Operations Decisions 1

OPERATIONS DECISIONS
Decisions taken by operations manager can have a significant impact on the success of
business. These decisions are often influenced by marketing factors, HR and Finance.
a) Marketing Factors- there is a link between operations department and marketing

department. Operations manager requires information pertaining to estimated market
demand when planning future production levels. Thus, the operations manager will try
to match supply to potential demand (operations planning)
NB-operations planning involves preparing input resources to supply products to meet
expected demand
b) Human Resource
The operations of a business will influence :
➢ Number of staff required

➢ Skills of employees and training required
c) Finance Department
It is important to assess the costs of operational options to see if the business can
earn a sufficient return e.g any proposed investment in technology or new equipment
will require cost implications. Finance will have to be raised.
Role of IT and AI in operations management
Role of IT
- Better communication, better and faster decisions.

- Faster transfer of information, better sharing of information with suppliers
- Better links with retailers and better inventory control
- Better data analysis and better cost calculations
1. COMPUTER-AIDED DESIGN (CAD)

This involves the use of computer programs to create graphical representations of
physical objects. It is most used in architectural designs and on computer animations.
It can provide special effects on movies and advertising. CAD is also used in furniture
manufacturing and the software is used to calculate the optimal size or shape of the
product. Engineering department also uses CAD to analyse the components of various
structures.
BENEFITS OF CAD
• Lower product development costs

• Increased productivity
• Improved product quality
• Good visualisation of the final product
• Errors are minimised i.e it is more accurate
LIMITATIONS OF CAD
• Complexity of programs
• Need for extensive employee training
• It is more expensive i.e computer software used is very expensive
• Computer programs can be affected by virus
2. COMPUTER-AIDED MANUFACTURING (CAM)

This involves the use of computer software to control machine tools and
related machinery in the manufacture of components or complete products. Processes in
a CAM are controlled by computers. Thus, a high degree of precision and consistency can
be achieved than a machine controlled by men.
BENEFITS OF CAM
• Quality products are produced

• Faster production and increased labour productivity
• CAM can be combined with CAD to produce a wide range of products
• More flexible production allowing quick changeover from one product to
another
LIMITATIONS OF CAM
• High costs of hardware, programs and employee training

• Hardware failure can be time-consuming to solve
• Computer system can be easily affected by virus
• Small firms cannot afford it
Artificial Intelligence (AI)
This occurs when computer systems are developed to undertake cognitive problems
that normally require human intelligence like learning, problem-solving, pattern
recognition etc. This means that computers undertake tasks that were previously done
by humans.
AI can affect all aspects of operations e.g monitor systems and predict whether there
are any likely problems emerging. It can be used to forecast sales, determine
production scheduling, make decisions to solve operational problems. It frees up
people to focus on other tasks.
IT and AI systems can help a business integrate all aspects of operations more
efficiently. It enables data to be collected and analysed more efficiently and improve
the use of resources, reduce wastage, increase flexibility and enable better decisions
to be made.
However, there are investment costs, costs of training and development.
FLEXIBILITY AND INNOVATION IN PRODUCTION
a) Operational Flexibility- refers to the ability of a business to vary both the level of
production and the range of products following changes in customer demand. The
level of demand is not constant, it may increase or decrease. Thus, the business must
be able to respond quickly to changes in demand.
Flexibility can occur in terms of:
• Quantities that customers can buy (volume)

• Delivery time (How much flexibility for the customer to determine the day and
time for the delivery of product)
• Specification (How much can the customer influence the actual design of the
product) e.g you are buying a mobile phone- how much choice you have in terms
of specifications
Examples of flexibility
• Design your own suits

• Choosing the colour, tyres, interior design and other specifications of a model of a car
The more flexible operations can be, the better it is in terms of meeting customers’ needs.
Flexible production allows a business to target customers’ requirements more precisely.
However, there are constraints
• The business may not be able to offer all desired features since it lacks necessary skills
and technology.
• Costs of being flexible are too high
• The business may not have the required capacity
Process Innovation
It refers to the use of a new or much improved production method or service delivery
method. New ways of doing something
Elements of process innovation

▪ Use of robots in manufacturing
▪ Faster machines to manufacture microchips for computers
▪ Use of bar codes and scanner for tracking inventory
▪ Use of internet to track the exact location of parcels being delivered worldwide
and improve the speed of delivery.
▪ New ways of production
▪ Ordering online
Benefits of process innovation

