International Baccalaureate
Business Management Higher Level Notes
Table of content
5.1 The role of operations management
Operations management and business functions …………………………………………… 3
Operations management and the provision of goods and services …………………………. 4
Operations management strategies and practices …………………………………………… 5
5.2 Production methods
Job production ………………………………………………………………………………. 6
Batch production ……………………………………………………………………………. 8
Mass production …………………………………………………………………………….. 9
Flow production …………………………………………………………………………….. 9
Cellular manufacturing ……………………………………………………………………. 11
5.3 Lean production and quality management
Features of lean production ………………………………………………………………... 12
Methods of lean production …………………………………………………………...…... 14
Cradle to cradle design and manufacturing ………………………………………………... 16
Methods of managing quality ……………………………………………………………... 20
5.4 Location
Factors affecting location decisions ……………………………………………………….. 24
Reorganizing production …………………………………………………………………... 28
5.5 Production planning
The supply chain process ………………………………………………………………….. 30
Just in time (JIT) and Just in case (JIC) …………………………………………………… 31
Stock control ………………………………………………………………………………. 34
Capacity utilization ………………………………………………………………………... 38
Productivity ………………………………………………………………………………... 39
1
, Cost to buy (CTB) and Cost to make (CTM) ……………………………………………… 41
5.6 Research and development
Research and development (R&D) ………………………………………………………... 42
R&D and customers’ unmet needs ………………………………………………………… 43
Types of innovation ……………………………………………………………………….. 44
Adaptive creativity and innovative creativity ……………………………………………... 45
5.7 Crisis management and contingency planning
Crisis management ………………………………………………………………………… 45
Factors affecting effective crisis management …………………………………………….. 47
The advantages and disadvantages of contingency planning ……………………………… 48
KEY TERMS ………………………………………………………………………………… 50
2
,5.1 The role of operations management
Operations management and business functions
: operations management, often referred to as production, is concerned with providing the right
goods and services in the right quantities and at the right quality level in a cost-effective and
timely manner. The role of operations management impacts on all functional areas of a business
: direct impact on the other functional of the organization;
§ Marketing implications
: the production method used will affect both the quality and the individuality of the
product. The output of an exclusive product means that it can be marketed at a high
price due to its uniqueness and high quality. Packaging, physical evidence and people
also play an important part in the overall marketing mix. By contrast, mass produced
products are standardized. There are likely to be plenty of substitutes available on the
market, so prices are much more competitive. Promotional strategies are also more
impersonal and aggressive in order to gain market share from rival firms. Businesses
that rely on high volume sales to gain high profits, aim to increase the number of
distribution channels to ensure maximum sales
§ HRM implications
: alternatively, mass production uses capital-intensive technologies so tends to deskill
the workforce. Motivation can also be affected by aspects of operations management.
Whilst flow production suffers from a lack of teamwork and group dynamics, cell
production benefits from using the individual skills of people working within a team.
There are also training implications. Job production techniques require more training
whereas mass production requires minimal instructional training only. It is relatively
easy to hire workers for mass production whereas attractive remuneration packages
may be needed to entice specialist workers for job production. Crisis management can
be highly disruptive and unsettling for people, so effective contingency plans are
needed
§ Finance implications
3
, : this is expensive although with mass production the fixed investment costs can be
spread over time. Capital-intensive firms are likely to use investment appraisal
techniques to assess whether the risks are worthwhile. They are also likely to need
external sources of finance to fund the investment projects. By contrast, labor-intensive
production requires a greater proportion of a firm’s cost to go into remunerating labor
with wages, salaries and other financial benefits
Operations management and the provision of goods and services
: operations management does not only apply to manufacturing because production is
concerned with all four sectors of the economy;
§ Primary sector
: extracting raw materials, harvesting crops and rearing animals, e.g. mining, agriculture
and fishing
§ Secondary sector
: turning natural resources into processed or finished goods, e.g. steel production and
car manufacturing
§ Tertiary sector
: the provision of services, e.g. finance, insurance, travel and tourism, transportation
and healthcare
§ Quaternary sector
: the provision of intellectual, knowledge-based activities that generate and share
information, e.g. ICT, R&D, consultancy services, and scientific research
: the factors of production (land, labor, capital and enterprise) are commonly known to
marketing and production managers as the Five Ms – materials, manpower, money, machines
and management, i.e. the available resources to a business. The 5 Ms can be a useful tool in
devising both marketing and production plans. They are combined in a cost-effective way to
ensure that there is value-added during the ‘production’ stage of the transformation process,
i.e. the value of the output is greater than the costs of production, thereby earning a profit for
