Operations management
Operations management tests how inputs are transformed into outputs and how decisions about method, quality, stock and capacity affect unit cost and competitiveness. Expect calculation of capacity utilisation, productivity or reorder levels, plus evaluation of lean production, quality systems and outsourcing.
Core rules
- Value added = output value − input cost; operations decisions are judged on raising it.
- Methods: job (one-off, customised), batch, mass/flow (high volume, standardised, capital-intensive), cellular (teams complete whole units).
- Lean production: Kaizen (continuous improvement), just-in-time (materials arrive as needed), kanban (signals pull stock through), andon, zero-defect targets. Lean cuts waste but raises supply-chain vulnerability.
- Quality: quality control inspects output at the end; quality assurance builds quality into the process (TQM, benchmarking, ISO 9000).
- Stock control: buffer stock absorbs variability; reorder level = usage per period × lead time + buffer stock.
- Capacity utilisation = actual output ÷ maximum output × 100; productivity = output ÷ input.
- HL: critical path analysis - calculate earliest start and latest finish times at each node; float = latest finish − earliest start − duration; the critical path has zero float and sets the minimum project duration.
Worked example: reorder level
Weekly demand is 400 units, lead time is 3 weeks, and the firm keeps a 500-unit buffer. Reorder level = (400 × 3) + 500 = 1,700 units. Ordering at 1,700 covers consumption during the lead time and leaves the buffer intact; ordering later risks a stockout if demand or delivery slips. If the firm moves to JIT, the buffer falls, freeing working capital but exposing output to any supplier delay.
Traps
- Mixing up quality control (inspection) with quality assurance (process design).
- Confusing productivity with production volume - output per worker can fall while output rises.
- Treating 100% capacity utilisation as ideal; it removes slack and can damage quality and morale.
- Adding buffer stock twice in a reorder-level calculation, or using annual demand with a weekly lead time.