BM Handbook Operations

8/14/2019 BM Handbook Operations

1/43

Higher Business Management

Business Decision Areas I:

Operations


2/43

Operations

The role and importance of operations in organisations

Operating systems

An Operating System is a configuration of resources combined for the

provision of goods and services.

Ray Wild, Essentials of Production and Operations Management(2nd edn.)

Access to raw materials, machines and workers does not guarantee that you will

obtain the outcomes you require organisation is essential. Procedures must be

established which control and direct what is done, whom it is done by and when.

This is known as an operating system.

All operating systems have three distinct phases:

INPUTS PROCESS OUTPUTS

Raw Materials Using different amounts The actual goods

+ of different resources or services for

Labour in order to produce a sale

different end product

Operations management

Operations Management is concerned with the efficient conversion of an

organisations resources into the goods or services that it has been set up to

provide.

Howard Barnett, Operations Management

This can be subdivided in three key areas:

(a) Thepurchaseand storageof raw materials;

(b) Theproductionand storageof finished goods;

(c) The distributionof the finished goods.

Higher BM Handbook: Operations M. McGowan 2


3/43

STAGE 1 INPUT

This concerns the purchasing of materials that normally is the responsibility of the

Purchasing Department.

The quantity of stock ordered depends upon:

LIST A

A the stock of materials currently available

B the duration of time which will elapse between this order and any future orders

C the amount of raw materials likely to be required during the period

D the storage space available and cost of storage

Once these issues have been considered it is possible to identify those suppliers which

offer the best terms. When making this decision the following should be taken into

account.

LIST B

Choosing supplier:

1. PRICE Lowest price?

Discounts for regular customers or bulk orders?

Credit terms?

2. QUALITY Acceptable for needs?

Consistently available?

3. AVAILABILITY Dependable source of supply?

Reliability of deliveries?

Confident in supplier?

4. LOCATION OF SUPPLIER Additional charges for delivery/insurance?

It is unlikely that one single supplier will offer all of these benefits.

Consequently, when purchasing materials, decisions must be taken about the quantity

required (LIST A) and from whom (LIST B). Getting the correct MIX for the

organisation in terms of how much and from whom is essential. This is known as the

PURCHASING MIX.

STUDY QUESTIONS

1. Explain the importance of Operations in organisations

2. Describe the IPO process

3. Describe the elements of the Purchasing Mix



4/43

Memorandum

To: Business Management Students

From: Mr McGowan

Date: Todays

Subject: Sourcing Task

Youre a buyer for HGS Ltd and there are 10 items needed for the company.

Youre task is to source the items at the lowest possible cost. You can use the Internet

to research and find the cheapest possible prices BUT for the appropriate features

and quantity of the items.

You will need to keep a record (hyperlinks are good enough) of where the deal was and

obviously the price. The team with the lowest total wins. You must have an entry for

every item or you are disqualified!

SOURCE LIST

ITEM QUANTITY SUPPLIER COST (inc. delivery)

1 GB Memory Stick 3

Wireless ergonomic

keyboard

40

Microsoft Office

2007

School

License

Headphones with

Microphones

20

Duplex Colour

Printer

1

i-book 1

Computer Chair 40

ID Badges 60

Mousemats with

Corporate Logo

40

Webcam 2

TOTAL



5/43

Stock control

In any organisation the control of stock is essential. Stock is an expensive item

to an organisation sometimes accounting for as much as 30% of the total

assets held. Any stock management system will try to balance the needs of the

production department with the costs of holding stocks. The 3 main categoriesof stock within an organisation are:

raw materials and components for the product or process;

work in progress;

finished stock.

Issuing stock

This should only be done on the production of an authorised requisition card.

Monitoring stock levels

This can be done in a variety of ways:

(a) by recording (manually, using a bin card system);

(b) by using a databaseor spreadsheet, changes in stock are recorded as they

take place, giving a running balance total which should be accurate at any

point in time and reduces the need for physical stock counting prior to re-ordering. Many such systems now allow automatic re-ordering when re-

order level is reached, with no need for operator input.

Aphysical stock count(stock taking) MUST be carried out at least once per

year in order to provide closing stock figures for the Final Accounts.

STOCK LEVELS (raw materials, work-in-progress, finished goods)

Effect of too much or too little stock

Too much stock (Overstocking)

Storage, insurance, lighting and handling costs will all be high if too much stock

is held.

Large stock levels will occupy space in the premises. There may be more

productive ways of using this space, such as improving the layout of the factory.

The opportunity cost will be high. Money tied up in stocks could be used to buyfixed assets, for example.



6/43

Large stock levels might result in unsold stock. If there is an unexpected change

in demand, the firm may be left with stocks that cannot sell.

Very large stocks might result in an increase in theft by employees.

Too little stock (Understocking)

The business may not be able to cope with unexpected increases in demand if its

stocks are too low. This might result in lost customers if they are let down too

often.

If deliveries are delayed the firm may run out of stock and have to halt

production. This might lead to idle labour and machinery while the firm waits for

delivery.

The firm is less able to cope with unexpected shortages of materials. Again, this

could result in lost production.

A firm which holds very low stocks may have to place more orders. This will raise

total ordering costs.

STORAGE OF STOCK

Design and Layout of Warehouse ground level, dry etc.

Centralised Storage of Stock

Advantages include:

improved security from loss or theft as it tends to be carefully controlled by

specialist staff.

specialist staff maintain stocks by following agreed procedures for its control

only issued when authorised.



7/43

central stock of components or materials may cost less to hold than many small

on-site supplies.

improved efficiency in stock handling and management

Disadvantages include:

Time wasting going to and from branches

Cost of specialist stock staff

Cost of having specific or dedicated warehouse

Decentralised Storage of Stock

Advantages include:

1 stock is always at hand when required

2 orders of new stocks reflect actual production usage rather than a standard

amount irrespective of needs

3 speedier turnover of a small quantity of stock reduces the likelihood of its

deterioration or decay

Disadvantages include:

Less rigid control and supervision: more chance of pilfering

Takes up more physical space in actual production areas

Shoppers 'facing empty shelves'

Supermarkets are failing to get some basic products

such as milk, bread and butter on the shelves, a studyby the Grocer magazine suggests.

The Grocer tested the availability of 33 basic goods and foundtwice as many were out of stock as six months ago.

Analysts said that supermarkets "had taken their eye off theball" and were focusing more on reducing waste andpackaging than getting items in stock. Tesco said availabilitywas high and queried The Grocer's study methods.

Mystery shopper

The Grocer used mystery shoppers to check price and availability of 33 items - picked to


Mystery shoppers found empty spaceson shelves


8/43

reflect an average consumer's shopping basket - in differentbranches each week.

Six supermarket groups were tested: Tesco, Sainsbury's,Asda, Morrisons, Waitrose and Somerfield.

During the 26 weeks from 17 June to 9 December Somerfieldrecorded 48 occasions when one of the 33 items was out of stock. This was the worstperformance of the six major supermarkets groups tested.

Sainsbury's, Waitrose and Tesco performed very similarly to one another; while the best twosupermarkets for availability were Asda and Morrisons.

But overall, the number of items out of stock was much higher than for the previous six-month period. According to Gaelle Walker, reporter for the Grocer, supermarkets werefailing in "basic shop keeping".

"The number of out of stock items has doubled in all thesupermarkets... there seems to be a bit of a problem here.

