Operational management flashcards

Topic 4: Operational management

Operational objectives

Costs, quality, speed of response and flexibility, dependability, environmental objectives (waste, emissions), and added value.

Labour productivity, unit cost and capacity utilisation

Labour productivity = output ÷ employees. Unit cost = total costs ÷ units produced. Capacity utilisation = actual output ÷ capacity × 100.

9,600 units, 32 staff, capacity 12,000, total costs £36,480. Productivity, unit cost, utilisation?

Productivity 9,600 ÷ 32 = 300 per employee. Unit cost 36,480 ÷ 9,600 = £3.80. Utilisation 9,600 ÷ 12,000 = 80%.

Why does capacity utilisation matter?

Too little capacity means lost sales and late orders; too much means idle fixed costs. Higher utilisation spreads fixed costs, lowering unit cost.

Labour intensive vs capital intensive

Labour intensive: low fixed, high variable costs; flexible; suits small or varied output. Capital intensive: high fixed, low variable costs; consistent quality; suits large, steady output.

Lean production and Just in Time (JIT)

Lean: cut waste of every kind while meeting customer needs. JIT is part of lean: stock arrives as needed. Benefits: lower holding cost, less cash tied up. Difficulties: relies on reliable suppliers, little buffer if demand jumps.

Quality control vs quality assurance

Control: inspect output and remove faults (detects). Assurance: agreed standards at every stage, supplier checks and staff responsible for their own work (prevents).

Consequences of poor quality

Refunds and returns, rework and scrap, lost customers, damaged reputation, falling sales, complaint handling costs, possible legal claims and low staff morale.

Mass customisation

Making products to individual customer wishes at close to mass-production cost.

Ways of matching supply to demand in the specification

Outsourcing; temporary and part-time employees; producing to order.

Re-order level and maximum stock

Re-order level = buffer + (daily usage × lead time). Maximum stock = buffer + re-order quantity. Example: usage 60 a day, lead time 6 days, buffer 120 → re-order level 480; with a re-order quantity of 900, maximum stock 1,020.

Factors in choosing suppliers

Price, quality, reliability, speed, flexibility, payment terms, ethics and environment, location and financial strength.