OPERATIONSOPERATIONS

The Timber MillThe Timber Mill

Firstly we will split into groups of 4-6 peopleFirstly we will split into groups of 4-6 people You will then read the background informationYou will then read the background information The object of the task is to find the answers to 3 The object of the task is to find the answers to 3

questionsquestions What is the problem?What is the problem? What are the consequences of the problem?What are the consequences of the problem? How can the problem be solved?How can the problem be solved?

Operating SystemsOperating Systems

INPUT – raw materials etc that goes into INPUT – raw materials etc that goes into the making of the productthe making of the product

PROCESS – the changing of the raw PROCESS – the changing of the raw materials into thematerials into the

0UTPUT – which is the finished product or 0UTPUT – which is the finished product or serviceservice

An operating system is a configuration of An operating system is a configuration of resources combined for the provision of resources combined for the provision of goods and servicesgoods and services

Operations ManagementOperations Management

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

3 key areas of Operations 3 key areas of Operations ManagementManagement

The The purchase purchase and and storagestorage of raw of raw materialsmaterials

The The productionproduction and and storagestorage of the of the finished productfinished product

The The distributiondistribution of the finished product of the finished product

TaskTask

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

Quality Control MethodsQuality Control Methods

Quality Control – is historic, reactive and based on Quality Control – is historic, reactive and based on power. This was the first method of quality checks power. This was the first method of quality checks introduced into the work place and is the basis for all introduced into the work place and is the basis for all other quality procedures.other quality procedures.

Products are checked at the end of the production Products are checked at the end of the production process – if they are found to be faulty they are process – if they are found to be faulty they are discarded, or reworked. Therefore there is a high discarded, or reworked. Therefore there is a high degree of wastage in this method – up to 25% of output degree of wastage in this method – up to 25% of output can be wasted.can be wasted.

This eats into profits, is inefficient, can give a poor image This eats into profits, is inefficient, can give a poor image to the organisation, “the Friday syndrome”, heavy costs to the organisation, “the Friday syndrome”, heavy costs of raw materials and man hours and a waste of scare of raw materials and man hours and a waste of scare resources.resources.

Quality AssuranceQuality Assurance

The product is checked at every stage of the The product is checked at every stage of the production process – therefore faults are production process – therefore faults are detected and remedied early in the process. detected and remedied early in the process. Therefore there are fewer faulty products at the Therefore there are fewer faulty products at the end of the process.end of the process.

The standards and the requirements of the The standards and the requirements of the product are set down and everybody knows product are set down and everybody knows those standards and the product is measured those standards and the product is measured against the standards – the checks ensure the against the standards – the checks ensure the product meets the standards.product meets the standards.

Wastage is reduced to 5% of output.Wastage is reduced to 5% of output.

Quality Assurance vs Quality Quality Assurance vs Quality ControlControl

QA sets standards and expectations, everybody QA sets standards and expectations, everybody knows these standards, which minimises errors, knows these standards, which minimises errors, checks at each stage of production means that checks at each stage of production means that there are fewer products discarded at the end of there are fewer products discarded at the end of the production line – QA is based on prevention.the production line – QA is based on prevention.

QC – which is the basis for all quality procedures QC – which is the basis for all quality procedures is based on control and inspection of the product is based on control and inspection of the product at the end of the production line, standards not at the end of the production line, standards not necessarily set or shared and so higher wastage necessarily set or shared and so higher wastage and a much more inefficient and outdated and a much more inefficient and outdated system.system.

Quality StandardsQuality Standards

We have discussed organisations perspective of We have discussed organisations perspective of quality – standards and expectations etc – but quality – standards and expectations etc – but now modern day thinking is that consumers now modern day thinking is that consumers perceptions should be taken into consideration perceptions should be taken into consideration to ensure a quality product is being produced.to ensure a quality product is being produced.

Organisations now consider – fit for purpose, Organisations now consider – fit for purpose, aesthetics, packaging, after-sales care, value for aesthetics, packaging, after-sales care, value for money, ease of use, consumer perceptions, money, ease of use, consumer perceptions, reputation of the product and even how staff reputation of the product and even how staff deal with customers.deal with customers.

Other factors to be taken into Other factors to be taken into considerationconsideration

The government through the British Standards Institute The government through the British Standards Institute has defined quality assurance as and all embracing has defined quality assurance as and all embracing concept involving all stages and all people in the concept involving all stages and all people in the production process. This has meant a significant move production process. This has meant a significant move away from the idea of quality control where there was an away from the idea of quality control where there was an emphasis on detection and remedial treatment of faults.emphasis on detection and remedial treatment of faults.

