Operations Management - IGCSE Business Revision Notes

Production

• Effective management of resources for producing goods/services by combining production factors.
• Operations Department responsibilities:
  • Cost-effective resource use
  • Effective inventory management
  • Meeting customer demand with required output
  • Meeting expected quality standards

Productivity

• Measure of business efficiency: output vs. inputs.
• Labour productivity: Output over time per number of employees.
• Increase productivity by:
  • Training for improved skills
  • Automation
  • Motivation
  • Economies of scale

Buffer Inventory Level

• Inventory level for high demand situations.
• Example: Retailers maintain a buffer inventory to meet demand during supplier lead time.

Lean Production

• Techniques to reduce waste and increase efficiency/productivity.
• Types of waste:
  • Overproduction, Waiting, Transportation, Unnecessary Inventory, Motion, Over-processing, Defects.
• Benefits: Lower costs, quicker production, reduced inventory storage.

Types of Lean Production

1. Kaizen (Continuous Improvement)

   • Worker collaboration to discuss and solve problems.
   • Benefits: Increased productivity, space reduction, improved layout.

2. JIT (Just In Time)

   • Supplies arrive as needed for production.
   • Benefits: No need for warehouse space, fast cash flow.

3. Cell Production

   • Production line is divided into units.
   • Benefits: Increased morale, improved collaboration.

Methods of Production

Job Production

• Tailored products (e.g., wedding cakes).
• Pros: Meets customer requirements, varied jobs, flexible.
• Cons: High costs, time-consuming, special materials.

Batch Production

• Small quantities of different products.
• Pros: Variety, consumer choice, production continuity if breakdowns occur.
• Cons: Expensive handling, delay in resetting machines, high raw material needs.

Flow Production

• Continuous large quantity production.
• Pros: Low costs, continuous production, fast goods delivery.
• Cons: High raw material needs, production affected by machine breakdowns, high capital cost.

Technology in Production

• Pros: Greater productivity, job satisfaction, quality products.
• Cons: Increased unemployment, setup costs, adjustment time for employees.

Costs

Fixed Costs

• Do not vary with output (e.g., rent, wages).

Variable Costs

• Vary with output (e.g., raw materials).

Total Cost

• Fixed cost + variable cost.

Average Cost

• Cost per unit: Total Cost / Total Output.

Economies of Scale

• Factors that reduce Average Cost as business grows:
  • Bulk purchasing, marketing, financial advantages, managerial expertise, technical advantages.

Diseconomies of Scale

• Factors that increase Average Cost as business grows:
  • Low morale, poor communication, slow decision-making.

Break-Even Analysis

Break-Even Level of Output

• Revenue equals total cost, resulting in no profit/loss.

Margin of Safety

• Sales can fall before reaching break-even.

Break-Even Charts

• Pros: Profit insights, adaptable to cost changes, safety margin calculation.
• Cons: Assumes all units are sold, assumes fixed costs, linear assumptions.

Quality

• Meeting customer expectations without defects.
• Importance: Brand image, loyalty, reputation, sales.

Quality Control and Assurance

• Quality Control: End-process checking.

  • Pros: Customer satisfaction, minimal training.
  • Cons: Hiring costs, doesn't find fault reasons, rework costs.

• Quality Assurance: Throughout process checking.

  • Pros: Customer satisfaction, less expensive, fault identification.
  • Cons: Hiring costs, potential lack of motivation.

Total Quality Management

• Continuous improvement by checking quality at each production stage.

Factors Affecting Location Decisions

Manufacturing

• Close to raw materials, good transport, skilled labor.

Service

• Direct customer contact, skilled labor availability, favorable climate for tourism.

Retail

• Frequent shopper areas, parking, security.

International Relocation

• Lower costs, avoidance of trade barriers.

Role of Legal Controls

• Government influence on location decisions:
  • Encourage setup in underdeveloped areas with grants/subsidies.
  • Discourage setup in crowded or scenic areas with planning restrictions.