Operations Management

Production of Goods and Services:

Production: making a product or service to satisfy consumer
wants and needs.
The factors of production or ‘inputs’ include: Land – For factories
or materials
Labour – Employees
Capital – Money/finance
Enterprise – Managers
* A business combines these inputs to produce a more valuable
output (this is added value)
* Labour-Intensive Production: A larger workforce is used than
machinery to make goods. Usually done in countries with low
wages so that it is more efficient (ex: SHEIN)
* Capital-Intensive Production: businesses use machinery rather
than workers. Usually done in developed countries where the
wages are high.

Operations Department
The operations department’s role is to transform inputs into
outputs for consumers.
An operations manager ensures raw materials are available and
made into finished goods.
Most manufacturing businesses have:
Factory Manager - responsible for quality and quantity of products
Purchasing Manager – responsible for providing the required
materials and equipment
Research and Development Manager – responsible for designing
and testing of new production processes and products.
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In a retail business, the factory manager will be replaced by the
managers for the shops.
In service businesses, e.g. restaurants, the operations department
will include managers for each of the restaurants.

Productivity
Productivity is a way of measuring a business’s efficiency.
Note: Production is the making of the product while productivity is
how efficiently the product is made.

Productivity = Quantity of output / Quantity of input

Labour Productivity = Output/Number of workers
Capital productivity=Output/Number of machines used.
As employees become more productive, output per employee rises, and costs of
production fall.

Increasing productivity:
* Improve factory layout to reduce time wastage and raise efficiency
*Introduce automation
*Improve labour skills by training
*Improve quality control
*Improve employee motivation
*Improve inventory control

Benefits of increasing efficiency:

*More output compared to inputs.
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* Lower costs per unit (and therefore lower average cost).
*If the business has a limited workforce, there may be an increase in wages which
may l increase workers’ motivation, which in turn, leads to an increase in
productivity.

Inventory
Inventory can take various forms. Inventory includes:
- Raw materials
-Work in progress goods
-Finished goods
Why do businesses hold inventory?
-To ensure enough inventory is available to satisfy sudden changes in demand.
- Production and opportunity costs will also be high if inventory levels are high.

Inventories can be managed:

-Make sure you set maximum, re-order, and minimum inventory levels. You need
these levels for stock control purposes.
*The business buys in inventory to fill its holding capacity, known as the
maximum inventory level.
* As resources are depleted, inventory levels drop. At this stage, reorders will be
made so it reaches the business in time before it runs out.
*Buffer Inventory Level: inventory held to deal with uncertainty in customer
demand and deliveries of supplies.

Lean Production

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*Lean Production: various techniques to cut down waste and raise efficiency.
Types of Waste:
* Transportation - when the goods are being moved unnecessarily → fuel price,
some goods may get damaged.
*Over-production - leads to high storage costs and possible damage to goods
while in storage.
*Over- processing - when sophisticated machines are being used to do simple
tasks
*Waiting - when goods are not moving or being processed, waste occurs due to
inefficiency
*Motion - any action made by an employee that does not relate to the production
of goods, wastes time *Unnecessary inventory
*Defects - when goods have faults/defects that require them to be
inspected/fixed, wastes time.

Advantages of lean production:

-Less storage costs
-Quicker production
-Better use of equipment
-Less money tied up in inventory
-Speeds up production by cutting out processes Improved health and safety lead
to less time off work due to injuries.
-No need to repair defects or provide replacement services for a dissatisfied
customer.
-All these save/reduce costs that lead to lower customer prices and increased
business competitiveness and profit.

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Types of Lean Production:
*Kaizen
* Just-in-time inventory (JIT)
*Cell production
Kaizen
Kaizen means continuous improvement in Japanese Its primary focus is to
eliminate waste.
Ideas are thought of by holding frequent meetings with workers to discuss
problems and possible solutions.
Advantages:
- High productivity
-Less space needed for production
-Work in progress is low
-Improved layout of the factory may lead to combining jobs.
-This will reduce labour demand.

