5.1 → Introduction to Operations Management
Operations Management
● Definition: Process of transforming resources (or inputs) into outputs to achieve business
objectives.
○ Could also be the transfer of products from places or could involve breaking bulk
■ Definition: When wholesalers break larger units of product into smaller units to
deliver to retail outlets.
● Input: All resources required to build a product or service
● Output: The product itself
● Feedback: Information from production + output that informs the business about needed changes
● Process: All business functions → HRM, finance & accounting, marketing, operations
management
○ All business functions are connected
■ HRM: recruits, trains, and motivates employees to make products
■ Finance: Ensures that funds are in place to meet the needs of production
■ Marketing: Discovers consumer needs and attracts customers
○ Capital Intensive → Production that uses more physical capital than human labor
○ Labor Intensive → Production that uses more human labor than physical capital
5.2 → Operations Methods
*Use of both technology and human craftsmanship to transform inputs into product outputs.
Job Production
● Definition: Producing unique items that are tailor made to meet individual customers needs
● Why? → Customers have very specific requirements that CANNOT be met otherwise
→ Number of customer = SMALL + LOW DEMAND
Advantages Disadvantages
Flexibility + Choice → Product is adapted High Costs → Production = Costly
E.g. → Skilled workers + lower quantities of
High Quality → Highly skilled labor + materials materials = difficult to achieve economies of scale
used in production
High Profit Marigins → Sold for higher price Time-consuming → Takes more time because
due to unique specification customer satisfaction needs to be fulfilled
High Worker Motivation → Employee Cash flow problems → Large Projects =
motivation through expertise and skills expensive to produce + fewer possible projects
, Batch Production
● Definition: Production method that involves producing similar items in groups
● Why? → Produces a range of different products with analysis for demand in sales
→ Range of similar products that meed different customer needs
Advantages Disadvantages
Flexibility and Variety → Each batch can be Less Flexibility and Variety than job
adjusted to meet customer needs and expectations production → Unsuitable for products that need
to be tailored
Economies of Scale → Larger numbers of Higher Storage Costs → Store more resources
products with same characteristics for different batches → Inventory costs
Lower Risks → Bariety of products = greater Higher production costs than mass production
diversification → Larger target market → Different batches = changes to machinery
settings = increases time + cost
Lower Worker Motivation → Repetitive jobs =
low motivation + boredom
Mass/Flow Production
● Definition: Producing large amounts of standarized products on an ASSEMBLY LINE
(continuous process)
● Why? → Suited to large, consumer product companies → global/large scale
→ Standardized items that create identical products
Advantages Disadvantages
Large-scale Production → Large quantities → Set-up, Running, Replacement, Storage →
efficient, capital intensive Expensive machinery + large volume of stock
Standardized Quality → Machinery to produce Less Flexibility → No chance of alteration or
products → Uniformed + low chance of defects specification
Lower Cost of Production → Low labor + large Lower Worker Motivation → Repetitive work if
quantities = reducing costs → Economies of Scale human input is involved
Mass Customization Production
● Definition: Producing large quantities of goods that can be adjusted to customer specifications
● Why? → Economies of scale are needed due to intense competition → increased prices
→ Can make a variety of different mass-produced products
● Types of Mass Customization:
○ Collaborative → Close interaction between the business + customer
, ○ Adaptive → Customers choose from pre-set customizations
○ Cosmetic → Face of the product/packaging is changed
○ Transparent → Personalized items are recommended to the customer → analyzes
online data
Advantages Disadvantages
Customer Satisfaction + Loyalty → Targets a Handling returns → Reselling returns = difficult
wider range of customers = provides variety due to customization
Lower Costs → Maintains economies of scale = Higher Costs for Customization → Wider
large volumes and capital-intensive production variety of stock is needed + specialized equipment
Higher Prices + Profits → Customized to Time → Take longer to produce = supply chain
customer demand = higher price can be charged problems
5.3 → Lean Production and Quality Management (HL)
*Focuses on how companies ensure that they produce products efficiently and with quality
Efficiency and Waste
● Efficiency: How a business can transform physical, human, and financial inputs into outputs
● Waste: Any part of the production process that does not add value to the final consumer
○ Transportation, Inventory, Motion, Waiting, Over-processing, Over-production, Defects
→ “Tim Wood” = types of waste
Lean Production
● Definition: A set of strategies to reduce waste in the production process.
● Purpose: Producing high-quality products using minimum resources
○ Eliminated buffers, reduces transfer distance, streamlines processes = quick + high
quality product given to customers
● Advantages:
○ Waste of time, resources, unit costs is reduced → higher profits
○ Less risk of stock/equipment damage
○ New products are launched more quickly
○ Less crowded = easier to operate in
● Disadvantages:
○ Difficulty in forecasting demand → Unexpected demand = problem when stock = 0
○ Production process = expensive
○ Possible job losses → job security for employees are at risk
Stock
● Definition: Materials and goods required for production and supply of products to customers
● Manufacturing has 3 distinct stock types:
○ Raw materials and components → Purchased from external suppliers + held in stock
○ Work in progress → Converting raw materials into finished goods
○ Finished goods → Finished products that are held in stock until sold
Operations Management
● Definition: Process of transforming resources (or inputs) into outputs to achieve business
objectives.
