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Chapter 10 Operations (The final chapter!!!). What you already know The difference between job production and batch production What are they? The importance of customer service What is that? How customers are protected by law?. Efficiency. Production methods for growing businesses
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What you already know The difference between job production and batch production What are they? The importance of customer service What is that? How customers are protected by law?
Production methods for growing businesses The production methods used by small businesses have disadvantages Job production can be slow and only suitable for small levels of production Batch production takes time to switch between different batches and can lead to high stock levels Batches of school uniforms may only be produced once a year and some of the stock will be held for this length of time before another batch for this school is produced The alternative method used by many growing and large businesses is flow production See how it’s made video What do you think are the main features of flow production?
Flow production: large scale production where each stage of production is carried out one after the other, continuously, on a production line specialisation: work is divided into separate tasks or jobs that allow workers to become skilled at one of them Production methods for growing businesses Flow production is also known as mass production The main features are Large scale production Equipment is expensive and only worthwhile if output is large e.g. robots Standardised product The key features of the product do not change Changes of colour or extras are possible E.g. colour of a car Specialisation The workers or machines used in flow production are often specialised in one task e.g. machine focussing on one aspect of the car assembly This means work will be faster Division of labour – the complete job is divided up into a large number of small tasks which allows specialisation Division of labour: breaking a job down into small, repetitive tasks that can be done quickly by workers or machines specialised in one task
Advantages of flow production High output and higher efficiency means cost per unit is lower Division of labour means automation (machinery) can be used giving consistency and high standards of quality Less need to hold stocks Unlike batch production this is continuous production so it is not necessary to hold high stocks for a long time Lower costs Less room needed for stock
The main limitations of flow production Set up costs are high especially if computer controlled robots are used If there are production problems they can be costly as the whole production line may need to be stopped Worker motivation can be low because they are only involved in one part of the production process which can be very repetitive The product has to be standardised - it cannot be changed to meet customer needs without costly and time consuming changes in the machinery
Lean production: a production approach that aims to use fewer resources by using them more efficiently Lean production Businesses have to find a way of dealing with rising costs and increased competition They have to keep their prices as low as possible One way of doing this is to become more efficient in production Lean production involves using less of all resources Space, materials, stock, time and labour The Japanese car manufacturer Toyota was the first to fully adopt this production approach It is now the world’s largest and most successful car manufacturer Some of the methods are Kaizen Just in time manufacturing Lean design Cell production
Kaizen Kaizen is a Japanese word that means continuous improvement There are 2 main elements Most kaizen improvements are based around people and their ideas rather than investment in new technology Each change on its own may be of little importance but if hundreds of changes are made the cumulative effects can be substantial
Continuous Improvement According to the Kaizen institute the goal of any kaizen programme should be to convince all employees that they have two jobs to do Doing the job and then looking for ways to improve it The culture is based on the belief that the production line worker is the real expert The company’s greatest resource is its staff Teams work together in ‘cells’ and are responsible for the quality of work in their section The members regularly meet to discuss problems and come up with solutions Continuous improvement is better than delayed perfection – Mark Twain
Just in time manufacturing: ordering supplies so that they arrive just when they are needed and making goods only when ordered by customers JIT Money tied up in stocks is money wasted according to the JIT principle If stocks of materials, spare parts and completed products are reduced to the absolute minimum then money can be saved This can be achieved by Arranging with suppliers that all supply orders are only brought to the business on the day required (not in advance) Producing to order, not for stock – this means only making products when they have been ordered by the customer
Lean Design: producing new designs as quickly as possible Lean Design There is a big advantage in launching a new product ahead of your competitors Think about the benefits Apple gained by launching their iPhone months before its competitors Some of the feature of lean design are Saving development time and launch means high prices can be charged and high profits made before the competitor launches their product (price skimming) Lean design means teams of designers working on different parts of a product simultaneously Using involves using computer aided design (CAD)
Cell Production This is a variation on pure flow production Instead of each individual worker just doing one repetitive task the total job is split into complete units of work that can be done by teams or ‘cells’ A team of workers might assemble a complete washing machine rather than each worker just adding one part Needs flexible and well trained staff – they need to be able to make decisions and problem solve Cell production is said to be more motivating and rewarding for workers than traditional flow production Lean production in general may need more staff training and staff may be motivated to be part of helping the business cut waste and become more efficient
Answers might include: • the required capacity • the investment costs • the running costs • the expected sales • the likely returns Bottling plant What do you think a company might think about before investing in a bottling plant like this one?
