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Unit 4

The document discusses various operation management concepts including transformation process and its stages, efficiency and its importance, effectiveness and its importance, productivity and its importance, sustainability and its importance, benefits and limitations of capital intensive and labour intensive production, job production, batch production, flow production, mass customization production, inventory control including buffer inventory, re-order level and lead time, supply chain management, JIT and JIC inventory management, capacity utilization, and methods to improve capacity utilization such as outsourcing.

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10 views

Unit 4

The document discusses various operation management concepts including transformation process and its stages, efficiency and its importance, effectiveness and its importance, productivity and its importance, sustainability and its importance, benefits and limitations of capital intensive and labour intensive production, job production, batch production, flow production, mass customization production, inventory control including buffer inventory, re-order level and lead time, supply chain management, JIT and JIC inventory management, capacity utilization, and methods to improve capacity utilization such as outsourcing.

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eaglerealestate31
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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Business 9609

Revision notes with


Sir Muzammil Ameer
UNIT 4: Operation/Production Management

SIR MUZAMMIL BUSINESS SCHOOL


Operation management and its contribution

 Operation management focuses on conversion of input (land, labour, and capital)


into output with an effective use of business resources to achieve business
objectives
Contribution of operation management to added value
 Improve design so high price can be charged
 Improve quality so can attract customers
 Reduces costs
Transformation process and its stages

 A process that uses factors of production: land, labor, capital, and converting raw
material into finished goods. It is very important as it reduces the costs of
production
Stages of the transformational process
 inputs to outputs
Efficiency and its importance

 It means to produce maximum output with minimum resources to save cost. For
example, if a business makes 1000 units with 100kg raw material then with high
efficiency it can make 1100 units with 100kg so means it increases output with
same input.
 It is important as it saves costs
 Can be USP for the production process
 Helps to improve profitability
Effectiveness and its importance

 It means to meet the needs of customers. If a product is same as demanded by


consumer then it is said as an effective product.
 It is important as it creates brand image and brand loyalty
 An efficient business can be ineffective
Productivity and its importance

 Productivity measures how much is output in relation to its input


 It is calculated as output/input
 Productivity can be measured in labor or machine
 Labour productivity = output/no of employees
 It is important as it saves costs and time
Sustainability and its importance

It means using such production methods that use renewable resources and save
non-renewable resources for the future generation
 Increase reputation
 Marketing opportunities
 Attract investors and consumers
Benefits and limitations of capital intensive

 More output
 Consistent quality
 Unit cost reduced
× No flexibility
× Capital cost is high
Benefits and limitations of labour intensive

 Flexibility
 Customization
× Limited output
× Unit cost is high
Production methods

 Job production
 Batch production
 Flow production
 Mass customization
Job production and its advantages and
disadvantages

A production method is when a single product or order is produced at a time, it


is usually a customized production. For example, birthday cakes, customized
jewelry
 High prices can be charged
 High-quality products
 Customer satisfaction
 Flexibility in production
× High costs of production
× Skilled labor is needed
× No economies of scale
Batch production and its advantages and
disadvantages

A production method when same identical products are produced in


groups. For example, mobile phones
Advantages and disadvantages
 Same quality products
 Cost per unit is low
× High capital cost
× Machines have limited flexibility
Flow production and its advantages and
disadvantages

A production method is when products are produced in large quantity


usually in a flow process where products pass from many processes
till the end product. For example, an oil refinery
Advantages and disadvantages
 Large quantity
 Cost per unit is low
× High capital cost
× No variety can be produced
Mass customization production and its
advantages and disadvantages

A production method is when products are produced in large quantities


based on customers’ demands. For example, FIFA world cup football T-
shirts
Advantages and disadvantages
 Large quantity
 Cost per unit is low
 High prices can be charged
× High capital cost
× More skilled labor and machinery needed
Problems of changing from one method to
another
 Batch to flow

 High capital costs

 Storage space is needed for large quantity


Purpose of inventory within a business

Inventory has three types, raw material, work in progress and


finished goods
raw material is the main component of finished good for
example wood for furniture
work in progress is semi-finished goods that needs more work
to complete for example furniture without polishing
finished products are final products that are ready to sale for
example chair in furniture
Costs and benefits of holding high inventory

 Storage costs high


 Capital tied up so opportunity cost lose
 Economies of scale (low cost advantage for bulk buying)
 Can meet emergency demand
Costs and benefits of holding low inventory

 Less storage costs


 No capital tied up
 No economies of scale
 Cannot meet emergency demand
 May lose potential profit if any emergency demand arise
Buffer inventory, re-order level, lead time

Buffer inventory
 An inventory that a business hold for an emergency to meet any
sudden order. Also known as safety stock
Re-order level
 Inventory level when a business places an order for new
inventory to the supplier
Lead time
 It is the time between the order placement and delivery to
business
Inventory control chart

This chart shows the max and min. inventory level, order level
and lead time
Supply chain management

A supply chain is an entire system of producing and delivering a product or


service, from the very beginning stage of sourcing the raw materials to the
final delivery of the product or service to end users. An example of a supply
chain in the food industry includes farming, manufacturing, packaging, and
transporting food products
Benefits of effective Supply chain management

 Higher efficiency

 Better customer relationship

 Place is the marketing mix element that deals with supply chain
management as it involves the processes that take goods and
services from their raw beginnings to the ultimate destination—the
customer.
JIT inventory management, advantages and
disadvantages
An inventory control system is where a business starts
manufacturing when receiving orders to eliminate wastage of
inventory and improves the efficiency of the production process.
For example, a furniture manufacturer will buy raw material of
wood when it will receive the order. It will save its storage cost.
 Saves storage costs
 Inventory not wasted
 Opportunity cost
× Delivery may be delayed
× No economies of scale
JIC inventory management

An inventory control system where a business holds


limited inventory for any emergency order so not lose
any potential profit if receives order.
Capacity utilisation

 It
measures how much a business is producing in
percentage of its total maximum output.

business current output / total maximum output * 100


Advantages and disadvantages of working at high
capacity

 Low unit costs


 Economies of scale
× No time for the maintenance of machines
× Labour may be stressed because of workload
Advantages and disadvantages of working at low
capacity

 Machines gets time for maintenance


 Labour can get time for training
× Bad reputation
× High unit cost
Methods of improving capacity utilisation

 Outsourcing
 Extrashifts
 Seasonal workers
Outsourcing and its advantages and disadvantages

A process where a business assigns its production activity


to a third company to save cost or improve the quality of its
products or service.
 Saves costs
 Improve quality
× Dependency increase
× Order may be delayed

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