Module 4 Operations Management
Module 4 Operations Management
4.1.2 DIFFERENTIATE BETWEEN PRODUCT LED AND MARKET LED TYPES OF BUSINESS
1.Job production
2. Batch production
3. Mass/flow production
4. Project production
1.JOB PRODUCTION
It is a method of production where individual or custom products are made to meet specific customer
requirements. Each product is unique and produced in small quantities.
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ADVANTAGES OF JOB PRODUCTION
Products can be tailored to meet specific customer needs or preferences, enhancing customer
satisfaction.
High Quality products produced since products are often made by skilled or specialized workers.
It is flexible as changes can be made easily at different stages of production to accommodate
new requirements.
Workers face diverse/variety of tasks, which can make jobs more interesting and reduce
monotony, potentially leading to higher job satisfaction.
Low Inventory Costs as it involves creating products only as orders come in, reducing the need
for large inventories and minimizing storage costs.
The cost per unit is generally higher due to the need for skilled workers, and custom materials
so this can limit competitiveness in price-sensitive markets./costly bcs customers have different
preferences therefore different quantities are needed.
Time-Consuming as each product is made specifically to customers order, so production times
can be lengthy, leading to longer lead times for customers.
Requires skilled workers, and the reliance on their expertise can make it difficult to maintain
consistent output if skilled labor is scarce or expensive.
Requires effective planning and coordination as managing production schedules for multiple
custom orders can be complex.
Quality consistency-CAN BE CHALLENGING as it heavenly dependson the skilled workers hence
the quality may vary from to the other
2. BATCH PRODUCTION
It is a method of production in which identical/similar products are produced in blocks or groups. This
method allows manufacturers to produce a moderate volume of products with some degree of
customization.
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DISADVANTAGES OF BATCH PRODUCTION
Setup Time and Costs: changing between different batches requires setup time and costs for
machinery, which can lead to downtime and decreased efficiency, particularly when switching
between products.
Inconsistent Product Quality: Variability can occur between batches due to differences in
production conditions, materials, or workforce, potentially leading to quality control issues.
Inventory Management Challenges: Maintaining the correct inventory levels for different
batches can be complex, overproduction can lead to excess inventory, while underproduction
may result in stockouts.
Variable Demand Risk: Manufacturers may produce batches based on forecasts, and
fluctuations in demand can lead to overproduction or underproduction, impacting profitability.
3.MASS PRODUCTION
Economies of Scale: allows for a reduction in the cost per unit due to bulk purchasing of
materials and efficient production processes, this leads to lower prices for consumers and
increased profit margins for businesses.
High Efficiency and Speed: Automated processes and assembly lines enable products to be
produced quickly and efficiently, as a result, companies can meet high demand levels and fulfill
orders promptly.
Consistent Quality: due to standardization in processes and use of automated machinery which
results in fewer human errors, help to maintain a consistent level of quality across all products.
Reduced Labor Costs due to use of automated machinery which often require less skilled labor.
Mass production of goods making it ideal for meeting high consumer demand.
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Worker Dissatisfaction due to repetitive nature of assembly line work leading to higher turnover
rates, and issues related to motivation and engagement.
4.PROJECT PRODUCTION
Project production is a manufacturing and management approach that involves producing unique,
complex, and one-off products or projects, often used in industries such as construction, shipbuilding,
and film production, where the final output is specifically tailored to client requirements and
specifications.
Allows Customization therefore enabling the creation of tailored products that meet specific
client needs and requirements.
Often involve high-value contracts, which can lead to significant financial gains for the business
if successfully completed.
Involve teams of specialists from various disciplines, fostering collaboration and knowledge
sharing that can enhance the final product.
Resources (labor, materials, and equipment) can be allocated specifically based on the
project’s requirements, allowing for better responsiveness to changes throughout the project
lifecycle.
Often involves close communication with clients, which can strengthen relationships and
improve customer satisfaction through tailored solutions.
The management of projects can be highly complex, requiring detailed planning, coordination,
and logistics that can be challenging to execute effectively.
Projects may experience unforeseen challenges and changes in scope, which can lead to budget
overruns and extended timelines.
They often take longer to complete due to the unique nature of projects and the need for
extensive planning, compared to mass or batch production methods.
Limited Repeatability: The unique nature of each project means that lessons learned from one
project may not be easily applicable to future projects, affecting continuous improvement
efforts.
The nature of the product: Whether it is a personal, customized-to-order product, in which case
job production will be used. If it is a standard product, then flow production will be used.
