THE NATURE OF

OPERATIONS
CHAPTER 20
 OBJECTIVES

• Explain what is meant by operations management

• Appreciate the nature of the production process and how
value can be added
• Explain the difference between production, efficiency and
effectiveness
• Evaluate the different advantages and limitations of labour
intensity and capital intensity
 SUCCESS CRITERIA

I can explain the

I can differentiate transformation
between process
I can discuss the
productivity and concept of
production operations
The Nature of management
Operations- I am able to calculate
Part 1 various measures of
productivity
SYLLABUS CONTENT
RECALL
TERMS
• Production Process/ Transformation Process
The process of converting the inputs of a business (land, labour, capital,
enterprise) into output (goods, service)

• Productivity Is how efficiently inputs are converted onto output

Number of units per worker produced during a

• Labour Productivity given period of time
OPERATIONS
MANAGEMENT

Operations management is the designing and controlling of

systems that produce goods & services to meet customer
requirements.
OPERATIONS & ITS ROLE
Operation management covers a wide range of activities dealing with practicalities of production
including:

1. Contributing to decision on product ranges

2. Implementing production methods
3. Designing equipment
4. Selecting suppliers who can deliver the right quality and price
5. Make sure quality standards are upheld
6. Ensuring health and safety standards are maintained
7. Deciding on appropriate levels of stock
8. Arranging for productivity levels to meet cost targets
Operations management is NOT only for
manufacturing set-up but also for services
such as banks to use the resources
productively and efficiently.
State three process involved in
operations management?
RESOURCES Land, Labour, Capital, Enterprise

Capital not only just refers to the tools, machinery, computer, equipment but also includes
intellectual capital.
 THE PRODUCTION PROCESS
 In all businesses at all stages of production, the production process is
basically the same
 ‘Inputs’ are converted or transformed into ‘outputs’ and this is
sometimes called the ‘transformation’ process
 This process applies to manufacturing and service industries
 By ‘production’ we mean the making of tangible goods, such as
computers, and the provision of intangible services, such as banking
 The aim in all cases is to ‘add value’ to the inputs bough in by the
business so that the resulting output can be sold at a profit
PRODUCTIVITY
 WHAT IS
PRODUCTIVITY?
It is the ratio of outputs to inputs during productions, e.g. output per time
period.

Labour Productivity (number of units per worker)=

total output in a given time period/ total workers employed

Capital productivity (total volume of output produced from a given

volume of resources(inputs)= output/capital employed

Labour cost/unit= annual pay/labour productivity

WAYS TO INCREASE LABOUR PRODUCTIVITY

- Staff training to raise skills levels

- Improve worker motivation (involve them in decision-
making, kaizen groups, delegation, quality circles)
- Purchase more technologically advances equipment (with
increase in productivity it can also cause genuine fear among
workers about security of employment)
- More efficient management
EFFECTIVENESS AND
EFFICIENCY
Efficiency is producing at Effectiveness is meeting the
the highest ratio Of output objectives of the enterprise
to input. by using inputs productively
to meet customers needs
RECAP

• Is productivity same as production?

• Are the concepts of effectiveness and
efficiency the same?
PRACTICE WRITING SHORT
ANSWERS
 2 marks answer – Knowledge and understanding

Eg: Define ____________, What is meant by ____________?

 3 marks answer- Knowledge, Understanding and Application (if applicable)

Eg: Briefly explain the benefits of labour productivity?

( Start with one line definition of labour productivity and then write 2 benefits)
EXAM STYLE QUESTIONS-
PAPER 1
1 (a) Define labour productivity- 2 marks
(b) Briefly explain the link between levels of productivity and unit costs (average cost per
unit). – 3 marks

2 (a) Define the term Intellectual capital – 2 marks

(b) Briefly explain the importance of intellectual capital for a business- 3 marks

3 (a) Define transformation process- 2 marks

 (b) Briefly explain the difference between efficiency and effectiveness for a private
dentist’s business.
https://app.classkick.com/#/login/YLSJP8
 HOMEWORK- NOTEBOOK
(PICTURE NEEDS TO BE SUBMITTED)
CAPITAL
INTENSIVE AND
LABOUR
INTENSIVE
Advantages of Labour intensive production

• Labour motivation- can help continuous improvement

• Provides job opportunities

• Helps in the economic development of under developed and developing

countries
• Labour is a flexible resource (through multi skilling and training, can be
used accordingly)
• Can make tailor-made products
• Labour is required in case of any breakdown of machinery
Disdvantages of Labour intensive production

• Labour turnover (recruitment cost)

• Need for continuous investment in training

• Relatively expensive in the long-term when compared to machinery

• Greater risk of employer-employee relationship- can hamper

productivity
• Labour relation problems, e.g. may go on strike
Advantages of Capital intensive production

• Greater opportunities for economies of scale

• Lower labour cost

• Better quality & speed (depending on the product)

• Uniform output- reduces human error

• Labour is required in case of any breakdown of machinery

 Disadvantages of Capital intensive production
• Significant investment on advanced machinery
• Requires skilled engineers and computer programers to monitor and
adjust performance.
• May generate resistance from labour to change (job security
may be the reason)
• Lack of flexibility in responding to a change in demand. In contrast,
labour can be used flexibly, e.g. using temporary workers

• Machinery lacks initiative, e.g: it is unlikely to be innovative, provide

ideas on how to improve production or take on extra responsibilities.
Can footwear go capital intensive?

Can olive oil production go labout intensive?

 RECOMMEND WHICH APPROACH SHOULD BE CHOSEN:
LABOUR INTENSIVE OR CAPITAL INTENSIVE??

-Cost Size of the firm

e.g. If labour costs are
-Nature of the product - Can if afford capital
high and rising, it would
- Product Image that the
be better to go to one time intensive?
form wishes to establish - Is it generating job
investment of capital
equipment opportunities
 KEY
CONCEPTS
KEY CONCEPT 2: MANAGEMENT
Measuring and improving effectiveness and efficiency is a key element of
management. A co-ordinated and consistent approach to this is required and the good
manager can get the best out of the people and operations.

KEY CONCEPT 5: CREATING VALUE

The transformational process is one of creating and adding value.

KEY CONCEPT 4: INNOVATION

Most businesses need a USP, to add value. This can be done in many ways and
innovation is a common element