The Nature of The Nature of OperationsOperations

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Introducing the Topic Page 381Introducing the Topic Page 381

Answer the questions we will discuss Answer the questions we will discuss shortly.shortly.

Operations ManagementOperations Management

Operations is concerned with the use of Operations is concerned with the use of resources called inputs – Land Labor and resources called inputs – Land Labor and capital, which provide outputs in the form capital, which provide outputs in the form of goods and services.of goods and services.Operations managers are concerened with Operations managers are concerened with the following three factors.the following three factors. Efficiency of ProductionEfficiency of Production QualityQuality flexibilityflexibility

The Production ProcessThe Production Process

Inputs OutputsInputs Outputs

Production Process

Resources

Land

Labor

Capital

Finished Goods

Services

Components for other firms

Added ValueAdded Value

The production process adds value to the The production process adds value to the inputs to ensure the goods and services inputs to ensure the goods and services can be sold at a profit.can be sold at a profit.

The degree of added value depends on The degree of added value depends on the following factors.the following factors.

Added ValueAdded Value

The Design of the product –The Design of the product – economic economic manufacture with quality features so it can manufacture with quality features so it can be sold at a high price.be sold at a high price.

Efficiency –Efficiency – Reducing waste or increasing Reducing waste or increasing productivity. Low cost higher profits.productivity. Low cost higher profits.

Promotion –Promotion – low cost items like chocolate low cost items like chocolate or soft drinks you will pay more based on or soft drinks you will pay more based on the perceived value.the perceived value.

Production and ProductivityProduction and Productivity

Production and Productivity should not be Production and Productivity should not be confused however they often are confused however they often are PRODUCTION is the output a firm PRODUCTION is the output a firm produces over time and PRODUCTIVITY produces over time and PRODUCTIVITY is how efficiently inputs are converted into is how efficiently inputs are converted into outputs.outputs.

Productivity measuresProductivity measures

Labor ProductivityTotal output over a periodTotal number of workers

Capital ProductivityOutput

Capital Employed

ProductivityProductivity

All businesses want to increase there productivity All businesses want to increase there productivity levels, because it usually leads to a reduction in levels, because it usually leads to a reduction in the unit costs of production, and this could give a the unit costs of production, and this could give a firm a competitive advantage.firm a competitive advantage.

CompanyCompany Number of units Number of units producedproduced

Workers Workers employedemployed

productivityproductivity Pay per Pay per workerworker

Labor Labor CostCost

Company ACompany A 50005000 1010 500500 20002000 $4$4

Company BCompany B 1200012000 2020 600600 20002000 $3.33$3.33

Raising Productivity LevelsRaising Productivity Levels

Train Staff to raise Skill Level –Train Staff to raise Skill Level – The more The more training provided the higher likelihood of training provided the higher likelihood of productive and motivated staff.productive and motivated staff.

Improve Worker Motivation –Improve Worker Motivation – ie Decision ie Decision Making Ability Making Ability

Invest in Technologically advanced Invest in Technologically advanced equipment –equipment – You will need less workers to You will need less workers to perform duties so the production process perform duties so the production process becomes more efficient.becomes more efficient.

Raising Productivity LevelsRaising Productivity Levels

Efficient Time Management –Efficient Time Management – ensuring ensuring the materials are available and the the materials are available and the workforce which can eliminate down time, workforce which can eliminate down time, to much down time equals lost revenue.to much down time equals lost revenue.

Raising ProductivityRaising Productivity

This alone will not always mean instant This alone will not always mean instant success for a business, particularly if your success for a business, particularly if your product is unpopular. Also if workers are product is unpopular. Also if workers are becoming more productive they are likely becoming more productive they are likely to demand more money which will then to demand more money which will then reduce any productivity gains.reduce any productivity gains.

Efficiency and EffectivenessEfficiency and Effectiveness

Being efficient is one thing, but as always Being efficient is one thing, but as always it is important that the customers needs it is important that the customers needs are met, there is little value in pumping out are met, there is little value in pumping out a product efficiently if the customers don’t a product efficiently if the customers don’t want it…. This is not effective operations want it…. This is not effective operations management.management.

Labor or capital intensityLabor or capital intensity

When would it be appropriate to have a When would it be appropriate to have a Labor intensive production process?Labor intensive production process?

What are the advantages and What are the advantages and disadvantages of this approach?disadvantages of this approach?

When would it be appropriate to have a When would it be appropriate to have a capital intensive production process?capital intensive production process?

What are the advantages and What are the advantages and disadvantages of this?disadvantages of this?