Operations Management  Operations management can also be known as production management... more the case in countries where output is dominated by secondary industries producing goods from factories.  But, what is happening to the Secondary Sector in most countries? Declining, so the importance of secondary sector has declined so focus on pure production has shifted

Operations Management  All the issues and decisions that factory managers take are still relevant  BUT as these same decisions still apply to all forms of business the change from ‘production management’ to ‘operations management’ allows businesses, whether primary, secondary or tertiary to analyse their productivity

Operations Management  So, what is OM concerned with? land, labour and capital. Being able to provide goods and services that will satisfy market demand, identified through R&D.  OM must also be focused on: Efficiency of production Quality Flexibility

Operations Management  In basic terms... OM is all about producing the required goods and services at a good quality for as little cost as possible.  All businesses and their production process is as simple as turning inputs into outputs and applies to all industries

Operations Management  In every case what is the main aim in this process ? To add value so we can make profit.  What factors does the amount of value added depends on? ▪The design of the product – having quality features that justify your price tag. ▪The efficiency of the management and combination of resources – reducing waste adds value to the production process. ▪Impact on PR strategy (or clever advertising) – Clever marketing has urged us as consumers to pay more for certain ice creams than others

Operations Management  Value analysis is? The process of finding out if you can produce more efficiently and not lose consumer appeal  What are the main factors of deciding whether or not you produce a new product? Performance – does it have what the customer wants? Appearance – does it look right? Is it appropriate for the desired outcome and market? Economy of manufacture – can it be made at a cost that can allow for profit What is happening in the games console market at the moment?

Operations Management  The different corners of the triangle are all ‘pulling’. Would you produce a washing machine that is expensive to make but would last 20yrs ? Or a car that can’t really hold 4 passengers and is quite sporty and is aimed at the family market?  Value analysis helps us come to a compromise

Operations Management  So OM works closely with all the relevant departments to come up with the desired outcome  Do they always get it right ? NO   In the best case scenarios Value Analysis comes up with a method of producing the goods at a lower cost without losing quality or appeal  How could this happen ? a new material to use a new machine (labour saving)

Operations Management  MEASURING PRODUCTIVITY... How productive is a business? How can it be measured? PRODUCTIVITY and LEVELS OF PRODUCTION are very different LABOUR PRODUCTIVITY: Total output in a given time Total workers employed CAPITAL PRODUCTIVITY: Output Capital Employed In any industry, if the costs of labour and capital do not change and output increases UNIT COSTS WILL FALL

Operations Management – Productivity...  How could OM raise productivity levels? Improve training ○ remember types of training... ○ What is suitable?... What is affordable? Will depend on the CASE STUDY! Purchase more technology ○ Increase output with fewer workers ○ BUT – capital outlay – will need to maintain high levels of output ○ Workers insecurities due to lack of knowledge (Maslow)

Operations Management – Productivity... Improve motivation ○ Pay more? Will it make a difference? ○ Non Financial methods? Kaizan, QC, Delegation More efficient management ○ Are managers doing their jobs correctly? ○ Are they ordering on time? ○ Are staff being managed correctly? ACTIVITY 20.1 PAGE 385

Operations Management – Productivity...  Is always the best thing to do - raise productivity? It doesn’t guarantee success! If it’s an unpopular product why make more? More effort to increase productivity can lead to higher costs (wage demand) What if demand falls due to external factors? Fear – what if we make ourselves redundant 

Operations Management – Effectiveness..  OK, so we know how to measure Productivity and Production... By measuring these we can see if we are being Efficient - labour efficiency and capital efficiency But, how would you measure Effectiveness? If a business is up on production by 20% with a 10% costs savings, are they being effective? Would this be effective is demand for the product was falling? Would this be effective if the MBO for production was to reduce costs by 10%? How effective a business is depends on the OVERALL operations of the business and what their aims are

Operations Management – Effectiveness.. Efficiency is... producing output at the highest ratio of output to input Effectiveness is... meeting the objectives of the business by using inputs productively to meet customers needs So, in the long term, meeting customers needs is more important than producing goods at the lowest possible costs

Operations Management – Labour v’s Capital Labour Intensive A high level of labour input compared with capital output Capital Intensive High quantity of capital equipment compared with labour input So, what method is appropriate? What does it depend on? The quality of the product – “hand made” The rarity of the product – mass or unique? The finances available to a business – can they afford machinery? Can both methods be applied to the same product?