The government also encourages organisations to adopt The government also encourages organisations to adopt Quality Standards eg BS5750 as government Quality Standards eg BS5750 as government departments will only deal with organisations who have departments will only deal with organisations who have met these standards and obtained a certificate.met these standards and obtained a certificate.

British Standard 5750 has been developed as a British Standard 5750 has been developed as a benchmark for quality in the UK and there are benchmark for quality in the UK and there are International equivalents eg ISO9000 – which is International equivalents eg ISO9000 – which is recognised as a mark of quality across the world.recognised as a mark of quality across the world.

Total Quality Management (TQM)Total Quality Management (TQM)

Main aim to produce a perfect product first time and Main aim to produce a perfect product first time and every time that meets customer requirementsevery time that meets customer requirements

First seen in the UK 20 years agoFirst seen in the UK 20 years ago Uses the principles of Quality AssuranceUses the principles of Quality Assurance But takes a fundamentally different view of qualityBut takes a fundamentally different view of quality This view is that the customer requirements comes This view is that the customer requirements comes

above everything elseabove everything else The shift is from “we know what quality is” to you tell us The shift is from “we know what quality is” to you tell us

what you want and that will be our definition of quality”what you want and that will be our definition of quality”

TQM continuedTQM continued

It is assumed in TQM that the next user of the It is assumed in TQM that the next user of the good is the customer and so on and so ensuring good is the customer and so on and so ensuring quality throughout the whole processquality throughout the whole process

Suppliers have to meet the requirements of the Suppliers have to meet the requirements of the organisation buying from them and so on – a organisation buying from them and so on – a chain of quality is created.chain of quality is created.

Quality is always at the forefront of everyone’s Quality is always at the forefront of everyone’s thinking right through the organisation from the thinking right through the organisation from the cleaners to the MD.cleaners to the MD.

Quality is essential at each and every step.Quality is essential at each and every step.

Operations Revision QuestionsOperations Revision Questions Describe the 3 key elements of the operations function.Describe the 3 key elements of the operations function. Why might a business use job production?Why might a business use job production? What influences a business’ choice of production What influences a business’ choice of production

method?method? What is meant by capital intensive production?What is meant by capital intensive production? Explain the term benchmarking.Explain the term benchmarking. Describe Quality Control.Describe Quality Control. Give an explanation of the key areas of Total Quality Give an explanation of the key areas of Total Quality

ManagementManagement What are quality circles and why are they beneficial to an What are quality circles and why are they beneficial to an

organisation?organisation? Describe the advantages and disadvantages to a Describe the advantages and disadvantages to a

manufacturer using the flow production method.manufacturer using the flow production method.

The Purchasing MixThe Purchasing Mix

The Purchasing Mix is being able to obtain The Purchasing Mix is being able to obtain materials:materials:

at the best quality, at the best quality, the lowest cost, the lowest cost, delivered in the correct quantitiesdelivered in the correct quantities at the correct time.at the correct time.

Decisions to be made concerning Decisions to be made concerning the quantity to be purchasedthe quantity to be purchased

The stock of raw materials currently The stock of raw materials currently availableavailable

The time between this order for your The time between this order for your products and any further ordersproducts and any further orders

The amount of raw materials required to The amount of raw materials required to meet output demandsmeet output demands

The availability and cost of storage spaceThe availability and cost of storage space

Decisions to be made regarding Decisions to be made regarding choice of supplierchoice of supplier

Price – is it the lowest price, are we receiving discount Price – is it the lowest price, are we receiving discount for bulk buying, discount for being a regular customer, for bulk buying, discount for being a regular customer, are credit terms availableare credit terms available

Quantity – is it acceptable for our needs, is it consistently Quantity – is it acceptable for our needs, is it consistently availableavailable

Availability – is the supplier dependent on other sources, Availability – is the supplier dependent on other sources, are the suppliers reliable, are their delivery systems are the suppliers reliable, are their delivery systems reliable, do we have confidence in our supplierreliable, do we have confidence in our supplier

Location of supplier – are there additional transport Location of supplier – are there additional transport requirements eg is the supplier far away, do we incur requirements eg is the supplier far away, do we incur insurance costs for the transportation of the goods.insurance costs for the transportation of the goods.