"Analysts I spoke to believe the supermarkets have takentheir eye of the ball; become distracted by side issues suchas reducing waste and packaging," she said.

But a spokesman for Tesco, the UK's biggest supermarketchain, told BBC News that there was no link between reducing waste and availability.

"I fail to see how environmental measures have any effect whatsoever.

"What I do know is that the Grocer sample of 33 products is small and that it only takes onestore to be down on the items, because say of a rush or seasonal factors, to skew thefigures.

"We have our own, very-sophisticated stock control measurements and availability is muchbetter than the picture painted by the Grocer study."

STUDY QUESTIONS

1. Describe the 3 types of stock used in business

2. Why is stock control important?

3. Label and draw the Stock Reorder diagram

4. Discuss the effects of over and understocking

5. Explain the benefits of having a centralised stock system

6. Justify moving to a computerised stock control system


We have our own, verysophisticated stock control

measurements andavailability is much betterthan the picture painted by

the Grocer study

Tesco spokesman

The number of out of

stock items has doubled inall the supermarkets...thereseems to be a bit of a

problem here

Gaelle Walker, The Grocermagazine


9/43

Just-in-Time Manufacturing

Originated in Japan during the 1960s and involves keeping stock levels to a minimum.

Stocks arrive just-in-time to satisfy production needs. Raw materials are not

purchased until they are required and finished goods are not produced unless firm

orders have been received.

To be successful JIT techniques depend upon the reliability of an organisations

suppliers, access to a supply of highly skilled workers and good quality control

procedures.

Advantages Disadvantages

It improves cash flow since

money is not tied up in stocks

A lot of faith is placed in the

reliability and flexibility ofsuppliers

The system reduces waste,

obsolete and damaged stock.

Increased ordering and admin

costs

More factory space is made

available for productive use.

Advantages of bulk buying lost

The costs of stock holding are

reduced significantly.

Vulnerable to a break in supply

and machinery breakdowns

Links with and the control of

suppliers are improved.

Difficult to cope with sharp

increase in demand

Possible loss of reputation if

customers are let down by late

deliveries



10/43


What is Kanban?

A system of continuous supply of components, parts and supplies, such that workers have what

they need, where they need it, when they need it.

The word Kan means "card" in Japanese and the word "ban" means "signal". So Kanban refers to

"signal cards".

What are signal cards? Here's how Kanban works:

Let's say one of the components needed to make widgets is a 42" stem-bolt and it arrives on

pallets. There are 100 stem-bolts on a pallet. When the pallet is empty, the person assembling the

widgets takes a card that was attached to the pallet and sends it to the stem-bolt manufacturing

area. Another pallet of stem-bolts is then manufactured and sent to the widget assembler.

A new pallet of stem-bolts is not made until a card is received.

This is Kanban, in it's simplest form.


11/43

The triumph of lean production

On the assembly line at Toyota's giant plant, LauraWilshire is not happy.

There is something wrong with a seatbelt fitting on theCamry she is working on.

Laura pulls a cord, stopping the production line - andprompting her five fellow workers on trim line three to crowdround.

They soon see why it is not screwed in properly and fix theproblem.

"I don't like to let something like that go," she says. "That'sreally important for people who buy our cars."

Workers at the Toyota plant in Georgetown, Kentucky, pullthe cord 2,000 times a week - and their care is what makesToyota one of the most reliable, and most desired, brands inthe US.

In contrast, workers at Ford's brand-new truck plant inDearborn, Michigan, pull the cord only twice a week - thelegacy of generations of mistrust between shop-floor workers and managers.

Lean production

Pulling the cord, called "andan", is part of Toyota's "lean" production system, which meansthat it has been able to produce cars much more cheaply,and to a higher quality, than its US rivals.

In 1998, it took Ford and GM 50% more hours to make a carthan Toyota - and the difference was so great that GM did notmake a profit on any of its cars.

Now GM is attempting to emulate Toyota by introducing a global manufacturing system of itsown and has been closing the productivity gap.

GM's new manufacturing system is vital to its survival, says the man in charge ofimplementing it worldwide, Gary Cowger.


Toyota workers talk about their

experience on the assembly line

GLOBALISATION SERIES

Our philosophy is tothink globally but act

locally

Jim Press, President, ToyotaNorth America
http://news.bbc.co.uk/1/shared/spl/hi/pop_ups/07/business_toyota_workers_speak_out/html/1.stm


12/43

GM aims, like Toyota, to produce the same car by the samemethod in any of its production plants around the world.

"Looking at the new plants, you wouldn't know if you were inLansing, Michigan, Russelheim, Germany or Shanghai," says

Mr Cowger, GM's global vice-president for manufacturing andlabor.

GM is also eliminating national boundaries in its developmentprocess. Instead, it is planning to design plants flexiblyaround a single type of vehicle, such as a small car, mediumcar or truck (SUV).

And it is also integrating the design of the car and themanufacturing process to gain efficiencies.

GM's global design centres will be dotted around the world:

Korea (Daewoo) for small cars; Germany (Opel) for mid-sizecars; Australia (Holden) for full-size cars, and Michigan forfull size trucks and SUVs.

Each plant can quickly change the specifications of themodels it produces to adopt to local conditions, although itshares a common platform, including engines andtransmissions, across the range.

This combination of global manufacturing and designstandards with local production is the key to the future,according to Mr Cowger.

Catching up

GM's new manufacturing system is part of a fundamentalreorganisation of the giant company, introduced in 2004,which is already paying dividends in its North Americanmanufacturing operations.

GM now has five of the top 10 most productive US assembly plants, according to HarbourConsulting, and has substantially closed the productivity gapwith Toyota.

In 2006, Toyota could build an average car with just 29hours' labour, while it took GM workers 33 hours - a bigimprovement from 1998.

Mr Cowger says it has been tough, but already 90% of the178 GM plants in 33 countries have adopted the new system.

However, the improvement in productivity in North America -crucial to GM's future - has also come through ruthless restructuring.

GM is cutting its US output by one-third and has cut its US blue-collar workforce by 80%

since 1985, according to the Center for Automotive Research.

GM once produced one of every two cars sold in the US. Now it is down to one in four.


LEAN PRODUCTION GLOSSARY

'Just-in-time': System of

delivering parts to the assemblyline in a continuous flow, ratherthan stockpiling large volumes at

the plant

Continuous improvementProcess of analysing problemsand solving them on a daily basis

Personal responsibility Each

worker on a production line isgiven responsibility for each

process he carries out

Flexible production: Severaldifferent models can be produced

on the same assembly line

Design for manufacture:Making the components of a car

easy to fit together on theassembly line

We are putting cost

pressures on our suppliers,but costs are critical to oursurvival, and we are facing

the same pressures as theyare

Gary Cowger, GM global vice-president for manufacturing andlabor


13/43

According to GM boss Rick Wagoner, who has taken charge of North American operations,the company has already saved $9bn in costs.

Supplier relationships

Another key part of the new production is the relationshipwith parts suppliers, who typically provide 85% of the partsthat make up a car.

Ensuring good-quality parts, delivered on time, is one of thekeys to both reliability and efficiency. Missing a keycomponent can bring the assembly line to a halt.

Toyota pioneered the "just-in-time" manufacturing system,in which suppliers send parts daily - or several times a day -and are notified electronically when the assembly line isrunning out.

