Flashcards · 0264 · Topic 4

Operations management flashcards

40 cards on Topic 4, subtopics 4.1 to 4.6. Pick a subtopic or study them all.

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4.1 Production of goods and services

Labour productivity formula, and an example: Labour productivity = output in a period ÷ number of employees in that period. Example: 9,600 leaflets a day with 24 operators: 9,600 ÷ 24 = 400 leaflets per operator per day.
Why does efficiency matter, and how can it be increased?: Higher efficiency lowers unit costs, so price can fall or profit rise, and the business competes better. Ways: automation and other technology, and improving labour skills through training.
Lean production, and the two methods named in the syllabus: Making products with as little waste as possible while keeping quality high. Methods: just-in-time (JIT) inventory control and Kaizen.
Just-in-time (JIT): advantages and disadvantages: JIT: very little inventory is held; materials arrive as they are needed. For: less cash tied up in stock, less storage space, less waste. Against: one late delivery can stop production, reliance on suppliers, fewer bulk discounts.
Kaizen: Continuous improvement through many small changes suggested by all staff. Staff are involved and costs fall steadily, but gains are slow and some staff resist change.
Why hold inventory?: To keep production going if a supplier is late, meet a sudden rise in demand, buy in bulk at a discount, and prepare for seasonal demand.
Job, batch and flow production: Job: one product at a time to a customer’s order (a wedding dress). Batch: a group of identical products, then the equipment is changed (bread of one type). Flow: continuous production of identical products on a line (bottled drinks).
Flow production: advantages and disadvantages: For: the lowest unit cost, high output, consistent quality. Against: high set-up cost, little flexibility and repetitive work.

4.2 Technology and production of goods and services

Mechanisation and automation: Mechanisation: machines do work people did by hand, and a person usually still operates them. Automation: machines or computer-controlled systems do tasks with little human input.
Computer-Aided Manufacture (CAM): Computers control the machines and equipment used to make a product, so a design becomes instructions the machine repeats exactly.
Why does 3D printing suit one-off items and small runs?: It builds an object layer by layer from a digital design, so no special mould or tool is needed for each design.
How can contactless payment raise productivity in a shop?: Each transaction takes less time, so the same till and member of staff serve more customers an hour.
New technology in production: advantages and disadvantages for the business: For: higher output, lower unit cost, consistent quality, less waste. Against: purchase and installation cost, training, repairs and dependence on the system.
New technology: effects on employees: Good: fewer dull, heavy or dangerous tasks, new skills, better-paid technical jobs. Bad: job losses, retraining needed, repetitive machine-paced work.
Output rises from 2,400 to 2,880 loaves a week with the same 16 workers. Calculate the change in labour productivity.: 2,400 ÷ 16 = 150 and 2,880 ÷ 16 = 180 loaves per worker. Rise = 30, which is 30 ÷ 150 × 100 = 20%.

4.3 Sustainable production of goods and services

Sustainable production: Producing without using up resources or harming the environment, so that future production is not damaged.
Six methods of sustainable production: Renewable energy, using fewer resources or creating less waste, reusing, recycling, environmentally friendly products, and environmentally friendly packaging.
Reuse and recycle: the difference: Reuse: use the item again as it is (refillable containers). Recycle: break waste down to make new material (scrap metal melted).
Becoming more sustainable: advantages and disadvantages: For: lower running costs, better reputation with customers, easier to meet rules, can motivate staff. Against: high start-up costs, greener inputs can cost more, savings can take years, cheaper rivals may win price-sensitive buyers.
Solar panels cost $24,000 and save $4,800 a year. How long to recover the cost?: 24,000 ÷ 4,800 = 5 years.

4.4 Costs, scale of production and break-even analysis

Fixed costs and variable costs: Fixed costs: do not change with output (rent, insurance, managers’ salaries). Variable costs: change directly with output (materials, packaging).
Total cost and average cost formulas: Total cost = total fixed costs + total variable costs. Average cost = total cost ÷ number of units.
Fixed costs $12,000, variable cost $3 per unit, output 4,000. Find total cost and average cost.: Total variable cost = 3 × 4,000 = $12,000. Total cost = 12,000 + 12,000 = $24,000. Average cost = 24,000 ÷ 4,000 = $6.
Economies of scale, and the five types: Falling average cost as a business increases its scale of production. Purchasing (bulk discounts), marketing (advertising spread over more units), financial (cheaper borrowing), managerial (specialist managers), technical (large efficient machines).
Diseconomies of scale and their causes: Rising average cost because a business has become too large. Causes: poor communication, lack of commitment or loyalty from employees, weak coordination, lack of control.
Break-even output and margin of safety formulas: Contribution per unit = selling price − variable cost per unit. Break-even output = fixed costs ÷ contribution per unit (in units). Margin of safety = actual sales − break-even sales.
Price $9, variable cost $4, fixed costs $20,000, sales 5,100. Find break-even, margin of safety and profit.: Contribution = 9 − 4 = $5. Break-even = 20,000 ÷ 5 = 4,000 units. Margin of safety = 5,100 − 4,000 = 1,100 units. Profit = 5,100 × 5 − 20,000 = $5,500.
Break-even chart: where do the lines start, and where is break-even?: Fixed costs: a horizontal line. Total costs: start at the fixed-cost level and rise. Total revenue: starts at the origin. Break-even is where total revenue and total costs cross.
Limitations of break-even analysis: It assumes all output is sold, price and variable cost per unit stay constant, fixed costs stay fixed, and costs and revenue can be forecast accurately. It suits one product and ignores competitors and changes in demand.

4.5 Quality of goods and services

Quality: How well a good or service meets what customers expect and need, judged against its price.
Why does quality matter to a business?: Repeat purchases and recommendations, a reputation that supports a higher price, less waste, rework and refunds, fewer complaints, and standing out from competitors.
Quality control and quality assurance: Quality control: checking goods or services, usually after they are made, to find and remove faults. Quality assurance: standards, training and checks at every stage so that faults are prevented.
Quality control: one strength and one weakness: Strength: simple, and stops faulty items reaching customers. Weakness: the waste has already happened, inspection costs money, and sampling can miss faults.
Quality assurance: one strength and one weakness: Strength: fewer faults, less waste and consistent quality, with all employees involved. Weakness: set-up and training costs, and it needs every employee’s cooperation.
A sample of 250 items has 5 faulty. Estimate the faulty items in a batch of 3,000.: Defect rate = 5 ÷ 250 × 100 = 2%. Estimate = 2% × 3,000 = 60 faulty items.

4.6 Location decisions

Factors in the location of a manufacturing business: Cost of land and premises, labour skills and wages, nearness to raw materials (heavy or bulky inputs), nearness to the market, transport and infrastructure, government help, and room to expand.
Factors in the location of a service business: Closeness to customers, footfall and visibility, rent, competition, parking, access and safety, skilled staff, and reliable communications.
Factors in choosing which country to locate in: Labour cost and skills, costs of land and energy, market access, transport, government attitude (grants, taxes), political stability, exchange rates, language and culture, and legal requirements.
Footfall and infrastructure: Footfall: the number of people passing or entering a location. Infrastructure: the roads, ports, rail, power and communications that support a business.
Why can the cheapest site be the wrong choice?: It may lack skilled workers, transport links or customers, and the extra costs or lost sales can exceed the saving.