chapter 5 operations

Section 5 Operations Management:

Section 5 Operations Management Operations management used to be called production management. This made sense when the UK economy was dependent on the manufacturing industry, but this is no longer the case. Service industries, such as hotels, hospitals, garages, banks and other tertiary (businesses in the service industry), are now much more important than manufacturing, in terms of output (how many goods and services they create) and jobs Operations management means controlling the resources of the business to make a product or provide a service efficiently and to a satisfactory level of quality

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What is a resource? Definition: Something that can be used; an asset . What types of resources would be used by a small local shop selling groceries, tobacco and newspapers? Answers might include: ● buildings — a shop ● machinery — tills and scanners, computers ● people — shop assistants ● materials — items to be sold in the shop What resources would Nilesh use to decorate a customer’s room? Answers might include: ● labour services ● paint and brushes ● a van to transport materials and staff to customers’ houses

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Operations management Read Deckchair UK needs resources Why is managing operations efficiently important? Need to manage the operation so that all the resources (including people) are used effectively so that costs are minimised Also quality is very important if we want to keep customers happy

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Production methods Production means using resources of land, labour and capital to make goods and services Land = natural resources on the planet Labour = workers, managers etc Capital = man made goods used to produce other goods and service such as machines, computers etc There are several methods but the following 2 are the most commonly used by new and small businesses Job production Batch production

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Production methods Time to teach each other in pairs No. 1 read P74, make notes, create 5 questions. Teach and test number 2. No. 2 read P75, make notes, create 5 questions. Teach and test number 1. Both complete activities 1, 2 and 3 If you can explain something to someone you have learned it well!

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Production methods Job production This type of production process is best for creating products/services that are customised to individual needs Wedding cakes Tailor Dressmaker It is good because no two products or services need to be the same Customer’s special requirements can be met High prices can be charged This type of production is more expensive and is likely to be a lot slower which means less customers can be served in a period of time Labour costs can also be very expensive as the employees will probably need to be highly skilled

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Production methods Batch production This is where groups of identical products can be made at the same time Different designs and styles can be made in different batches A baker would bake batches of different cupcakes A paint manufacturer would make batches of different colour paint An ice-cream manufacturer would make different flavours of ice-cream in different batches The advantage is that this is a cost effective way of producing different products to meet different customer needs The disadvantages are that less customisation can be achieved It can take a long time to switch from one back to another If too many are made in one batch they may be difficult to sell To be profitable there has to be demand for the same style, design or flavour of product.

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What production method? The Flower Shop The Flower Shop, one of the UK’s leading florists, has developed its reputation for the new and innovative, combining great style in flower arranging with an excellent standard of customer service. We have in stock not only the widest range of flowers and foliage (fresh and artificial) but also unusual gifts and accessories enabling us to provide a superb gift and design service. The Flower Shop is a member of Interflora, which means we can send flowers throughout the UK and Ireland and to most countries worldwide. From the largest wedding or business event to the smallest bouquet, we will give each order the individual attention it deserves. Question Why does this business use job production as its method of production? Answers might include: ● customers require different flower arrangements according to circumstances ● it allows the business to charge higher prices ● it can win customers by having high quality flower arrangements

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Production Short Questions – complete and then mark

Recap:

Recap What is job production? What kind of things are suited to job production? What is batch production? Why do we have different ways of producing? To find the most efficient way of doing things? What benefits does a business get out of being efficient? It can reduce its costs Which means what to the business? If it can still keep selling the same amount it can make more profit What else does it get out of being efficient? It can produce quality goods Why are quality goods important? Because it keeps the customers coming back Why is it important to keep customer coming back? They won’t go to the competition Plus we don’t have to spend all that money on advertising and attracting them again – it saves us money again which might help our profits!

