[Music] hi welcome to taking the biz if you're new to this channel it's dedicated to providing revision videos for a-level business students just like yourself we've been asked uh a lot in the comments section beneath our videos for some operations management tutorials we're going to kick that off today by having a look at some operations management data now you could get asked to calculate these in your examinations or you might get asked longer questions where you're asked to interpret the data so let's launch straight into it first measurement we can look at to do with operations is what's known as labor productivity so this is a calculation that measures how much work or how much output we get from each of our employees on average now it takes an average because some of our workers will get more work done in a time frame than others some will work harder than others some will be more effective than others but the organization is Keen to see how much work on average it's able to get from its employees and it is a a formula a calculation that really strikes to the heart of the efficiency of the organization's operations management if the organization has got effective training it's got effective processes it's got efficient operations then it should be finding methods or it should be discovering ways of squeezing an ever increasing amount of output from each each of its workers per day per month per year even shorter than that some firms might even measure what it is per hour so here's the formula to calculate it we take the output per period so the output per day per week per month and we divide it by the number of employees we've used during that period so the number of employees that were working that day that week or that month and it tells us how much work how much output on average we've managed to elicit from each of our our workers now it's an interesting one for us as students to use in the examinations CU if we're asking a longer question about Labor productivity what we're really interested in is whether the business is improving it or not a firm that's able to increase its labor productivity is making better use of its Workforce it's squeezing more work out of its employees potentially at no extra cost if we can increase the amount of work that each employee gets done per hour then for their £680 per hour or whatever it is that the organization's paying them they're squeezing greater levels of output out of them so those costs of the organization can be split amongst more work that's being done so increasing labor productivity is a real key drive for organizations that are focused on being more efficient that are focused on being leaner so it's a great one to use as a source of application in examinations if we know that we've got a business that's trying to increase the efficiency of its operations then trying to improve its labor productivity is one way to achieve that another measure of operations efficiency that we can perhaps get asked to calculate the exam or maybe bring into our longer answers is to measure what's known as the unit cost of the organization as well and this time what we're working out is how much it costs on average to produce one of our products so as we're producing our product we will incur lots of fixed and variable cost costs but what we're trying to calculate is how much does it cost us on average to produce each one now we calculate the unit cost by taking the total costs of the organization the fixed and the variable cost added together and we divide that by the unit of output that the business has produced so total cost over the number of units that we've produced tells us our unit cost now again with the labor productivity we're looking to see whether the business could be successful at increasing its labor productivity firms actually want to try and reduce their unit costs so what they're doing there is they're bringing down the cost of manufacturing one of their units of output and that is a very attractive proposition first of all if a firm can reduce the cost of manufacturing one of their products then that gives them the opportunity to increase the amount of added value they have for that product if an organization that sells its products for £10 can bring the cost of manufacturing one of them down from £5 to4 then rather than making £5 profit per item they can make £6 profit per item so reducing unit costs has profit benefits for organizations it increases the amount of value that they can add but also firms might be eager to try and reduce their unit costs because they want to try and increase their competitiveness and again if firms can reduce the cost it takes to produce one of their products then they can also pass that cost saving on to Consumers through the form of lower prices so a firm might be able to reduce its costs of of per product per unit and then reduce their prices accordingly to the end consumer and that is going to make them more competitive in the marketplace it's going to put pressure on their Rivals it's going to create added barriers to entry to deter new Rivals and it might also stimulate greater demand for their products which might boost their market share May to make them more profitable as well depending on the elastic nature of their products so we've got labor productivity we've got unit cost as well another key operations management measurement is our capacity utilization and let's remember what we mean by capacity first of all a firm's capacity is the maximum number of products that it can produce in a time period so we can say what's the maximum number of products a firm can produce in an hour a day a week a month even a year year but capacity utilization is an actual measurement of how close a firm is getting to producing at that maximum capacity remember just because an organization has the capacity the potential it's got the machinery and the labor to produce 10,000 products a day doesn't mean that they are producing 10,000 products a day often businesses aren't making full use of their total capacity so they might have the workers available the Machinery available to make a certain number of products but they might not be producing at that level of output the percentage of a business's capacity that they are using is known as their capacity utilization figure so that firm that can produce 1,000 products an hour if they're actually only producing 800 products per hour we'd say that their capacity utilization is 80% they are producing at 80% of their full potential their full capacity now here's the formula to calculate it we take our actual output per period and we divide it by the maximum possible output per period so we take our actual output over an hour a week a day a month a year and we divide it by the the maximum that we could have produced our capacity if you like over that period now if we can work at quite a high capacity utilization figure it's good for organizations it shows that they're managing their operations management efficiently if an organization is only producing at 50% of its maximum capacity then it means it has a lot of resources that are essentially sitting idle and being wasted it means it's got Machinery that's going unutilized maybe it's got a Workforce or a labor force that's not being used as efficiently as it might be so firms are quite Keen to utilize as much of their capacity as possible cuz remember it's going to cost money to develop this capacity they're going to have to have hired workers or invested in machinery and equipment and if you're going to invest in it you want to use it you want to make use of it so firms are Keen to have a capacity utilization figure as high as possible interestingly enough though there are some perhaps drawbacks to running a capacity utilization figure that is too high if a firm is working at 100% capacity it's working flat out essentially it's producing the absolute maximum number of products that its resources dictate as its capacity then that can produce a couple of little dilemmas or problems for the organization first of all if there are any stoppages in the production process if there's any breakages or breakdowns to Machinery or if there's any loss of labor for any reason then the firm has no spare capacity that it can use to compensate for that now I've got consequences that might mean that the firm ends up letting down customers not meeting orders not delivering on time and when we're analyzing our answers that's got lots of negative consequences for the organization there's another reason why firms might not want to be producing at their full capacity and that's because it doesn't give them any potential to accept oneof last minute what we call special orders if an organization is operating at 90% capacity and it gets a call from a potentially new customer who wants to place an order might be quite a large lucrative contract it may even lead to a more permanent deal a more permanent Arrangement where this customer might be become a re repeat purchaser we don't have any spare capacity if we're operating at 100% capacity utilization we're going to have to pass up that order we're going to have to say to our customers sorry our resources are already fully committed you're going to have to go elsewhere we're operating at 90% capacity it might be that we've got the flexibility we've got the capabilities to accept that order which is obviously extra revenue for the organ organization but it might lead to a more lucrative longer term contract that the organization can profit from over months and years so there's our three me measures of uh operations data as we said got to know the formula so we can calculate them in the exam also got to know what the results might mean for the longer answers hopefully that helps you out in terms of your your revision good luck with your exams for the meantime keep on taking the beers