The size of the market: For a large market, flow production will be required. Small local and
niche markets may make use of batch and flow production. Goods that are highly demanded but
not in very large quantities, batch production is most suitable.
The nature of demand: If demand is consistently high and stable, mass production may be the
best choice due to economies of scale. For less frequent demand, batch and job will be
appropriate.
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The size of the business: Small firms with little capital access will not produce using large
automated production lines, but will use batch and job production.
Customization Needs: If the market requires tailor-made solutions, job production is ideal as it
allows for high customization. If customers prefer uniform products without specific
customizations, mass production or batch production is more appropriate.
POSITIVE IMPACT
Greater job satisfaction among workers as boring, routine jobs are done by machines
Increased Efficiency and Productivity due to use of automated machinery and robotics.
Improved Quality products as technological advancements allow for precise and accurate
manufacturing processes, reducing variability and defects.
Reduced production costs: helps optimize the use of materials, energy, and labor, leading to
reduced production costs.
Enhanced Flexibility and Customization: Technology enables the production of varied products
on the same equipment, allowing manufacturers to adapt swiftly to changing customer demands
and preferences.
facilitates greater collaboration and information sharing in R&D, leading to more innovative
processes and products.
NEGATIVE IMPACT
There is need for workforce training and upskilling so as to adapt to new tools and processes,
this can be costly to the business /which can change job roles and requirements.
Expensive to set up due to the need to buy the automated machinery, software.
New technology quickly becomes outdated and frequent updating of systems will be needed-
this is expensive and time-consuming.
Job Displacement due to automation/use of machines and computers
Employees may take time to adjust to new technology or even resist it as their work practices
change.
Production strategies are strategies that dictate how resources are utilized in the production of goods
and services, influencing various aspects of operations, including cost management, efficiency, and
overall competitiveness.
1. Just-in-Time (JIT)
2. Total Quality Management [TQM]
4.2.2 EXPLAIN QUALITY CONTROL, QUALITY ASSURANCE AND TOTAL QUALITY MANAGEMENT
Quality in production means to produce a good or service which meets customer expectations, the
products should be free of faults or defects.
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There are three methods a business can implement to achieve quality.
a.QUALITY CONTROL
It is the checking for quality at the end of the production process for a good or a service.
b. QUALITY ASSURANCE: It is the checking for quality throughout the production process of a good or
service so as to Eliminates the fault or defect before the customer receives it.
c. TOTAL QUALITY MANAGEMENT (TQM): It is the continuous improvement of products and production
processes by focusing on quality at each stage of production.
Workers at one stage have to ensure the quality standards are met for the product in
production at their stage before they are passed onto the next stage and so on. Thus, quality is
maintained throughout production and products are error-free.
These are costs associated with efforts to ensure that products and services meet quality standards.
Investing in good quality contributes to preventing defects and customer dissatisfaction.
a. Prevention Costs: Costs incurred to prevent defects from occurring in the first place.
Examples:
b. Appraisal Costs: Costs associated with measuring and monitoring activities to ensure quality
standards are met.
Examples:
Costs that arise when products or services do not meet quality standards, leading to defects and
customer dissatisfaction.
a. Internal Failure Costs: Costs incurred when defects are found before the product or service reaches
the customer.
Examples:
Scrap and rework costs for defective products that need to be repaired or discarded.
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Downtime caused by quality issues during production.
Costs associated with quality control activities aimed at detecting flaws (e.g., inspections that
miss defects).
b. External Failure Costs: Costs incurred when defects are found after the product or service has been
delivered to the customer.
Examples:
Implement regular training programs focused on quality awareness, best practices, and process
improvement. Well-trained employees can prevent defects, increasing overall efficiency and
reducing internal failure costs.
Utilize Quality Management Systems like ISO 9001 or Total Quality Management (TQM)
frameworks to helped in identifying inefficiencies, reducing errors, and improving compliance
with quality standards.
Collaborate closely with suppliers to ensure they meet quality standards and expectations by
supplying high-quality materials which lead to fewer defects in finished products, reducing both
inspection and failure costs.
Increase Use of Automation and Technology (e.g., robotics, advanced software) for repetitive
tasks in production or quality inspection this help minimize human error and can significantly
reduce internal failure costs.
Conduct Regular Audits and Assessments to evaluate compliance with quality standards and
procedures as regular evaluations can help identify problems early, minimizing both internal and
external failure costs.
JUST IN TIME [JIT] A production strategy that focuses on minimizing inventory held and reducing waste
by producing goods only when needed and ordering raw materials only when needed in the production
process.