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Operational efficiency Operational efficiency is producing goods and services to an acceptable standard with as few resources as possible to keep costs per unit low Units costs – the average cost of making each unit Why would being operationally efficient be good for a firm? Have a look at the table below for two businesses that make customised cupboards Business A has double the amount of workers than Business B In terms of production what do you think this means? You might think it means that they could make double the amount of cupboards in the same amount of time

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Operational efficiency Output per worker means how much that worker can make in a period of time In the table output per year means how many cupboards are made per year If Business B made double the amount then the output per worker would be the same and as you can see in the table it is not Business A’s workers are each making 500 cupboards per year each whereas Business B’s workers are each only making 250 per year each.

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Operational efficiency We work these numbers out by dividing the total output per year by the number of workers From this number we can then work out the labour cost per unit by dividing the labour cost per year by the output per year We can see that for Business A this is only £20 whereas for Business B it is £40 If the quality of the cupboards for both businesses is the same this will give Business A a competitive advantage. Why will Business A have a competitive advantage? What can they do that Business B cannot? They can charge their customers a lower price and still make similar profits to B If they put their price down then Business B might feel they need to lower their prices. This may mean that Business B makes a loss and eventually they will be forced out of business

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How can one firm be more operationally efficient than another More efficient machinery – using the latest technology efficiency can be increased but it can also be expensive More highly motivated workers – how could we motivate them? Minimum wastage – everything that is produced is sold; making sure that everything that is produced is right first time More effective management – perhaps introducing specialisation (work is divided into separate tasks that allow workers to become skilled and quicker) activity next slide

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Class activity Read over P76 and 77 Complete Batch Production Case Study P77 Q2&3 (not Q1)

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Technology in operations management This chapter looks at advanced ICT (Information Communications Technology) used by firms to increase efficiency Robots are now widely used in all manufacturing industries They are known for their speed accuracy and efficiency Because they are exact they produce good quality products They don’t need breaks! They are often used for repetitive, hazardous and boring tasks See robot video

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Computerised stock-control programs Computerised stock-control programs keep accurate records of goods in stock They are used a lot in service and manufacturing businesses These ICT programs can be used to answer these questions How much of a product is in stock? Why would this help? It can tell you how much needs to be made or ordered How old is this stock? Why will this help? Will the stock need to be replaced – will it go out of date? Which are the fastest-moving items of stock and which are the slowest? Why does this help? It will tell the business what products are most popular and which they should stop selling The advantages of using these stock-control programs include It will trigger orders - stock will automatically be ordered These systems normally use bar coding systems which speeds up processing, recording of stock and customer checkouts Less labour is required and fewer errors are made – improves efficiency

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Communications technology Almost every business has access to the internet and email Some businesses will have an intranet (a private internet) which will give them a cheap and easy way of communicating internally This type of technology can be used to improve the accuracy and speed of passing information between departments The internet also allows supplies to be bought quickly from the cheapest online supplier saving costs It an cause problems when people forget how to communicate – they rely on email and too much email can waste worker’s time

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Technology, efficiency and estate agents Estate agents sell houses for other people. Even the smallest estate agent has a digital camera, a computer and a printer. When selling houses, the estate agent can take pictures of the house, put them into a Word document describing the property and print it for people who might be interested in buying the house. In addition, the estate agency can advertise houses on the internet. A website can be looked at by people who live a long way away, which helps the estate agency to reduce its costs as it uses fewer resources. Using a website in this way avoids the need to print out details and post them to the buyer. The buyer can also see the details of the house immediately. Thus technology makes the estate agency more efficient and reduces its costs. Question Can using technology add to the costs that have to be paid by an estate agent? Answers might include: ● The estate agents may have to pay a website designer to create and maintain a website. ● The agency has to buy cameras, printers and other equipment. ● The business may face training costs to help its staff to use this technology efficiently.

