OPERATIONS MANAGEMENT
OPERATIONS MANAGEMENT 1
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Where to produce?
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What is the best location for the business?
In the case of manufacturing, this may be primarily driven
by costs; in the case of retail, it may be influenced more
heavily by where customers are based.
What production facilities are needed?
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What is the best scale of production?
How many rooms should our hotels have?
How many planes will our airline need?
What capacity will our database need for our insurance
business?
How large should our production plant be?
OPERATIONS MANAGEMENT 2
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What production methods should be adopted?
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What is the best method of production?
What is the best way of combining the firm’s resources?
How should the production be organised?
How should the store or production plant be laid out?
If we are a restaurant chain, will we have a standardised
menu in every store or make each meal to customers’
requirements? Will we have food prepared or not?
OPERATIONS MANAGEMENT 3
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Where should we purchase supplies from?
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Should we always try to have two suppliers for everything
we buy just in case one fails?
How many stocks do we need to hold to meet production
and sales demands?
Should we buy from local suppliers whenever we can?
Should we take into account the way in which our suppliers
produce, e.g. their environmental record?
TYPES OF OPERATIONS SYSTEMS 1
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Volume.
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High-volume production includes bars of chocolate and
soft drinks.
Low-volume production includes an architect and
landscape gardener.
Variety.
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High-variety operations include a tailor and a personal
financial adviser who are capable of producing a wide
range of products.
Low-variety operations include fast-food restaurants which
turn out a relatively limited variety of products.
TYPES OF OPERATIONS SYSTEMS 2
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Variation in demand.
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Businesses such as bakeries have relatively low fluctuations
in demand.
By comparison, the emergency services, such as ambulance
drivers, have a big variation in demand throughout the week.
Visibility.
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This refers to the extent to which a business deals directly
with its final customers.
A manufacturing business has low visibility; it produces and
sells to intermediaries who sell to the final customer.
A hairdresser and accountant have high visibility; they deal
directly with their customers.
OPERATIONAL OBJECTIVES 1
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Volume targets.
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Ensuring the firm can produce the quantities demanded by
customers at the time they want them without running out
or having extensive queues.
Quality targets.
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Achieving an appropriate level of service and quality.
For example, serving you within a given time in a
restaurant, ensuring you are not waiting in a queue for
longer than a certain time, ensuring that products get
delivered to you in a certain time.
OPERATIONAL OBJECTIVES 2
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Efficiency targets.
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Environmental targets.
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Producing products within a given time frame and ensuring
the production is carried out as cost effectively as possible.
Ensuring that operations are not excessively harmful to the
environment.
Targets might include reducing waste and pollution levels.
Innovation targets.
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Ensuring the products are as up to date as they need to be.
For example, perhaps they provide new benefits or are
delivered in an innovative way (e.g. films online, making
your own calendar online, online greetings cards).
OPERATIONAL OBJECTIVES 3
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Ensuring that your products are reliable and
dependable so you do what you say and don’t let
customers down.
Ensuring the production system is as flexible as it
needs to be.
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For example, in terms of the range of products it has to
provide.
Producing ethically.
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Ensuring that suppliers do not use child labour and that
they are paid fairly.
EFFECTIVENESS OF OPERATIONS
MANAGEMENT 1
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Productivity.
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The output per person, per factory or per machine.
In a retail environment, this may be measured by sales per
employee or sales per square foot.
Unit costs.
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The cost to produce one unit.
The more efficient the process is the lower the unit cost
will be.
EFFECTIVENESS OF OPERATIONS
MANAGEMENT 2
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The number of defects.
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What percentage of the units produced or services
completed is faulty?
How many goods are returned?
How many bills to clients are inaccurate?
What is the level of customer satisfaction or
dissatisfaction?
The speed of production.
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Are items delivered on time?
How fast is delivery relative to our rivals?
PRODUCTIVE EFFICIENCY 1
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Labour productivity.
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This measures the output per employee. Firms will usually
try to increase the output per employee (provided that
quality is maintained).
An increase in productivity may be achieved through
training, better capital equipment, better working practices
(e.g. team working) or a change in management style.
The nature of the production process.
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Firms must consider the nature of their market and their
customer requirements and decide on the most efficient
process available.
PRODUCTIVE EFFICIENCY 2
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Capacity utilisation.
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The scale of production.
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The extent to which a firm is making full use of its resources.
A firm’s capacity measures the maximum output it can produce
given its existing resources.
Capacity utilisation measures a firm’s actual output in relation to
its capacity.
A firm must decide on the most appropriate scale of production.
Up to some level of output a firm may experience economies of
scale; by expanding, the unit costs may fall due to, for example,
purchasing or technical economies.
Investment in innovation.
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For example, greater investment to develop new ways of
providing goods or services can lead to cost savings.
PROGRESS QUESTIONS 1
1.
State two possible operational objectives (with examples).
(2 marks)
2.
What is meant by efficiency? (2 marks)
3.
What is meant by productivity? (2 marks)
4.
How can a business increase its efficiency? (3 marks)
5.
How can an increase in efficiency help a business? (3 marks)
PROGRESS QUESTIONS 2
6.
Explain the link between corporate objectives and operations
objectives, with examples. (4 marks)
7.
Explain how an operations decision can influence other functions.
(5 marks)
8.
Explain how other functions can influence operations objectives.
(5 marks)
9.
Explain what is meant by capacity utilisation. (3 marks)
10. Explain the disadvantages to a business of low capacity utilisation.
(4 marks)
ANALYSIS AND EVALUATION
1. Analyse the ways in which a change in corporate
objectives and strategy might affect the operational
objectives of an airline. (8 marks)
2. Analyse the possible benefits to an insurance
company of increasing efficiency. (8 marks)
3. Discuss the factors likely to influence the
operational objectives of a consumer electronics
business. (15 marks)