ADVANTAGES
Reduced storage costs as raw materials are received only when needed in production/goods are
produced only when they are needed, this minimizes the amount of inventory held.
Increased Efficiency: streamlining production processes leads to faster production
cycles/reduced lead times which improves responsiveness to customer needs.
Improved quality of goods as it focuses on quality control throughout the production process,
this lead to fewer defects and a better final product/ lead to customer satisfaction.
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Greater Flexibility: it allows the company to adapt quickly to changes in customer demand,
enabling it to produce only what is needed based on real-time customer orders.
Less wastage as it prevents overstocking of raw materials/over production of goods, reducing
the risk of stock piled in a warehouse.
DISADVANTAGES
Requires reliable suppliers who can deliver raw materials on time as disruptions in the supply
chain can halt production leading to revenue losses.
High Initial Setup Costs as it requires investment in training, process changes, and technology,
which can be costly and time-consuming.
Limited Buffer Stock: Minimal inventory levels may limit the ability to absorb fluctuations in
demand or production issues, leading to customer dissatisfaction.
4.2.6 EXPLAIN THE IMPORTANCE OF RESEARCH AND DEVELOPMENT [R&D] IN PRODUCTION DECISIONS
RESEARCH AND DEVELOPMENT (R&D): a systematic approach to investigating new ideas, processes, and
technologies in order to innovate and improve products and services.
Innovation and Product Development; It helps organizations create innovative solutions that
can meet changing customer needs and preferences.
lead to competitive advantages as Companies can differentiate their products in the
marketplace through their Innovative products that can capture new markets and enhance
customer loyalty.
Quality Improvement: R&D contributes to developing higher-quality products through improved
materials, processes, and production techniques which lead to reduced defect rates, higher
customer satisfaction, and lower costs associated with returns and repairs.
Cost Reduction: organizations can identify more efficient production methods, new
technologies, or alternative materials that reduce production costs leading to improved
profitability.
Risk Mitigation: helps organizations identify potential risks involved in new product
development and production processes, such as technical feasibility, market acceptance, and
regulatory compliance, this can prevent costly failures and reduce the likelihood of negative
consequences.
Improvement of Production Techniques and Technologies which can increase efficiency, lower
production time, and reduce waste.
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4.3.1 EXPLAIN THE IMPORTANCE OF THE FIVE P’s OF PRODUCTION
5P’S OF PRODUCTION
PRODUCT
PROCESS
PLANT
PEOPLE
PROGRAMME
Understanding the product involves recognizing its features, quality, design, and the needs it fulfills for
the consumer. Companies must analyze product specifications and ensure that it aligns with customer
demands and market trends
Importance
Understanding the product being manufactured is essential to ensure that it meets customer
needs and expectations
A focus on the product allows companies to differentiate themselves in the marketplace,
ensuring that the product aligns with market trends and consumer preferences.
Selecting the appropriate materials and methods for product design can influence production
costs, efficiency, and profit margins.
2.PROCESS: This encompasses the methods and procedures used to produce the goods or deliver
services.
It involves planning the workflow, technology utilized, and the different stages of production,
including raw material acquisition, manufacturing, assembly, and quality control.
Importance
3. PEOPLE: This factor focuses on the human resources involved in the production process.
It includes employees, management, and even customers in the context of co-creation. Skills, training,
motivation, and teamwork are vital components, as they influence productivity, efficiency, and the
overall work environment.
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Importance
Skilled and motivated employees are important to the production process, proper training and
development programs should be employed to empower workers to perform tasks efficiently
and effectively.
Strong leadership inspires a culture of quality and continuous improvement, encouraging
employees to take ownership of their work and contribute to production goals.
4.PLANT: refers specifically to the physical facilities, buildings, and infrastructure where production
activities take place.
It includes where the production occurs (e.g., factories, workshops) and how the product reaches
consumers (e.g., distribution channels, retail locations).
Importance
Location: The geographical site of the plant is vital for minimizing transportation costs,
facilitating access to raw materials, labor, and markets, so locating closer to suppliers and
customers can enhance efficiency.
Layout and design: The arrangement of machinery, workstations, and storage areas within the
plant should be designed in such a way that it minimizes unnecessary movement and ensures
that the production process is smooth and efficient.
Facilities and equipment: The plant must have adequate facilities to accommodate production
activities and the machinery and tools used in production should be appropriate for the product
being manufactured. This includes production lines, assembly areas, quality control zones, and
storage spaces.
A safe and well-maintained plant is essential for minimizing accidents and downtime. Proper
maintenance ensures equipment reliability, reducing disruptions in production.
