Operations Planning

Introducing the Topic

Locating In Trinidad and Tobago Page 390-391.

Answer the Points to think about

Operations planning

Preparing input resources to supply products to meet demand.

Like all business decisions there needs to be effective communication between the Operations department and the other functional departments of the business to ensure they meet market demand.

Sales and Operational Planning

Sales and Operations should always work closely together as the forecasts that sales managers supply operations will determine stock levels, staffing levels and reduce wastage of product.

The accuracy of sales forecasts have improved with technology.

Operations innovation and Flexibility

The ability of production to be flexible and change product decisions based on demand is important as the business environment changes so rapidly.

Also the rise of technology in production as allows greater flexibility with the use of robots, tracking software etc

Production Methods

Job Production Batch Production Flow Production Mass Customisation

Job Production

This is normally used for the production of one off items, such as designer suits, wedding rings etc

Under this method only one product line is manufactured at a time.

Job Production

Advantages – Motivated workforce as they make they whole product, specialized and unique product for a customer.

Disadvantages – Expensive, takes a long time to complete, Labor intensive production process, Need Highly skilled employees.

Batch Production

Involves the production of products in separate groups, where they go through the whole production process together.

Each unit of the batch must go through a distinct production stage before the whole batch is moved on. A good example of this is bread making.

Batch Production

Advantages – - Firms can use division of labor - Economies of scale if batch is

large enough. - Usually used in industries where

there is large demand for identical products.

Batch Production

Disadvantages –- High Work in progress stocks at each stage.- Workers are usually demotivated because of repetitive work.- Small batches incur high cost.

Flow Production

The process of flow production is used where individual products move from stage to stage of the production process as soon as they are ready.

This process suits products where demand is high i.e. coca cola

Flow Production

Advantages Disadvantages

Labour costs low because mainly machine operated.

Initial Set up cost high

Constant output rate makes planning of inputs simple

The workers on the line tend to get bored and demotivated due to the repetitive nature of the work.

Quality tends to be consistent and high.

Innovation in production Method

How can you make the product in the most efficient and cost appropriate way while at the same time keeping staff motivated.

Technology such as CAD and CAM have improved design, help create new products and made more specialist staff.

Mass Customization This combines technology and skilled labor to

make a range of varied products customized to the customers needs, this allows uniqueness and higher added value benefits. (product has similar components, but different colours shapes can be used in the production of to suit the customer.)

Which Method to use

1) Size of the Market – if the market is very small, then you would use job production, if you have a consistent demand for a product throughout the year then flow production would be the most useful.When might Batch Production be most appropriate?

Which Method to use

2) Capital Available – I.e. flow production takes a large amount of machinery which some companies may not be able to afford.

3) Availability of resources – ie skilled or unskilled workers, production space.

4) Market Demand – Mass customization could be used more regularly, to meet your market and maintain cost advantages.

Problems with Changing Methods

What might be the problem with changing production methods?- cost of equipment needed to handle large numbers in each batch- additional working capital needed to finance stocks and WIP.-Staff demotivation

Location

Where should we locate our factory?

- Selecting the right location is crucial for a business, they should consider location of the market, access to suppliers, could the business expand in this location, is this a good location to source labour.

Location

Note: Sometimes the best location may also cost the most, so businesses have to balance the benefits of being close to your market vs the cost of being there. (also access to labour)

Location

What are some disadvantages of selecting the wrong location?- Unskilled Labour- High Fixed Costs- Lack of Access to market- Poor Access for suppliers and customers to you.

Factors Influencing Location Decisions Quantitative factors – measured

in financial terms. (have a direct impact on the costs of the sites or revenue from it) these include:

Site and other capital costs (building, shop fitting)

Labour costs – ie call centers set up in international locations to save costs.

Factors Influencing Location Decisions Transport Costs – depends on

the raw material. (steel firms would want to be close to the mill to save cost in transport)

Sales Revenue potential – Being close to your market.

Government grants – incentive to set up business in there country.

