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Operational Strategy & Efficiency

Defining Performance Targets

Operational objectives define performance targets essential for improving efficiency, customer satisfaction, and competitiveness.

1

Costs

Minimizing expenses to enhance profitability.
2

Quality

Meeting or exceeding product/service standards.
3

Speed of Response

Quickly fulfilling customer orders.
4

Flexibility

Adjusting to changes in demand or product types.
5

Environmental Objectives

Reducing waste, sustainable resource use.
6

Added Value

Increasing the difference between input costs and final selling price.

Key Operational Metrics

👤

Labour productivity

Output per worker, indicating workforce efficiency.
💲

Unit costs (average costs)

Total cost divided by units produced.
🏭

Capacity

Maximum output achievable under normal working conditions.
⚙️

Capacity utilisation

Actual output as a percentage of capacity, measuring efficiency.

Regularly monitoring data enables performance improvements.

Decisions for Efficiency

Increasing Efficiency and Productivity

Efficient capacity use avoids wasted resources. Labour productivity can be increased through training, motivation, and better equipment. However, improvements face difficulties, including employee resistance, equipment breakdowns, and inflexible processes.

Waste Reduction Strategies (Lean)

✅
Lean BenefitsLean methods cut costs, shorten lead times. 'Just in Time' (JIT) minimizes inventory.
❌
Lean RisksJIT requires reliable supply. 'Just in Case' keeps buffer stocks but raises inventory costs. Lean methods can raise risk if supply chains falter.

Optimal Resource Mix

👷
Labour-IntensiveOffers flexibility (more employees). Good for customization and variable demand.
🤖
Capital-IntensiveCan boost output and reduce long-term costs (machines, automation). Increases speed and consistency.

Technology Integration

💡

Automation and IT Use: Automation and robotics increase speed and consistency. Use of IT improves inventory management and communication with suppliers/customers.

Quality Control Frameworks

🛠️

Quality assurance

Embedding quality in processes to prevent defects.
🧐

Quality control

Inspecting products after production to detect issues.
⚠️

Poor Quality

Leads to returns, lost sales, and damage to reputation.

Benefits include customer satisfaction and brand reputation; difficulties include costs and employee resistance.

Inventory Control Fundamentals

Stock Levels = Re-order Point + Buffer Stock + Lead Times
Inventory control tracks stock levels using these metrics to prevent shortages or overstock. Effective supply-demand matching reduces carrying costs and missed sales.

The Outsourcing Dilemma

🤔
Managing supply chains efficiently improves delivery time and lowers costs. Should we outsource all functions?
🦉
Outsourcing can cut costs but inherently results in losing some control over the production or service delivery process.
Setting Operational Objectives & Improving Operational Performance
Term
Operational Objectives

What are operational objectives?

Answer
Definition

Performance targets in cost, quality, speed, flexibility, environment, and added value.

Term
Minimizing Costs

Why is minimizing costs important in operational objectives?

Answer
Importance

To enhance profitability by reducing expenses.

Term
Speed of Response

What does speed of response refer to?

Answer
Definition

Quickly fulfilling customer orders.

Term
Flexibility

What is flexibility in operations?

Answer
Definition

The ability to adjust to changes in demand or product types.

Term
Labour Productivity

Name a key metric that measures workforce efficiency.

Answer
Metric

Labour productivity.

Term
Unit Cost

How is unit cost calculated?

Answer
Calculation

Total cost divided by units produced.

Term
Capacity Utilisation

What does capacity utilisation indicate?

Answer
Definition

Actual output as a percentage of maximum capacity.

Term
Lean Production

Why is lean production important?

Answer
Importance

It reduces waste to improve efficiency.

Term
Just in Time (JIT) Risk

What is the main risk of a 'Just in Time' system?

Answer
Risk

Supply chain disruptions can halt production.

Term
Capital-Intensive Production

What’s a benefit of capital-intensive production?

Answer
Benefit

Increased output and reduced long-term costs.

Term
Technology Improvement

How does technology improve operations?

Answer
Improvement

By increasing speed, consistency, and improving inventory and communication.

Term
Quality Assurance VS Quality Control

Difference between quality assurance and quality control?

Answer
Difference

Quality assurance prevents defects during production; quality control detects defects after production.

Term
Inventory Management

Why is effective inventory management critical?

Answer
Importance

To reduce carrying costs and prevent stock shortages or overstock.

Term
Supplier Choice Factors

What factors affect supplier choice?

Answer
Factors

Cost, quality, reliability, and ethics.

Term
Outsourcing Downside

What is a downside of outsourcing?

Answer
Downside

Loss of some control over operations.

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🎯 Setting Operational Objectives & Performance Quiz

1. What is the main goal of setting operational objectives?

Operational objectives set targets in costs, quality, speed, and flexibility to enhance efficiency and competitiveness.

2. Which metric measures output per worker?

Labour productivity measures output produced by each worker.

3. What is a major risk associated with ‘Just in Time’ (JIT) inventory?

JIT minimizes inventory, so supply disruptions can halt production.

4. Which of these is NOT an operational objective?

Increasing product variety is not listed as an operational objective unless aligned with other performance targets.

5. How does automation improve operations?

Automation increases production speed and product consistency.

📊 Results

  • Notes and Quiz
  • Business
  • AS & A Level
  • Business Operations
  • AQA