Business Management Unit 3- The Operations Management Function

Operations Management
Management of resources to achieve efficient output of goods or services
Operation Management’s Relationship to Business Objectives
The Operations function is imperative to achieving an organisation’s objectives because it is within this function that cost of production and the quality of the finished products are determined therefore directly impacting upon revenue, costs, productivity and, ultimately, profits.
Difference Between Manufacturing and Service Organisations
1. A manufacturing organisation produces products which are tangible while a service organisation performs services which are intangible.
2. A manufacturing organisation have minimal customer contact whereas a service organisation have a high degree of customer/client contact.
3. A manufacturing organisation produces goods that can be standardised or have consistent quality, e.g. Mars bars, cars, clothing. On the other hand, service organisations often perform services tailored to meet individual client/ customer requirements and may not be consistent, e.g. tax advice
A series of procedures and processes undertaken in order to create outputs
Production Process
The process of transforming resource inputs into finished goods and services
Key Elements of an Operations System
1. Inputs
2. Transformation
3. Outputs
The resources an organisation uses to produce its goods and services. Includes:
• Materials
• Human resources
• Technology e.g. automation, robotics
• Capital (cash), plant (building) and equipments
• Information and knowledge
• Time
The process involved in converting inputs into outputs. This stage is important, as it is the stage where value can be added to the inputs and productivity gains made due to efficiency in the processes and procedures undertaken.
Transformed inputs that are returned to the external environment as products or services
It is the total value of output produced by the transformation process divided by the total cost or amount of inputs. A measure of the functioning and efficiency of a production system and relates to whether the operating system is able to increase its level of outputs while still using the set level of inputs.
Importance of Productivity
Higher productivity allows the organisation to be competitive by minimising the inputs needed to generate a given outputs. High levels of productivity will result in more output per unit of inputs, thereby leading to greater profitability. If an organisation maximises the use of its inputs, minimises wastage and achieves its daily production benchmarks, productivity levels will reach an optimal level, helping the company to maximise profits.
Productivity Measures
– Units of production produced per employee/unit of wage cost
– Number of clients attended per hour
– Number of units produced per unit of money
Competitive Advantage
A point of difference or superiority held over one’s competitors
Strategies Adopted to Optimise Operations
– Facilities Design and Layout
– Materials Management
– Management of Quality
– Extent of the Use of Technology
Facility Layout
The physical layout of a work environment, e.g. factory, shop, office, warehouse
Optimising the Use of Physical Space
Insufficient workspace will often result in bottlenecks and subsequent blockages in workflows. The workspace, however, must not be too large, as it may hinder productivity if workers have to move around or walk long distances during completion of tasks.
Optimising the Use of Equipments
Equipment must be easily accessible, reliable and operational to maximise its throughput, in order to extract maximum productivity.
Regular Maintenance Program
Regular maintenance of equipments and facilities allows them to be operational. Any piece of equipment lying idle results in lost output and thus, lost revenue.
Types of Layout
– Fixed Position/Project Layout
– Process/Functional Layout
– Product Layout
Fixed Position Layout
The product remains in a fixed position with the required resources taken to the product. This layout type is used for the construction of large and bulky products, such as building or aircraft construction.
Pro => greater flexibility, enabling manufacture of product to exact specifications. This also allows for high quality to be built into the production process
Con => expensive as it is time-consuming and has high input requirements of labour.
Process/Functional Layout
Involves pieces of equipment with like functions being grouped
together. It is used with products that require a large degree of variety, but that are generally only produced in small amounts. E.g. A hospital would use a process layout. Each patient will have different requirements and needs, therefore they will utilise different machinery and locations with no set pattern
Batch Production
The manufacture of a limited number of identical products; every item in the batch is completed at each stage before they all pass on to the next stage of production.
Product Layout
Equipment is used for a single purpose along a production flow line; the product progresses along the line in a continuous flow; suitable for mass production; creates large amounts of consistent quality products.
Mass Production
Large-scale production of similar or identical items; usually involves automation and generally the products move to the equipment along a conveyor belt.
Assembly Line
Involves inputs moving along different stages on a conveyor belt. Capable of producing larger quantities of standardised outputs in a relatively short time. It therefore suits industries where the demand for their product is both high and consistent.
It also suits the production of a standardised product requiring only minimal alterations.
1. It is an efficient
2. Involves low unit costs
3. Provides a constant rate of output with consistent quality standards
1. Initial high set-up costs with the purchase of capital-intensive high-technology production lines
2. Unmotivated employees through repetitive, low-skilled work
3. No allowance for any customisation.
Virtual Factory
The decentralisation of productive activities so that production does not occur at one worksite; also referred to as decentralisation.
• reduced fixed costs from plant and equipment
• loyalty from suppliers through a guarantee of work
• a concentration of expertise, with one site performing a small number of tasks in large numbers
• quicker supply to some parts of the world
• ability to take advantage of cost savings offered by low-wage countries.
• language and cultural barriers in dealings with suppliers
• high set-up costs
• difficult to change suppliers if needed
• possibility of political and economic disruption in developing countries
• ethical and social responsibility issues
Supply Chain Management
Supply chain management is the process of integrating and planning, implementing and controlling the system of organisations, people, technology, activities, information and resources that transforms inputs into finished outputs.
The holding or storage of raw materials, component parts, work in progress and finished goods
Inventory Control
System of overseeing the contents of an inventory; usually involves maintaining correct levels of stock as well as averting stock loss and theft
Just In Time
An inventory management system that aims to avoid holding any stocks (either as inputs or finished goods); supplies arrive just as needed for production, and finished products are immediately dispatched or sold to customers.
