Operations

1. Operations Higher Business Management 2014/15

2. Contents • Methods of Production • Job/Batch/Flow • Capital/Labour Intensive • Stock Management • Systems • JIT • Warehousing • Quality • QM/Standards/Benchmarking/Circles/Mystery Shopper • Ethical • Fair Trade • Environmental/Ethical Issues/Solutions • Technology

3. Methods of Production

4. Methods of Production The choice of production method will depend on: • the product being produced • the size of the market • the size of the business • the finance available • the technology available.

5. Methods of Production - JOB A single product is custom-made to a customer’s own specifications Examples: • Boat Building • Bridge Building • Wedding Cakes/Dresses

6. Methods of Production - JOB Advantages • “One-off” orders accommodated • High price • Specifications can be changed • Motivated workforce Disadvantages • High labour costs • Wide variety of equipment needed • Each job will require individual design (time) • Lead times lengthy

7. Methods of Production - BATCH The production of a group of similar products. No item in a group goes to the next stage until all are ready. Examples: • Tinned Foods • Bakery • Houses in an Estate

8. Methods of Production - BATCH Advantages • Flexible production • Partly finished goods can be stockpiled and completed later • Reduced need for highly skilled staff • Machinery can be standardised Disadvantages • Higher costs per unit (small batches) • Needs careful planning • High stock levels • Less motivated staff • Delays in changing/cleaning equipment

9. Methods of Production - FLOW Production items move continuously from one operation to the next. Products are produced to a standard specification. Examples: • Cars • Computers • White goods eg washing machines

10. Methods of Production - FLOW Advantages • Economies of Scale • Automated production lines save time and money – 24/7 • Large quantities produced • Reduced stockholdingeg JIT • Quality systems can be built in/standard products Disadvantages • Large investment required • Mass consumption required • If one part of the system fails – shutdown • Lack of worker motivation - repetitive

11. Methods of Production Production will be either labour intensiveor capital intensive and there are advantages and disadvantages of each method.

12. Labour Intensive Labour-intensive production is where a business uses a larger proportion of human input than machinery to complete the production process. Example • fruit picking, postal service and hospitality industry.

13. Labour Intensive Labour-intensive production is used when: • Labour is cheaper than the cost of machinery • The process requires specific skills • The use of machinery would be impractical • The process relies on the ability of humans to think, use initiative, problem solve • the production process requires flexibility

14. Labour Intensive Advantages • Additional flexibility • More responsive to change • Lower start-up costs than capital-intensive • The use of human judgment can improve the process Disadvantages • A skilled workforce can be expensive • No economies of scale • Staff illness or absence • Additional quality control measures may be required • Can be less efficient than capital-intensive production

15. Capital Intensive Capital-intensive production is where the production process relies more on machinery and other capital equipment. Example • cars and washing machines.

16. Capital Intensive Capital-intensive production is used when: • The supply of labour is limited • The process is routine and repetitive • The cost of the capital is relatively cheap • Machinery improves the quality and accuracy • Machinery improves efficiency and consistency

17. Capital Intensive Advantages • Operate 24/7 • Higher volume of goods can be produced • Quality of output is standardised and consistent • Removes human error • Machines can do work that would be dangerous Disadvantages • Large initial outlay to purchase machines • Cost of maintaining and repairing equipment • Only suitable for standardised production • Production time is lost if machines break down • Worker motivation is low as they are de-skilled.

18. Capital Intensive Mechanisation • Where humans use machinery to help them in the production process, often to replace the physical, muscular part of the process. Human judgement is still required. Automation • Control systems and IT are used to manage production, reducing or replacing human intervention. Automation removes the need for human judgement.

19. Quality Systems

20. Quality In today’s highly competitive global market quality has become one of the key decision areas in operations. Quality is an extremely difficult term to define as it can mean different things to different people.

21. Quality Management • The main aim of Quality Management is to produce a perfect product or service every time in order to meet customer requirements. • In order to achieve ‘quality’, the requirements, and needs of the customer come above everything else. • QM assumes that the next person with ‘ownership’ of the good, or the next person to use the good, are customers. • E.g. on a production line in a factory, the next person down the line from you is your customer or client.

22. Quality Management Quality management requires four elements to be managed: • The definition of ‘quality’ at each and every stage of the process • The commitment of all • A system in which this quality can be assured • A measure of the ability to meet quality requirements

23. Quality Standards • Quality is often defined as conformity with a standard: • Fit for purpose, Appearance, Safety, Availability, Value for money, Ease of use, After sales, Reputation, Customer service • A quality standard is awarded to an organisation when it meets a particular specification or set of criteria.

24. Quality Standards • BSI Kitemark • CE mark • ABTA • Wool Mark • Royal Warrant • Forest Stewardship Council • IIP • Financial Conduct Authority • ISO9000 • Lion Mark • Red Tractor • Scotch Beef

25. Benchmarking • This involves comparing one product with another similar product, usually the market leader. • The organisation will then attempt to match these standards in their own production. • However this is not an easy process: • Companies encounter resistance from competitors • You have to continually benchmark your processes

26. Quality Circles • A quality circle is a group that meets to identify and resolve problems about quality in the production process. • They must consider and recommend suitable alternative practices that are then put to management. • Benefits: • Collaboration of different workers • Job enrichment • Increased motivation • Shop-floor workers will give solutions managers couldn't.

