21. Operations planning

Question 1

Define operations planning

Answer 1

Preparing input resources to supply products to meet expected demand

Question 2

Aims of operations planning

Answer 2

• Match output closely to the demand levels
• Keep stock levels to a minimum efficient level
• Reduce wastage of production
• Employ and keep busy a stable, appropriate number of staff
• Produce the right product mix. i.e. the range of products that are forecast to be demanded

Question 3

Define CAD

Answer 3

Computer-aided design. Using computers and IT when designing products

Question 4

Define CAM

Answer 4

Computer-aided manufacturing. The use of computers and computer-controlled machinery to speed up the production process and make it more flexible

Question 5

Influences of CAD and CAM on operations decisions

Answer 5

Reduce unit costs (increase efficiency) and improve flexibility of operations

Question 6

Define operational flexibility

Answer 6

The ability of a business to vary both the level of production and the range of products following changes in customer demand

Question 7

Ways operational flexibility can be achieved

Answer 7

• Increase capacity by extending buildings and buying more equipment - this is an expensive option
• Hold high stocks - but these can be damaged and there is an opportunity cost to the capital tied up
• Have a flexible and adaptable labour force - using temporary, part time contracts reduce fixed salary costs but may reduce worker motivation
• Have a flexible flow-line production equipment

Question 8

Define process innovation

Answer 8

The use of a new or much improved production method or service delivery method

Question 9

Examples of process innovation

Answer 9

• Robots in manufacturing
• Computer tracking of stocks
• Using internet to track the exact location of parcels being delivered worldwide

Question 10

Define job production

Answer 10

Producing a one-off item specially designed for the customer

Question 11

Define batch production

Answer 11

Producing a limited number of identical products - each item in the batch passes through one stage of production before passing onto the next stage

Question 12

Define flow production

Answer 12

Producing items in a continually moving process

Question 13

Define mass customisation

Answer 13

The use of flexible computer-aided production systems to produce items to meet individual customers’ requirements at mass production cost levels

Question 14

Main features of job production

Answer 14

• Single one-off items

- Highly skilled workforce

Question 15

Main features of batch production

Answer 15

• Group of identical products pass through each stage together
• Labour and machines must be flexible to switch to making batches of other designs

Question 16

Main features of flow production

Answer 16

• Mass production of standardised products
• Specialised, often expensive, capital equipment but very efficient
• High steady demand for standardised products

Question 17

Main features of mass customisation

Answer 17

• Flow production of products with many standardised components but customised differences too
• Flexible and multi-skilled workers
• Flexible equipment - often computer controlled to allow for variations in the product

Question 18

Advantages of job production

Answer 18

• Able to undertake specialist projects or jobs often with high value added
• High levels of worker motivation

Question 19

Disadvantages of job production

Answer 19

• High unit production cost
• Time consuming
• Wide range of tools and equipment needed

Question 20

Advantages of batch production

Answer 20

• Some economies of scale
• Faster production with lower unit costs than job production
• Some flexibility in design of product in each batch

Question 21

Disadvantages of batch production

Answer 21

• High levels of stocks at each production stage

- Unit costs likely to be higher than flow production

Question 22

Advantages of flow production

Answer 22

Low unit costs due to constant working of machines, high labour productivity and economies of scale

Question 23

Disadvantages of flow production

Answer 23

• Inflexible - often very difficult and time consuming to switch from one type of product to another
• Expensive to set up and maintain the machinery

Question 24

Advantages of mass customisation

Answer 24

Combines low unit costs with flexibility to meet customers’ individual requirements

Question 25

Disadvantages of mass customisation

Answer 25

- Expensive product redesign may be needed to allow key component to be switched to allow variety - Expensive flexible capital equipment needed

Question 26

How to choose production methods?

Answer 26

- Size of the market (market small => job production) - Amount of capital available - Availability of other resources (skilled workforce or large flat land area) - Market demand exists for products adapted to specific customer requirements - if firms wan the cost advantages of high volumes combined with the ability to make slightly different products for diff markets => mass customisation

Question 27

Problems of changing production methods

Answer 27

Job to batch - Cost of equipment needed to handle large numbers in each batch - Additional working capital needed to finance stocks and work in progress - Staff demotivation - less emphasis on an individual's craft skills Job or batch to flow - Cost of capital equipment - Staff training to be flexible and multi-skilled - if not adopted => repetitive tasks => demotivating

Question 28

Factors influencing location decisions

Answer 28

- Quantitative factors: these are measurable in financial terms and will have a direct impact on either the costs of a site or the revenues from it and its profitability - Qualitative factors: these are non-measurable factors that may influence business decisions

Question 29

Quantitative factors

Answer 29

- Site and other capital costs such as building or shop-fitting costs - Labour costs - Transport costs - Sales revenue potential - Government grants

Question 30

Qualitative factors

Answer 30

- Room for further expansion - Ethical considerations - Environmental concerns - Infrastructure - Safety

Question 31

Define offshoring

Answer 31

The relocation of a business process done in one country to the same or another company in another country

Question 32

Reasons for international location decisions

Answer 32

- To reduce costs - labour wage rates, costs of raw materials - To access global markets - rapid economic growth in LEDCs - To avoid trade barriers - taxes or other limitations (quota) on the free international movement of goods and services

Question 33

Issues with international location

Answer 33

- Language and communication barriers - Cultural differences - Level of service concerns - Supply chain concerns - Ethical considerations

Question 34

Define scale of operation

Answer 34

The maximum output that can be achieved using the available inputs - this scale can only be increased by employing more of all inputs

Question 35

Factors that influence scale of operation

Answer 35

- Owner's objectives - Capital available - Size of the market it operates in - Scope for scale economies - Number of competitors

Question 36

Define economies of scale

Answer 36

Reductions in a firm's unit average costs of production that result from an increase in the scale of operations

Question 37

Purchasing economies of scale

Answer 37

Buying in bulk - more discount because it is cheaper for them to process and deliver one large order rather than several smaller ones

Question 38

Technical economies of scale

Answer 38

- If machines are worked at a high capacity level, they offer low unit costs than other production methods - Expensive expenses on machinery can only be justified when output is high so that the fixed cost can be spread thinly

Question 39

Financial economies of sclae

Answer 39

- Banks and other lending institutions are more likely to lend big businesses with proven track record and a diversified range of product. Interests charged are usually lower - Average cost of raising finance is lower than limited companies due to advisers' fees, prospectus publishing costs and advertising

Question 40

Marketing economies of scale

Answer 40

Outsourcing - employ an advertising agency and the cost can be spread over a high level of sales for a big firm

Question 41

Managerial economies of scale

Answer 41

Can employ specialist functional mangers

Question 42

Define diseconomies of scale

Answer 42

Factors that cause average costs of production to rise when the scale of operation is increased

Question 43

Communication problems

Answer 43

- Distortion of message caused by long chain of command - Overload with volumes of message being sent => poor decisions being made, poor feedback which reduces workers' incentives

Question 44

Alienation of the workforce

Answer 44

Difficult to directly involve every worker and to give them a sense of purpose and achievement => demotivated

Question 45

Poor coordination

Answer 45

Growing number of departments, divisions and number of countries a firm operates in => problem to coordinate and control all of these operations - Wasteful duplication of research into similar products by 2 branches

Question 46

Links between economies/diseconomies of scale and unit | costs

Answer 46

- High average production costs and low scale of operation => economies of scale - High average production costs and high scale of operation => diseconomies of scale => curved graph