Just in Time
A production method that reduces or virtually eliminates the need to hold
inventories of raw materials or unsold inventories of the finished product.
Advantages
-All this reduces the costs of holding inventory.
- ‘Warehouse space is not needed, reducing costs.
-The finished product is sold quickly so that money will return to business quickly.
Helping cash slow.
***However, to operate in JIT, businesses need to have reliable suppliers and an
efficient ordering system. If suppliers are late, it can disrupt the system.
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Cell Production
This is where the production process is divided into separate units, each making
an identifiable part of the good

Advantages:
-High motivation due to improved morale of employees.
-Increased production efficiency.
-Employees feel more valued and are less likely to strike or cause disruption.

Methods of Production:
There are 3 main methods of production:
-Job Production: products made one at a time
-Batch Production: a quantity (batch) of a product is made, then a batch of
another product is made
-Flow Production (mass): large quantity of products made in a continuous process

Job Production
Features of job production:
-Products are made specifically for the customer’s order.
-Each order is different.
E.g. bridges, ships, cakes, cinema, table, suits, and so on.

Benefits of job production:

- Good for ‘one-off’ products.
- Meets the exact requirements of the customer.

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- Varied work increases employee motivation
- Ability to charge higher prices

Limitations of Job Production:

-Often labour -intensive, so it is expensive as highly skilled workers are needed.
- Production takes longer.
- Any errors made are expensive to fix
- Materials are more expensive.
- No possibility of purchasing economies of scale.

Batch Production:
-This is where similar products are made in blocks or batches.
-A certain number of one product is made, then a certain number of another
product is made, and so on.
Advantages of batch production
• It is a flexible way of working and production can easily be changed from one
product to another.
• It still gives some variety to workers’ jobs.
• It allows more variety to products which would otherwise be identical. This
gives more consumer choice (for example, different flavours of ready-meals).
• Production may not be affected to any great extent if machinery breaks down.

Disadvantages of batch production

• It can be expensive as semi-finished products will need moving about to the
next production stage.

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• Machines have to be reset between production batches which means there is a
delay in production and output is lost.
• Warehouse space will be needed for inventories of raw materials, components
and finished batches of goods. This is costly.

Flow production
- This is when large quantities of a product are produced in a continuous process.
It is sometimes referred to as mass production because of the large quantity of a
standardised product that is produced. It is called flow production because
products look as if they are flowing down the production line (they move
continuously along a production line).

Advantages of flow production

• There is a high output of a standardised product.
• Costs of making each item are kept low and therefore prices are also lower.
• It is easy for capital-intensive production methods to be used – reducing labour
costs and increasing efficiency.
• Capital-intensive methods allow workers to specialise in specific, repeated tasks
and therefore the business may require only relatively unskilled workers – little
training may be needed.
• It may benefit from economies of scale in purchasing.
• Low average costs and therefore low prices usually mean high sales.
• Automated production lines can operate 24 hours a day.
• There is no need to move goods from one part of the factory to another as with
batch production, so time is saved.

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Disadvantages of flow production
• It is a very boring system for the workers, so there is little job satisfaction,
leading to a lack of motivation for employees.
• There are significant storage requirements – costs of inventories of raw
materials/components and finished products can be very high unless just-in-time
systems are used.
• The capital costs of setting up the production line can be very high.
• If one machine breaks down the whole production line will have to be halted.

Factors affecting which method of production to use The factors which determine
which method of production to use are as follows:
• The nature of the product.
If a fairly unique product or an individual service is required (in fact many services
are individual to the customer and will be specifically tailored to their
requirements), job production will be used. If the product can be mass produced
using an automated production line, then flow production will be used.
• The size of the market.
If demand is higher and more products can be sold but not in very large
quantities, batch production will be used. The product will be produced in a
certain quantity to meet the particular order. Small local markets or niche
markets will be served by businesses using job or batch production. International
markets are served by businesses using flow production.
• The nature of demand.
If there is a large and fairly steady demand for the product, such as soap powder,
it becomes economical to set up a production line and continuously produce the
product (flow production). If demand is less frequent, such as for furniture, then
production may be more likely to be job or batch production.
• The size of the business.