the business
4
Business Management Higher Level Notes
Table of content
5.1 The role of operations management
Operations management and business functions …………………………………………… 3
Operations management and the provision of goods and services …………………………. 4
Operations management strategies and practices …………………………………………… 5
5.2 Production methods
Job production ………………………………………………………………………………. 6
Batch production ……………………………………………………………………………. 8
Mass production …………………………………………………………………………….. 9
Flow production …………………………………………………………………………….. 9
Cellular manufacturing ……………………………………………………………………. 11
5.3 Lean production and quality management
Features of lean production ………………………………………………………………... 12
Methods of lean production …………………………………………………………...…... 14
Cradle to cradle design and manufacturing ………………………………………………... 16
Methods of managing quality ……………………………………………………………... 20
5.4 Location
Factors affecting location decisions ……………………………………………………….. 24
Reorganizing production …………………………………………………………………... 28
5.5 Production planning
The supply chain process ………………………………………………………………….. 30
Just in time (JIT) and Just in case (JIC) …………………………………………………… 31
Stock control ………………………………………………………………………………. 34
Capacity utilization ………………………………………………………………………... 38
Productivity ………………………………………………………………………………... 39
1
, Cost to buy (CTB) and Cost to make (CTM) ……………………………………………… 41
5.6 Research and development
Research and development (R&D) ………………………………………………………... 42
R&D and customers’ unmet needs ………………………………………………………… 43
Types of innovation ……………………………………………………………………….. 44
Adaptive creativity and innovative creativity ……………………………………………... 45
5.7 Crisis management and contingency planning
Crisis management ………………………………………………………………………… 45
Factors affecting effective crisis management …………………………………………….. 47
The advantages and disadvantages of contingency planning ……………………………… 48
KEY TERMS ………………………………………………………………………………… 50
2
,5.1 The role of operations management
Operations management and business functions
: operations management, often referred to as production, is concerned with providing the right
goods and services in the right quantities and at the right quality level in a cost-effective and
timely manner. The role of operations management impacts on all functional areas of a business
: direct impact on the other functional of the organization;
§ Marketing implications
: the production method used will affect both the quality and the individuality of the
product. The output of an exclusive product means that it can be marketed at a high
price due to its uniqueness and high quality. Packaging, physical evidence and people
also play an important part in the overall marketing mix. By contrast, mass produced
products are standardized. There are likely to be plenty of substitutes available on the
market, so prices are much more competitive. Promotional strategies are also more
impersonal and aggressive in order to gain market share from rival firms. Businesses
that rely on high volume sales to gain high profits, aim to increase the number of
distribution channels to ensure maximum sales
§ HRM implications
: alternatively, mass production uses capital-intensive technologies so tends to deskill
the workforce. Motivation can also be affected by aspects of operations management.
Whilst flow production suffers from a lack of teamwork and group dynamics, cell
production benefits from using the individual skills of people working within a team.
There are also training implications. Job production techniques require more training
whereas mass production requires minimal instructional training only. It is relatively
easy to hire workers for mass production whereas attractive remuneration packages
may be needed to entice specialist workers for job production. Crisis management can
be highly disruptive and unsettling for people, so effective contingency plans are
needed
§ Finance implications
3
, : this is expensive although with mass production the fixed investment costs can be
spread over time. Capital-intensive firms are likely to use investment appraisal
techniques to assess whether the risks are worthwhile. They are also likely to need
external sources of finance to fund the investment projects. By contrast, labor-intensive
production requires a greater proportion of a firm’s cost to go into remunerating labor
with wages, salaries and other financial benefits
Operations management and the provision of goods and services
: operations management does not only apply to manufacturing because production is
concerned with all four sectors of the economy;
§ Primary sector
: extracting raw materials, harvesting crops and rearing animals, e.g. mining, agriculture
and fishing
§ Secondary sector
: turning natural resources into processed or finished goods, e.g. steel production and
car manufacturing
§ Tertiary sector
: the provision of services, e.g. finance, insurance, travel and tourism, transportation
and healthcare
§ Quaternary sector
: the provision of intellectual, knowledge-based activities that generate and share
information, e.g. ICT, R&D, consultancy services, and scientific research
: the factors of production (land, labor, capital and enterprise) are commonly known to
marketing and production managers as the Five Ms – materials, manpower, money, machines
and management, i.e. the available resources to a business. The 5 Ms can be a useful tool in
devising both marketing and production plans. They are combined in a cost-effective way to
ensure that there is value-added during the ‘production’ stage of the transformation process,
i.e. the value of the output is greater than the costs of production, thereby earning a profit for
the business
4
