolute certaintyregarding deliverytimes to ensure

thatproduction runs to schedule (if the deliverywas late

this would haltproduction).

If suppliersprovide sub-standard items the wholesystem fails as there isnt an alternative resource waiting

in stock.


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Advantages& DisadvantagesofJITAdvantages& DisadvantagesofJIT

Less space required for

stock.

Able to respond quicklyto

changes in demand.

Closer relationship with

suppliers.

Capitalcan be used forotherpriorities as opposed

to being

tied up in stocks.

Production maybe stopped

if supplies are delayed.

Sales maybe lost if notmeeting customer

demands.

Increased ordering and

admin costs. Depending on the efficiency

of the supplier.

Advantages Disadvantages


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Payment SystemsPayment Systems Flat Rate

Overtime

Piecework

PRP

Profit sharing Share save/share options


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Flat RateFlat Rate

Thispayment method involves the employee

receiving a basic rate ofpayper timeperiod

that he works (e.g. 5per hour, 50per day,400per week).

Thepayis not related to output or

productivity.


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OvertimeOvertime Anytime that the employee works above the

agreed number of hoursper week maymake

him eligible for overtimepayments, often attime and a half (e.g. 7.50per hour instead

of 5per hour).

Double time ispaid after a certain number ofhours of overtime and would be 10per hour

in our example.


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PieceworkPiecework

Thispayment method involves the employeereceiving an amount of moneyper unit (orper piece) that heproduces.

Therefore hispayis directlylinked to hisproductivitylevel.

However, it ispossible that in order to boost

his earnings, an employee mayreduce thequalityand craftsmanshipper unit, so that hecanproduce more output in a givenperiod oftime.


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PerformanceRelated PayPerformanceRelated Pay This is a method of givingpayrises on an

individualbasis, related to the employee

achieving a number of targets over thepastyear.

This is common with managerialand

professionalworkers. Appraisals maybe linked to PRP.


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Profit SharingProfit Sharing This involves each employee receiving a share of

theprofit of the business each year, effectively

representing an annualpayrise. It aims to increase the levels of effort, motivation

andproductivityof each employee, since their

annualpay-award willbe related to theprofitability

of the business.

However, if the business makes lowprofits (or even

a loss) then this is likelyto have a detrimentaleffect

on the levelof motivation of the employees.


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Share/saveoptionsShare/saveoptions

A common form ofpayment in manyPLCs is whatis termed share options. This basicallyinvolveseach employee receiving apart of each months

salaryin the form of shares (usuallyat a discountedprice).

This forms aprofitable savings-plan for theemployee, and he can sellthem after a givenperiod

of time. This should motivate the employees to work harder

and increase their efforts, since the shareprice willrise as the companybecomes moreprofitable,

therefore increasing the capitalgain on their shares.


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Distribution & DeliveryDistribution & Delivery Design andlayout

Mechanicalhandling

Transportation

Scheduling


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Designand layoutDesignand layout

warehouses should be on groundlevelto reduce handling timesfrom deliveryto storage. Stock rotation should be in operation.


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Mechanical handlingMechanical handling some warehouses have

specialist stock-handlingequipment built into their

warehouse. Tesco has a conveyor belt

which can link up with theirtrucks to take the cagesinside the factory.

Other methods would beusing pallets and forklifts totransport them inside thewarehouse


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TransportationTransportation businesses can use their own

transport which gives themcomplete controlover delivery,

but has high investment andrunning costs;

or it can hire transport which ischeaper and can dealwithchanges in volume, but gives

less control; and finallypublic transport

which although verycheap ishighlyunreliable and nocontrol


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Methods of Transporting Goods in UK

64%7%

24%

5%

roadrail

water

pipeline


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Job ProductionJob Production Job Production concentrates onproducing

oneproduct from start to finish. Once one

product is complete, another can begin. It is extremelylabour intensive

Some examples: Wedding dress

Painting

House extension


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Job Production +/-Job Production +/- Easyto organise

production

Can customise orders one-off orders can be

accommodated

Workers involved in

entireproduction

process from start to

finish

Production costs likely

to be high

Production time maybe longer

Investment in

machinerymaybe

higher as specialist

equipment maybe

needed


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Batch ProductionBatch Production Batchproduction enables items to be created

in bulk (a batch)

Generalpurpose equipment and methods areused toproduce smallquantities of itemsthat willbe made and sold for a limited timeonly