More than 400 trucks a day come in and out of Toyota'sGeorgetown plant, with a separate logistics companyorganising the shipments from Toyota's 300 suppliers - mostlocated in neighbouring states within half a day's drive of theplant.

Toyota aims to build long-term relationships with itssuppliers, many of whom it has taken a stake in, and says itnow produces 80% of its parts within North America.

GM has had a more difficult recent history with its suppliers,having spun off its parts subsidiary, Delphi, several yearsago.

GM says its supplier relationships are critical and it needs to bring them into its globalmanufacturing system. But it also admits that, with the company losing billions, it issqueezing the suppliers to lower their prices.

"We are putting cost pressures on our suppliers, but costs are critical to our survival, and weare facing the same pressures as they are," says Mr Cowger.

As a result, many suppliers like Delphi plan to shift much of their production out of the US,

to Mexico or East Asia, where labour costs are lower.

According to Stephen D'Arcy of PricewaterhouseCoopers, China will eventually become thepreferred location for most suppliers - once they can meet local needs.

Many US-based suppliers went bankrupt in the past few years, including Delphi.

Closer to the consumer

One of the key advantages of the new "lean production" system is that it allows companiesto get closer to consumer needs.


SUPPLIER BANKRUPTCIES

Dura: October 2006

Dana: February 2006

Delphi: September 2005

Meridian: April 2005

Tower: February 2005

Valeo: January 2002

Federal Mogul: December 2001

source: CAR


14/43

Toyota's North American President, Jim Press, says the keyto their success is that they are customer-focused - and thatrequires quick reactions when consumer tastes changes.

"I think being nimble is really important. As the market

grows and shifts so quickly, you have got to be able torespond and anticipate where things are going," he says.

Toyota says it can now develop a new model in 18 months,compared to the three years it takes GM.

And its flexible manufacturing system and the company's co-operative culture means that "we roll our sleeves up and goto work and get the job done", says Mr Press.

Toyota also has a close relationship between the dealers whosell its cars and its plants.

The production run is adjusted at the Georgetown plant, and extra Saturday working isadded, only when computerised orders from the dealer network show it is needed.

And individual buyers can alter what they want in their car - changing the paint colour orspecifications - right on the production line, by notifying their dealers.

GM is also aiming at reducing the product cycle time - the length of time it takes fromdesigning a new car to actually putting it on the road.

And by using a global design system, it can use existing Opel designs for its Saturn model in

the US, or Holden (Australia) models for its new Pontiac G8.

And if GM has made strides in cutting costs, it perhaps still has some way to go before itstarts making enough of the right kind of cars.

"Their problem is on the demand side," says Garel Rhys of Cardiff University.

"For too long, they took they eye off the ball, and they are now being caught out bychanging consumer tastes.

"And there is still a problem of perception. Although their quality has improved, consumersdon't yet recognise it, and Japanese cars can command a $5,000 quality premium in the

marketplace."

Culture change

At a deeper level, the question is whether GM and Ford - thecompanies that perfected mass production -canfundamentally change their culture to the new leanproduction system.

"I hope they make it - but I am not optimistic they all will beable to," says James Womack, an expert who has advisedmany global companies, from Tesco to Boeing, on the

advantages of lean production.

Mr Womack says it has to be something that is inculcated in all the company's workers, from


MODEL CHANGES

Models in 1955: 25

Average model run: 62 months

Models in 2005: 325

Average model run: 25 months

source: The Machine thatChanged the World

The new boss of Ford introduced leanproduction at Boeing


15/43

the bosses to those on the factory floor.

"This is not Japanese companies vs American companies, it is smart Japanese companies vssmart American companies," he says.

"GM has caught up on assembly plants, but Toyota is still ahead on suppliers, productdevelopment and a problem-solving approach to issues.

"For too long, managers at US car companies were in denial about their problems."

Toyota, for its part, says it does have a worldwide company culture that transcends Japan,according to Jim Press.

"I think we have a hybrid system where we take the best of every culture and distil that intoa system that really works effectively in every country where we do business - and theability to transplant that system throughout other countries is the key to growing globally.

"Our philosophy is to think globally, but act locally."

Toyota's only worry appears to be whether, as it expands so fast, it can maintain that culture- and its quality - intact.

Toyota's President, Katsuaki Watanabe, recently said in a newspaper interview that he didn'tcare if Toyota became the biggest car company or not.

"What is important is to be number one in quality."

STUDY QUESTIONS1. Describe lean production

2. Discuss the advantages and disadvantages of lean production

3. Explain the key role suppliers play in lean production

4. What is Kaizen?

5. In your opinion, what do you think the future of the car industry will be like?



16/43

Production - Types of Production Method

Definition

In our introduction to production and operations management ("POM") we suggested

that there are several different methods of handling the conversion or production

process - Job, Batch, Flow and Group. This revision note explains these methods in

more detail.

Introduction

The various methods of production are not associated with a particular volume of

production. Similarly, several methods may be used at different stages of the overall

production process.

Job Production

With Job production, the complete task is handled by a single worker or group of

workers. Jobs can be small-scale/low technology as well as complex/high technology.

Low technology jobs: here the organisation of production is extremely simply, with the

required skills and equipment easily obtainable. This method enables customer's

specific requirements to be included, often as the job progresses. Examples include:

hairdressers; tailoring

High technology jobs: high technology jobs involve much greater complexity - and

therefore present greater management challenge. The important ingredient in high-technology job production is project management, or project control.

The essential features of good project control for a job are:

- Clear definitions of objectives - how should the job progress (milestones, dates,

stages)

- Decision-making process - how are decisions taking about the needs of each process in

the job, labour and other resources

Examples of high technology / complex jobs: film production; large construction

projects (e.g. the Millennium Dome)


Easy to organise production

Can customise orders

one-off orders can be

accommodated

Workers involved in entire

production process from start to

finish

Production costs likely to be high

Production time may be longer

Investment in machinery may be

higher as specialist equipment may

be needed



17/43

As businesses grow and production volumes increase, it is not unusual to see the

production process organised so that "Batch methods" can be used.

Batch Production

Batch methods require that the work for any task is divided into parts or operations.

Each operation is completed through the whole batch before the next operation is

performed. By using the batch method, it is possible to achieve specialisation of labour.

Capital expenditure can also be kept lower although careful planning is required to

ensure that production equipment is not idle. The main aims of the batch method are,

therefore, to:

- Concentrate skills (specialisation)

- Achieve high equipment utilisation

This technique is probably the most commonly used method for organising manufacture.

A good example is the production of electronic instruments.

Batch methods are not without their problems. There is a high probability of poor work

flow, particularly if the batches are not of the optimal size or if there is a significant

difference in productivity by each operation in the process.

Batch methods often result in the build up of significant "work in progress" or stocks(i.e. completed batches waiting for their turn to be worked on in the next operation).


Allows flexible production

Stocks of part-finished goods can be

held and completed later

Workers can specialise

Production runs of small batches

can be expensive to produce

If production runs are different

there may be extra costs and time

delays in setting up different

equipment

Repetitive work for employees

Flow Production

Flow methods are similar to batch methods - except that the problem of rest/idle

production/batch queuing is eliminated.

