Operations Management • The process that uses the resources of an organisation to provide the right goods or services for the customer • Aspects of operations management: • Deciding on the location of a business in order to meet the needs of the business and its customers • Choosing the mix of resources to use in production • Managing capacity utilisation • Organising stock control to meet the needs of customers quickly and cheaply • Ensuring high quality of goods and services in an organisation • Providing excellent customer service in order to meet customer expectations • Working closely with suppliers in order to improve efficiency • Using technology in order to improve business operations
Operational Targets • As operations management is concerned with getting the right goods or services to the customer, operational targets measure the efficiency with which this overall aim has been achieved. • Examples of operational targets: • Unit Cost (the cost of producing 1 unit of output) • Measures of Quality • Capacity Utilisation
Measures of Quality • Customer satisfaction ratings (survey of customers can reveal customer opinions on a numerical scale or use qualitative measures) • Customer complaints (calculates the number of customers who complain, can be measured as a percentage of total customers) • Scrap Rate (calculates the number of items rejected during production process as a percentage of the number of units produced) • Punctuality (calculates the degree to which a business delivers its products on time)
Capacity Utilisation • Measures the extent to which the company’s maximum possible output is being reached. • C.U. = • Causes of spare capacity: • New competitors or new products entering market • Fall in demand for the product due to changes in taste or fashion • Unsuccessful marketing • Seasonal demand • Over-investment in fixed assets • A merger or takeover leading to duplication of many resources and sites Actual output per year or month Maximum possible output per year or month
Spare Capacity • Under-utilisation of capacity helps a firm to cope with unexpected problems or increases in demand, but it can increase costs. ** Overall, it is often felt that 90% capacity is ideal, as this gives the firm and opportunity to repair and maintain equipment and gives some flexibility in response to changes in demand.
Matching Supply and Demand • In order to maximise its efficiency, a business will try to achieve full capacity utilisation. This can be done by balancing demand and supply of products. • Subcontracting • Stock Control