Payment SystemsPayment Systems

People can be salaried – this means that they People can be salaried – this means that they for example get paid £25,000 per year – they will for example get paid £25,000 per year – they will usually be paid monthlyusually be paid monthly

People may get paid a wage where their wage is People may get paid a wage where their wage is calculated by eg £4.50 per hour – they may get calculated by eg £4.50 per hour – they may get paid weekly or bi-weekly.paid weekly or bi-weekly.

The way in which payments are calculated can The way in which payments are calculated can be motivational to encourage workers to work be motivational to encourage workers to work harder – but organisations have to be careful to harder – but organisations have to be careful to get the balance right or quality could be affected.get the balance right or quality could be affected.

Payment methodsPayment methods Overtime – get paid extra for working hours out with normal working week – you may Overtime – get paid extra for working hours out with normal working week – you may

get time and a half or double timeget time and a half or double time Piece rate – where workers get paid extra for every unit they produce over and above Piece rate – where workers get paid extra for every unit they produce over and above

their weekly targettheir weekly target Performance related pay (PRP) – an extra payment to staff who are working above Performance related pay (PRP) – an extra payment to staff who are working above

the standard requiredthe standard required Bonuses – paid to workers who are again performing above company standardsBonuses – paid to workers who are again performing above company standards Profit sharing schemes – if an organisation has performed particularly well they may Profit sharing schemes – if an organisation has performed particularly well they may

have a scheme whereby they share the extra profit amongst their employeeshave a scheme whereby they share the extra profit amongst their employees Hourly rate – wages calculated on how many hours worked against the amount paid Hourly rate – wages calculated on how many hours worked against the amount paid

by the hourby the hour Share save schemes – workers can save money up and buy shares in the 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 organisation, aims to get the workers involved in the organisation by becoming shareholdersshareholders

Fringe Benefits – eg company cars, expense accountsFringe Benefits – eg company cars, expense accounts Commission – paid usually to sales staff where they get a percentage of the amount Commission – paid usually to sales staff where they get a percentage of the amount

they have soldthey have sold

Transportation and Delivery of Transportation and Delivery of goodsgoods

This involves organisations delivering goods in This involves organisations delivering goods in an appropriate way to ensure that their products an appropriate way to ensure that their products arrive in the right place at the right time in quality arrive in the right place at the right time in quality condition.condition.

Some organisations have their own distribution Some organisations have their own distribution warehouses eg Tesco and transport but others warehouses eg Tesco and transport but others have to rely on third party organisations.have to rely on third party organisations.

Organisations have to considerOrganisations have to consider The type of productThe type of product The amount of productThe amount of product The distance The distance

Transport availableTransport available

RoadRoad RailRail WaterWater PipelinePipeline AirAir Most of our goods are transported by road Most of our goods are transported by road

nowadays – 64% - even large bulky loads are nowadays – 64% - even large bulky loads are transported by road. Trucks can be adapted to transported by road. Trucks can be adapted to suit the delivery of most products eg refrigerated suit the delivery of most products eg refrigerated lorries to transport perishable goods.lorries to transport perishable goods.

SchedulingScheduling

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

Revision QuestionsRevision Questions

Describe 3 different types of transport and give Describe 3 different types of transport and give advantages and disadvantages of using eachadvantages and disadvantages of using each

Why are barcodes important in modern business?Why are barcodes important in modern business? Explain why JIT systems can reduce costs to businessExplain why JIT systems can reduce costs to business Describe the main types of payment to ordinary workers Describe the main types of payment to ordinary workers

and those which maybe available to Senior Managementand those which maybe available to Senior Management What are the main factors which affect the purchasing What are the main factors which affect the purchasing

decision?decision? What are the four main decisions to be made in What are the four main decisions to be made in

minimising stock holding costs?minimising stock holding costs?

Revision Topics for NABRevision Topics for NAB

MarketingMarketing Promotional activitiesPromotional activities Pricing strategiesPricing strategies Target marketsTarget markets Methods of sellingMethods of selling The role of wholesalersThe role of wholesalers The benefits of publicityThe benefits of publicity

Revision topics for NABRevision topics for NAB

OperationsOperations Methods of productionMethods of production Quality standardsQuality standards Methods of ensuring a high quality productMethods of ensuring a high quality product Purchasing mix – choosing the right supplierPurchasing mix – choosing the right supplier Distribution of the product – methods of Distribution of the product – methods of

transporting goods, and what can affect the transporting goods, and what can affect the efficient transportation of goods.efficient transportation of goods.