Flow has been defined as a "method of production organisation where the task is

worked on continuously or where the processing of material is continuous and

progressive,"

The aims of flow methods are:



18/43

- Improved work & material flow

- Reduced need for labour skills

- Added value / completed work faster

Flow methods mean that as work on a task at a particular stage is complete, it must be

passed directly to the next stage for processing without waiting for the remainingtasks in the "batch". When it arrives at the next stage, work must start immediately on

the next process. In order for the flow to be smooth, the times that each task

requires on each stage must be of equal length and there should be no movement off

the flow production line. In theory, therefore, any fault or error at a particular stage

can halt the entire process.

In order that flow methods can work well, several requirements must be met:

(1) There must be substantially constant demand

If demand is unpredictable or irregular, then the flow production line can lead to a

substantial build up of stocks and possibility storage difficulties. Many businesses using

flow methods get round this problem by "building for stock" - i.e. keeping the flow line

working during quiet periods of demand so that output can be produced efficiently.

(2) The product and/or production tasks must be standardised

Flow methods are inflexible - they cannot deal effectively with variations in the

product (although some "variety" can be accomplished through applying different

finishes, decorations etc at the end of the production line).

(3) Materials used in production must be to specification and delivered on timeSince the flow production line is working continuously, it is not a good idea to use

materials that vary in style, form or quality. Similarly, if the required materials are not

available, then the whole production line will come to a close - with potentially serious

cost consequences.

(4) Each operation in the production flow must be carefully defined - and recorded in

detail

(5) The output from each stage of the flow must conform to quality standards

Since the output from each stage moves forward continuously, there is no room forsub-standard output to be "re-worked" (compare this with job or batch production

where it is possible to compensate for a lack of quality by doing some extra work on the

job or the batch before it is completed).

The achievement of a successful production flow line requires considerable planning,

particularly in ensuring that the correct production materials are delivered on time and

that operations in the flow are of equal duration.

Common examples where flow methods are used are the manufacture of motor cars,

chocolates and televisions.



19/43


Economies of scale

Automated production lines save time

and money

Quality systems can be built into theproduction

Standard product produced

(opposite of customised)

High set-up costs of automated

lines Repetitive and boring work

Long production runs may produce

more than is needed

STUDY QUESTIONS

The three main types of operation are:

Job production

Batch production

Flow production

(a) Identify a product that Toyota would use in their organisation that would be

made by each of the three different methods of production.

(b) Say what key features of each type of operation method make it most suitable

for the production of that particular product.

(c) What factors will affect the choice of operation method used by an

organisation?

(d) Young Burberry Ltd. is bringing out a new line of synthetic hats. They will have a

variety of designs, colours and sizes. Which method of production would you advise

that they use? Give reasons for your choice of production method.



20/43

The production game

Making dice

The aim of this activity is to look at some of issues related to differentways of Producing goods

The class will be divided into three teams.

Each group is to operate as a factory, producing paper dice. The aim isfor each group to produce as many dice as possible in 25 minutes.

Each dice must meet the rigorous quality standards, which are set by thecustomer's buyers. Each team must decide how they can best ensuretheir dice are of an appropriate quality.

You will have 10 minutes planning time to organise your production.Every team must report back on their performance at the end of theproduction time to the rest of the class so make sure someone takesnotes, you might want to think about the following:

How well you worked together as a team

What things went well

What things didnt go well

How could you have prevented any of the problems youencountered

You need to appoint a group leader and a production manager

The Group Leaderwill have overall control of the group and beresponsible for making sure that all team members are followinginstructions

The Production Manageris responsible for buying all resources andselling the final dice and maintaining a running total of costs and finalincome



21/43

Dice game instructions sheet

You will need the following resource to produce the dice: A dice template use to cutout the dice shape on the paper provided

Resource Cost

1 Scissors 7

2 Glue 7

3 Paper (per sheet) 2

4 Ruler 5

5 Pencil 5

Resources can be purchased at any time either during or before production. Noother resources apart from the items you have bought can be used. The objective ofeach team is to make as much money as possible; you will do this by selling all thedice you have completed for 20

Rules

Only completed dice can be sold

Rejected dice have a scrap value of 5.00

Any paper not used can be resold back to the supplier for 1.00

Job production group

Team one will produce dice one person per a dice working individually with eachperson completing all stages in production before they move on to the next dice alldice should be produced exactly as the template. The purchasing manager will beresponsible for buying the resource and recording the investment on the sheetprovided

Batch production group

This group need to work on one aspect of the production at a time; no one cancomplete other parts of the production until the batch is complete. For example

everyone in the group produces two templates and then everyone in the groupmarks the dice with the dots then folds etc. The team should decide how many dicethey are going to produce before starting production

The flow production group

This group should split the task into individual processes with specialist workersinvolved at each stage (decide who is best at doing what) this should resemble aproduction line where someone marks out the template then passes on the paper tobe cut, this person then passes on the template to be marked up etc.



22/43

The decline of Detroit

Globalisation has been a powerful force that hasaccelerated change in the world economy over the past

half-century.

It has affected the fate of companies as much as countries.And nowhere has been thechange more dramatic than inthe US car industry.

Fifty years ago, American carcompanies dominated theworld, especially the mightyGM, the world's biggestindustrial company, many of whose factories were based in Flint, Michigan, 40 miles north ofDetroit.

GM in decline

For the grandparents of Claire McClinton, who made the journey from the poverty of therural south to Michigan just after World War II, it was like arriving in another world.

"None of their children ever went hungry, we all had a goodeducation, we had good jobs, and owned our own home. Wethought we were living the American dream," she told theBBC.

Claire's whole family followed in their footsteps and became

"Flintsones," working for GM - and so did Claire.

They were loyal members of the autoworkers union, theUAW, which won increasing benefits for its members, withaverage wages of more than $50,000 plus overtime.

"We respected the union then," she said. "We believed it was the union that had deliveredus the American dream."

In the 1950s the Detroit area had the highest medianincome, and highest rate of home ownership, of any majorUS city. But times are very different now.

GM, under pressure from its competitors, is no longermaking money in the American car market - and it has beenclosing plants all across Flint.

Now there are only 6,000 GM workers in Flint, compared to100,000 at the peak, and the town and workers aresuffering.


28,000 workers lost their jobs when GMclosed Buick City in Flint

The Big Three are facingtheir greatest challenge ever

in their entire postwarhistory

Professor Garel Rhys, Cardiff

University

GM WORKER'S VIEW

We thought we were

living the American Dream

Claire McClinton, third generationGM autoworker, Flint, Michigan

GLOBALISATION SERIES


23/43

"Flint has the highest rate of unemployment, poverty and homelessness in Michigan," Clairetold me.

She works in a shelter feeding the poor, and would like her union to get more involved in thecommunity. And she is not sure how much longer she will have a job - and if she retires,

whether she will have any benefits.

GM has already told the unions it wants to cut the generous retirement and health carebenefits it promised its workers in the halcyon days of success.

The company does plan to build more car plants in the future - but in emerging markets likeChina and India, not in the United States.

Toyota rising

But 400 miles south of Flint, another group of car workers arefeeling very different.

They work in Toyota's huge Camry factory in Georgetown,Kentucky, and receive, by their standards, generous pay andbenefits.

Toyota is the fastest-growing car company in the UnitedStates, and it is building a new factory every year to keep upwith demand.

And it is set to overtake GM this year as the world's largestcar company by sales.

For Laura Wilshire, from Ashland, Kentucky , life is good.

"This is the top notch job in the area," she told the BBC.