27. Mystery Shopper • Mystery shopping is the practice of using trained shoppers to anonymously evaluate: • customer experience, operational efficiency, employee integrity, use of merchandising, service/product quality. • It is more cost-effective to retain a customer than attract a new one, therefore making sure customers receive the appropriate level of service is a good investment.

28. Mystery Shopper Benefits: • Feedback can be used to improve processes. • Training needs can be identified. • Improves customer retention. • Monitors quality of products and service. • Improves employee awareness. • offers an incentive-based reward system to employees and managers.

29. Quality Systems ADVANTAGES DISADVANTAGES • Reduce wastage • Improve reputation • Competitive advantage • Increase market share • Customer loyalty • Employee motivation • Time-consuming • Costly processes • Must maintain standard • Poor quality still exists

30. Stock Management

31. Stock Management • Stock refers to: • Raw Materials • Work in Progress • Finished Goods • Stock must be managed to ensure there are sufficient quantities of RM and FG’s.

32. Stock Management Factors to consider: • The quantity required • The volume that can be produced at one time • Working practices e.g. health and safety • The storage available • Quality procedures

33. Stock Management Systems • Maximum Stock Level – The highest amount of stock that can be held at one time. • Stock is readily available • No production delays • Ensures no overstocking or wastage • Minimum Stock Level – The lowest amount stored at one time. Below this level there is a danger that stock levels will fall too low and production will stop.

34. Stock Management Systems • Re-order Level – The quantity at which more stock is ordered. This level is set so that stock does not fall below the minimum level by the time new stock arrives • Re-order quantity – Quantity needed to take stock back to maximum level. • Lead time – the time between the order being placed and it arriving.

35. Stock Management Systems

36. Just in Time (JIT) – Kanban System • Method that keeps costs to their minimum. • Stock arrives just in time for it to be used and goods are only manufactured when an order is received. • The system of storing stock in this way is known as Kanban

37. Just in Time (JIT) – Kanban System ADVANTAGES DISADVANTAGES • Less cash tied up in stock • Less storage and warehousing • Wastage reduced • PESTEC factors impact is reduced • Reliable supplier is needed • Production can stop if delays are late • Environmental impact • High delivery costs • No economies of scale

38. Storage - Centralised ADVANTAGES DISADVANTAGES • Maintain security in one location • Consistent procedures implemented across the organisation • Specialist staff • Economies of Scale • Cost of dedicated storage area, staff etc. • Time wasted going to and from stores

39. Storage - Decentralised ADVANTAGES DISADVANTAGES • Stock is always there when required • Less chance of wastage • Can account for local preferences • Security difficult to maintain across the organisation • Less control of stock

40. Warehousing • This is the name given to the place where finished goods are held before distribution • They must be designed to ensure the most efficient movement of stock • Aspects of warehouse planning: • Design & Layout • Mechanical Handling • Transportation

41. Logistics • This is concerned with getting the finished product to the customer • How the product gets to the customer depends on the distribution mix • Factors to consider: • Reliability of other organisations • Legal restrictions • Finance available • The product • The image of the product • Stock management system being used • The distribution capability of the manufacturer

42. Ethical & Environmental

43. Fairtrade • Fairtrade is about achieving better prices and fair terms of trade for farmers in the developing world. • Farmers pay their workers a fair wage, health and safety improves, and the local community becomes more sustainable. • Firms can be awarded the Fairtrade Mark for products that meet its strict criteria. • Examples: coffee, chocolate, bananas, sugar

44. Fairtrade ADVANTAGES DISADVANTAGES • diverse market place- more market segments demand ethically sources products. • Customer Loyalty • Good public image • Good employer – attract staff • High price for consumer • Small scale production – no EoS • Tariffs exist on some goods • Concern shifted to climate change/food miles

45. Environmental Responsibility • Businesses are under increasing pressure to show environmental responsibility not only because it is viewed as being ethical but because it is also required by law. • Legislation is in place to control factors such as: • Emissions • Storage and disposal of waste • Causes of nuisance, for example noise, smoke, fumes, light pollution

46. Environmental Responsibility What can businesses do to prevent these problems? • Minimise wastage • Recycle • Minimise packaging • Prevent pollution & omissions • Be sustainable • Fair Trade • Use renewable energy

47. Ethical Operations • Working ethically means doing the right thing and acting in a way that is both fair and honest to all stakeholders. • ‘A business that makes nothing but money is a poor business.’ Henry Ford 1903

48. Ethical Operations Examples of unethical practices include: • The use of child labour • The use of sweatshops for production, for example hot conditions, long working hours • The violation of workers’ rights • The violation of health and safety standards.

49. Ethical Operations ADVANTAGES DISADVANTAGES • Increased sales from ethically motivated customers • Improved reputation • Easier to access finance • Improved employee motivation • Increase contracts from other firms e.g. Govt. • Labour & material costs increase • Overheads increase e.g. training • Standards vary between countries

50. Technology in Operations