Operations Management PDF

OPERATIONS OPERATIONS - Fundamental activities of organizations: what they do and how they deliver - How they produce the goods and services that meet consumers' needs and wants - OPERATION MANAGEMENT - the art of managing production to get the best end product OPERATIONS ACRO...

OPERATIONS OPERATIONS - Fundamental activities of organizations: what they do and how they deliver - How they produce the goods and services that meet consumers' needs and wants - OPERATION MANAGEMENT - the art of managing production to get the best end product OPERATIONS ACROSS SECTORS - PRIMARY -- mining or harvesting - SECONDARY -- industrial manufacturing - TERTIARY -- open-heart surgery - QUATERNARY SECTOR -- business consultancy THE INPUT-OUTPUT MODEL - The basic process of transformation - This process applies to both manufacturing and services industries - The degree of value added to inputs depends on several factors: - The design of the product or the nature of the services - The efficiency with which the input resources are combined and managed - Being able to convince to pay more for the good or service than the cost of the inputs - ADDED VALUE -- the difference between the cost of purchasing raw materials and the price the finished goods are sold for OPERATIONS AND THE OTHER BUSINESS FUNCTIONS - The operations deliver the "what" question of an organization's objectives - Operations are done by people - Operations need funding and all financial aspects must be carefully budgeted and monitored - Operations produce goods and services that must be marked RELATIONSHIP WITH OTHER BUSINESS FUNCTIONS - The operations manager has direct experience of the economies of scale or diseconomies of scale that may take place on the factory floor (Unit 1.6), or may help identify some of the strengths and weaknesses of the organization (Unit 1.3) that other departments would not necessarily know about - The operations manager can suggest which forms of non-financial rewards (such as job rotation or teamwork) may be suitable (or not) for the organization (Unit 2.4): the HR manager may not appreciate the fact that some forms of motivation may be very good in theory, but not in practice - The operations manager may know which production costs (such as some semi-variable energy costs) could be cut (Unit 3.2), which would in turn have an impact on the break-even point and the organization's margin of safety (Unit 3.2) - The operations manager can advise on which product extension strategies (Unit 4.5) may be easily implemented (or not) - The marketing manager may have interesting ideas that would, however, result in diseconomies of scale OPERATIONS AND PRODUCTION OF GOODS AND SERVICES - Production is usually defined as the creation of physical (goods) and non-physical (services) products page13image61716496  OPERATIONS MANAGEMENT AND SUSTAINABILITY - ECONOMIC SUSTAINABILITY -- the need to use available resources and raw materials to their best advantage, ultimately ensuring profitability and financial performance - SOCIAL SUSTAINABILITY -- the need to take human factors into account, both internally and externally, when making business decisions - ECOLOGICAL SUSTAINABILITY -- the need to take ecological factors into account when making business decisions (especially about nature and ecosystems) - TRIPLET BOTTOM LINE -- the need to take economic, social, and ecological factors into account when making business decisions -- 3P's Profit, People, Planet 5.2 ORGANIZATION OF PRODUCTION - Depends on the production function: - What, exactly, do you want to produce? - Which materials do you want to use? - Prefer to do it in a labor- or capital-intensive way? - Main operations methods - Job production, batch production, mass/flow production, mass customization JOB PRODUCTION - Production of a special „one-off" product made to a specific order (for one individual customer) - Normally associated with the highest end of the market, created for specific customers - Can charge premium prices - Production is market-orientated; client decides exactly what they want - Requires clear objectives and careful planning - Longer development phase of the product life cycle - The client may require greater consultation during the process - No blueprint takes a longer time to produce ADVANTAGES - High mark-up - Clients get exactly what they want - As a production method, likely to motivate skilled workers to focus on individual projects - Can be flexible DISADVANTAGES - Can be expensive, requiring skilled workers and non-standardized materials - Time-consuming\ May fail due to lack of knowledge of the client - Very labor-intensive BATCH PRODUCTION - Production of a group of identical products „batches" - Associated with the middle of the market - Emphasis on both quality and quantity - Market-orientated; products are customized using standardized options - Requires careful planning\ Components for products need to be interchangeable\ Some consultation with customers (needs taken into account, with limited options) Market research can replace individual consultation ADVANTAGES - Can achieve economies of scale - Allows customers more choice - Useful for trialling products in smaller quantities - May help deal with unexpected orders DISADVANTAGES - May lose production time during recalibration/retooling - May need to hold large stocks - Sizes of batches depend on the capacity of the machinery MASS PRODUCTION - Production of a high volume of identical, standardized products - The low end of the market focused on large quantities - Uses continuous flow of raw materials - Labor is unskilled and mainly used for quality control - Everything else is automated - Requires careful planning to synchronize all the stages of the production process - Production is based on large, reliable orders of the final product - Products are gradually created, step by step - Expensive setup that can only be recouped through high-volume ADVANTAGES - Easy to maintain once set up - Achieves economies of scale (caters to large orders) - Low labor costs (fully automated) - Quick reaction to change DISADVANTAGES - High set-up costs - If a breakdown occurs, it may stop everything and is quite costly - Dependent on steady demand - Inflexible - Demotivating workplace (repetitive) page15image61707552 MASS CUSTOMIZATION - This production method combines mass production with the personalization of custom-made products for marketing purposes - Mass but individualized  CHANGING THE PRODUCTION METHOD - Human resources - Redeployed, retrained, or let go - Refined roles and responsibilities of workers and middle managers - Marketing - Altered image or perception of the business - Affected distribution channels - Costs of production passed on to the consumer - Finance - Stock control - Delays in the working capital cycle - Changes need financing THE MOST APPROPRIATE METHOD OF PRODUCTION - There is no correct method, it varies from business to business - Factors affecting the decision include: - The target market - The state of existing technology - The availability of resources - Government regulations - Once a particular production method is in place, it's not easy to change it - There will be opportunity costs - No rule on which business should adopt which method - All of the advantages and disadvantages should be compared and contrasted 5.4 LOCATION OF PRODUCTION - One of the most crucial decisions a business needs to make - A number of factors need to be considered when starting up or relocating a business LOCATION DECISION - The right location for a business may affect - the costs of production - the tax rates paid - the availability of employees and the skills available - demand for the products - the ease of accessing markets - the ease of accessing supplies - access to natural resources - Benefits of optimal location - Lower costs - Proximity to customer - Overcoming trade barriers - Improving brand image FACTORS IN LOCATING A BUSINESS COSTS - A key determining factor - Mainly depends on whether the business is starting or being relocated - Land - Depending on the size, it may need a surface to expand - Labor - Where do find skilled or unskilled workers? - Transport - If the quantities produced dare large and tangible, it's important - Bulk increasing -- buying many small components and turning them into one large final product - Set up the business close to the market - Bulk decreasing -- buying large quantities of raw materials and turning them into small end products - Set up the business close to the source of the raw materials COMPETITION - Where are the 'providers of substitutes' located? - One thing to find a gap in the market, another one to set up close to a direct competitor - Set up close to rivals creating clusters - Retail outlets, law firms, theatres - Increase the probability of passing trade if the area becomes known for something - Jedrarska ulica, Užarska ulica,etc. - Cannibalistic marketing - Setting up more than one branch in a location, despite lower per-shop profits, would still lead to an overall increase in income for a particular company - At one point, there is no more possible extra profit to be made and branches turn against each other CANNIBALISTIC MARKETING FACTORS IN LOCATING A BUSINESS TYPE OF LAND - Type of land and location matters - The three rules of real estate apply - The land determines the suitability of certain businesses MARKETS - Setting up where the people are close to customers - Where are those places? FAMILIARITY WITH THE AREA - How well does the business know the place? - Double-edged sword - Business may have some knowledge of local networks - More appropriate areas may be overlooked LABOR POOL - Workers are critical to any business - Demographic change could make considerable differences in the types of workers available - E.g. Croatia -- what has changed? - Identify the factors that led to Croatia becoming a net importer of labor - Unemployment levels INFRASTRUCTURE - Not only the existing transport networks for people and products but also electronic networks - What is important for choosing a specific location? - Utilities (electricity, water, Internet) - Education - Housing - Healthcare - Police SUPPLIERS - The company needs to ensure the proximity and reliability of suppliers GOVERNMENT - Both local and national governments can determine the success of a business - Types of financial support being offered - Grants: non-returnable, one-time-only funds - Subsidies: funds to be offset against the cost of production - Soft loans: loans at preferential rates of interest - Tax rebates: a cut in the tax to be paid - Laws - Even minor changes could have a major impact on a business - Taxes - National income tax - Local council tax (surtax) NATIONAL, REGIONAL, INTERNATIONAL AMBITION - Trading blocs (NAFTA, EU/EEA, BRICS) - Brexit - Tax havens - Switzerland, Dubai, Hong Kong, Singapore, Cayman Islands, Cyprus - Geopolitics - Wars, migrations IMPACT OF GLOBALIZATION ON LOCATION PULL FACTORS: - Scenarios that make it attractive for a business to set up or relocate abroad - Improved communications - Easy to connect, communicate,andtransportirrespectiveoflocation - Dismantling of trade barriers - More than 3⁄4 of the world's countries are signatories to the World Trade organizations - Deregulation of the world's financial markets - Movement of capital has become much easier, helped by Internet banking - The increasing size of multinational companies - The bigger the power, the stronger the influence when persuading countries to allow them to set up new operations PUSH FACTORS: - Several internal factors may push companies to operate overseas - Reduce costs - Being either closer to the raw material or cheaper labor pools can help achieve economies of scale - Increase market share - There are risks and disadvantages: language barriers, different cultural practices, historical tensions between countries, lack of knowledge of local networks, local law and politics, time difference, and finding reliable, trustworthy partners - Use extension strategies - The life cycle can be extended with smart planning and expanding to a different geographic market - Use defensive strategies - It's a game of chess: if you don't claim the spot, somebody else will OUTSOURCING - The practice of using another business (as a third party) to complete a part of the work - The work is „contracted out" - Enables the company to focus on its core activity - Helps in cutting costs and earning a competitive advantage - Commonly outsourced activities - In marketing - In production - In HR - In finance ADVANTAGES - Can reduce costs - Can allow business to focus on its core activities and what it does best - Can lead to improved capacity utilization - Can lead to reduced delivery time - Can lead to the transfer of expertise DISADVANTAGES - Business can become dependent on the supplier - Business may lose control of the final product - Dilution of the brand may happen OFFSHORING - When a business outsources something to an external provider in a location outside of the home country - Improved communications make it possible to offshore almost anything - The international aspect intensifies the pros and cons of offshoring - There may be cultural differences between companies (national and corporate culture clash) - Communication may be difficult due to different time zones - Issues in quality and ethics may arise IN-HOUSING AND RESHORING - In-shoring or in-housing is a reverse trend from outsourcing - Some companies are reverting to taking back full control - Internalization of peripheral activities - Could help reduce the costs of taxes, labor, and transport