She doubled her salary when she joined Toyota, and thecompany provides a good health care plan for her family,including dental coverage for her two children.

And she says that Toyota has also helped to provide betterschools for her children by putting money into the town'sbudget.

She says more is expected of workers at Toyota than herprevious job in a convenience store, but she doesn't mind taking responsibility.

"If a seatbelt isn't right, I stop the line until it is fixed - that is an important issue as it couldaffect people's safety."

Toyota encourages workers to take personal responsibility for defects, and to work togetherto fix them.

That attitude has given them a well-deserved reputation for quality and reliability - and theCamry has been the best-selling car in America for the last ten years.


TOYOTA WORKER'S VIEW

This is the top notch job inthe area

Laura Wilshire, Toyota worker,

Georgetown, Kentucky

Toyota builds 500,000 cars a year at itsvast Kentucky plant


24/43

Toyota has no trouble hiring the right sort of workers - 100,000 people applied for the 3,000jobs when the plant opened in 1990.

Laura says she feels sad when she reads in the papers about what is happening toautoworkers in places like Flint.

Dominance to decline

Now, according to Professor Garel Rhys of Cardiff University, the US Big Three are facingtheir greatest challenge ever in their entire postwar history.

What has led to the decline of US car manufacturers in theirhome market?

While it was inevitable they would eventually lose theirmonopoly position, their failure to adapt their productionmethods and meet changing consumer tastes has accelerated

their decline.

In 1955, the world looked like a very different place.

Four out of every five cars in the world were made in the US,half of them by GM.

No other car companies had the capital or the know-how to enter the global car business.

GM's main US rival, Ford, was half its size. The largest foreign carmaker, VW, was littlebigger than GM's own German subsidiary, Opel and only had one model - the VW Beetle.

And Toyota was not even on the horizon. It made 23,000 cars in 1955 in Japan, comparedto 4 million manufactured by GM in the US.

Innovation and experiment

But the near-monopoly conditions in the American marketbred complacency - and the assumption that the Americanlead in technology and marketing was unassailable.

According to Stephen D'Arcy, head of Global AutomotivePractice at PriceWaterhouse Coopers, in the long run "the US

monopoly was an unsustainable anomoly."

In the 1950s and 1960s, US firms failed to innovate in thedesign of cars, preferring to make money by increasing the size and weight of their vehiclesby adding extras like air conditioning, power steering, and fancy sound systems.

It was left to European manufacturers to develop disc brakes, rack-and-pinion steering, air-cooled and diesel engines.

And the mass production system discouraged innovation because it was so expensive tointroduce fundamentally new models.

Meanwhile, Toyota was also making a virtue of adversity, changing its production system tobecome leaner and more efficient than its rivals.


Ford and GM dominated the US autoindustry in the l960s

Flint, Michigan, GM's production centre,was once a thriving community


25/43

Oil crisis

It was the oil crisis in the 1970s that first illuminated theproblems of US automakers.

For the first time, smaller cars were the rage, and USconsumers found that cars like the Toyota Corolla were anattractive alternative to big American cars.

Imports of Japanese cars soared in the 1980s, to the chagrinof the US companies and the unions alike, taking nearly one-quarter of the US market.

And when the companies pressured the US government intolimiting imports from Japan, Toyota and Nissan startedbuilding car plants in the US.

By 2005, these Japanese "transplants" were producing 4million cars a years, one-quarter of US output, and more thanGM.

The Japanese located their plants in low-wage, non-union areas of the US and brought new,more flexible production methods as well.

As a result, they could make money on smaller cars and change models more frequently.

The US car companies tried and failed to design a competitive small car.

They also experimented with Japanese production methods but neither seemed to do thetrick and close the quality gap.

According to James Womack, author of the influential book The Machine that Changed theWorld, it was easy for everyone to say they accepted lean production, but much harder toactually implement it.

The SUV craze

If the 1980s was a decade of fear, the 1990s represented afalse dawn.

With oil back at $18 a barrel, the US companies thought theyhad the answer to the Japanese threat - the SUV (SportsUtility Vehicle).

As light trucks, SUVs were protected by a 25% import tariffand also escaped government rules laid down to boost fuelefficiency.

SUV sales soared from one to four million with 60% of the Big Three's sales - and nearly allof their profits - coming from SUVs.

The SUVs transformed the fortunes of Chrysler, dominating with its Voyager minivan and

Jeep Grand Cherokee, and Ford which had the best-selling SUV, the Ford Explorer.


Lean production: It iseasy to say you will do it, but

harder to actually implementit

James Womack, author, The

Machine that Changed the World


26/43

Abandoning cars proved a costly mistake for Detroit when it became clear in recent yearsthat environmental concerns were here to stay.

Last year,the price of gasoline in the US reached a record $3 per gallon in most states.

As a result, SUV sales slumped, and the sale of smaller vehicles rose.

At this year's Detroit Auto Show, Ford and GM made it clear that they were taking theenvironment seriously, and produced electric-powered concept cars.

But these cars are years, if not decades, away from reaching the public, while Toyota isalready rolling out its hybrid electric-petrol engine across its entire range.

Downsizing lessons

In 2006, both Ford and GM finally accepted they would neverdominate the US car market as in the past.

They both announced huge downsizing programmes, cutting70,000 jobs between them.

And Chrysler - now owned by German firm Daimler - alsoannounced its own downsizing programme and is effectivelyup for sale.

There is real doubt in the industry that all three can survive.

GM hopes to survive as a global car company which increasingly operates outside the US.

And Ford may survive by selling some of its more profitable European subsidiaries.

But even if they manage this, it is sad end to what was once a central element in theAmerican industrial dream.

STUDY QUESTIONS

1. What factors contributed to the decline of the American Car Industry?2. What External Factors are mentioned in the article?


GLOBAL CAR COMPANIES COMPARED

Sales(volume)

Sales($bn)

Profit($bn)

Marketvalue($bn)

Workforce

GM 8.3m 192 -10.9 20 335,000

Toyota 8.2m 176 12.5 208 285,000

Daimler/Chrsyler 4.8m 185 -1.7* 65 382,000

Ford 6.6m 153 -12.7*

16 300,000

Volkswagen 5.2m 118 5.2 43 344,000

*2006 (Chrysler only)

Source: PriceWaterhouseCoopers, 2005

Detroit still puts on a glitzy image at theannual motor show


27/43

3. What role did the Oil Crisis of the 1970s play in the changes of fortunes?

4. Discuss the effect of Downsizing

5. What do the Car companies see as the future for their products?

6. If you were in charge of GM, what would you be aiming to do?

What is Quality?

Consumers, faced with many goods at similar prices, now think about quality when

making choices.

Consumers are more aware. Magazines such as Which?Contain reports on the quality of

certain products.

Consumers also have more disposable income and higher expectations than ever before.

Quality may be seen as subjective.

Quality could be described as the features of a product or service that allow it to

satisfy customers.

Eg a family buying a television may consider the following features:

Reliability and durability

Special features

Suitability + value for money

Parts

Repairs

After sales service

Physical appearance

They may also consider features such as:

The image of product The reputation of manufacturer

For the producer the aim is to ensure customer satisfaction and reduce the return of

faulty goods.

Organisations now recognise the importance of the view of the customer in the setting

of quality definitions.

Legislation and competition have also forced firms to improve the quality of their

products.