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Small firms advised to spend on technology Small firms are being advised to invest in new technology, as a recent survey reveals that many risk their business by not spending on IT. The survey, by Lloyds TSB, found that one in four firms with fewer than 50 employees find it difficult to keep up with changing technologies and one in ten still don’t use email. Meanwhile, only 35% of the small firms surveyed use the web to advertise for customers and 38% said investment in IT has helped them develop new markets. Half of the small firms surveyed said they spent less than £5,000 on IT, including computer software and internet connections, over the past year. Some 38% do not use computerised databases or mailing lists. Question Why do you think that small firms do not spend more money on technology when it can help them to be more efficient? Answers might include: ● many small businesses may not be able to afford to do so ● some entrepreneurs may not be aware of the technology that is available ● some entrepreneurs and managers may not have the skills necessary to use it ● some small businesses may not be large enough to justify the use of technology

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Design technology Computer aided design (CAD) enables designers to lay their work out on a screen, print it out as a 3D image and edit it New products can be designed and developed quickly It removes the need to prototypes and reduces costs The design can be passed straight to a computer controlled machines for production reducing errors and wastage Large numbers of different designs of a standard product can be made which helps target different markets Ania (our gardener) could use CAD to design a garden and show her customer – she might give several options and could quickly make changes in response to customer demands.

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Benefits/Drawbacks of using technology If technology is replacing labour it may lowers the costs of production It helps communication It helps operations become quicker and more flexible It helps give customers better service by making sure there is stock is available Potential problems Buying technology can be very expensive particularly for small firms Using technology will mean more training for employees that could be expensive (although in the long term it will mean a reduction in costs) Workers might be reluctant to change the way they do things by using technology - they may be worried that they will be replaced by the technology Watch video (book from scroll)

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Production and Quality It is easy to think of quality standards when it we think about manufactured goods such as a car or clothes Quality is still a crucial issue for service providers Businesses that provide a service are in the tertiary sector of industry We are now going to watch a video about a type of hotel called a B&B – B&B stands for bed and breakfast – people go there mostly just to sleep – it is usually a very inexpensive type of hotel When you have seen the video you will be asked to complete an activity on what you would expect from a good ‘quality’ B&B – to think about what the customer expectations would be of a B&B so think about this while you are watching. Hotel inspector video Complete Activity 1 of Worksheet 6 Hand in the worksheet so that we can do Activity 2 next time

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Production and Quality A quality product does not necessarily have to be the best possible product possible The definition is - a good or service that meets customers' expectations and is therefore ‘fit for purpose’ When we book a flight on a cheap airline we don’t expect to get much except to get there on time, to have basic standards of comfort and safety If we book a flight on one of the main airlines we expect a lot more. What would we expect? Our expectations change - our idea of value for money depends on those expectations Customer expectations = minimum quality standards for a product or service that is acceptable to consumers A quality product just has to meet customer expectations A cheap good may be seen as good quality if it performs as expected A highly priced good may still be of low quality if it does not come up to consumer requirements

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Production and Quality What do you think are the advantages of producing a quality good or service? More satisfied customers A better reputation Lower costs as wastage is reduced.

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Production and Quality – How can quality be achieved? Key term – Quality Assurance – a system of agreeing and meeting quality standards at each stage of production This system is used to improve quality standards It is usually used in manufacturing At each stage of production there will be quality standards that have to be met to make sure that customer satisfaction is achieved Every worker has to self-check their output against these standards There are advantages of doing this at each stage rather than checking the final product What do you think they are? It achieves high quality first time round Workers should get it right first time meaning less chances of faulty products Customers should be more satisfied and will complain less Workers may be motivated by being part of the process instead of getting complaints after the product is complete

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St Peter’s Brewery The St Peter’s Brewery Company is based near Bungay in Suffolk. The brewery itself was built in 1996 and is housed in an attractive range of traditional former agricultural buildings. Locating the brewery at St Peter’s was ideal because of the excellent water quality from its own deep borehole. Locally malted barley is used, together with Kentish hops to produce a range of cask-conditioned beers. In addition, the company produces a range of superb bottled beers. St Peter’s Brewery makes ‘traditional’ beers as well as some more unusual beers such as honey porter and fruit beer. Question Do you think that St Peter’s Brewery supplies products that are of good quality? Why? Answers might include: ● the company does supply good quality products ● the company’s advertising stresses the quality of its products ● the company uses excellent local water

