OPERATIONS

The Timber Mill  Firstly we will split into groups of 4-6 people  You will then read the background information  The object of the task is to find the answers to 3 questions  What is the problem?  What are the consequences of the problem?  How can the problem be solved?

Operating Systems  INPUT – raw materials etc that goes into the making of the product  PROCESS – the changing of the raw materials into the  0UTPUT – which is the finished product or service  An operating system is a configuration of resources combined for the provision of goods and services

Operations Management  this is concerned with the efficient conversion of an organisation’s resources into the goods or services that it has been set up to provide

3 key areas of Operations Management  The purchase and storage of raw materials  The production and storage of the finished product  The distribution of the finished product

Task  Think about a portion of McDonald’s chips – draw a flow diagram which shows that stages which a potato will go through before it reaches the end consumer.

Quality Control Methods  Quality Control – is historic, reactive and based on power. This was the first method of quality checks introduced into the work place and is the basis for all other quality procedures.  Products are checked at the end of the production process – if they are found to be faulty they are discarded, or reworked. Therefore there is a high degree of wastage in this method – up to 25% of output can be wasted.  This eats into profits, is inefficient, can give a poor image to the organisation, “the Friday syndrome”, heavy costs of raw materials and man hours and a waste of scare resources.

Quality Assurance  The product is checked at every stage of the production process – therefore faults are detected and remedied early in the process. Therefore there are fewer faulty products at the end of the process.  The standards and the requirements of the product are set down and everybody knows those standards and the product is measured against the standards – the checks ensure the product meets the standards.  Wastage is reduced to 5% of output.

Quality Assurance vs Quality Control  QA sets standards and expectations, everybody knows these standards, which minimises errors, checks at each stage of production means that there are fewer products discarded at the end of the production line – QA is based on prevention.  QC – which is the basis for all quality procedures is based on control and inspection of the product at the end of the production line, standards not necessarily set or shared and so higher wastage and a much more inefficient and outdated system.

Quality Standards  We have discussed organisations perspective of quality – standards and expectations etc – but now modern day thinking is that consumers perceptions should be taken into consideration to ensure a quality product is being produced.  Organisations now consider – fit for purpose, aesthetics, packaging, after-sales care, value for money, ease of use, consumer perceptions, reputation of the product and even how staff deal with customers.

Other factors to be taken into consideration  The government through the British Standards Institute has defined quality assurance as and all embracing concept involving all stages and all people in the production process. This has meant a significant move away from the idea of quality control where there was an emphasis on detection and remedial treatment of faults.  The government also encourages organisations to adopt Quality Standards eg BS5750 as government departments will only deal with organisations who have met these standards and obtained a certificate.  British Standard 5750 has been developed as a benchmark for quality in the UK and there are International equivalents eg ISO9000 – which is recognised as a mark of quality across the world.

Total Quality Management (TQM)  Main aim to produce a perfect product first time and every time that meets customer requirements  First seen in the UK 20 years ago  Uses the principles of Quality Assurance  But takes a fundamentally different view of quality  This view is that the customer requirements comes above everything else  The shift is from “we know what quality is” to you tell us what you want and that will be our definition of quality”

TQM continued  It is assumed in TQM that the next user of the good is the customer and so on and so ensuring quality throughout the whole process  Suppliers have to meet the requirements of the organisation buying from them and so on – a chain of quality is created.  Quality is always at the forefront of everyone’s thinking right through the organisation from the cleaners to the MD.  Quality is essential at each and every step.

Operations Revision Questions  Describe the 3 key elements of the operations function.  Why might a business use job production?  What influences a business’ choice of production method?  What is meant by capital intensive production?  Explain the term benchmarking.  Describe Quality Control.  Give an explanation of the key areas of Total Quality Management  What are quality circles and why are they beneficial to an organisation?  Describe the advantages and disadvantages to a manufacturer using the flow production method.

The Purchasing Mix  The Purchasing Mix is being able to obtain materials:  at the best quality,  the lowest cost,  delivered in the correct quantities  at the correct time.

Decisions to be made concerning the quantity to be purchased  The stock of raw materials currently available  The time between this order for your products and any further orders  The amount of raw materials required to meet output demands  The availability and cost of storage space

Decisions to be made regarding choice of supplier  Price – is it the lowest price, are we receiving discount for bulk buying, discount for being a regular customer, are credit terms available  Quantity – is it acceptable for our needs, is it consistently available  Availability – is the supplier dependent on other sources, are the suppliers reliable, are their delivery systems reliable, do we have confidence in our supplier  Location of supplier – are there additional transport requirements eg is the supplier far away, do we incur insurance costs for the transportation of the goods.

Payment Systems  People can be salaried – this means that they for example get paid £25,000 per year – they will usually be paid monthly  People may get paid a wage where their wage is calculated by eg £4.50 per hour – they may get paid weekly or bi-weekly.  The way in which payments are calculated can be motivational to encourage workers to work harder – but organisations have to be careful to get the balance right or quality could be affected.

Payment methods  Overtime – get paid extra for working hours out with normal working week – you may get time and a half or double time  Piece rate – where workers get paid extra for every unit they produce over and above their weekly target  Performance related pay (PRP) – an extra payment to staff who are working above the standard required  Bonuses – paid to workers who are again performing above company standards  Profit sharing schemes – if an organisation has performed particularly well they may have a scheme whereby they share the extra profit amongst their employees  Hourly rate – wages calculated on how many hours worked against the amount paid by the hour  Share save schemes – workers can save money up and buy shares in the organisation, aims to get the workers involved in the organisation by becoming shareholders  Fringe Benefits – eg company cars, expense accounts  Commission – paid usually to sales staff where they get a percentage of the amount they have sold

Transportation and Delivery of goods  This involves organisations delivering goods in an appropriate way to ensure that their products arrive in the right place at the right time in quality condition.  Some organisations have their own distribution warehouses eg Tesco and transport but others have to rely on third party organisations.  Organisations have to consider  The type of product  The amount of product  The distance

Transport available  Road  Rail  Water  Pipeline  Air  Most of our goods are transported by road nowadays – 64% - even large bulky loads are transported by road. Trucks can be adapted to suit the delivery of most products eg refrigerated lorries to transport perishable goods.

Scheduling  This is essential to any business – it is making sure that all the factors of production are working together in harmony. This ensures from the initial production to the final delivery, everything works smoothly and delivery times are met.

Revision Questions  Describe 3 different types of transport and give advantages and disadvantages of using each  Why are barcodes important in modern business?  Explain why JIT systems can reduce costs to business  Describe the main types of payment to ordinary workers and those which maybe available to Senior Management  What are the main factors which affect the purchasing decision?  What are the four main decisions to be made in minimising stock holding costs?

Revision Topics for NAB  Marketing  Promotional activities  Pricing strategies  Target markets  Methods of selling  The role of wholesalers  The benefits of publicity

Revision topics for NAB  Operations  Methods of production  Quality standards  Methods of ensuring a high quality product  Purchasing mix – choosing the right supplier  Distribution of the product – methods of transporting goods, and what can affect the efficient transportation of goods.