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Flashcards · 9609 · AS Topic 4
Operations management (AS Level) flashcards
25 cards on AS Topic 4, subtopics 4.1 to 4.3. Pick a subtopic or study them all.
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4.1 The nature of operations
- The transformational process
- Inputs (materials, components, labour, machines, energy, finance) are transformed into outputs: a good or a service. Services have a process too.
- Efficiency vs effectiveness
- Efficiency: producing output with the least waste of resources (lower unit costs). Effectiveness: achieving the business’s aims and meeting customer needs.
- Labour productivity: formula and example (5,400 units from 30 workers, then 5,880 from 28)
- Labour productivity = output in a period ÷ number of employees. 5,400 ÷ 30 = 180; 5,880 ÷ 28 = 210 per worker. Change = (210 − 180) ÷ 180 × 100 = +16.7%.
- Productivity vs production
- Production is the total output. Productivity is output per input.
- Added value vs profit
- Added value takes off only bought-in inputs. Profit takes off all costs.
- Capital intensive vs labour intensive production
- Capital intensive: low variable cost per unit and consistent quality, but high fixed costs, inflexible, needs high volume. Labour intensive: flexible, personal, low fixed costs, but higher cost per unit and variable quality.
- Set-up A: fixed £80,000 + £0.50 per unit. Set-up B: fixed £20,000 + £1.10 per unit. At what output do total costs equal?
- 80,000 + 0.50Q = 20,000 + 1.10Q, so 60,000 = 0.60Q and Q = 100,000 units. Below this B (lower fixed cost) is cheaper; above it A (lower variable cost) is cheaper.
- Batch vs flow production
- Batch stops and restarts between product types. Flow runs continuously on one standard product.
- Job production vs mass customisation
- Both give the customer something personal. Job is made from scratch each time. Mass customisation assembles from a standard range of parts using flexible systems.
4.2 Inventory management
- The three types of inventory
- Raw materials (inputs not yet used), work in progress (part-finished goods) and finished products (awaiting sale or delivery).
- Lead time, buffer inventory and re-order level
- Lead time: the gap between placing an order and receiving it. Buffer inventory: the minimum safety level not to go below. Re-order level: the inventory level that triggers a new order.
- Re-order level: formula and example (25 kg a day, lead time 4 days, buffer 60 kg)
- Re-order level = (usage per day × lead time in days) + buffer inventory. (25 × 4) + 60 = 160 kg.
- Maximum inventory, when delivery arrives as stock reaches the buffer (buffer 90 units, order 450 units)
- Maximum inventory = buffer inventory + order quantity = 90 + 450 = 540 units. The order quantity changes the maximum, not the re-order level.
- Costs of holding inventory
- Cash tied up (opportunity cost and pressure on cash flow), storage, insurance and security, damage, theft, going out of date or obsolete, and handling time.
- Just in Time (JIT) vs Just in Case (JIC)
- JIT: minimum inventory, small frequent orders; cuts holding costs and waste but production stops if a delivery fails. JIC: large buffers to avoid running out; high holding costs and obsolescence.
- When is JIT more likely to suit a business?
- Steady demand and reliable forecasts, dependable nearby suppliers, materials that are bulky, perishable or costly to store, and flexible staff. JIC suits uncertain supply, long lead times or sharp seasonal peaks.
- Supply chain management (SCM)
- Coordinating the flow of materials, information and payments along all the stages and firms from raw material to final customer. Reliable suppliers with short, predictable lead times allow a smaller buffer.
4.3 Capacity utilisation and outsourcing
- Capacity utilisation: formula and example (3,150 cases a week, maximum 4,500)
- Capacity utilisation (%) = actual output ÷ maximum possible output × 100. 3,150 ÷ 4,500 × 100 = 70%.
- Why does unit cost fall as capacity utilisation rises?
- Fixed costs are shared over more units. Fixed costs 90,000, variable cost 5 per unit: at 18,000 units the unit cost is 180,000 ÷ 18,000 = 10.00; at 24,000 units it is 210,000 ÷ 24,000 = 8.75.
- Capacity utilisation versus productivity
- Utilisation compares output with maximum output; productivity compares output with inputs such as labour.
- Is 100% capacity utilisation the goal?
- Not automatically: some slack gives room to handle surges and maintenance. Over capacity working brings overtime and repair costs, defects, breakdowns, fatigue and late deliveries.
- Ways to improve low capacity utilisation
- Raise output (promotion, new markets or products, contract work for other firms) or reduce capacity by rationalisation (close a line, sell or rent out assets). Reducing capacity shrinks the denominator; raising output grows the numerator.
- Outsourcing: definition, and outsourcing versus buying materials
- Using another business to carry out an activity or process the firm could do itself (for example payroll or delivery). Outsourcing hands over an activity, not just the supply of inputs.
- Outsourcing: benefits and drawbacks
- Benefits: lower or predictable cost, specialist skills, focus on core activities, flexibility at peaks. Drawbacks: less control of quality and timing, dependence on one supplier, hidden contract and monitoring costs, redundancies, confidentiality risk.
- In-house: fixed cost 30,000 + 2 per unit. A contractor charges 5 per unit. At what volume are the costs equal?
- Break-even volume = fixed cost ÷ (outsourced price − in-house variable cost) = 30,000 ÷ (5 − 2) = 10,000 units. Below this outsourcing is cheaper on cost alone; above it in-house is cheaper.