Unit 4: Operations Management
Chapter 23: The nature of Operations
Factors of production(Input):
1. Land= somewhere to operate from.
2. Labour= manual labour or mental skills. Effectiveness improved by training in specific skills.
3. Capital= tools, machinery, computers & other equipment used to produce G&S.
- Intellectual Capital= the intangible capital of a business that includes human capital
(well-trained & skilled employees), structural capital (databases & information
systems) and relational capital (good links with suppliers & customers).
4. Enterprise= the decision-making skills and risk-taking qualities of entrepreneurs, essential for
new business information.
Transformational Process= an activity or group of activities that transforms one or more inputs, adds
value to them, and produces outputs for customers.
Contribution of Operations to Added Value:
Increase Added Value By Effectively Managing:
- Efficiency of production.
- Quality.
- Flexibility and innovation.
Amount of Value Added to the Inputs Depends on a Number of Factors:
- Design of the product.
- Efficiency of operations.
- Branding encouraging consumers to pay more for the products than the cost of inputs.
Operations Contributes to Adding Value By:
- Reducing production costs by increasing efficiency.
- Producing quality.
- Ensuring flexible production so changing consumer tastes can be satisfied.
Productivity= the ratio of outputs to inputs during production (Eg: output per worker per time period).
Level of Production= the number of units produced during a time period.
Production= the process that transforms inputs into outputs.
Labour Productivity= average output per employee in a given time period:
Labour Productivity= total output in a given time period
total workers employed
Raising Productivity:
1. Improve training of employees to raise skill levels.
2. Improve worker motivation.
3. Purchase technologically advanced equipment.
4. More effective management.
Raising Productivity Doesn’t Guarantee Success:
1. If product unpopular, it may not sell profitably no matter how efficiently it’s made.
2. Greater effort from workers to increase productivity could lead to higher wages demands.
3. Workers may resist measures to raise productivity.
4. Quality of management determines the success of a policy to increase productivity.
5. There is a difference between efficiency, as measured by productivity, and effectiveness.
Efficiency= producing output at the highest ratio of output to input. (Determines the average cost of
production)
Effectiveness= meeting the objectives of the business by using inputs productively to meet customers’
needs. (Important because means customers needs are being met)
Sustainability of Operations= business operations that can be maintained in the long term, for
example, by protecting the environment & not damaging the quality of life for future generations.
1
, Ways of doing this:
1. Reducing energy use & carbon emissions.
2. Reducing use of plastic & other non-biodegradable materials.
3. Using recycled materials.
4. Manufacturing recyclable products.
5. Reducing waste from operations.
6. Buying from suppliers who use sustainable materials & processes.
Why are businesses making operations more sustainable?
1. Complying to stricter laws on environmental issues.
2. Pressure groups exposing environmentally damaging business and operations.
3. Businesses need to fulfil senior managers' commitments on corporate responsibility.
4. Positive publicity = good for public relations.
5. More sales from customer preference to greener & sustainable products.
Benefits of Increasing Sustainability: Limitations & Costs of Increasing Sustainability:
Reducing energy = reduced costs. Increasing sustainability requires capital investment.
Reducing use of plastic & non-biodegradable materials = attract more Environmentally friendly materials could cost more & may not be efficient for protection
demand from green customers. & preservation of the product.
Recycled materials reduces demand for newly produced raw materials Recycled materials need to be cleaned or processed before use.
= reducing price.
Making recyclable products reduces costs of waste disposal. Development of recyclable products is expensive & time-consuming.
Reducing waste = reduce production costs. Increasing sustainability needs investment in training & more accurate equipment.
Buying from sustainable suppliers = decreased risk of bad publicity. Supplies from sustainable sources might be more expensive.
Labour Intensive= involving a high level of labour input compared with capital equipment.
- Small business producing specialist, customised products.
Advantages:
1. Interesting & varied work. 3. One-off designs meet customer
2. Low machine costs. requirements.
Disadvantages:
1. Low output levels.
2. Skilled, high-paid workers required.
3. Product quality depends on skill & experience of each worker.
Capital Intensive= involving high quantity of capital equipment compared with labour input.
- Large business producing for mass market.
Advantages:
1. Economies of scale.
2. Consistent quality.
3. Low unit costs of production.
4. Ability to supply the mass market.
Disadvantages:
1. High fixed costs.
2. Cost of financing the equipment.
3. High maintenance costs & need for skilled workers to do repairs.
4. Quick pace of technological change can make latest production equipment & computer
systems obsolete & relatively inefficient.