It involves creating a timeline for when different production tasks will occur, aligning resources, and
ensuring that everything runs smoothly
Importance:
production control ensures that the right products are produced at the right time and in the
right quantities.
Quality Management: Monitoring quality throughout the production process allows for
immediate corrective actions when defects are detected. This minimizes waste and costs
associated with poor quality.
Production control involves evaluating key performance indicators (KPIs) to assess efficiency,
productivity, and profitability. Continuous monitoring helps organizations identify areas for
improvement and optimize operations.
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COSTS OF PRODUCTION AND BREAK-EVEN ANALYSIS
1. FIXED COSTS (FC) are costs that do not change as the level of output changes, they remain
constant and are to be paid whether there is production or not.
Example
rent
management salaries,
insurance premium
2. VARIABLE COSTS (VC) are costs that vary directly with output, they increase as output increases &
decreases when output decreases. They are zero when output is zero.
Example
3. AVERAGE VARIABLE COSTS: it is the variable cost per unit of good or service and directly varies
with the output, it declines as output increases, reaching a minimum point, after the minimum
point, it rises as production increases.
4. TOTAL COSTS (TC) are the sum of total fixed costs and total variable costs
Total Costs [TC] = Total Fixed Costs [TFC] + Total Variable Costs [TVC]
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5. AVERAGE COST: it is the cost per unit of output.
6.DIRECT COSTS: are expenses that can be traced to a specific cost object and are directly related to the
product or service produced.
They are incurred as a direct result of producing the product or delivering a service and can be traced
back to a specific product, project, or department.
7.INDIRECT COSTS: are expenses that cannot be directly linked to a specific cost object, though they
may be necessary for overall operations.
They’re typically shared across multiple cost objects/departments and include overhead expenses like
rent.
administrative and management salaries,
utilities
Depreciation of company-owned vehicles and office equipment like computers
Office supplies
Insurance for company assets and liabilities
REVENUE: It is the total income a firm earns from the sale of its goods and services. The more the sales,
the more the revenue.
Total Revenue (TR) = No. of units sold X selling Price per unit (SP)
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CONTRIBUTION: This is the amount that each unit sold contributes to covering fixed costs and
generating profit. It is important in determining the break-even point (BEP).
THE BREAK-EVEN POINT is the level of sales at which total revenue equals total costs (fixed and
variable), resulting in neither profit nor loss.
Knowing the BEP helps businesses understand how much they need to sell to cover their costs.
EXAMPLE
ABC company manufactures water bottles. Its total output is 2000 bottles per month
USE THE INFORMATION ABOVE TO CALCULATE THE BREAK -EVEN POINT [BEP], DRAW THE BREAK-
EVEN CHART AND INTEPRETE IT
= P5 000
P8 - P3
= P5 000
P5
= 1000 units
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PRODUCTION COSTS
INTERPRETATION:
The production costs for ABC Company is P8 000, so it has to produce 1000 water bottles or has
to make a sales revenue of P8000 in order to break-even/ cover the productions costs.
The company will start making profit from the 1001th water bottle.
The business needs to make P8000 in sales revenue to start making a profit.
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4.3.10 EVALUATE THE USE OF BREAKEVEN ANALYSIS IN PLANNING AND DECISION MAKING
BREAK-EVEN ANALYSIS: is a financial tool that helps businesses determine the level of sales at which
total revenues equal total costs, resulting in neither profit nor loss.
Provides a clear way to understand the relationship between costs, revenues, and profits helping
the business to determine the minimum sales needed to avoid losses.
The analysis forces organizations to closely examine their fixed and variable costs, as well as their
pricing strategies, understanding these cost structures can lead to more informed decision-
making regarding cost management, pricing, and resource allocation.
Can be used to forecast financial performance under different sales scenarios, aiding in strategic
planning by allowing businesses to project the effects of changes in costs, pricing, or sales
volume on profitability.
Investors and lenders often use break-even analysis to evaluate the risk and return on
investment opportunities by assess the financial viability of new projects or product launches.
Break-even analysis operates under the assumption that costs are either fixed or variable,
leading to potential inaccuracies. In practice, costs may change with production levels.
The analysis provides a snapshot based on specific data at a certain time without accounting for
dynamic market conditions or changes in consumer behavior. this can limit the utility of break-
even analysis in rapidly changing environments where costs, prices, and demand fluctuate
frequently.
Break-even analysis typically does not consider external factors such as competition, market
demand fluctuations or economic conditions.
THE END
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