LEARNING OBJECTIVES
What you will be able to do
- compare job, batch and flow production
- calculate productivity, costs and break-even
- evaluate quality control and quality assurance
- analyse inventory, technology and location decisions
AT A GLANCE
INTRODUCTION · THE BIG IDEA
Make production, cost, quality, inventory and location decisions that support business objectives.
Operations management converts inputs into outputs. Decisions about method, capacity, employees, technology, quality, inventory and location determine cost, speed, flexibility and customer satisfaction.
Efficiency matters, but the cheapest process is not always the best if it damages quality or fails to match demand.
SECTION 01
Production methods, productivity and technology
Job production creates a one-off customised item, batch production makes groups, and flow production produces continuously or on an assembly line. Method choice depends on volume, variety, capital and flexibility.
Lean production reduces waste through methods such as just-in-time inventory and kaizen. Technology can raise speed, consistency and data quality, but costs capital, training and jobs and may be inflexible if demand changes.
| Method | Strength | Limitation |
|---|---|---|
| Job | customisation and skilled quality | high unit cost |
| Batch | variety with some scale | changeover time and inventory |
| Flow | high output and low unit cost | capital cost and low flexibility |
SECTION 02
Costs, scale and break-even
Fixed costs do not change with output in the short run; variable costs do. Total cost is their sum, while average cost is total cost per unit. Economies of scale lower average cost through purchasing, technical, financial, managerial or marketing advantages; diseconomies can arise from communication and control problems.
Break-even occurs where total revenue equals total cost. Contribution per unit first covers fixed cost, then contributes to profit. Margin of safety shows how far actual sales can fall before a loss begins.
Break-even output
- Fixed cost is $24 000.
- Price is $18 and variable cost is $10 per unit.
- Contribution = $8; break-even = 24 000 ÷ 8.
Answer: Break-even output = 3000 units.
SECTION 03
Quality and inventory
Quality control checks outputs and removes defects, but inspection can be late and wasteful. Quality assurance aims to prevent errors; total quality management makes quality everyone's responsibility and uses internal customers between stages.
Inventory includes raw materials, work in progress and finished goods. Buffer inventory prevents production stoppage, while just-in-time reduces storage and tied-up cash but needs reliable suppliers and accurate demand information.
| More inventory | Less inventory |
|---|---|
| fewer lost sales and stoppages | less storage cost and obsolescence |
| bulk purchasing possible | less cash tied up |
| risk of waste or damage | greater supply-disruption risk |
SECTION 04
Location decisions
Manufacturing location may depend on raw materials, market, labour, power, transport, land, suppliers, government support and environmental rules. Service businesses often prioritise customer access, visibility, competition and local income.
Countries differ in wages, skills, infrastructure, tax, exchange rates, political stability and trade access. Relocation may reduce unit cost but create redundancy, quality, communication and reputation risks.
QUICK CHAPTER SUMMARY
The ideas to carry forward
- Production method balances volume, variety, cost and flexibility.
- Contribution and break-even connect price, cost and output.
- Quality prevention is usually stronger than final inspection alone.
- Location decisions combine cost, access, labour and risk.
QUICK REVISION CHECKLIST
Can you do each of these without your notes?
- compare job, batch and flow production
- calculate productivity, costs and break-even
- evaluate quality control and quality assurance
- analyse inventory, technology and location decisions