Operational objectives

Operations is the process that turns inputs into the goods and services customers buy. Its objectives must support the corporate objectives:

• Cost / efficiency — minimise unit cost.
• Quality — meet or exceed customer expectations, first time.
• Speed of response and dependability (delivering on time, every time).
• Flexibility — ability to change volume or product mix quickly.
• Environmental / sustainability objectives — waste, emissions, ethical sourcing.

Trade-offs are everywhere: pushing unit costs down usually cuts flexibility (long production runs) and can hit quality. Lean/JIT improves cost and quality but sacrifices resilience to supply shocks.

Productivity, efficiency and unit cost

Efficiency means producing at the lowest cost per unit. Raise it by: better training, investment in technology, improved motivation, lean techniques, and by spreading fixed costs over higher output.

Labour-intensive operations use proportionately more labour (hairdressing, hand-finished furniture): flexible, low fixed costs, but variable quality and rising wage costs. Capital-intensive operations use more machinery (car assembly, bottling): consistent quality and low unit costs at volume, but very high fixed costs and inflexibility.

Your turn — labour productivity

Capacity utilisation

High utilisation (near 100%) spreads fixed costs over more units, so unit costs fall. But it leaves no slack: machines cannot be maintained, staff are under pressure, quality slips and there is no room for a rush order.

Low utilisation means expensive idle capacity: fixed costs are spread thinly, so unit costs rise. Most firms aim for around 90% — high enough to be efficient, with enough slack to cope.

Your turn — capacity utilisation

Your turn — unit cost at 85% utilisation

Your turn — unit cost at full capacity

Quick check

Quality control vs quality assurance

• Quality control (QC) — inspect the output at the end, reject or rework defects. Simple, needs little training, but faults are found after the money has been spent; waste and rework are high and workers feel no ownership of quality.
• Quality assurance (QA) — build quality into the process so defects are prevented. Every worker is responsible for checking their own work; suppliers are certified. Cuts waste, but needs training and cultural change up front.

Costs of poor quality: scrap and rework, warranty and returns, lost customers, damaged brand, and in extreme cases product recall.

TQM, kaizen and benchmarking

Total quality management (TQM) is a culture in which quality is everyone's responsibility and every employee treats the next person in the process as their internal customer. It targets zero defects and right first time.

• Kaizen — continuous, small, incremental improvement suggested by the workers who do the job.
• Quality circles — small worker groups that meet to identify and solve quality problems.
• Benchmarking — comparing processes and performance against the best in the industry and copying what works.

Evaluation: TQM takes years to embed and fails without genuine management commitment and training. Where products are simple and margins razor-thin, straightforward QC may be the cheaper answer.

Quality control or quality assurance?

Tap a statement, then tap the approach it describes.

Lean production and JIT

Lean production means doing more with less by eliminating waste (muda) — overproduction, waiting, transport, over-processing, excess inventory, unnecessary motion and defects.

• Just-in-time (JIT) — inventory arrives exactly when needed, so stock is near zero. Frees working capital, cuts storage and obsolescence, exposes quality problems immediately. But it needs utterly reliable suppliers and leaves no buffer: one delayed lorry stops the line.
• Just-in-case (JIC) — hold buffer stock. Safe, but ties up cash and risks obsolescence.
• Cell production — teams own a complete stage; raises motivation and quality.
• Time-based management — cut lead times and speed products to market; simultaneous engineering runs development stages in parallel.

Quick check

Match the operations term to its meaning

Tap a card on the left, then its partner on the right.

Quick check

Technology in operations

• Automation and robotics — consistent quality, 24-hour running, low unit costs at volume; huge capital cost, inflexible, and it raises redundancy and retraining issues.
• CAD/CAM — design straight to manufacture; shortens development time.
• ERP and stock systems — link sales, stock and production in real time.
• AI and predictive maintenance — fix machines before they break, cutting downtime.

Evaluation: technology raises productivity and quality but is a large, irreversible fixed cost. It only pays if output is high enough and stable enough to spread that cost — and it must be managed carefully with the workforce.

Your turn — rationalising capacity

Quick check