Operational strategy flashcards

Topic 4: Operational strategy

Operations management objectives

Targets for quality, cost, speed, flexibility, innovation, environment and capacity that support business objectives.

Job, batch, flow and cell production

Job: very low volume, high variety and unit cost. Batch: medium volume and variety. Flow: high volume, low variety, low unit cost, inflexible. Cell: team-based units, medium volume, fairly flexible.

Added value, capacity utilisation and wastage rate

Added value = selling price − bought-in materials and services (£25 − £14.50 = £10.50). Capacity utilisation = actual ÷ maximum output × 100. Wastage rate = units wasted ÷ units input × 100 (24 of 800 = 3%).

Economic order quantity (EOQ): formula and example

EOQ = √(2 × annual demand × cost per order ÷ holding cost per unit). Demand 2,000, order cost £25, holding £2.50: √40,000 = 200 units.

Reorder level and maximum stock

Reorder level = buffer + (usage per day × lead time). Maximum stock = reorder level + reorder quantity − usage in lead time. Buffer 100, usage 30, lead time 2, order 400 → reorder level 160, maximum 500.

PERT expected time

(O + 4M + P) ÷ 6, where O is optimistic, M most likely and P pessimistic. O = 2, M = 3, P = 10 → (2 + 12 + 10) ÷ 6 = 4 days.

Total float vs free float

Total float = LFT − EST − duration: delay possible without delaying the project. Free float = EST of next activity − EST − duration: delay possible without affecting the next activity. EST 4, duration 3, LFT 10, next EST 9 → total 3, free 2.

Internal economies, external economies and diseconomies of scale

Internal: technical, purchasing, financial, marketing, managerial. External: labour pool, supplier clusters, infrastructure. Diseconomies: communication, coordination, alienation, congestion.

Total quality management (TQM)

Quality as the responsibility of every employee.

Benchmarking

Comparing performance with the best and adopting their practice.

Fixed reorder level vs fixed time reordering; Kanban

Fixed reorder level: set quantity, variable timing. Fixed time reordering: set timing, variable quantity. Kanban: cards signal when to replace stock.

Outsourcing, subcontracting, offshoring and re-shoring

Outsourcing: another business does an activity for you. Subcontracting: another firm does part of a specific job. Offshoring: activity moved abroad. Re-shoring: activity brought back home.