28/43

Total Quality Management

The main aim of Total Quality Management is to produce a perfect product or

service every time in order to meet customer requirements. In the UK the

system was first seen more than twenty years ago when the Ministry of

Defence set out the specifications or standards that their suppliers had tomeet before the Ministry would buy from them. Gradually over the years similar

standards have evolved to cover a wide range of industries.

Total Quality Management uses the principles of Quality Assurance but takes a

fundamentally different view of quality. The principle upon which this system

operates is that in order to achieve quality, the requirements, specifications,

and needs of the customer or client come above everything else. The culture

shift must be made from we know what quality is to You tell us what you want

and that will be our definition of quality.

Errors are costly for business.

It is estimated that one-third of all effort of British business is wasted in correcting

errors.

TQM is a method designed to prevent errors, such as poor quality products from

happening.

The business is organised so that the manufacturing process is investigated at everystage. Every department, activity and individual is organised to take into account

quality at all times.

In practical terms TQM assumes that the next person with ownership of the

good, or the next person to use the good, are customers or clients not simply

the person who ends up purchasing the good for his/her own use.

Quality is therefore essential at each and every step in the production of a

good, or, for that matter, in the provision of a service, to which the same

principles apply.

For example, on the production line in a factory, the next person down the line

from youis your customer or client. You must therefore ensure that when the

part-assembled car leaves you to move on to the next worker, any work you have

done on it is of the highest standard and quality just as you will expect to

receive the car parts from the worker in front of you.

It is felt that, although it is initially costly to establish, TQM can achieve

savings in the long run by reducing wastage to around 3%. This can make a

considerable difference to an organisation.



29/43

TQM requires:

the understanding that this is a core corporate philosophy focusing on the

needs of the consumer;

a commitment by top management, and therefore the provision of the

necessary resources; that every member of the organisation be consulted and involved in setting

standards (every member of the organisationmeans just that, from the

receptionist, office cleaner and store-man to top management);

a focus on teamwork and creative thinking to identify future improvements;

that it be viewed as a long-term concept;

a quality plan to be established which offers a structured, disciplined

approach to quality;

emphasis to be placed on the collection and analysis of information;

employee training to be treated as essential;

a constant checking of performance (quality standards) by individuals;

a constant search for improvement;

focus on the total quality of output, in which case cost savings can be

considerable.

What are the features of TQM?

Quality Chains failure to meet the requirements in any part of the quality chain

creates problems, such as delays in the next stage of production.

Company policy and accountability there will only be improvements in quality if there

is company-wide quality policy. TQM must start from the top with the most senior

executive and spread throughout the business to every employee. People must be

totally committed and take a pride in their job.

Control consumers needs will only be satisfied if the business has control of the

factors that affect a products quality. These may be human, administrative or

technical factors.

Monitoring the process TQM relies on monitoring the business process to findpossible improvements.

Teamwork TQM stresses that teamwork is the most effective way of solving

problems. The main advantages are:

A greater range of skills, knowledge and experience can be used to solve the

problem

Employee morale is often improved

Problems across departments are better dealt with

A greater variety of problems can be tackled

Team ideas are more likely to be used than individual ones



30/43

TQM strongly favours teamwork throughout the business. It builds trust and morale,

improves communications and cooperation and develops interdependence. Many UK

firms in the past have suffered due to lack of sharing of information and ideas.

Using TQM - TQM helps companies to:

Focus clearly on the needs of customers and relationships between suppliers and

customers

Achieve quality in all aspects of business, not just product or service quality

Critically analyse all processes to remove waste and inefficiencies

Find improvements and develop measures of performance

Develop a team approach to problems solving

Develop effective procedures for communication and acknowledgement of work

Continually review the processes to develop a strategy of constant improvement

There are however, some problems:

There will be training and development costs of the new system.

TQM will be only work if there is commitment from the entire business.


Good

design

Consistent

method

Consistent

equipment

Consistent

materials

Satisfactory

instructions

OPERATION

AND

CONTROL

OF PROCESS

CONSISTENTLY

SATISFIED

CUSTOMER


31/43

There will be a great deal of bureaucracy and documents and regular audits are

needed. This may be a problem for small firms.

Stress is placed on the process and not the product.

Costs of Quality

Firms will want to monitor the costs of quality control carefully. All businesses are

likely to face costs when trying to maintain or improve the quality of their products and

services.

The cost of designing and setting up a quality control system. This might include

the time used to think through a system and the training of staff to use it.

The cost of monitoring the system. This could be the salary of a supervisor or

the cost of an electronic sensor.

There will be costs if products do not come up to standard. Faulty goods may

have to be scrapped or reworked. Product failures might also result in claim

against the company, bad publicity and a possible loss of goodwill.

The costs of improving the actual quality. This may be the cost of new

machinery or training staff in new working practices.

If the whole quality system fails, there may be cost in setting it up again. Timemay be needed to rethink or adjust the system. Retraining might also be

necessary.

STUDY QUESTIONS

1. Describe the features of TQM

2. What benefits does TQM bring to an organisation?

3. What potential problems can arise from implementing TQM?

4. Explain the costs associated with Quality

5. Research 2 UK companies that implement TQM and find out the effect of

TQM on their profitability.

The diagram below shows the iceberg effects of quality failure costs the failure

costs above the water line and the more far reaching failures below the water line.



32/43

Although quality control systems can be costly, it is argued that their benefits

outweigh the costs. The actual quality of the product should be improved, so customers

are more likely to purchase he product. Business costs may be cut if faults in products

are identified before the product reaches the market. The costs of failure once the

product has reached the market are likely to be much higher than those duringmanufacture.


Reworking,

rechecking,

query handling,waived fees,

complaint

handling

Lost customers, staff overtime,

lost repeat business, machinedowntime, bad employee morale

Waterline

W. Edwards Deming is theGodfather of the Japanese successstory.

He was an American whose ideaswere laughed at in his native land,but when he went to help build theJapanese infrastructure in the late

1940s and 50s he transformedJapan.

Find out more about Deming and hisviews on Quality.

W. Edwards DemingQuality is about reducingvariation. Discuss


33/43

Car poll hails Japanese quality

Japanese cars are the most reliable, the least polluting

and the best to own, according to consumer groupWhich?

Honda has won this year's Reliability Award, based on aWhich? readers' survey of 100,000 cars, beating the BestManufacturer Award-winner Toyota.

The Green Award went to hybrid champion Toyota, ahead ofrunner-up BMW, which won the Road Testers' Award.

Some models by US marques Chevrolet, Chrysler and Dodge were criticised due to safetyconcerns.

Volvo's safety image was let down by concerns about seatbelts, which enabled Ford Galaxyand Toyota Auris to jointly grab the Safety Award.

Lexus won the Ownership Award ahead of Honda, though theHonda Jazz was this year's most reliable individual model.

Safety-conscious car buyers should steer well clear of theChrysler Voyager, a people carrier, the Dodge Caliber, amedium-sized car, and the Chevrolet Matiz, a rebadged smallDaewoo, Which? said.

The only serious non-Japanese contender for the Reliability

Award was Korea's Hyundai, which came joint third -alongside five Japanese marques: Daihatsu, Lexus, Mazda, Subaru and Suzuki, withMitsubishi following closely behind.

Ford and Nissan also scored highly in the reliability stakes, though when considered at agroup level they were both pulled down by their sister-marques.

