Operations Management (1)

“Controlling the resources of the business to make a product or provide a service efficiently and to a satisfactory level of quality.”

Why OP is important to a new business?

New businesses have operational needs. The owner will require:

·      Premises (location)

·      Machines, computers or other equipment

·      Stocks of supplies (e.g: raw materials for factory or stationery for insurance company).

Operational constraints on a new business:

·      Budget (limited)

·      Expertise (may not be able to afford skilled workers for all activities)

·      Access to ICT & other technology (limited by cost & the level of production of a new business might not justify the cost of the latest technology).

Production methods:

Production means using resources of land, labor & capital to produce goods & services.

Job production:

Job production: Making one-off specialized products for each customer.

(E.g: architects, tailors, & wedding-cake bakers)

Main features	Advantages	Disadvantages
Each product/service is aimed to satisfy the particular needs of one customer.	One-off products/services allow customers’ special requirements to be meet.	Production cost can be high. It is often a slow process as the business must plan & design each individually.
It is a flexible production process – no two needs to be the same.	High prices can often be charged as customers may be prepared to pay extra for specially designed products.	Labor costs can be high, as skilled workers are usually needed.
	Easier & cheaper to set up compared to other methods, thus used for small businesses.

Batch production:

Batch production: Groups of identical items that pass through different stages of the production process at the same time.

(E.g: paint manufacture, school uniforms, soft drinks & takeaway food).

- Might be suitable for some new & small business such as a takeaway restaurant, in which large quantities of dishes could be made in advance & reheated)

Main features	Advantages	Disadvantages
Groups of identical products can be made at the same time.	Cost of each unit produced is likely to be lower than job production as it is more efficient to make a lot of similar items.	Less scope for customizing products – consumers must be prepared to buy similar goods.
Different designs & styles can made in different batches	Different consumer tastes can by supplied by producing different products in different batches.	Can take longer to switch from making a batch of one product to a batch of a different product.
To be profitable there must be demand for the same style, design or flavor of product.		Stocks of finished goods from each batch may take some time to sell.

Operational efficiency:

Operational efficiency: Producing goods/ services to an acceptable standard with as few resources as possible to keep costs per unit low.

Unit costs: The average cost of making each unit.

Specialization: Work is divided into separate tasks/ jobs that allow workers to become skilled at one of them.

Advantages of being operationally efficient:

·      Lower prices to make force competitors business to make a loss if it reduced prices too. This could eventually drive competitors business out of business altogether.

·      Expand business to employ other workers who work as efficient as possible & achieve a high- quality product/service to be as competitive as possible.

How can one firm be more operationally efficient than another?

·      More efficient machinery (by using the latest technology, although this can be expensive).

·      More highly motivated (workers work quickly & well).

·      Minimum wastage (virtually everything produced can be sold, means making sure everything that is produced is ‘right first time’).

·      More effective management (faster production methods, such as encouraging worker specialization - good managers are at the heart of an efficient business).