BU231 Study Guide - Final Guide: Equal Pay For Equal Work, Cash Management, Asset Management
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Business Exam Notes
Operations and Sustainability – 15 marks
Chapter 13(11) – Achieving World-Class Operations Management – 4 marks multiple choice
Production and operations management overview
•Production- the creation of products and services by turning inputs such as:
natural resources, raw materials, human resources and capital into outputs which
are products and services.
•Operations management- management and production process.
The production process
•There are three types of production process
•To pick one, consider: company’s goals, customer demands, and type of good or
service being produced.
•Three types of production: mass production, mass customization, and
•Operation managers classified production processes in two ways: by how inputs
are converted into outputs and by the timing of the process.
•Mass production: the ability to manufacture many identical goods at once. This
relies heavily on standardization, mechanization, and specialization.
•Mass Customization: a manufacturing process in which goods are mass produced
to a point and then custom tailored to the needs or desires of individual customers.
•Customization: the production of goods or services one at a time according to the
specific needs or wants of individual customers. It is the opposite of mass
•Converting inputs to outputs: two basic processes for converting:
•Process manufacturing- the basic input is broken down into one or more outputs.
•Assembly process- the basic inputs are either combined to create the output or
transformed into the output.
•Production timing- a continuous process that uses long production runs that could
go on for days, weeks, or months without equipment shutdowns. Intermittent
process- short production runs used to make batches of different products.
•Facilities location affects operating/ shipping costs/ price of the product or
service/ company’s ability to compete. Factors that must be weighed: availability
of production inputs, marketing factors, manufacturing environment, local
incentives, and international location considerations.
•Availability of production inputs: must assess the availability of raw materials,
parts and equipment for each production site under consideration. It must consider
costs of shipping and raw materials and finished goods. The availability and costs
of labour are critical to both manufacturing/ service businesses, and unionization
of local labour must be considered. Payroll costs vary from one location to
•Marketing factors: must evaluate how facility location affects ability to serve
customers. It will need to assess difficulties and cots of distributing goods to
customers from a chosen location. They might gain a competitive advantage by
being located closer to the customers (lower costs, easy access).
•Manufacturing environment- Consider manufacturing environment in a potential
location. Some localities have strong existing manufacturing base. When a large
number of manufacturers are already located in an area, area is likely to offer
greater availability of resources (manufacturing workers, accessibility to
•Local incentives- incentives offered by countries, states or cities influences site
selections. Common incentives are a tax break. Local governments sometimes
offer exemption from certain regulations/ financial assistance to attract/ keep
production facilities in area.
•International location considerations- often sound financial reasons for
considering step. Labour costs lower in countries, foreign countries might have
lower regulations based on how factories might operate.
•Must ensure that resources needed for productions (raw materials, parts, and
equipment) be available at strategic moments in the production process. Cost is an
important factor. Bill material is drawn up that lists the items and the number of
each that is required to make the product.
•Make or buy? Determination by a firm of whether to make its production
materials or buy them from outside sources. The quantity of items needed is one
consideration. Outsourcing is purchasing items from an outside source instead of
making them internally. In deciding whether to make or buy, a firm must also
consider whether outside sources can provide high quality supplies in a reliable
•Inventory management- deciding how much inventory to keep on hand is one of
the biggest challenges facing operation managers. With large inventories, firms
can meet most production/ customer demands. Buying in large quantities also
allows a company to take advantage of quantity discounts. However large
inventories can tie up the firm’s money. Inventory management involves deciding
how much of each type of inventory to keep on hand and the ordering/ receiving/
storing/ tracking of it. The goal is to keep the cost down. One way to determine
best inventory levels, look at the three costs: the cost of holding inventory, re-
ordering frequently, and not keeping enough on hand. Most companies use a
•Computerized resource planning- many companies have adopted computerized
systems to control flow of resource/ inventory.
oMaterial requirement planning (MRP)- computerized system of
controlling the flow of resources and inventory at the right times. The
schedule is based on forecasted demands for the products.
oManufacturing Resource planning II (MRP II)- uses complex
computerized systems to integrate data from many departments. This can
generate a production plan for the company as well as management reports
and financial statements. Helps managers make more accurate forecasts
and impact of production plans on profitability.
oEnterprise resource planning- these go a step further and incorporate
information about the firm’s suppliers and customers into the flow of data.
Combines everything into one software which eliminates some costs and
delays on information.
•Supply chain: entire sequence of securing inputs, producing goods, and delivering
goods to customers. Effective supply chain strategies reduce costs. Technology
also improves supply chain efficiency by tracking goods through the various
supply chain stages and also helps with logistics. (keeps inventory holding costs
•Supply chain management: focuses on smoothing transitions along the supply
chain, with the ultimate goal of satisfying customers with quality products and
services. A critical element in this is developing tighter bonds with suppliers.
(Reduce the number of suppliers make deals “win-wins” with them)
•E-procurement- the process of purchasing supplies and materials online is
becoming very popular.
•Reverse auctions- the manufacturers post its specifications online for the materials
are requires and potential suppliers bid each other for the job. (Can have a
negative impact because the job always goes to the lowest bidder which means
your suppliers always feel squeezed)
•Electronic data interchange (EDI) - increased speed, accuracy, and lowered
Improving production and operations