Renault, Nissan's partner, and Land Rover, which is owned by Ford Motor, were at the bottomof the reliability league table.

STUDY QUESTIONS

1. How would you define quality?

2. What are the qualities you think customers want in a car?

3. What are the benefits to Japanese Car Manufacturers of this survey?

4. What advice would you give to the Car Makers near the bottom of the survey?


Honda Jazz is the most reliable car inthe UK, Which? readers say

Which? Car Awards 2007

Reliability: Honda

Best Manufacturer: Toyota

Safety: Toyota Auris/Ford Galaxy

Green: Toyota

Ownership: Lexus

Road Testers: BMW

Wooden Spoon: Dodge/Jeep

Consumer group slates dodgy cars
http://news.bbc.co.uk/1/hi/business/6260328.stmhttp://news.bbc.co.uk/1/hi/business/6260328.stm


34/43

Meeting Quality Requirements

Monitoring and Controlling the Production Process

As indicated earlier, the success of any organisation depends upon its ability to plan for

the future and sets targets for achievement. However, plans even good ones do not

guarantee success. Success requires organisations to achieve what was intended

through the implementation, reviewing and monitoring of the plan. As in other areas of

an organisation it is essential to monitor and control working practices as they relate to

operating systems. In order to do so, it is necessary to study the work being carried

out.

Best practice benchmarking

BPB is a technique used by some businesses to help them discover the best methods ofproduction available and adopt them.

BPB involves:

Finding out what makes the difference, in the customers eyes, between an

ordinary supplier and an excellent supplier.

Setting standards for business operations based on the best practice that can

be found.

Finding out how these best companies meet those standards.

Applying both competitors standards and their own to meet the new standards

and, if possible, exceed them.

Drawbacks

There may be resistance from the market leaders to provide their performance

figures to be used by competitors.

Organisations must continue to benchmark their processes even if they

become industry leaders as competitors will also be trying to produce better

quality goods and thereby increase their market share.

Benchmarking is seen as a vital element in the success of an organisation in a global and

highly competitive market.

STUDY QUESTIONS

1. Explain the process of benchmarking2. Discuss the advantages and disadvantages of benchmarking



35/43

QUALITY CIRCLES

Originally the idea of American business guru W. Edwards Deming, the idea wastaken up in Japan after the Second World War.

The idea was that the front-line production workers the people who knew best about

the product would meet regularly with supervisors and managers (engineers and

salespeople may also be involved) in order to discuss ways of improving work.

Quality circles offer more responsibility to the production worker. They are more part

of the decision-making process, which is called empowerment.

Quality circles benefit management by giving employees a less formal opportunity to

discuss what they think is going well or what can be improved on, thereby bringing the

product on in terms of quality.


CircleLeader

ProductionWorker

Production

Worker

ProductionWorker

Production

Worker

Manager

Supervisor

Supervisor


36/43

The use of quality circles is a management approach that allows people to become more

involved in decision-making. Small groups of workers (about 5-20) in the same area of

production meet regularly to study and solve production problems. This allows the

workforce the opportunity to directly improve the work they are doing. If quality

circles are successful they will motivate the workforce, improve efficiency and raise

profitability.

Quality control circles are only likely to work if they have the support of both

management and employees. Businesses have to want worker participation and

involvement in decision-making, and set up a structure that supports this. Workers and

their representatives also need to support the scheme. Employees must feel that their

views within the circle are valued and make a contribution to decisions.

Payment systems

The search for a way to motivate, reward and even control labour has led

managers to devise a variety of payment systems.

Time-rate payment systems

These are simple payment systems where the workforce receives a basic wage

or salary. Workers are rewarded for the amount of time they spend at work,

and for most workers in Britain this is the average working week of thirty-six

hours. In addition, holidays with pay are usually included. The system is very

common in many jobs from teachers to bank workers and shopkeepers. It

provides a simple method of calculating payment for employees, whether theyare paid hourly, weekly, or monthly. It also overcomes difficulties that might

arise when trying to work out the exact value of an employees work, for

example a doctor. From the employees point of view such a system guarantees

income.

Overtime

There are instances where employers operate a time rate system, but also offer

overtime payments when individuals work for more than their normal number of

hours per week. Overtime payment systems are common in the construction

industry, for example.

Piece-rate payment systems

In manufacturing industries the most common method of payment is some form

of payment by results, or a productivity related scheme. In some instances this

can simply be payment to the worker for each item he or she makes/produces.

This system was very common in the soft fruit industry where workers would be

paid by the weight of each basket of strawberries or raspberries they picked.

It is also felt to offer the greatest incentives to employees to maximise their

output the more they produce the more they get paid. However, a system thatonlyoffers piece-rate payments may result in little or no income for employees,

because of breakdowns in machinery or other unplanned stoppages.



37/43

Piece rates plus a basic or fixed pay element

To avoid the problems mentioned above, some employers calculate pay using a

system made up of two elements. Firstly, they will pay a basic or fixed-rate

wage calculated on a time rate basis, and then to this they will add a variable,

piece-rate element, calculated on output.

Commission payments

When looking to establish payment systems for a sales force, it is very common

to base this too on a flat-rate wage supplemented by some form of commission

based on sales volume or value achieved. In some organisations the greatest

part of the wage received by the sales force comes in the form of commission

paid. This has led to complaints that such workers may use pressure tactics in

order to achieve sales and maintain their own income levels.

Fringe benefits and non-financial payments

This covers any payments other than wages and salaries that an employer might

make. They include private medical insurance, subsidised meals, company cars

or loan and mortgage facilities. Since the 1960s fringe benefits have increased

in importance, particularly in the managerial and professional sectors.

Bonuses

Another common production payment system is one that operates with a flat

rate of pay that is then supplemented by a bonus directly related to the output

each worker, or group of workers, achieves. Such bonuses might be related tosetting targets for:

volume of output,

quality standards achieved,

reductions of wastage,

improved machine use,

reduction in the loss of working days through workplace accidents. (This last

example is very common in the North Sea oil industry.)

Incentives to professionalsIt is generally accepted that professional employees, for example dentists,

doctors and other health service specialists, receive a basic salary from their

employing health authority, but can enhance this by undertaking private patient

work for which they receive payment on an individual case basis. There has also

been an increase in no win no fee legal cases in recent years. Based on a

system devised in the USA, and particularly common in civil law suits for damage

claims, the client only pays the lawyer a fee if the outcome of the case is in his

favour. The percentage rate of the fee will be set out and agreed before the

legal action is started.



38/43

Contract employment

It is becoming more and more common for employers to hire staff on a contract

basis. This may be for the completion of a job or project, for example the

building of a new stretch of dual carriageway, or may be for a fixed time period

of, say, one university academic year. The employer can make substantial

savings using a contract basis for employment it is unlikely that he will offerpaid holidays, pay for days lost through sickness, maternity pay or a company

pension scheme. From the employees point of view the rate of pay is often

higher than for those on permanent contracts. But there is a high degree of

uncertainty and risk of loss of income when the contract ends.

Profit-sharing schemes

Although not widespread in Britain, there has been a move in recent years for

employers to use systems that include a share of pre-tax profits as part of the

payment made to the workforce. Some employers feel that this system is likely

to increase the commitment from the workforce, not only in terms of output,

but also in overall terms to the organisation itself. However, others are less

enthusiastic and feel that the relationship between daily output and annual

profit-share payments is too remote to be an effective motivator.