Operations Management – Effectiveness.. Efficiency is... producing output at the highest ratio of output to input Effectiveness is... meeting the objectives of the business by using inputs productively to meet customers needs So, in the long term, meeting customers needs is more important than producing goods at the lowest possible costs

Operations Management  Get out homework...  Revision Case Study – KL Juice Bar

KL Juice Bar – Q1  Outline the resources that Raj and Ameer needed before they could open the juice bar. [6]  land − premises in the city centre to operate the juice bar in  labour − staff to prepare snacks, operate juice machines and take orders from customers  capital − equipment for food preparation, juice machines and tills

KL Juice Bar – Q2  Do you think that the juice bar was efficient and effective? Explain your answer. [6]  Efficiency refers to a firm’s ability to turn inputs into the greatest possible output.  There is some evidence that initially the business had high levels of efficiency, e.g. labour productivity was high – the juice bar was able to serve a large number of customers.  Efficiency has declined as customer numbers have fallen, but the staffing levels have not.

KL Juice Bar – Q2  Effectiveness means meeting the objectives of the business and customer needs.  KL Juice Bar does not appear to be effective. Customer needs were not met, food and drinks were not fresh, quality was poor and there were long queues waiting to be served.  However, although customer numbers have fallen, the bar is still popular.  It is possible that the bar is operating at a profit.

KL Juice Bar – Q3  Would it be possible to make such a business more capital intensive? Explain your answer. [6]  The Juice Bar is in the tertiary sector and provides a service. It is likely to be highly dependent on labour to serve customers and prepare food and drinks.  However, it does use capital equipment, such as the juice machines. It is possible for the business to increase its capital intensity through purchasing more juice machines and it is possible that preparation of snacks could be more capital intensive.  However, the business will remain labour intensive as face-to-face contact with customers is essential.

KL Juice Bar – Q4  Evaluate three ways in which the owners could increase the level of labour productivity in the juice bar. [12] Improve Worker Motivation by:  Increasing pay can have a short-term impact on motivation, but also increases the costs of the business.  Involving employees in decision making can give them a sense of belonging to the organisation and, therefore, improve motivation. Management must be prepared to listen to the suggestions of workers for this to be effective.  Profit-sharing schemes provide a clear incentive to employees to offer better customer service and to be more productive. There can be a problem with free-riders. Any other reasonable suggestions that improve worker sense of well-being will be accepted by the examiner

KL Juice Bar – Q4 Improve Recruitment and Training:  KL Juice Bar should ensure that it recruits the best-available employees. The part-time staff it has recruited lack suitable training. The bar should be prepared to provide training to staff ; this might be through day release to appropriate college courses.  Is the problem caused by the nature of the contracts being part time? If trained workers do not want part-time contracts, Raj and Ameer may need to review staffing and recruit full-time staff.  However, part-time staff offer greater flexibility to the business. Any other reasonable suggestions that improve worker sense of well-being will be accepted by the examiner

KL Juice Bar – Q4 Improve Capital Equipment:  Are there sufficient juicing machines to meet the level of demand?  Is it possible to introduce technology into the business to aid employees becoming more efficient, e.g. computerised tills and kitchen equipment?  The problem with capital equipment is the cost of purchase. Does KL Juice Bar have the financial resources to enable purchase of further capital equipment? Any other reasonable suggestions that improve worker sense of well-being will be accepted by the examiner