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If the business is small and does not have the access to large amounts of capital
then it will not produce on a large scale using automated production lines. Only
large businesses can operate on this scale. Small businesses are more likely to use
job or batch production methods.

How technology has changed production methods:

Technological advances have allowed the mechanisation and automation of
production methods in many industries.
For example, the car industry is almost entirely automated. The use of
automation, robotics and CAD/CAM keeps businesses ahead of the competition,
keeps costs falling, reduces prices and improves the products manufactured.
• Automation is where the equipment used in the factory is controlled by a
computer to carry out mechanical processes, such as paintspraying on a car
assembly line. The production line will consist mainly of machines and only a few
people will be needed to ensure that everything proceeds smoothly.
• Mechanisation is where the production is done by machines but operated by
people, for example, a printing press. Robots are machines that are programmed
to do tasks, and are particularly useful for unpleasant, dangerous and difficult
jobs. They are quick, very accurate and work non-stop, 24 hours a day.
• CAD (computer-aided design) is computer software that draws items being
designed more quickly and allows them to be rotated to see the item from all
sides instead of having to draw it several times. It is used to design new products
or to re-style existing products. It is particularly useful for detailed technical
drawings.
• CAM (computer-aided manufacture) is where computers monitor the
production process and control machines or robots on the factory floor. For
example, on the production line of a car plant computers will control the robots
that spot-weld the car body together or the robots that spray paint the car.

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 • CIM (computer-integrated manufacturing) is the total integration of computer-
aided design (CAD) and computer-aided manufacturing (CAM). The computers
that design the products are linked directly to the computers that aid the
manufacturing process.

Technology has also improved productivity in shops with electronic payment

methods and scanners at the tills.
• EPOS (electronic point of sale). This is used at checkouts where the operator
scans the barcode of each item individually. The price and description of the item
is displayed on the checkout monitor and printed on the till receipt. The inventory
record is automatically changed to show one item has been sold and if inventory
is low (at the reorder point) then more inventory can be automatically ordered.
• EFTPOS (electronic funds transfer at point of sale). This is where the electronic
cash register is connected to the retailer’s main computer and also to banks over
a wide area computer network. The shopper’s card will be swiped at the till and
the bank information will automatically be read from the card. The money will be
directly debited from the customer’s account after they have signed for the debit
to be made or have entered their PIN (personal identification number). A receipt
will be printed as confirmation that the payment has gone out of the customer’s
account.
• Contactless payment is increasingly being used in many countries. It is a fast,
easy and secure way to pay for purchases that are less than a small amount, for
example, in the UK this is £30 or less. Sometimes larger transactions can be made
but then a passcode, fingerprint or some other way is used to ensure this is a
correct transaction. Pre-paid, debit, charge and credit cards, key fobs, wearable
devices such as watches and wristbands, and mobile devices, such as
smartphones and tablets, can be used to make contactless payments. It works by
the contactless device having an antenna. When it is touched against a
contactless terminal, it securely transmits information about the purchase

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The advantages of new technology
• Productivity is greater as new, more efficient production methods are used,
reducing average costs.
• Greater job satisfaction stimulates workers, as routine and boring jobs are now
done by machines.
• More skilled workers may be needed to use and maintain the new technology.
Businesses must offer training to existing workers in the use of new technology.
The workers may become more motivated and therefore improve the quality of
their work.
• Better quality products are produced owing to more accurate production
methods.
• Quicker communication and reduced paperwork, owing to computers, lead to
increased profitability.
• The information that is available to managers through the use of IT is much
greater and this should result in better and quicker decision making.
• New ‘high tech’ products are introduced as new technology makes completely
new products available.

The disadvantages of new technology

• Unemployment could rise as machines/computers replace people on the factory
floor and in offices.
• It is expensive to invest in new technology products and machinery. This
increases the risks as large quantities of products need to be sold to cover the
cost of purchasing the equipment.
• Employees may be unhappy with the changes in their work practices when new
technology is introduced.
• New technology is changing all the time and will often become outdated quite
quickly and need to be replaced if the business is to remain competitive.
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HOMEWORK
Answer the two Exam-style questions at the end of chapter 18. The due date for
handing-in your work is Friday,17th January 2025.

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