○ Could also be the transfer of products from places or could involve breaking bulk
■ Definition: When wholesalers break larger units of product into smaller units to
deliver to retail outlets.
● Input: All resources required to build a product or service
● Output: The product itself
● Feedback: Information from production + output that informs the business about needed changes
● Process: All business functions → HRM, finance & accounting, marketing, operations
management
○ All business functions are connected
■ HRM: recruits, trains, and motivates employees to make products
■ Finance: Ensures that funds are in place to meet the needs of production
■ Marketing: Discovers consumer needs and attracts customers
○ Capital Intensive → Production that uses more physical capital than human labor
○ Labor Intensive → Production that uses more human labor than physical capital
5.2 → Operations Methods
*Use of both technology and human craftsmanship to transform inputs into product outputs.
Job Production
● Definition: Producing unique items that are tailor made to meet individual customers needs
● Why? → Customers have very specific requirements that CANNOT be met otherwise
→ Number of customer = SMALL + LOW DEMAND
Advantages Disadvantages
Flexibility + Choice → Product is adapted High Costs → Production = Costly
E.g. → Skilled workers + lower quantities of
High Quality → Highly skilled labor + materials materials = difficult to achieve economies of scale
used in production
High Profit Marigins → Sold for higher price Time-consuming → Takes more time because
due to unique specification customer satisfaction needs to be fulfilled
High Worker Motivation → Employee Cash flow problems → Large Projects =
motivation through expertise and skills expensive to produce + fewer possible projects
, Batch Production
● Definition: Production method that involves producing similar items in groups
● Why? → Produces a range of different products with analysis for demand in sales
→ Range of similar products that meed different customer needs
Advantages Disadvantages
Flexibility and Variety → Each batch can be Less Flexibility and Variety than job
adjusted to meet customer needs and expectations production → Unsuitable for products that need
to be tailored
Economies of Scale → Larger numbers of Higher Storage Costs → Store more resources
products with same characteristics for different batches → Inventory costs
Lower Risks → Bariety of products = greater Higher production costs than mass production
diversification → Larger target market → Different batches = changes to machinery
settings = increases time + cost
Lower Worker Motivation → Repetitive jobs =
low motivation + boredom
Mass/Flow Production
● Definition: Producing large amounts of standarized products on an ASSEMBLY LINE
(continuous process)
● Why? → Suited to large, consumer product companies → global/large scale
→ Standardized items that create identical products
Advantages Disadvantages
Large-scale Production → Large quantities → Set-up, Running, Replacement, Storage →
efficient, capital intensive Expensive machinery + large volume of stock
Standardized Quality → Machinery to produce Less Flexibility → No chance of alteration or
products → Uniformed + low chance of defects specification
Lower Cost of Production → Low labor + large Lower Worker Motivation → Repetitive work if
quantities = reducing costs → Economies of Scale human input is involved
Mass Customization Production
● Definition: Producing large quantities of goods that can be adjusted to customer specifications
● Why? → Economies of scale are needed due to intense competition → increased prices
→ Can make a variety of different mass-produced products
● Types of Mass Customization:
○ Collaborative → Close interaction between the business + customer
, ○ Adaptive → Customers choose from pre-set customizations
○ Cosmetic → Face of the product/packaging is changed
○ Transparent → Personalized items are recommended to the customer → analyzes
online data
Advantages Disadvantages
Customer Satisfaction + Loyalty → Targets a Handling returns → Reselling returns = difficult
wider range of customers = provides variety due to customization
Lower Costs → Maintains economies of scale = Higher Costs for Customization → Wider
large volumes and capital-intensive production variety of stock is needed + specialized equipment
Higher Prices + Profits → Customized to Time → Take longer to produce = supply chain
customer demand = higher price can be charged problems
5.3 → Lean Production and Quality Management (HL)
*Focuses on how companies ensure that they produce products efficiently and with quality
Efficiency and Waste
● Efficiency: How a business can transform physical, human, and financial inputs into outputs
● Waste: Any part of the production process that does not add value to the final consumer
○ Transportation, Inventory, Motion, Waiting, Over-processing, Over-production, Defects
→ “Tim Wood” = types of waste
Lean Production
● Definition: A set of strategies to reduce waste in the production process.
● Purpose: Producing high-quality products using minimum resources
○ Eliminated buffers, reduces transfer distance, streamlines processes = quick + high
quality product given to customers
● Advantages:
○ Waste of time, resources, unit costs is reduced → higher profits
○ Less risk of stock/equipment damage
○ New products are launched more quickly
○ Less crowded = easier to operate in
● Disadvantages:
○ Difficulty in forecasting demand → Unexpected demand = problem when stock = 0
○ Production process = expensive
○ Possible job losses → job security for employees are at risk
Stock
● Definition: Materials and goods required for production and supply of products to customers
● Manufacturing has 3 distinct stock types:
○ Raw materials and components → Purchased from external suppliers + held in stock
○ Work in progress → Converting raw materials into finished goods
○ Finished goods → Finished products that are held in stock until sold