Approach chosen depends on:
1. Nature of product & brand image.
2. Relative costs of labour & capital.
3. Business size & access to finance.
2
Chapter 23: The nature of Operations
Factors of production(Input):
1. Land= somewhere to operate from.
2. Labour= manual labour or mental skills. Effectiveness improved by training in specific skills.
3. Capital= tools, machinery, computers & other equipment used to produce G&S.
- Intellectual Capital= the intangible capital of a business that includes human capital
(well-trained & skilled employees), structural capital (databases & information
systems) and relational capital (good links with suppliers & customers).
4. Enterprise= the decision-making skills and risk-taking qualities of entrepreneurs, essential for
new business information.
Transformational Process= an activity or group of activities that transforms one or more inputs, adds
value to them, and produces outputs for customers.
Contribution of Operations to Added Value:
Increase Added Value By Effectively Managing:
- Efficiency of production.
- Quality.
- Flexibility and innovation.
Amount of Value Added to the Inputs Depends on a Number of Factors:
- Design of the product.
- Efficiency of operations.
- Branding encouraging consumers to pay more for the products than the cost of inputs.
Operations Contributes to Adding Value By:
- Reducing production costs by increasing efficiency.
- Producing quality.
- Ensuring flexible production so changing consumer tastes can be satisfied.
Productivity= the ratio of outputs to inputs during production (Eg: output per worker per time period).
Level of Production= the number of units produced during a time period.
Production= the process that transforms inputs into outputs.
Labour Productivity= average output per employee in a given time period:
Labour Productivity= total output in a given time period
total workers employed
Raising Productivity:
1. Improve training of employees to raise skill levels.
2. Improve worker motivation.
3. Purchase technologically advanced equipment.
4. More effective management.
Raising Productivity Doesn’t Guarantee Success:
1. If product unpopular, it may not sell profitably no matter how efficiently it’s made.
2. Greater effort from workers to increase productivity could lead to higher wages demands.
3. Workers may resist measures to raise productivity.
4. Quality of management determines the success of a policy to increase productivity.
5. There is a difference between efficiency, as measured by productivity, and effectiveness.
Efficiency= producing output at the highest ratio of output to input. (Determines the average cost of
production)
Effectiveness= meeting the objectives of the business by using inputs productively to meet customers’
needs. (Important because means customers needs are being met)
Sustainability of Operations= business operations that can be maintained in the long term, for
example, by protecting the environment & not damaging the quality of life for future generations.
1
, Ways of doing this:
1. Reducing energy use & carbon emissions.
2. Reducing use of plastic & other non-biodegradable materials.
3. Using recycled materials.
4. Manufacturing recyclable products.
5. Reducing waste from operations.
6. Buying from suppliers who use sustainable materials & processes.
Why are businesses making operations more sustainable?
1. Complying to stricter laws on environmental issues.
2. Pressure groups exposing environmentally damaging business and operations.
3. Businesses need to fulfil senior managers' commitments on corporate responsibility.
4. Positive publicity = good for public relations.
5. More sales from customer preference to greener & sustainable products.
Benefits of Increasing Sustainability: Limitations & Costs of Increasing Sustainability:
Reducing energy = reduced costs. Increasing sustainability requires capital investment.
Reducing use of plastic & non-biodegradable materials = attract more Environmentally friendly materials could cost more & may not be efficient for protection
demand from green customers. & preservation of the product.
Recycled materials reduces demand for newly produced raw materials Recycled materials need to be cleaned or processed before use.
= reducing price.
Making recyclable products reduces costs of waste disposal. Development of recyclable products is expensive & time-consuming.
Reducing waste = reduce production costs. Increasing sustainability needs investment in training & more accurate equipment.
Buying from sustainable suppliers = decreased risk of bad publicity. Supplies from sustainable sources might be more expensive.
Labour Intensive= involving a high level of labour input compared with capital equipment.
- Small business producing specialist, customised products.
Advantages:
1. Interesting & varied work. 3. One-off designs meet customer
2. Low machine costs. requirements.
Disadvantages:
1. Low output levels.
2. Skilled, high-paid workers required.
3. Product quality depends on skill & experience of each worker.
Capital Intensive= involving high quantity of capital equipment compared with labour input.
- Large business producing for mass market.
Advantages:
1. Economies of scale.
2. Consistent quality.
3. Low unit costs of production.
4. Ability to supply the mass market.
Disadvantages:
1. High fixed costs.
2. Cost of financing the equipment.
3. High maintenance costs & need for skilled workers to do repairs.
4. Quick pace of technological change can make latest production equipment & computer
systems obsolete & relatively inefficient.
Approach chosen depends on:
1. Nature of product & brand image.
2. Relative costs of labour & capital.
3. Business size & access to finance.
2