Commonlyused in foodproduction

Big Macs

Greggs Rolls


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Batch Production +/-Batch Production +/- Allows flexible

production

Stocks ofpart-finishedgoods can be held and

completedlater

Workers can specialise

Production runs ofsmallbatches can be

expensive toproduce Ifproduction runs are

different there maybeextra costs and timedelays in setting updifferent equipment

Repetitive work foremployees


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Flow ProductionFlow Production Aka continuousproduction, flowproduction

enablesproducts to be created in a series of

steps. Large amounts of goodsproduced and is

highlycapitalintensive (machinery,automation)

Cars are massedproduced for alarge market using flowproduction


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Flow Production +/-Flow Production +/- Economies of scale

Automatedproduction

lines save time andmoney

Qualitysystems can be

built into the

production

Standardproduct

produced (opposite of

customised) High set-up costs of

automatedlines

Repetitive and boring

work

Longproduction runs

mayproduce more

than is needed


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Importanceof QualityImportanceof Quality

Qualityis ensuring that the end-to-endcustomer requirements are met to the highestpossiblestandard.

It is imperative to businesses that theirproductionprocess meets qualitystandards throughout so that theend result delivers customer satisfaction.

Qualityfocuses on reducing errors, faults and cutting out

flaws. It is important that allemployees are informed of the

qualitylevels and standards expected of the company.Eg. IBMproduces weeklyqualityreports indicatingcurrentperformance levels.


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Quality StandardsQuality Standards British Standards Institute Kite Mark

ISO 9000

ABTA

Investors in People


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QualityControlQualityControl

Thisprocess was a traditionalmethod of qualitycontrol,wherebyinspectors were required to spot check the finalproducts.

Whenever sub-standardproducts were found it was thedutyof the inspector to remove the items and discardthem. Thisproved to be an extremelycostlyexercise asit resulted in a high levelof wastage.

At nopoint in theprocess were theproductionworkers involved in determining what was theexpectedlevelof quality.


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Quality AssuranceQuality Assurance

Thisprocess of qualitycontrolmade theproduction

workers aware of the standard which was required by

the business.

Qualitychecks would be conducted at each stage ofproduction.

The workers would operate as a

team to check and monitor the

progress and accuracyof the

productionprocess.


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Total Quality ManagementTotal Quality Management As no errors are tolerated, tasks must be completed

correctlyfirst time!

In order forTQM to be effective the following factors mustbe implemented:

Clearlydefinedpolicyon the requiredlevels of quality.Everyemployee must be focused on customersatisfaction.

Staff must beprovided with appropriate training to

ensure theyknow how to meet the set standard.People should be appointed to constantlycheck andmonitor that theprocess is working.

Teamwork, at alllevels, should be encouraged.


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TQM - KaizenTQM - Kaizen

The Japanese haveperfected the concept of total

involvement in the life of the organisation.

Workers arepart of a team; there are team songsand team competitions.

Everyone is expected to strive

towards continualimprovement.


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BenchmarkingBenchmarking Benchmarking is a form of qualityassurance

which takes the bestperformers in an

industryas the standard to be aimed for.

Benchmarking involves using different

sources such as customers, trade journalists

and business analysts.


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Other MethodsofEnsuring QualityOther MethodsofEnsuring Quality

Work Study analysis of work methods which

has two main types:

1. Method Study looks for the best waytoperform a

task2. Work Measurement looks at the time taken to do

specific tasks

Other methods include: incentive

schemes and qualitycircles.


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QualityCirclesQualityCircles A group of 6-12people who meet

to identifyqualityproblems,

consider solutions &recommend suitable outcomesto management.

Members drawn from factory

floor but include engineers,qualityinspectors & salesmen tooffer different viewpoints.(Managers mayor maynot be

included)Whyuse QualityCircles?

No-one knowsproductionproblems better than the

workers


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How Do QualityCirclesWork?How Do QualityCircles

Work?

Characteristics

Volunteers

Set Rules andPriorities

Decisions made byConsensus

Use of organized approaches to Problem-

Solving


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How Do QualityCirclesWork?How Do QualityCircles

Work?

Allmembers of a Circle need to receive

training

Members need to be empowered

Members need to have the support of Senior

Management


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How Can Theybe Usedinan

Organization?

How Can Theybe Usedinan

Organization? Increase Productivity

Improve Quality

Boost Employee Morale

Documents

Operations v3