Location You can use these quantitative

factors to decide on a location between different locations. These include profit estimate (site with highest profit potential identified) investment appraisal (estimate the returns over a period of years) Break Even Analysis (calculate the level of production that must be sold to meet total costs)

Qualitative factors Non Measurable that may influence

business decisions. Safety – Ie power plant locating away

from suburban area. Room for expansion – avoid

relocation Managers preferences – Ie close to

his/her home. Ethical Considerations – ie different

countries consideration around employee welfare.

Qualitative Factors

Environmental Concerns – if your product as an environmental impact you will avoid communities that are sensitive around these matters.

Infrastructure – Transport and communication links available.

Activity 21.7 Page 403

Complete activity.

Other Locational Issues

The Pull of the market – are you situated where your market are, the internet has made this less important.

Planning restrictions – industrial estates and business parks are common place in most countries.

External Economies of Scale – these are the cost reductions that can benefit a business as the industry grows in one region.

Multi – Site Locations

Having the same business in different locations either domestically or internationally. Ie McDonalds, Hotels etc

You have greater potential to reach different markets, and achieve greater profits.

Advantages DisadvantagesGreater Convenience for customers.

Coordination problems between locations – effective communication essential.

Lower Transport Costs – can be supplied within the region

Potential lack of control and direction from HO.

Delegation to regional Managers, increases motivation and skill levels.

Legal and cultural differences between countries.

Cost saving Locations cant be too close to each other, loss of sales for one branch possible.

Reduced risk of supply

Multi – Site Locations

International Location Decisions Why Might a Business move there

location overseas?1. Reduce Costs – Wage rates can be

lower in other countries cost of manufacture goes down. Eg Fisher and Pykel (Malaysia)

2. Access Global Markets – economic growth areas can be easily accessed by locating there ie China Boom

3. To Avoid protectionist trade barriers – Free trading is becoming more apparent however to avoid any unnecessary tariffs on imported goods setting up in that country is important.

4. Other Reasons – Highly qualified staff, government support, exchange rate benefits.

International Location Decisions

Activity 21.9 Page 406

TRG’s Excellent experience in Pakistan

Problems with International location What might be some problems

with an international location?1. Language Barriers – could

frustrate customers as well as distance making it hard to communicate.

2. Cultural Differences – Marketing need to use appropriate images, words etc

Problems with International location

3. Level of Service – ie call centers4. Supply chain – Quality and

reliability concerns eg China Boom.5. Ethical Considerations – Loss of

jobs within your country causes problems. (consumers might stop buying) ie Buy NZ made campaign. And slave/child labour concerns.

Scale of Operations The maximum output that can be

achieved using available inputs. What might influence the scale of

operation?- Owners objectives- Capital available- Size of market- Number of competitors

Economies of Scale

Reduction in a firms unit (average) costs of production that result from an increase in the scale of operations.

If the cost of start up is so large then smaller business find it hard to compete in the market.

Economies of Scale Reasons for costs benefits.1. Purchasing economies –

Suppliers will offer substantial discounts for bulk orders.

2. Technical economies – Large firms can justify the cost of flow production if they are worked at a high capacity level.

3. Financial Economies – Banks are more likely to provide finance to a big business with a proven track record.

4. Marketing Economies – Can spread the cost of marketing over more units.

5. Managerial economies – Can attract specialist managers making business more efficient.

Economies of Scale

Diseconomies of Scale

Factors that cause average costs of production to rise when the scale of operation is increased.

These often come from the difficulty of managing a large scale operation, as often when businesses get bigger service and quality can be affected.

1. Communication Problems – 1000’s of workers makes it difficult to communicate effectively, which can mean poor decision making and unmotivated workers.

2. Alienation of Employees – How can every employee feel a part of the organization and have a purpose?

Diseconomies of Scale

Diseconomies of Scale

3. Poor Coordination – Increased departments, divisions and products. Can the management team effectively control all operations, this requires all departments to be meeting the same objectives so quality levels and service can be maintained.

Are they Avoidable? Can you avoid diseconomies probably not

entirely however if you use MBO agreeing with each department division on there objectives you can reduce the problems.

you could use a decentralized structure where head office acts more as support and most divisional decisions are made by the manager on site this reduces diversification by focusing on core activities.

Revision Questions

Answer Questions 1,4,9,12,17,20 and 22

Page 414-415