Employerswill have several objectives that they want to achieve when devising

payment systems for their employees. These include:

Motivation

Many people believe that workers are motivated by money, and this isreflected in the number of employers who use performance related payment

systems.

Cost

As one of the objectives of the employer is to maximise profits he will wish

to keep the cost of labour as low as possible. The procedures for calculating,

recording and making payments to employees should also be cost effective.

Prestige

Employers may want to have the reputation of being good payers rather thanpoor payers. This improves their ability to recruit and retain workers,

which, in the long term, is cost effective for the organisation.

Employeeswill also have a number of objectives that they want to be able to

meet from the payment they receive.

Purchasing power

The higher the wage the employee gets the more he can buy and the higher

his standard of living will be. Workers will always try to win wage increases

higherthan the present (or expected) level of inflation as this means that

they will continue to be able to raise their standard of living.



39/43

Recognition and fairness

Most employees like to have the value of their work recognised. Many see the

level of their wage or salary as the main indicator of such recognition. They

also want to see fairness between payments they receive and payments made

to other workers doing similar work or holding similar qualifications. Forexample, the pay of nurses is often compared to that of teachers or the

police.

How payments are made up

Many workers are interested in the way in which their total remuneration is

made up. For example, they might be very happy to settle for a lower annual

salary provided that the employer is making a contribution into a pension fund

on their behalf. Benefits such as a fully funded company car may be worth as

much as 4,000 or 5,000 per year to the employee, although he/she will

almost certainly have to pay more in tax.

ACTIVITY

For each of the Payment Systems create a T-chart like the one below and fill it in.

Payment System

Description


GROUP TASK

You will be divided into small working groups as usual.

Your task is to create a 5-minute presentation on one of the following

topics:

a) Methods of Production

b) Stock Control

c) Quality

d) Payment Methods

In your presentation use as many up-to-date examples from organisations

as possible.

Remember to evalutate your performance as a team!


GROUP ROLES1. Researcher2. Recorder3. Presenter


40/43

The Choice of Distribution Channel

An efficient channel of distribution will allow a business to make products available to

consumers quickly, when required, and at a minimum distribution cost to the firm itself.

Large firms often choose different channels for different products.

There are many factors that can influence a business decision.

The Product

The nature of the product itself will influence the type of distribution channel chosen.

Perishable or fragile goods, such as fresh fruit, require direct channel of

distribution, so half the time spend handling the product is reduced.

Technically complex goods also need a direct link between the producer and the

consumer. This is so that any problems which arise from installation can be

quickly dealt with, without the need to go through an intermediary.

Goods or services which are tailor made tend to have more direct channels so

that the consumers needs can be passed to the producer.

Goods which are heavy or are packaged in non-standard shapes are likely to

require a direct channel of distribution. If handling is difficult, the cost of

distribution is likely to find rival brands on shop shelves.

Producers wishing to sell large quantities of low valued goods are likely to use a

wholesaler. They will not want to keep stocks of low valued goods if they are

receiving order for more highly priced goods. Selling through wholesalers will

mean they can sell low valued products in bulk, as quickly as possible.

The Market

Large and dispersed markets usually require intermediaries. Smaller, local markets can

often use a system where consumers buy directly. This is also true of the size of an

order, where smaller orders can be sent by a more direct channel of distribution.

The market segment at which the product is aimed may influence the retail outlet at

which the product is made available. For example, products aimed at travelling business

people may be sold near to a railway station.

Legal Restrictions

Legislation may influence the channel that can be used for particular product. Certaindrugs, for example, can only be sold by pharmacists through a prescription.



41/43

The Company

Larger companies are often able to set up their own distribution networks.

Physical Distribution

Physical distribution is the movement of products from one place to another. It is an

important part of the marketing process for 2 main reasons:

Failure to deliver a product in the right quantities at the right place and at the

right time can damage an effective marketing effort.

The cost of physical distribution can be high in some cases higher than the

cost of actually producing the product.

Two aspects of physical distribution are important to a business holding stocks and

transporting products.

Holding Stocks

Ideally a business would be able to guarantee every customer the product they wanted,

whenever they wanted it. To do this a firm would have to hold huge amounts of stock.

Holding excessive amounts of stock is very costly. Holding very low stock levels,

however, could mean turning down orders.

The solution is for a business to assess the level of stocks needed to maintain an

agreed level of customer service. This often means holding enough stock to satisfy

regular orders, but not enough to deal with sudden changes in demand.

Transporting Products

This is concerned with how goods can be physically delivered to markets. Firms need to

consider the relative costs and speed of transporting their goods by road, rail, sea or

air. For example, aeroplanes are faster than ships when transporting exports for theUK. However, firms must decide whether this advantage outweighs the costs which

result from using this mode of transport. There are times when the nature of a product

dictates the transport. For example, an Orkney Islands based firm which sell freshly

caught lobster to Paris restaurants has little choice but to fly the product to France.

When transporting goods, firms must also consider possible damage to or deterioration

of goods. Packaging may help to reduce damage and deterioration, for example, if

vacuum packs are used.

STUDY QUESTIONS

1. What is a Distribution Channel?



42/43

2. Discuss the factors that influence the choice of Distribution channel

Operations Additional Information

British Standards a system for setting quality targets and monitor

performance targets. There is no guarantee of quality and critics argue

that it is a triumph of paper over performance. Indeed, a firm may holda BS 5750 certificate for setting and achieving a low quality target!

Investors in People (IIP) a government standard for employee consultation and

training that establishes a procedure for relating training to your business plan. In

order to achieve the standard, assessors from IIP will ask:

Have goals been set for the business?

Have these been explained to the workers?

Have workers the right skills to meet those targets?

ISO 9000 - ISO is a network of the national standards institutes of 148 countries, on

the basis of one member per country, with a Central Secretariat in

Geneva, Switzerland, that coordinates the system.

Deming Prize Japans top quality award, named after W. Edwards Deming, the world

famous quality guru. Estabished in 1950 by the Japanese Union of Scientists and

Engineers (JUSE). Its main concern is the implementation of TQM in the firm. Previous

winners include Kawasaki, Toyota and Fuji and Hitachi.

Baldridge Award Americas top quality award. Its key factors are: customer focusand customer quality, continuous improvement, and leadership. Previous winners include

Motorola, Boeing, AT&T and Federal Express.



43/43

PAST PAPER QUESTIONS

1 Discuss the factors which must be considered when deciding on the most

effective channel of distribution for a product.

(7 marks)

2 A furniture manufacturer chooses to use the JOB method of production.

Describe the advantages and disadvantages of this method over FLOW

production for the furniture manufacturer.

(6 marks)

3 Manufacturers have to transport goods to retailers. Describe the external

factors which might result in transport difficulties. (4marks)

4 The British Standards Institute (BSI) Kitemark is an indication of product

quality

(i) Name 2 other quality standards. (2 marks)

(ii) Describe the benefits of a quality standard to both an organisation and its

customers. (3 marks)

5 Describe the main factors which have to be taken into account by an

organisation when choosing a method of production.

(5 marks)

6 What steps can be taken in the manufacturing process to ensure a quality

product is produced at all times?(10 marks)

7 Describe the factors influencing a purchasing managers choice of suitable

suppliers of materials and services.

(10 marks)

Documents

BM Handbook Operations