1. Involves the reduction/minimisation of inventory levels in the supply chain, thereby reducing inventory costs.
2. Reduced insurance costs as there would be less inventory in the warehouse that would be insured against theft or fire etc.
3. Reduction in overall inventory management costs associated with keeping track and control of inventory
1. Increase in delivery costs as materials will need to be delivered on a more frequent basis
2. If relationship with supplier is not good, then there is potential for stock to run out if supplies do not deliver the next stock on time, which could mean that the organisation will need to shut down its production until stock is restored and therefore will not meet the stated production time.
The degree of excellence in a good or service and its ability to satisfy the customer
Quality Management
Consumers look for products that have the best possible quality at the lowest price. Organisations that develop a reputation for quality products and service have a competitive advantage as they are able to minimise waste and defect rates in production, thereby reducing operating costs and maximising operational efficiency and productivity
Quality Control
Involves the use of a series of physical checks at different stages of the production process to ensure that products and services meet designated standards and errors are eliminated post-production.
Quality Assurance
A proactive approach which aims to build quality into work processes, thereby avoiding errors before they occur. May involve the use of an International Organisation for Standardisation (IOS) certification.
Quality Certification
Registration of quality standards for design, development and
production of manufacturing or service industries. it provides confidence to an organisation’s stakeholders, adds great potential
for selling into export markets and demonstrates a huge competitive advantage in globalised markets over its non-certified competitors.
Total Quality Management (TQM)
A holistic approach to quality where all members of an organisation aim to participate in ongoing improvement of organisational culture
and production processes. Employees are placed into a quality circle and are required to work together to achieve quality improvements on an ongoing basis.
Quality Circle
A group of workers who meet regularly to discuss quality and
production issues; any proposed changes to production methods are
then put forward to management
Core TQM Concepts
1. Continuous Process Improvement
2. Customer Focus
3. Defect Prevention
4. Universal Responsibility
The techniques and equipment used to achieve automatic, as
opposed to human, operation or control of a process, equipment or
a system. Includes:
– Computer Aided Manufacturing (CAM)
– Computer Aided Design (CAD)
– Computer Integrated Manufacturing (CIM)
– Robotics
– Flexible Manufacturing Systems (FMS)
Computer Aided Manufacturing (CAM)
Also referred to as Computer Numerical Control (CNC), involves the control of machinery, tools and equipment through a computer. Machines are fed programmed instructions from a central
computer, allowing for greater precision and less margin for error.
Computer Aided Design (CAD)
A computer program that facilitates the creation and modification
of product designs that has become the standard in most organisations. CAD speeds up the process of product design and increases accuracy. It is costly to introduce, but saves time and money in the long term.
Computer Integrated Manufacturing (CIM)
The combination of CAD and CAM. CIM is a computer program that controls and directs production from start to finish. Computers can
direct planning cost estimations, inventory planning, control and quality-control systems.
The use of computer-controlled robots to perform manual tasks,
especially on an assembly line, replacing functions previously
performed by human labour. They offer significant cost savings and increased efficiencies as robots save on labour costs and are not subject to human error. They are able to operate for long periods to a very high standard. In general, robotics offer improved quality and efficiency and have the added advantage of freeing employees from repetitive tasks. Robots are sophisticated and are able to perform
complex tasks.
Flexible Manufacturing Systems (FMS)
This is a complete system involving total computer control of the operations system using CAM-based equipment and automated transport systems that deliver component parts and raw materials in the correct quantities just as they are required. FMS creates total computer control of all aspects of the operations system involving
the integration of CAD, engineering and manufacturing. Computers detect things such as machine breakdown and notify operators about
the correct replacement parts required. They will also reset equipment when it is required in order to produce different product types
according to different specifications.
Technology in Service Industries
– E-Commerce e.g. online shopping, banking and marketing
– Computerisation offers potential productivity gains, greater workplace flexibility and employee work-life balanc
– Mobile Phones
– Communication via Internet has enabled cost savings
Ethical and Socially Responsible Management of Operations
Social responsibility requires an organisation to reduce economic, social and environmental impacts on the wider community and ecosystem, and looking out for the interests of all stakeholders. A socially responsible organisation builds goodwill and therefore a
positive reputation, is easily able to both attract and retain good employees, and is often able to gain cost advantages. Includes:
• waste minimisation schemes, such as recycling
• reduction of carbon emissions
• provision of enhanced quality of life for employees through provision of safe working environments that respect employee rights
• taking responsibility for the environmental, social and economic impact of the organisation’s activities.
Environmental Management Systems (EMS)
Series of policies and practices that focuses on an organisation’s
approach to environmental issues. The environmental performance of an organisation is important because of growing consumer awareness of and concern for environmental issues, which is affecting purchase choices. An organisation with a sound EMS built into its operations will therefore have a considerable competitive
advantage over its competitors.
Influence of Waste Minimisation on Ethics
Reduces operating costs, while also minimising the impact of waste
on landfill and the environment.
Influence of Recycling on Ethics
A cost-cutting measure that also means less waste is left to be
disposed of. This can have a positive impact on the environment,
especially if non-renewable components are used.
Influence of Quality Control and Assurance on Ethics
Quality focus during the manufacturing process will mean inefficiencies will be picked up and a better quality product will leave the organisation, which may mean that consumers are protected from faulty products.
Influence of Technology on Ethics
Technology may mean that dangerous and competitive tasks
are not completed by employees, thus reducing workplace accidents.
Influence of Facility Layout and Design on Ethics
A focus on ensuring that the production process operates smoothly and without bottlenecks may also mean less resources and energy used in the production process, thus reducing the impact on some resources
such as water and electricity.

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