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Reminder What does quality mean? What does it need to meet? Customer expectations A good or service that meets customers’ expectations and is therefore fit for purpose

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Aliya Dress maker (review of efficiency, quality and technology)

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Customer Service Have you ever been treated badly in a shop or restaurant? If you have ever been treated badly by a business you will have experienced bad customer service Customer service = providing services to customers before, during and after purchase, to standards that meet their expectations New, small businesses in particular must offer good customer service as it will make the difference between what they offer and much bigger, better-known competitors

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How to offer good customer service Reliability Open at convenient times Keep appointments with customers Keep promises e.g. next day delivery If small businesses don’t keep their promises they will quickly lose their customers Pre-sales service Product advice on range of options Explaining advantages and disadvantages of models and brands Explaining key terms E.g. all needed when buying a computer Service at time of purchase Offer different purchasing methods – credit or debit card facilities Friendly and helpful staff After sales service Offer a helpline or web advice to answer queries Repairs and maintenance

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How to offer good customer service Offering good customer service is an essential part of customer relationship marketing (CRM) The main point to CRM is that it is expensive to gain new customers so you should keep hold of your existing customers The benefits of good customer service are Customers will return time after time Loyal customers will recommend the business which will lead to further sales There will be fewer customer complaints which are time consuming (time is money) Staff will be more motivated if they are not being moaned at all the time! In pairs complete activity 2 of Worksheet 6 Both of you need to complete the worksheet and hand in

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Scottish fish and chip shop hopes for award This year the Anstruther Fish Bar, regular winner of the title of best Scottish fish shop, has won the national Fish and Chip Shop of the Year competition, run by the Sea Fish Organisation. When asked why the shop was so highly rated, owner Robert Smith said: ‘I think it’s just the consistency of the quality and the whole package, everything from when you come into the shop until the time you leave.’ The various stages of the competition included a mystery inspection, a mystery shopper, tasting tests and shop inspections during which everything was examined, including the business’s customer service. Question How might the owners of a fish and chip shop, such as the Anstruther Fish Bar, provide high levels of customer service? Answers might include: ● by opening for longer hours to meet the needs of as many customers as possible ● by preparing food as quickly as possible to avoid delays ● by offering a wider range of products for its customers

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Good customer service when selling plants When customers of Architectural Plants in Sussex get the bill for their order of garden plants and shrubs they also receive a small envelope containing two silver balloons and a piece of string. The label on the envelope reads: ‘A slightly strange and really rather selfish request: this envelope contains a couple of silver balloons and some string. If you could bear to blow them up and hang them outside your house as close to the road as possible, it would make life wonderfully simple for our driver who will be looking for your house to deliver your plant. Many thanks.’ It is a small thing, but according to Angus White, the owner of Architectural Plants, it has paid dividends. Customers get their deliveries on time and they know that the company they are buying from cares that they do. ‘I would say that 99% of people do it. It is really nice,’ he said. The balloons are just one way in which Architectural Plants tries to please its customers. Inside its store are comfy sofas where customers can help themselves to free coffee and biscuits and think about what they want to buy. These are examples of good customer service, but many experts believe that the secret is to treat every customer as an individual and to talk to them. Question Why might it be easier for a small business like Architectural Plants to provide good customer service? Answers might include: ● Communication is easier in a small business meaning that customer needs are more likely to be known. ● The employees are more likely to be the owners and concerned to satisfy customers as fully as possible.

