IB BUSINESS
MANAGEMENT
Unit 5
Operations
Management
5.1 5.2 5.4 OPERATIONS MANAGEMENT
ON COMPLETING THIS CHAPTER YOU SHOULD BE ABLE TO
Define operations and describe their relationship with other business
functions.
Discuss operations management strategies and practices for ecological,
social and economic sustainability.
Explain the reasons for a specific location of production and discuss the
ways of reorganizing production.
Define and explain the following production methods:
oJob or customized production
oBatch production
oMas production
oFlow, line and process production
oCellular manufacturing
OPERATIONS
Refer to the fundamental activities of organizations: what they do and what
they deliver.
Every organization is a producer of something.
Economic sustainability: The need to use available resources and raw
materials to their best advantage, ensuring profitability and financial
performance.
Social sustainability: The need to take human factors into account when
making business decisions.
Ecological sustainability: The need to take ecological factors into account
when making business decisions.
Production Methods
PRODUCTION METHODS
Job (customized) Production
Involves the manufacture of a single product at a time, from start to finish.
A single worker (a tailor) or a group of workers (a team of construction
workers) handles the whole job.
It is usually associated with production, where each product is one off
order and tailor-made to the specific requirements of the customer, like a
dress, a haircut, a bridge, an office building or an advertising campaign.
Production is highly skilled, labor intensive with little opportunity for
economies of scale and therefore, costs are high.
PRODUCTION METHODS
Batch Production
Involves producing a limited number of identical products (a batch) at a
time. Work on each batch is fully completed before switching to the
production of another batch.
For example, a bakery will produce a batch of bread and then switches
to producing a batch of muffins.
Sometimes, a process is performed on a batch and then transferred to
another process until all manufacturing processes are completed, e.g.
clothes manufacturing.
Batch production is usually used when demand for a firm’s product is
regular but not too many.
PRODUCTION METHODS
Mass, flow and line production
Mass production is the manufacturing of a standardized product on a large scale.
It tends to be highly capital intensive and specialization (division of labor) is essential.
Therefore unit costs of production are relatively low compared to batch or job
production.
Flow production is a form of mass production whereby different operations/tasks are
continuously linked or carried out in a sequence to arrive at the final product. When
one task is completed, the next stage must follow immediately so that time is saved. For
example, producers of clothing or newspapers follow this method.
Line production is a form of flow and mass production where the product is assembled
in various stages along a conveyor belt or assembly line until a finished product is
made.
Flow/line/mass production tends to be highly automated and capital intensive. Mass
market vehicles are manufactured in this way.
PRODUCTION METHODS
Cellular manufacturing (Cell production)
Involves dividing the workplace or sometimes a flow production into areas/cells.
Each cell is composed of several workers and responsible for a set of tasks,
which is part of the overall production process. The team is multi-skilled. Instead
of one person in charge of one task, a team is in charge of a set of tasks.
The team is empowered in deciding on the best production process in order to
reduce costs, improved quality and increase productivity. The team is responsible
for allocating specific roles, covering for absences and holidays, appointing their
own supervisors, organizing training and arranging their own breaks. They are
responsible for the quality of the product they pass to the next team.
For example, in a furniture manufacture, one cell is responsible for cutting
different parts of the furniture. The parts are then passed to another cell for
assembly and then passed to another cell for painting.
PRODUCTION METHODS
Lean production
Is a term covering different methods, which reduce costs, improve
quality and increases productivity. A Japanese approach to operations
management focusing on less waste and greater efficiency. It includes:
Just in time production JIT: Avoiding holding stock.
Kaizen: Method based on continuous improvement.
Just in case production JIC: Holding reserves.
SELECTING THE MOST APPROPRIATE
METHOD OF PRODUCTION
The level of demand
The nature of the target market
The nature of the product
The comparative costs of labor and capital
The nature of the firm itself
New technologies
The goals of the business
Government policies
LOCATION
Location refers to the geographical position of a business, i.e. where it is
sited.
Where to locate a new firm or relocate an existing firm is critical to its
survival and development.
Quantitative factors
Qualitative factors
Land
Management preferences
Labor
Local knowledge
Raw materials
Infrastructure
Nearness to customers
Political and economic factors
Government incentives
Ethical issues
Feasibility of e-commerce
WAYS OF REORGANIZING
PRODUCTION
Outsourcing/ subcontracting:
Refers to the transfer of internal activities to an external firm in
order to reduce costs.
The subcontractor should be able to carry out the outsourced work
for less without reducing quality.
For example, Dell outsources the production of their laptop
batteries to Sony.
WAYS OF REORGANIZING
PRODUCTION
Off shoring:
Involves relocating business activities and processes abroad.
It tends to take place in less developed countries where the labor
costs are relatively cheaper.
For example, Nike outsources most of its production in China.
WAYS OF REORGANIZING
PRODUCTION
Inhousing (or insourcing) and reshoring:
The practice of performing peripheral activities internally within
the company.
The opposite of outsourcing.
Reshoring is the practice of bringing back business functions to the
home country. The opposite of offshoring.
Suggest and justify an appropriate production method for each of the following products:
 Children’s clothing
 Navy battleships
 Ceramic pots
 Desktop computers
 Bottled mineral water