BM Unit 2 - L05 1 Higher Business Management Unit 2 Operations

BM Unit 2 - L052 Operations/Production Three distinct phases Inputs  Process  Outputs  

BM Unit 2 - L053 Inputs  Raw materials  Labour

BM Unit 2 - L054 Process  Converting raw materials into something useful  Use of machinery and other processes  Assembly

BM Unit 2 - L055 Output  The finished product!  Packaging  Storage  Distribution  Transport

BM Unit 2 - L056 Factors Affecting Production Systems  Nature of the product  Quantity to be produced  Resources available  Labour  Capital

BM Unit 2 - L057 Methods of Production  Job Production  Batch Production  Flow Production

BM Unit 2 - L058 Job Production  A one off designer dress  A house built to your own design  A custom-built boat  A piece of artwork  A hand-turned wooden bowl

BM Unit 2 - L059 Batch Production  A number of similar products (repeated jobs)  The same house repeated on a building site  Bakery produce - each batch may differ slightly

BM Unit 2 - L0510 Flow Production  Mass production of almost identical products  Tunnocks Caramel Wafers  Cars  Washing machines

BM Unit 2 - L0511 Quality Control  ‘Bolting the door after the horse has gone’  Leads to waste and scrap  Can be very “costly”

BM Unit 2 - L0512 Quality Assurance  Making sure the horse cannot bolt  Getting it right first time  All aspects of the business including the commitment of the workforce

BM Unit 2 - L0513 Quality - A Definition  Those features of a product or service that allow it to satisfy customers’ requirements

BM Unit 2 - L0514 Measuring Quality Tangible  Appearance  Reliability  Durability  Functions  Suitability  After sales service  Maintenance Intangible  Image and brand (‘street cred’)  Reputation  Exclusivity

BM Unit 2 - L0515 Quality Systems  Total quality management  Benchmarking  Quality circles  BSI  Other Trade organisations

BM Unit 2 - L0516  Right first time  Consistent, clear message on quality  Staff commitment to ongoing improvement  Partnership with suppliers  Educate and train staff  Supervisors encourage and help  Eliminate fear of failure  Departments integrate and share problems  Set clear, achievable goals  Help employees to take pride in their work  Train and educate  Establish a structure and culture to support these aims Total Quality Management (TQM)

BM Unit 2 - L0517 Features of TQM  Commitment to customer needs  Close links with the supply chain  Personal responsibility by employees  Company-wide policy for all staff  Emphasis on teamwork  Clear measures of “quality”  Information gathering to support these measures  Well-used 2-way communication systems

BM Unit 2 - L0518 Benchmarking - A Definition  Benchmarking is the process of setting competitive standards, based on the achievements of other firms, against which an organisation will monitor its progress.  Benchmarking tends to focus on the “best in class” companies, but for specific functions a company may compare itself to an organisation in a different industry.

BM Unit 2 - L0519 Types of Benchmarks  Internal - comparison with a function within the organisation  External - comparison with other organisations  Competitive - direct comparison with a competitor  Generic - comparing general business activities (eg recruitment)  Customer - contrasting the level of fulfillment of customer expectation

BM Unit 2 - L0520 Quality Circles  Production workers know more about the production process than “managers”  Workers are motivated by being involved and consulted about production problems (empowerment)

BM Unit 2 - L0521 British Standards Institution  BSI is an organisation that produces national standards for certain products.  A ‘Kite’ mark symbol is awarded to products that are proven to have met certain quality and safety standards.  Although the paperwork and process of achieving the standard is lengthy, it provides the organisation with a competitive advantage as consumers have confidence their product.  Various International Standards (IS) can als be achieved.

BM Unit 2 - L0522 British Standards Institution Write a one page report explaining;  Who BSI are.  What Assessment and Certifications they offer.  What products and services they offer. All this can be found at

BM Unit 2 - L0523 Other Trade Organisations Certain trade organisations introduce standard sand logos to be displayed on products to say they have met agreed standards of quality and safety.

BM Unit 2 - L0524 Types of Stock  Raw materials, components, etc  Work in progress (unfinished work)  Finished goods

BM Unit 2 - L0525 The Importance of Stock Control  “Stock out” = lost sales and poor reputation  Excess stock = high storage costs  Excess stock runs risk of damage, obsolescence, “opportunity costs” (alternative use for the money tied up in stock)

BM Unit 2 - L0526 Factors Influencing Stock Levels  The level of demand  Unpredictability of demand  Degree of spoilage/perishability  Rental costs for storage  Bulk-buying discounts  Reliability of suppliers  Competition - luxury/necessity

BM Unit 2 - L0527 Elements of Stock Control  Maximum stock levels  Minimum stock levels  Rate of consumption  Lead time - ordering to receipt  Re-order level

BM Unit 2 - L0528 Just-in-time (Kanban System) Advantages  Stock exactly matches production  Improves cash flow (less tied up)  Savings on purchase and storage costs  Less stock wastage  Production delays prevented  Can respond to changes in demand  Close ties with suppliers established

BM Unit 2 - L0529  High dependency on suppliers to meet delivery and quality standards  Suppliers must be willing to participate (can be high-risk - ‘all the eggs in one basket’ - M&S suppliers)  Increase in order processing costs Just-in-time (Kanban System) Disadvantages

BM Unit 2 - L0530 The Purchasing Function  Having sufficient stock available  Avoiding wastage of stock  Having the correct quality  In the factory when needed  Competitive prices paid  Building good relationship with suppliers

BM Unit 2 - L0531  Best quality  Lowest price  Delivered in correct quantities  Delivered at the correct time The Purchasing Mix

BM Unit 2 - L0532 Labour-Intensive V Capital-Intensive The majority of businesses use a mixture of Labour and Capital production methods. Whether the process is said to be Labour- Intensive or Capital-Intensive (Machine- Intensive) depends on the degree of Automation, that is how reliant the process is on machines.

BM Unit 2 - L0533 Labour-Intensive production A production process is said to be Labour- Intensive when it is heavily reliant on the workforce. Why?  The labour supply is cheap and readily available  The product requires craftsmanship or special expertise to produce  The business is small and does not have the finance to purchase expensive machinery

BM Unit 2 - L0534 Labour-Intensive costs  A skilled labour force can be expensive to pay and train  Limited to small scale production.  Staff illness or absences  Quality could be compromised

BM Unit 2 - L0535 Capital-Intensive production If the production process is reliant on automation then it is said to be Capital- Intensive. Why?  A standard product is being produced  Labour is expensive or scarce  Continuous production is required e.g. Tunnocks  Consistency of product quality is required  Economies of Scale are required

BM Unit 2 - L0536 Capital-Intensive costs  Set-up costs  Apathy – workers motivation can be low  Individuality of products is reduced  Lost time and production due to maintenance and repairs

BM Unit 2 - L0537 Warehousing There are two methods of warehousing 1.Centralised 2.Decentralised

BM Unit 2 - L0538 Warehousing The choice of method depends on  The type of stock to be held  The finance available for storage  Company policy  Number, size and location of customers to be supplied

BM Unit 2 - L0539 Distribution Mix The route through which a manufacturer distributes products depends on;  The type of product  Manufacturers distribution capability  Legal restrictions  Finance available  Reliability of other organisations  Desired image for the product