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Operations Management: Key Issues

Get to know all of the key issues surrounding operations management and read essays on how these issues are dealt with.

Location

A business will want to be located where it can minimise its costs. This may mean that it wants to be located near its raw materials if the final product is ‘bulk reducing’ - it loses bulk in its production, like steel or concentrated orange juice or ‘bulk increasing’, for example furniture manufacturers add bulk to wood when making a chair, which may mean it is located near to its customers. Many businesses chose to locate their manufacturing abroad due to reduced labour costs. Some businesses are attracted to an area by government support if it is an area of high unemployment. Other businesses will move to an area because they are able to benefit from a pool of experienced labour (like London for financial services). This is an example of an ‘external economy of scale’ which is the benefits of a business being located near similar businesses due to the infrastructure which develops to support that particular industry. Many businesses must be near their customers, or at least have good transport links to them. Improved transport and communication links have made location less of a factor than in the past. Many internet based businesses can be based anywhere.

Capacity Utilisation

This is the percentage of the total productive capacity of a business that it actually produces. Few businesses would want to operate at 100% capacity utilisation- it leaves no leeway for anything to go wrong or for a sudden big order from a good customer. Capacity utilisation that is too low however, means that the business is not being efficient and the fixed costs are being spread over too few products. It may be caused by the product no longer being wanted by consumers or seasonal demand. Most businesses will know what is a comfortable level of capacity utilisation that means that average fixed costs are low but there is still time to maintain machines and staff do not have to work under pressure all of the time. They will try to deal with fluctuations in demand by using things like overtime, temporary staff, maintaining stock levels, sub contracting and outsourcing.

Lean Production

This is an approach to business that aims to minimise waste by being as efficient as possible while maintaining an emphasis on quality. It originated in Japan. Some of the main aspects of it are: ‘just in time’ production- where the business holds minimum stock of components and finished products as stock is seen as being a waste of resources; continuous improvement, total quality management and quality circles which are about developing a workplace philosophy of empowered and motivated workers who focus on quality; cell production which is small teams working together and time based management which is about reducing unproductive time in an organisation and recognising the importance of time in all parts of the manufacturing process.

Managing Stock

This is an approach to business that aims to minimise waste by being as efficient as possible while maintaining an emphasis on quality. It originated in Japan. Some of the main aspects of it are: ‘just in time’ production- where the business holds minimum stock of components and finished products as stock is seen as being a waste of resources; continuous improvement, total quality management and quality circles which are about developing a workplace philosophy of empowered and motivated workers who focus on quality; cell production which is small teams working together and time based management which is about reducing unproductive time in an organisation and recognising the importance of time in all parts of the manufacturing process.

Approaches to Quality

Not all businesses are trying for the top quality all the time, but all will try to maintain the level of quality associated with their product. There are three main approaches to maintaining quality. Quality control is where a product is inspected at the end by specialist quality controllers who look for defective products. This can mean a lot of waste, so to some extent has been succeeded by quality assurance-where the product is designed and produced in a way to maximise quality. It is the responsibility of all staff to maintain quality, not just the inspectors. Total Quality Management (TQM) is where the business develops a whole philosophy of quality and continually seeking ways to improve it. It may be associated with some of the techniques raised in lean production. All staff must be involved in it and all must see each other as their customers as well as the final external customer. International Standards (such as ISO 9001) are an independently verified means of showing customers that the business has set procedures for ensuring quality.

Research and Development

This is the scientific research that a business may undertake to develop new products. It is more important in some industries like pharmaceuticals, computers, cars and phones than others, but as James Dyson showed, even an industry like the vacuum cleaner industry can show a good profit from research and development.

Invention and Innovation

Invention is the development of a new idea, product or service so it may come about as a result of the research and development. It may be possible for a business to prevent others from using the invention by buying a patent (a legal protection). Innovation is about turning the new idea into a usable product. This will allow ‘first mover advantage’ which may mean that the business is able to charge a higher price and establish itself in the market before rivals can come along. Innovation can also come in the process, for instance if a business develops a better way to produce something.