IB Business Management Unit 5 Operations Management

5.1 5.2 5.4 operations management On completing this chapter you should be able to Define operations and describe their relationship with other business functions. Discuss operations management strategies and practices for ecological, social and economic sustainability. Explain the reasons for a specific location of production and discuss the ways of reorganizing production. Define and explain the following production methods: Job or customized production Batch production Mas production Flow, line and process production Cellular manufacturing

operations Refer to the fundamental activities of organizations: what they do and what they deliver. Every organization is a producer of something. Economic sustainability: The need to use available resources and raw materials to their best advantage, ensuring profitability and financial performance. Social sustainability: The need to take human factors into account when making business decisions. Ecological sustainability: The need to take ecological factors into account when making business decisions.    

Production Methods

Job (customized) Production Production methods Job (customized) Production Involves the manufacture of a single product at a time, from start to finish. A single worker (a tailor) or a group of workers (a team of construction workers) handles the whole job. It is usually associated with production, where each product is one off order and tailor-made to the specific requirements of the customer, like a dress, a haircut, a bridge, an office building or an advertising campaign. Production is highly skilled, labor intensive with little opportunity for economies of scale and therefore, costs are high.

Production methods Batch Production Involves producing a limited number of identical products (a batch) at a time. Work on each batch is fully completed before switching to the production of another batch. For example, a bakery will produce a batch of bread and then switches to producing a batch of muffins. Sometimes, a process is performed on a batch and then transferred to another process until all manufacturing processes are completed, e.g. clothes manufacturing. Batch production is usually used when demand for a firm’s product is regular but not too many.

Mass, flow and line production Production methods Mass, flow and line production Mass production is the manufacturing of a standardized product on a large scale. It tends to be highly capital intensive and specialization (division of labor) is essential. Therefore unit costs of production are relatively low compared to batch or job production. Flow production is a form of mass production whereby different operations/tasks are continuously linked or carried out in a sequence to arrive at the final product. When one task is completed, the next stage must follow immediately so that time is saved. For example, producers of clothing or newspapers follow this method. Line production is a form of flow and mass production where the product is assembled in various stages along a conveyor belt or assembly line until a finished product is made. Flow/line/mass production tends to be highly automated and capital intensive. Mass market vehicles are manufactured in this way.

Cellular manufacturing (Cell production) Production methods Cellular manufacturing (Cell production) Involves dividing the workplace or sometimes a flow production into areas/cells. Each cell is composed of several workers and responsible for a set of tasks, which is part of the overall production process. The team is multi-skilled. Instead of one person in charge of one task, a team is in charge of a set of tasks. The team is empowered in deciding on the best production process in order to reduce costs, improved quality and increase productivity. The team is responsible for allocating specific roles, covering for absences and holidays, appointing their own supervisors, organizing training and arranging their own breaks. They are responsible for the quality of the product they pass to the next team. For example, in a furniture manufacture, one cell is responsible for cutting different parts of the furniture. The parts are then passed to another cell for assembly and then passed to another cell for painting.

Production methods Lean production Is a term covering different methods, which reduce costs, improve quality and increases productivity. A Japanese approach to operations management focusing on less waste and greater efficiency. It includes: Just in time production JIT: Avoiding holding stock. Kaizen: Method based on continuous improvement. Just in case production JIC: Holding reserves.

Selecting the most appropriate method of production The level of demand The nature of the target market The nature of the product The comparative costs of labor and capital The nature of the firm itself New technologies The goals of the business Government policies

location Location refers to the geographical position of a business, i.e. where it is sited. Where to locate a new firm or relocate an existing firm is critical to its survival and development. Quantitative factors Land Labor Raw materials Nearness to customers Government incentives Feasibility of e-commerce Qualitative factors Management preferences Local knowledge Infrastructure Political and economic factors Ethical issues

Ways of reorganizing production Outsourcing/ subcontracting: Refers to the transfer of internal activities to an external firm in order to reduce costs. The subcontractor should be able to carry out the outsourced work for less without reducing quality. For example, Dell outsources the production of their laptop batteries to Sony.

Ways of reorganizing production Off shoring: Involves relocating business activities and processes abroad. It tends to take place in less developed countries where the labor costs are relatively cheaper. For example, Nike outsources most of its production in China.

Ways of reorganizing production Inhousing (or insourcing) and reshoring: The practice of performing peripheral activities internally within the company. The opposite of outsourcing. Reshoring is the practice of bringing back business functions to the home country. The opposite of offshoring.

Suggest and justify an appropriate production method for each of the following products: Children’s clothing Navy battleships Ceramic pots Desktop computers Bottled mineral water