Unit 4 - Decision Making to Improve Operational Performance
Setting Operational Objectives -
- Each department within a business will have its own objectives which contribute
to the wider objectives set for the overall business
- These objectives within each departments must aline with the businesses
overall objective
- Cost objectives → reducing / maintaining costs e.g. fixed and variable costs
- Quality objectives → improving / maintaining quality standards
- Dependability objectives → dependable businesses attract customers
- Environmental objectives → focused on the environment
- Adding value → businesses convert raw materials into a finished product and in
doing so creates a product which can be sold for a greater prices
4 main functions of a business - marketing / operations / HR / finance
Influences on objectives:
- Type of product / service produced (internal)
- Availability of internal resources e.g. capital or labour (internal)
- Technological advancements (internal)
- Changing consumer tastes (external)
- Globalisation and competition (external)
- Political environment (external)
- Financial environment e.g. inflation (external)
Operations Data -
1. Labour productivity = output / number of employees
- Used to calculate how much an employee produces
2. Unit costs = total costs / units produced
- Unit cost figures can be used to compare the production cost per unit against
other departments, competitors or between years
3. Capacity utilisation = total output / total capacity x 100
- Used to understand maximum output levels / how much output is being used
Problems with Operations Data:
- May only apply to businesses that produce physical products
Capacity -
Capacity refers to the maximum level of production possible using the resources
available within the business
- A business must understand its capacity to make sure it doesn't commit to more
orders than it can fulfil
- Increasing in the number of / productivity levels of staff / investing in
technology can help a business to increase its total capacity
, Unit 4 - Decision Making to Improve Operational Performance
Business aim to increase their capacity utilisation → fixed costs will be spread over a
greater number of units
100% capacity utilisation → business cannot respond to additional / special orders
made at short notices because they don't have any capacity to produce these products
If a business needs to increase its capacity at a short notice to take advantage of an
increase in demand, they can outsource -
- Allows a business to increase its total capacity
- Can lead to quality issues
Productivity & Efficiency -
Productivity - number of units produced by an employee in a certain period of time
Efficiency - the ability of employees to increase their output from a fixed amount of
inputs e.g. raw materials
Lean production - minimises waste to increase efficiency
Just in time (JIT) → businesses only order supplies when they are needed
- No spare stock to respond to unexpected customer orders → affecting customer
satisfaction
Capital intensive businesses → mainly rely on the use of capital / machinery in
producing goods and services
- Can be cheaper in the long term
- Requires a business to commit to high startup costs as machinery is purchased
Labour intensive businesses → mainly rely on the use of human labour in the
production of goods and services
- Increases operational flexibility → different projects / tasks
Technology & Efficiency -
Computer Aided Design (CAD) can be used to increase efficiency → businesses can use
technology to create / amend designs instead of doing these manually
- Computer Aided Manufacture (CAM) can be used to increase efficiency
(CAM AND CAD is used to create products)
E-commerce → administrative tasks can be completed more quickly than using a
paper-based system
Importance of Quality -
- Quality of materials used
- Quality of the production process
- Style of product
- The durability / speed / quality of a service
Setting Operational Objectives -
- Each department within a business will have its own objectives which contribute
to the wider objectives set for the overall business
- These objectives within each departments must aline with the businesses
overall objective
- Cost objectives → reducing / maintaining costs e.g. fixed and variable costs
- Quality objectives → improving / maintaining quality standards
- Dependability objectives → dependable businesses attract customers
- Environmental objectives → focused on the environment
- Adding value → businesses convert raw materials into a finished product and in
doing so creates a product which can be sold for a greater prices
4 main functions of a business - marketing / operations / HR / finance
Influences on objectives:
- Type of product / service produced (internal)
- Availability of internal resources e.g. capital or labour (internal)
- Technological advancements (internal)
- Changing consumer tastes (external)
- Globalisation and competition (external)
- Political environment (external)
- Financial environment e.g. inflation (external)
Operations Data -
1. Labour productivity = output / number of employees
- Used to calculate how much an employee produces
2. Unit costs = total costs / units produced
- Unit cost figures can be used to compare the production cost per unit against
other departments, competitors or between years
3. Capacity utilisation = total output / total capacity x 100
- Used to understand maximum output levels / how much output is being used
Problems with Operations Data:
- May only apply to businesses that produce physical products
Capacity -
Capacity refers to the maximum level of production possible using the resources
available within the business
- A business must understand its capacity to make sure it doesn't commit to more
orders than it can fulfil
- Increasing in the number of / productivity levels of staff / investing in
technology can help a business to increase its total capacity
, Unit 4 - Decision Making to Improve Operational Performance
Business aim to increase their capacity utilisation → fixed costs will be spread over a
greater number of units
100% capacity utilisation → business cannot respond to additional / special orders
made at short notices because they don't have any capacity to produce these products
If a business needs to increase its capacity at a short notice to take advantage of an
increase in demand, they can outsource -
- Allows a business to increase its total capacity
- Can lead to quality issues
Productivity & Efficiency -
Productivity - number of units produced by an employee in a certain period of time
Efficiency - the ability of employees to increase their output from a fixed amount of
inputs e.g. raw materials
Lean production - minimises waste to increase efficiency
Just in time (JIT) → businesses only order supplies when they are needed
- No spare stock to respond to unexpected customer orders → affecting customer
satisfaction
Capital intensive businesses → mainly rely on the use of capital / machinery in
producing goods and services
- Can be cheaper in the long term
- Requires a business to commit to high startup costs as machinery is purchased
Labour intensive businesses → mainly rely on the use of human labour in the
production of goods and services
- Increases operational flexibility → different projects / tasks
Technology & Efficiency -
Computer Aided Design (CAD) can be used to increase efficiency → businesses can use
technology to create / amend designs instead of doing these manually
- Computer Aided Manufacture (CAM) can be used to increase efficiency
(CAM AND CAD is used to create products)
E-commerce → administrative tasks can be completed more quickly than using a
paper-based system
Importance of Quality -
- Quality of materials used
- Quality of the production process
- Style of product
- The durability / speed / quality of a service
