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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