▪ Being able to get more accurate and reliable information on the performance of
various departments
▪ Being able to save time i.e less paper work is involved
▪ Increased professionalism and image to suppliers and customers
▪ Increased productivity
▪ Reduction of costs in the long run i.e in the short-run the costs of acquisition are
high
▪ Cheaper production methods make the business more competitive
NB: Process innovation involves the use of automation/ robotics. Automation- refers to the
use of electronics and machinery to control a production system. Robotics refers to the use of
robots/ machinery that resembles a human being in the operations it can perform in a
production system.
Enterprise resource planning (ERP)

Refers to a software-based system that integrates management information from all functions
in a business into a single computer system that serves all those functional needs. It is a
method of integrating production systems so that product planning, manufacturing, marketing,
inventory and delivery are all linked together in an automated integrated way. ERP involves
the use of carefully designed computer software and other techniques to improve the
efficiency of an organization.This enables a business to use one set of information (e.g sales
requirement) and the ERP software then orders materials, arranges employees, set up
machines, and notifies customers of delivery details. ERP tries to make information flow freely
within the organisation and between it and outside stakeholders like customers, suppliers and
government.
ERP in getting a meat pie to a customer
Benefits of ERP
• all employees will be able to find out at any time the progress of an order
• employees are able to know where the products are and what flows of money are
involved (production management)
• all the departments have the same information
• helps to reduce organisational conflicts
• the business will know the details of the customers who buy their products (customer
relations management)
• enables the business to easily obtain raw materials (supply chain management)
•
Limitations of ERP
• ERP systems are very expensive
• ERP cannot be used by small firms
• The method can be affected by computer system failure
How ERP can improve Efficiency
1. Inventory management: inventory refers to the stocks a business holds. It can be raw
materials, work in progress or finished goods. ERP enables all departments to know
exactly what inventory is held, how much raw material is needed, how much unsold
stock exist. This can be used to reduce stock holding costs so that efficiency is
increased
2. Costing and pricing: ERP enables the precise cost of each order to be calculated, so
it is easier to set a price that will yield a profit. Costs of employees, materials,
production and fixed costs are built into an integrated system. ERP reduces the
administrative cost of setting a price to the customer and therefore increases
efficiency.
3. Capacity Utilisation: refers to the proportion of full capacity being produced by the
business.
Capacity Utilisation = Current output x 100%
Maximum output
Illustration: A school with 500 places for learners with only 400 learners at the school.
Capacity utilisation is 80%
In manufacturing businesses, it enables the business to know exactly what orders
there are, what orders might be coming in, when the orders must be fulfilled and what
materials are needed for them. Since all departments have this information, production
can be planned to ensure that the equipment is being used as near to full capacity as
possible as often as possible, with all the materials ordered and stocked to make this
possible. All of this reduces the cost of production, so efficiency is increased.
4. Response to change: ERP enables all departments (functional areas) to know what
is happening in each of the areas. It will indicate changes in orders, employees’
profiles, prices of materials, hold-ups in production and financial shortfalls or
surpluses. This means that the business is able to respond to changes quickly and
with the best possible overall approach. Quick responses reduce the cost of identifying
and reacting to change, so efficiency is increased.
5. Management Information: ERP covers all the functional areas in a business so
management will know at the time what is happening. This means that decisions can
take account of all the functional areas and be based on accurate up-to-date
information. This ready availability of information reduces the cost of obtaining it so
increasing efficiency
Examples of how ERP can improve efficiency
➢ Accurate sales and order information allows optimum amount of inventory

➢ Orders can be tracked by process and finance arrangements can be matched to
supplies needed
➢ Everyone has the same financial information
➢ Real-time information is available to all so decisions-making is improved
➢ Security is improved as there is only one system that deals with all aspects of
production.

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OPERATIONS DECISIONS

a) Marketing Factors- there is a link between operations department and marketing

The operations of a business will influence :

➢ Number of staff required

Role of IT and AI in operations management

- Better communication, better and faster decisions.

1. COMPUTER-AIDED DESIGN (CAD)

• Lower product development costs

2. COMPUTER-AIDED MANUFACTURING (CAM)

• Quality products are produced

• High costs of hardware, programs and employee training

However, there are investment costs, costs of training and development.

FLEXIBILITY AND INNOVATION IN PRODUCTION

Flexibility can occur in terms of:

• Quantities that customers can buy (volume)

• Design your own suits

Elements of process innovation

Benefits of process innovation

Enterprise resource planning (ERP)

ERP in getting a meat pie to a customer

Capacity Utilisation = Current output x 100%

➢ Accurate sales and order information allows optimum amount of inventory

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