Business book answers

Contents:
1. The role of Operations Management
2. Production methods
3. Lean Production and quality management
4. Location
5. Production planning (HL)
6. Research and development (HL)
7. Crisis management and contingency planning

5. OPERATIONS MANAGEMENT:

5.1 The Role of Operations Management:

❖ Value added → the amount by which the value of an article is increased at each stage of its production, exclusive
of initial costs.
❖ Inter-generational equity → Meeting the needs of the present without compromising the ability of future
generations to meet their needs.

Operations Management (OM):

Is the business function that plans, organises, coordinates and controls the resources needed to produce a
company’s goods and services. It involves managing people, equipment, technology, information and many
other resources. It is the central core function of every company.

OM relationship w/ departments:
Marketing:
- Marketing is not able to meet customer needs if marketing managers do not understand what
operations can produce, what due dates it can and cannot meet and what types of customisations
operations can deliver.
- Can develop an exciting marketing campaign, but if MO cannot produce the desired product, sales wont be made
→ bad reputation
- OM needs information about customer wants and expectations and cannot do without regular
coordination with the marketing department.
Finance:
- Finance cannot be raised or invested in without information of what it is needed for.
- OM cannot make financial expenditures without understanding constraints and methods of evaluating
investments
- Accounting needs to consider inventory management, capacity function and labor standards to develop
accurate cost data.
- OM must communicate billing information and process improvements to accounting and depend on
cost management decisions.
Human resources:
- Personnel and HR are within the department. MUst understand job requirements and worker skills if
they are to hire the right people for available jobs.
 - OM need to understand job market trends, hiring, layoff cots and training costs.

Operations practices for sustainability:

Sustainability in OM refers to inter-generational equity. A sustainable business is an enterprise that has
minimal negative impact on the global or local environment, community, society or economy. It strives to meet
the triple bottom line (planet, profit and people).

5.2 Production methods:

❖ Mass customisation → the use of flexible computer-aided production systems to produce items that meet
individual customer requirements at mass production cost levels (CAD, CAM technology).
❖ Cell production → splitting flow production into self-contained groups that are responsible for whole work units.
❖ Job production → producing custom work such as, one-off products for a specific customer.
❖ Mass production → the manufacturing of large quantities of standardized products.

Types of manufacturing:
- Job production → custom manufacturing (eg. taylor made suits)
- Batch production → makes many of the same products (eg. bakeries)
- Flow production → involves machinery; capital intensive
- Mass production → large quantities of products.

Flow production:
Is the continuous movement of items through each stage of production, often along a conveyor belt or
assembly line.
Advantages: Disadvantages:
- It can produce many items at once, which - The work is repetitive which can cause
reduces the unit cost of production demotivation
- Can therefore, increase sales - Can lead to poor quality/ productivity
- Allows for economies of scale - Standardised production achieved
- Allows specialization (division of labour) - High initial set-up cost

Cellular manufacturing:
Is a form of flow production where the production line is split into several self-contained , mini-production units
called cells, instead of each worker performing a single task. Each cell has a team leader, and below that a
single level of hierarchy made up of multi-skilled workers.
Advantages:
- Responsible for the quality of their own Disadvantages:
complete units of work - High cost/ investment
- Adheres to a more circular economy - Concentrated training
- Increases worker commitment and - Time costly
motivation - Output will be lower than mass production.
- Job rotation - New management required
- Increased productivity
Factor that influence choice of production:
- Size of the market
- Amount of capital available
- Market demand for products adapted to customer requirements
- Availability of other resources

Reasons for a change in production method:

- Merger or take over
- New CEO
- New technology
- Degree if competition
- Growth and economies of scale
Implications:
- Marketing complications
- Will affect both the quality and the individuality of the product.
- Mass is standardised and there is likely to be high levels of competition so prices are more competitive
and mass advertising.
- Change management issues, morale, staff turnover.
- High financial cost
- Contingency planning will be needed if things go wrong

5.3 Lean Production and quality management:

Importance of quality in production:

- Helps create customer loyalty
- Reduces complaints
- Lengthens the life-cycle of products
- Can reduce promotional costs
- Can allow a higher price to be charged

Quality control:
- Prevention (most effective method which relies upon quality assurance)
- Inspection (traditional method, has very high costs)
- Correction & improvement (both methods above, eg. benchmarking).

Quality assurance:
This involves setting standards throughout an organisation. This is the opposite of quality inspection.
It involves:
- Product design
- Quality of raw materials
- Production quality
- Delivery systems
- Customer service including after sales
5.4 Locations:
This considers where the manufacturing takes place and how.
- If you turn small raw materials into big finished goods, it is better to set-up closer to the customer.
However, if you turn big raw materials into small finished products, it is more reasonable to set-up
closer to the raw materials.

Characteristics of location decisions:

- Made by the highest level of management
- It is difficult to reverse due to costs of relocating
- They are strategic in nature (eg. long-term and impact the whole business).
Quantitative Location decision:
- Cost of land
- Labour availability and cost Techniques:
- Proximity to customers - Profit estimates
- Proximity to raw materials - Break-even analysis
- Government incentives - Investment appraisal
- Practicality of e-commerce

Qualitative Location decision:

- Management preferences
- Ethical issues
- Local knowledge
- Infrastructure
- Political factors
- Laws and regulations (includes tax rates)
- Clustering (putting everything together, shops, offices, etc.)
Techniques:
-