Operations

1. Operations The Production Process

2. ROLE IN A FIRM(for information only) • purchasing raw materials to meet production needs • managing stock levels • ensuring appropriate production methods are used • using quality techniques to ensure maximum output from minimum inputs • warehousing • distributing finished goods to customers INPUTS PROCESS OUTPUT

3. Why Operations is Important (for information only) • a core activity of a firm • produces goods/services to meet customer needs • earns an income by producing goods to sell • contributes to profit making • ensures quality output - reputation • minimises wastage – help the environment!

4. Purchasing and Storage Production and Storage Delivery and Distribution THE KEY ELEMENTS(for information only) Finished Goods Raw Materials Finished Goods

5. “inventory management” STOCK CONTROL Holding stock enables materials to be available for immediate use in production or finished goods for customers. Types of stocks: RAW MATERIALS – for production WORK IN PROGRESS – unfinished goods FINISHED GOODS – ready for sale Stock must be managed effectively because there must be sufficient quantities available at all times

6. Factors to consider when manufacturing and storing goods • The quantity of the product required • The volume of products that can be manufactured at any one time • Working practices, procedures and health and safety requirements • The storage available (warehouse) • Procedures for maintaining and managing quality

7. Purpose of a Stock Management System • Ensure stock is readily available to allow production • Avoid delays in customer orders • Ensure over-stocking does not take place, which results in higher costs • Avoid stock deteriorating (eg fresh food) and/or becoming obsolete

8. Consequences of holding too much stock • increased financial costs – storage, insurance and security • capital tied up unnecessarily • danger of deterioration and wastage leading to stock being discarded • risk of “easy” theft by staff (pilfering)

9. Consequences of holding insufficient stock • unable to cope with unexpected orders • production may stop – until the next delivery • lost revenue from dissatisfied customers • adverse effect on reputation

10. HIGH STOCKS – WHEN? New Product – pre launch production to meet demand Increasing demand – to cover growth in sales Stockpiling – seasonal goods eg toys for Christmas Stock Type – non-perishable products Lead Times – waiting a long time for delivery

11. Effective Stock Control This information can be shown in diagram form! Lowest amount of stock at any one time. MINIMUM LEVEL Stock levels: MAXIMUM LEVEL Highest amount of stock at any one time. Stock level when an order should be placed. RE-ORDER LEVEL RE-ORDER QTY Amount of stock to be ordered to bring levels back to maximum. Bare in mind the LEAD TIME = the time between order the stock and the delivery of the stock

12. Max Re-Order Min Stock Control Diagram STOCK LEVEL TIME LEAD TIME

13. Centralised Storage Centralised is when stock is stored in a single location that should be accessible by everyone.

14. Decentralised Storage Decentralised is when stock is kept in more than one place eg each dept has their own stock.

15. ADVANTAGES • improved cash flow – less money tied up in stock • Reduced storage and warehouse space required • less vulnerable to external influences eg fashion trends • wastage reduced as only the stock required is ordered

16. DISADVANTAGES • faith placed in the reliability of the suppliers to deliver on time • advantages of bulk buying (economies of scale) may be lost • increase in delivery costs due to greater number of journeys, and less environmentally friendly • production can stop if stock fails to arrive

17. PRODUCTION AND STORAGE “converting materials and components into finished goods”

18. Which Method Of Production? Consider: • Product type and nature • Quantity required • Resources available (staff and machinery) • Distribution method • Required quality control • Technology available • Stock management system

19. YOU MUST BE ABLE TO: • describe and explain each method • give examples of their use • explain the advantages and disadvantages of each method METHODS OF PRODUCTION JOB BATCH FLOW

20. JOB PRODUCTION • make one product at a time (start to finish) • unique ‘one- off’ products to the customer’s specification • serves a niche market • labour intensive, using skilled labour

21. ADVANTAGES • meets exact demands of customers which leads to customer satisfaction • changes can be made during production • commands a high price = high profit • experienced staff from using different skills for each job • motivated staff from variety of work (no 2 jobs are identical)

22. DISADVANTAGES • highly skilled workers demand higher wages = rising costs • expensive to purchase specialist equipment • lose out on bulk buying discounts – different materials for each job • time consuming production

23. BATCH PRODUCTION • groups of identical products produced at the same time (the batch!) • all products move in the process at the same time • used when products needed in different sizes, colours, etc • Machinery is cleaned/reset between batches to make a different product

24. ADVANTAGES • flexible production - reflecting customer demand, leading to customer satisfaction • reduced need for highly skilled staff = reduced costs • standardised machinery can be purchased = cost saving • stock can be bought in bulk taking advantage of discounts

25. DISADVANTAGES • resources may sit idle between batches • expensive for small batches (price per unit is high and this is passed on to the customer • machinery may need to be cleaned/reset before next job – time consuming • higher stock levels required • reduced staff motivation – repetition • faults cause scrapping of whole batch

26. FLOW/MASS/LINE PRODUCTION • products move continuously along an assembly/production line • workers carry out a specific task (division of labour) • parts/ingredients are added at each stage on the production line • capital intensive • mass produced (standard/homogeneous) products

27. ADVANTAGES • Large number of products produced which means that cost per unit is cheaper as cost is spread over large quantity • raw materials can be bought in bulk • reduced human error due to capital intensive production • continuous production – 24/7 if desired • quality can be checked at every stage

28. DISADVANTAGES • high capital outlay to set up • low motivation of workers due to repetition • Faults/breakdowns stop entire production line • requires high demand levels • individual customer requirements cannot be met (homogeneous products)

29. Labour or Capital Intensive? Question: Suggest advantages and disadvantages of Labour Intensive and Capital Intensive production Mechanised production = using machines but with people involved Automated production = no humans involved. Use of technology (robots) and machinery.

31. Warehousing Where finished goods are stored until ready for distribution. They should be designed to ensure efficient movement and flow of stock. A system of stock rotation should be in place.

32. DELIVERY AND DISTRIBUTION

33. Refer back to Marketing Mix (Place) Getting the product to the customer by: • Road – fast and direct to the customer’s door but not “green” and difficult for large items • Rail – good for large freight but not in every location • Air – gives access to the rest of the world but is expensive • Sea – good for larger products but time consuming

34. Refer back to Marketing Mix (Place) Distribution Channels • Direct to customer • Retailer • Wholesaler • Wholesaler then Retailer

35. Some organisations may choose to transport the product themselves or they may employ a company that specialises in logistics and distribution The Distribution Mix Various factors must be considered when choosing the “route” to the customer: • reliability of other firms • legal restrictions • availability of finance • nature of the product being distributed • image associated with the product • stock management system being used • manufacturer’s distribution capabilities