Controlling Operations

Content• Stock control

– Buffer stocks– Lead times– Maximum stock levels– Stock rotation– Stock wastage

• Quality control• Quality assurance• Impact of ICT:

– CAD / CAM– Communications– Employment and Location

Stock Control

• Stock refers to products that the business has produced but have not been sold

• They incur the following costs:– Storage costs – Depreciation costs – Administration cost

• There is also an opportunity cost of holding stocks, when a business is holding their products as stock they are not earning any revenues on them and are incurring costs

Stock Control

• Businesses keep stocks to ensure they have enough products to meet customer demand

• They may keep buffer stocks – these are additional stocks which allow a business to cope with unplanned changes in demand

• Buffer stocks – the minimum level of stock a business wants to hold at any one time

Lead time

• This measures how long it takes to for an item to arrive once its ordered

• By keeping stocks a business means it is less vulnerable to changes in lead time

Maximum stock levels

• This is the greatest amount of stock that a business is able to hold

• This depends on:– The amount of space a business has – The opportunity cost of holding stocks

Stock rotation

• Stock rotation organises stocks so the oldest products are used first

• This is used in supermarkets where they put the new stock behind the old stock on the shelves

Stock wastage

• Stock rotation aims to decrease stock wastage• If too much stock is held some may go off causing

wastage for the firm• This is a specific problem for perishable goods

Quality

• By ensuring consistent quality production there are a number of advantages:– Gives competitive advantage over other firms – Encourages repeat purchases – Increases reputation of the firm – Increases consumer confidence in the brand– Costs will be reduced as don’t have to solve problems after sales

have occurred– Helps improve efficiency

severe. If quality control breaks down,the cost can be

Quality Control

• Quality control is the process of ensuring that products have standard or uniform quality

• It aims to reduce any problems before a product reaches the end of the production cycle

• All employees have to be committed to controlling the quality for it to be effective

• One form of quality control is TQM

TQM (Total Quality Management)

Features of TQM:– Quality Circles – Workers meet to discuss issues relating

to quality in the business, this can also act as a motivator to employees that are involved

– Zero defects – these are systems that make sure no products leave the business with defects

– Statistical Process Control – this describes statistics which are generated to enable the business to evaluate their quality procedures

Quality Assurance

• This looks at guaranteeing all stages in the production process leading to high quality products

• The emphasis is on preventing mistakes• Self checking is a key part of quality assurance• Self checking – where workers check their own

work

Government regulations• The government have a number of regulations and standards

regarding quality which include:• ISO –ISO 9000 and ISO 14000 these are quality standards

business have to adhere to • British Standards Institution (BSI) – The Kitemark and the CE

mark are both important standards of quality.

Impact of ICT on Operations

• ICT has an impact on operations within a business

CAD / CAM

• CAD and CAM are used for design and manufacture

• CAD – computer aided design uses computers to help in the production of designs, drawings and data to be used in manufacturing

• CAM – computer aided manufacture uses computers to support manufacturing processes

• These can lead to less waste in production

ICT and Communications

• ICT can speed up communications within a business reducing the impact of diseconomies of scale

• The use of email, intranet and faxes can ensure that information can get round a firm more easily

• Spreadsheets and databases allow information to be processed more quickly

ICT and Employment

• The increase in the use of ICT has lead to an increase in tele working

• Tele working is where people work from home • Due to the increase in tele working and the impact

of ICT

ICT and Location

• Due to the increase in tele working and the impact of ICT many firms do not need to be linked to a specific location

• This can reduce costs as firms locate away from expensive city centres or locate in areas where there is cheaper labour

Problems with ICT

• The use of ICT is dependent on:– Staff being trained and having the appropriate skills– Compatibility across ICT systems– How the information is used

Summary• Stock control refers to how a business manages their level of stock• Buffer stocks are the minimum stock level a business requires and these help plan for

unexpected changes in demand• Lead time is the time taken from order to receiving the good• Maximum stock levels are the largest amount of stock a business can physically hold• Stock rotation is the movement of stock so oldest stock is used first• Stock wastage occurs when stock goes off or is damaged• Quality control aims to ensure all products are of a uniform quality • TQM is a form of quality control standing for total quality management• Quality assurance helps businesses ensure products leave them with no defects or faults• CAD / CAM use computers to aid manufacture and to manufacture products• ICT can help speed up communication within businesses• ICT has allowed more people to work from home• ICT has enabled businesses to have more freedom when deciding their location