The Model T One of the most famous cars ever made is the Model T, which was produced by Ford from 1918. The car is famous because it was the first to be produced using flow production techniques. The cars moved along the assembly line and at each stage another part of the car was fitted. The introduction of flow production increased the number of cars being made and meant they were much cheaper to produce. Ford cars were sold at a price much lower than anyone else’s and meant this was the first car that was affordable for millions of people. • Why do you think the Model T Ford is not being made any more? • Answers might include: • technology has improved so it is possible to build better cars • customers expect more from a car • there is greater demand for a choice of features
The Toyota Production System The Toyota Motor Corporation’s vehicle production system, known as the Toyota Production System (TPS), has the objective of ‘making the vehicles ordered by customers in the quickest and most efficient way, in order to deliver the vehicles as quickly as possible’. It is based on: Jidoka. This means that when a problem occurs, the production line stops immediately, preventing defective products from being produced. Just-in-time. This occurs when each process produces only what is needed by the next process in a continuous flow. Based on the basic philosophies of jidoka and just-in-time, the TPS can efficiently and quickly produce vehicles of sound quality, one at a time, that fully satisfy customer requirements. • What is the advantage of the jidoka system highlighting a defect immediately? • Answers might include: • means that problems get fixed quickly rather than being hidden and possibly not discovered for a long time • means that employees will want to get it right rather than having errors shown up immediately
Recognising challenges of growth Benefits of business growth Marketing and financial advantages Bigger market share Increased revenue leading to greater profit if costs do not rise a higher level Operations management advantages Reductions in unit costs which can make a business more competitive Large businesses normally have unit cost advantages over smaller business in the same industry If we compare Waitrose and Tesco Tesco’s annual sales are much higher than Waitrose but so are its costs However the cost per unit sold is much lower This is due to economies of scale Economies of scale: As the business makes more output the unit costs decrease
Main economies of scale Bulk-buying or purchasing economies Tesco is able to order thousands of boxes of breakfast cereal at a time so the manufacturer will offer more discount than a supermarket that buys less For the manufacturer it will be cheaper to deliver one very large order than delivering many smaller orders – Tesco will have storage space so can take large orders Technical economies A large business is likely to be able to buy the latest and most productive machines The large business can also keep these machines used most of the time reducing average costs Specialist managers A large firm may be able to afford specialist managers who should improve efficiency
Possible disadvantages of growth There are problems that most large businesses face which can lead to increases in average costs. These are called diseconomies of scale Poor communication When an organisation gets better there are more levels and messages from top to bottom or bottom to top take longer to get there and get distorted IT becomes more widely used rather than face to face meetings Issues take longer to resolve People spend too much time doing email
Possible disadvantages of growth Poor Motivation Although there is more chance of promotion in a larger company workers may also feel unimportant and unmotivated leading to low productivity Poor co-ordination With locations in different areas or countries It becomes difficult to make sure all major decisions fit in with the aim of the head office This can lead to duplication of resources and higher costs If production processes are in different locations there could be delays during transportation
Quality product: goods or service that meeting customers’ expectations and is therefore ‘fit for purpose’ Quality assurance in growing businesses A quality product is? It does not necessarily mean the best product possible The best light bulb could be made to last 20 years but would customers be prepared to pay £10 for it? A £1 light bulb that lasts 2 years is enough quality to meet expectations There is no point in spending money on making one that lasts 20 years The main causes of quality problems in growing businesses are Poorly motivated workers who are not well managed who do not care about the customer The reputation of the business will be damaged There will be the cost of replacing faulty goods or repeating customer service to a higher standard
Outsourcing: using other businesses to make all or part of a product or provide an aspect of customer care Quality assurance in growing businesses More causes of quality problems in growing businesses are No clear responsibility for quality Whose job is it to make sure high quality levels are met? – the quality inspector, the workers or the managers? If there is no clear guidance goods and services may fail the quality test Lack of consistency a business with many branches may fail to give consistent service One branch may change or exchange unwanted goods with no time limit and another may do something different Outsourcing As a firm grows it might decide to outsource divisions of its business For example a business may outsource its after sales service to a call centre company If they don’t provide a good service this will affect customer relationships
Quality standards: the expectations of customers expressed in terms of the minimum acceptable production or service standards Quality assurance: setting and trying to meet quality standards throughout the business Quality assurance in growing businesses Another cause of quality problems in growing businesses is Inspection costs Unless every worker is accountable for quality inspectors or checkers will need to regularly check quality standards This might be a mystery shopper in a retail business In factories they may have a quality control inspector This is called quality assurance
Main methods of maintaining quality Setting agreed quality standards Once customer expectations are known minimum quality standards have to be set at each stage of a business Examples Bank – maximum waiting time Quality assurance would mean checking this time was being kept to Fast food delivery – maximum time for deliveries Quality assurance would mean recording delivery times Jet engines – maximum failure of each component There would be strict quality standards at each stage of the production process Batteries – minimum number of hours of continuous operation Quality assurance would mean testing a certain number after a set number had been produced Sometimes these quality standards will be printed so that customers are aware
Total quality management (TQM): an approach to quality that aims to involve all employees in the quality improvement process Main methods of maintaining quality Total Quality Management (TQM) This requires the involvement of all employees It is based on the principle that everyone within a business can contribute to the overall quality of the finished product or service Each worker has to think about keeping his internal customer happy The internal customer is the person or division that he is handing his work to Examples A truck driver drops off supplies to retailers Goods have to be handled carefully and loaded in the right order The truck driver has to face the retailer if goods are damaged or the wrong ones are delivered The retailer is the truck driver’s internal customer A computer assembly team is the internal customer of the team that is producing the individual components They must make sure their component meets quality standards or accept responsibility TQM needs a lot of staff training
Daimler-Benz and Chrysler The Daimler-Benz and Chrysler companies merged in 1998. The deal was a terrible failure because the way the firms did business and what they valued turned out to be very different. Daimler focused on top of the range cars while Chrysler aimed more at the mass market. If sales were falling, one company would want to improve the quality to help sell more, while the other wanted to cut the price. Which do you think was which? Answer: • Daimler focused more on quality; Chrysler focused more on price cutting.
Google and YouTube The founders of YouTube, Chad Hurley and Steve Chen, sold the business to Google 20 months after they set it up for £880 million. Hurley and Chen were both aged under 30 years and set up the business in a garage in California. Google had its own service showing people’s films but YouTube was much more popular and had a market share of over 60%. People watch films on YouTube more than 100 million times daily. • How do you think Google decided on the amount it paid for YouTube? • Answers might include: • existing advertising revenue • expected advertising revenue • funds available • whether there are other buyers
What does the table suggest about the quality of Ryanair’s services? • Answers might include: • good performance: it has the highest proportion of planes leaving on time and the lowest proportion of bags missing • this should lead to customer satisfaction
