Operations management

Production 生产 means turning materials and labour 劳动力 into finished goods and services 服务. There are three main methods.

A car assembly line: making many identical products on a moving line

The three methods of production

Productivity

Productivity 生产率 measures how much each worker or machine produces in a set time. Higher productivity lowers the cost per item. A business can raise productivity by:

• training workers,
• using better machines and technology 技术,
• improving motivation 激励,
• organising the work better.

Productivity is output per worker in a set time; raising it lowers the cost per item

Lean production and just-in-time

Lean production 精益生产 means cutting all waste — wasted time, materials, space and effort — while keeping quality.

One key method is just-in-time 准时制 (JIT). With JIT, materials arrive just as they are needed, and finished goods are sold quickly, so the business holds very little inventory 库存 (its stock of materials and goods). This saves storage cost, but one late delivery can stop production. Good management of inventory keeps enough stock to meet demand, but not so much that money is tied up or goods go out of date.

Just-in-time holds little stock with frequent deliveries; just-in-case holds a buffer of stock

Technology in production

Technology has changed production. Automation 自动化 (machines and robots doing tasks), computer design and online ordering all make production faster, cheaper and more exact. But machines cost a lot to buy and can replace workers' jobs.

Automation: industrial robots weld and assemble car bodies — faster and more exact than by hand, but they cost a lot and replace some workers

Types of cost

A business has different kinds of cost 成本.

• fixed costs 固定成本 do not change with output — rent, salaries, insurance. You pay them even if you make nothing.
• variable costs 可变成本 change with output 产量 — materials, and pay for each item made. More output means more variable cost.
• total cost 总成本 is fixed costs plus variable costs.
• average cost 平均成本 is the total cost divided by the number of items made.

Worked example. A factory has fixed costs of £8,000 and variable costs of £2 per unit, and makes 1,000 units. Find the total cost and the average cost per unit.

Total cost = fixed cost + variable cost; only variable cost rises with output

Revenue and profit

Revenue 收入 is the money a business gets from selling its products.

Profit 利润 is what is left after all costs are paid.

Worked example. The same factory sells all 1,000 units at £15 each. Find its total revenue and its profit.

Break-even

The break-even 盈亏平衡 point is the level of output where total revenue exactly equals total cost: the business makes no profit and no loss. Below it the business makes a loss; above it, a profit.

Each item sold gives an amount towards covering the fixed costs. This amount is the selling price minus the variable cost of one item (sometimes called the contribution 贡献 per unit).

A break-even chart 盈亏平衡图 plots total cost and total revenue against output. The two lines cross at the break-even point 盈亏平衡点.

The break-even point is where total revenue equals total cost — left of it is loss, right of it is profit

The margin of safety 安全边际 is how far the actual output is above the break-even output.

Worked example. A product sells for £15 with a variable cost of £5 per unit, and the firm's fixed costs are £8,000. Find the break-even output, and the margin of safety if the firm actually makes 1,200 units.

The contribution per unit is $\text{\pounds} 15 - \text{\pounds} 5 = \text{\pounds} 10$, so

A large margin of safety is safer, because sales can fall a long way before the business makes a loss.

Limits of break-even analysis. It assumes that all output is sold, and that the selling price and the costs stay the same at every level of output. In real life these often change, so break-even is only a guide.

Why quality matters

Quality 质量 means a product is good enough for what customers 顾客 need. Good quality:

• builds a strong brand 品牌 and customer loyalty 顾客忠诚度,
• means fewer returns, complaints and wasted materials,
• lets a business charge a higher price.

Poor quality loses customers and damages the brand.

Quality control and quality assurance

There are two main ways to manage quality: quality control 质量控制 and quality assurance 质量保证.

Quality control checks at the end; quality assurance builds quality into every stage

Where a business locates — like this distribution centre — affects its costs and service.

Locating a business

Where a business sits affects its costs and its sales. A manufacturing 制造业 business (one that makes goods) looks at:

• nearness to raw materials 原材料, because heavy or bulky materials cost a lot to move,
• nearness to customers and the market 市场,
• the cost and size of the land,
• a supply of suitable labour,
• good transport links,
• government grants offered in some areas.

A service business (one that sells services, such as a shop or a hair salon) looks more at being close to customers, passing foot traffic, nearby shops, and the rent.

Locating in another country

A business may produce or sell abroad in order to reach new customers and bigger markets, pay lower wages or rent, get nearer to raw materials, or avoid tariffs 关税 (taxes on imports) by making goods inside the country. But it must then deal with different laws, languages and customs, and follow the legal controls 法律管制 of both countries.

• Match the production methods: job (one-off items to order), batch (a group, then switch to another), flow (non-stop mass production on a line).
• Learn the formulas: total cost = fixed + variable; average cost = total cost ÷ output; total revenue = price × quantity; profit = total revenue − total cost.
• Break-even output = fixed costs ÷ (selling price − variable cost per unit). How far actual output is above break-even is the margin of safety.
• Break-even analysis assumes everything made is sold at one fixed price and cost, so it is only a guide.
• Quality control checks finished goods at the end; quality assurance builds quality in at every stage.