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Consumer protection Customers are protected by the law when they buy goods and services This stops business owners who want to make a quick profit and who are not worried about their long term reputation from taking advantage of consumers Businesses have to know the different laws - if they don’t they will get Bad publicity Loss of customers Legal action which might lead to big fines Have a look at the main UK consumer protection laws on P84 Summarise on the print out how each law protects the consumer (in your own words) Complete Q1 and Q2 of the activity on P85

Consumer Protection Laws:

Consumer Protection Laws Sales of Goods Act and Supply of Goods and Services Act Consumer Protection Act 1987 Competition Act 1998 Consumer protection (distance selling) 2000 Consumer Protection from Unfair trading regulations 2008

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Consumer protection There are advantages and disadvantages to businesses of consumer protection laws Advantages Consumers will have the confidence to buy The risk of losing customers due to bad products or misleading advertising is reduced It prevents unfair competition from low-price businesses that save on costs by selling badly made and dangerous goods Disadvantages Meeting the conditions of the law can be expensive Any slight error can lead to legal action and heavy fines It is time consuming keeping up to date with new laws (time is money!)

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Restaurant closed The Raaj restaurant in Doncaster has been closed down after inspectors said they found dead mice and a large amount of droppings throughout the premises. The action was taken after a complaint was made to Doncaster Council. Food hygiene inspectors found the droppings in the kitchen, coffee preparation room, bar, restaurant and storerooms. Legal action is now being taken against the restaurant’s owner. Question How might consumer protection laws help small businesses? Answers ● such laws prevent unfair competition where some firms operate without meeting satisfactory standards ● they can give customers confidence in the business, encouraging them to buy products ● it can help new businesses to understand what standards they need to meet

Exams:

Exams 28 th May – Real Exam April 21 st Mock March 31 st End of Unit test (Operations Management)

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Aliya Dress maker (review of efficiency, quality and technology) Everyone that was away at the F1 last lesson needs to complete the question sheet by this time next week and hand it in - it will be graded and will count towards your next report (which is a report with comments) Those that did attend class also need to hand in the completed work by next Wednesday

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Jamie’s Chilli Peppers (review of customer service and consumer protection)

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Hand in Aliya dressmaker homework Grade will go on the database for your next report Your grade for your mock goes on your end of term report

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Impact of ICT on customer service We looked at how ICT can be used to increase efficiency. We now look at how it can be used to help customer service The main ICT applications that can help customer service are the internet and websites The buying and selling of goods and services over the internet is known as e-commerce There are both benefits and limitations (problems) of using e-commerce for both businesses and customers Have a look at the chart on P86 Fill out the templates – don’t write it out in full –just summarise – use colour coding to show the benefits vs the limitations

Benefits and limitations of the internet to customers:

Benefits and limitations of the internet to customers

Advantages and Disadvantages of ecommerce and global markets:

Advantages and Disadvantages of ecommerce and global markets

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Restaurant closed Gillards of Bath is a coffee and tea shop that supplies its products using the internet. The company’s website address is www.gillards.co.uk This is a long-established small business that has taken advantage of developments in technology to improve its customer service. Question Would customers using the internet receive a better service than those who actually visit the shop? Answers might include: ● no, because they are less likely to receive any advice from the business’s staff ● no, because they do not have an opportunity to taste and smell the products ● yes, because the shopping experience is easier as it can be conducted from home

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E-Commerce and Global Markets Complete Activity 3 on Worksheet 6 and hand in Have a look at P87 Read e-commerce and global markets Read table C – summarise in the template

Benefits and limitations of the internet to Businesses:

Benefits and limitations of the internet to Businesses

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The Scottish whisky industry Scotland is famous for making whisky. Many of the distilleries in Scotland are fairly small businesses, but produce brands such as Glengoyne and Talisker that are known throughout the world. People from overseas are buying increasing amounts of Scottish whisky: sales in Asia more than doubled between 2006 and 2007. Question Why might e-commerce be important for the smaller producers of Scottish whisky? Answers might include: ● it opens up a global market to the business and whisky consumers are global ● it is a cheap means of advertising and selling for businesses that are quite small and do not have enormous financial resources ● whisky is a relatively small and light product that can be shipped around the world if it is sold online

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Short questions for customer service, consumer protection, e-commerce Complete both sets of questions - these will help you revise for the test on Wednesday Bullet points is ok for all Complete for Homework – to be handed in the next lesson

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Chapter Review Questions