4. Operations management

Transformation has three stages: inputs → operations/process that changes form, location, condition, knowledge or availability → outputs of goods/services. A manufacturer converts materials into products; a hospital combines staff, facilities and information to transform a patient's condition; education develops knowledge/skills.

Operations raises added value through desired quality/features, reliable speed, convenience, customisation and availability, while efficient processes, supply, inventory and waste control reduce input cost. Higher perceived value may support price/loyalty; lower cost may raise margin or enable competitive price.

105,000 units ÷ 50 workers = 2,100 units per worker per year. If 54,000 units use 21,600 labour hours, productivity = 2.5 units per labour hour. State the period and denominator; do not attach a currency unit unless output is measured in money.

Training, motivation, skilled recruitment, layout/process redesign, worker participation, reliable technology, maintenance, waste/quality reduction and better inventory/suppliers can raise labour productivity or efficiency. Measure before/after: extra output and lower unit cost must outweigh investment, training, disruption, redundancy, finance and breakdown risk.

Choose by expected volume/stability, variety/customisation, quality/contact needs, wage versus capital/interest cost, available finance/skills, technology life, capacity utilisation, maintenance reliability and strategic/social objectives. Whole-life cost includes purchase, finance, energy, maintenance, downtime, training, redundancy and residual value.

A standard drink with stable mass demand may justify automation; bespoke furniture or legal advice may depend on skilled labour. If demand is too low, expensive machinery operates under capacity and its fixed cost can outweigh productivity gains.

Judge demand volume/stability, variety/customisation, quality/lead-time target, current skills/capacity, finance, unit economics, brand and customer willingness to accept change. A staged pilot or hybrid may preserve specialist work while batches/flow handle repeatable components.

Read a simple inventory-control chart in sequence: (1) the downward line shows inventory being used; its gradient shows usage rate, (2) when stock reaches the reorder level an order is placed, (3) stock keeps falling during lead time, ideally no lower than the buffer/minimum level, (4) delivery makes the line rise by the order quantity, towards the maximum level. Calculate lead time from the horizontal gap between order and delivery; calculate order quantity from the vertical rise on delivery.

Supply chain management (SCM) coordinates the flow of materials, information, goods and services from suppliers, through operations and storage, to distribution and customers. Supplier choice/relationships, purchasing, quality, inventory, production, transport, delivery and returns must align so the right item reaches the right place, time, quantity and condition. Effective SCM can reduce delays, errors, inventory and cost while improving quality, flexibility and customer service; poor coordination can stop production, raise cost and damage loyalty/reputation.

Adopting JIT can reduce warehouse space, handling, insurance, deterioration/obsolescence and waste; release working capital; avoid overproduction; and expose process/quality problems for correction. Lower cost and faster, demand-led flow may improve efficiency, cash flow, margin and competitiveness.

JIT may require technology, forecasting, training and frequent small orders/deliveries; this can raise administration and transport cost and lose bulk discounts. Dependence on supplier quality/timing and accurate demand data means disruption can stop production, lengthen customer lead time, leave labour/capital idle and reduce sales, loyalty and profit.

Evaluate the scale of savings against the expected cost of failure. Test demand volatility, perishability/obsolescence, order variety, supplier number/location/reliability, lead time, transport risk, quality, bargaining relationships, coordination technology, continuity needs and available contingency. A hybrid may use JIT for predictable low-risk inputs and buffer/JIC stock for critical or uncertain items.

A car repairer covering many models may save storage cash under JIT, but if customers value 24-hour repairs and a specialist part is delayed, lost loyalty may outweigh that saving. Reliable local suppliers or a small buffer of critical fast-moving parts changes the judgement.

If output is 145,000 units and maximum capacity is 150,000, utilisation = 145,000 ÷ 150,000 × 100 = 96.7%. If an expansion raises maximum capacity from 15m to 18m while forecast output is 16m, forecast utilisation = 88.9%. Always adjust capacity first and match the period/units.

Improve low utilisation through either side of the ratio. Raise actual output by stimulating demand (price/promotion/product/market/distribution changes), winning orders, reducing bottlenecks/downtime or improving productivity. Or reduce persistent excess capacity by selling/leasing assets, closing/consolidating sites, reducing shifts/workforce or outsourcing—but test redundancy, disruption, future-demand and lost-flexibility costs.

Choose a target buffer rather than chasing 100%. Compare demand level/volatility, seasonality, lead time, reliability, maintenance, workforce welfare, quality/service requirements, fixed-cost burden and the cost of lost orders. Capacity estimates can change when equipment, labour, layout or operating hours change.

Analyse a full chain, not a label: specialist equipment may raise consistency → fewer defects/returns → higher satisfaction and repeat sales. Conversely, a long external lead time may delay delivery → customers switch → revenue and reputation fall. The same impact depends on contract, monitoring and provider performance.

For a make-or-buy decision compare total in-house and outsourced cost, required capacity/speed/flexibility, provider expertise/quality/lead time/location, contract length and service levels, monitoring/switching/transport cost, data/ethical risk, employee impact, strategic importance and the value of control. Alternatives include overtime, leasing, internal investment, recruitment or a hybrid.

A hybrid can outsource peak volume or non-core stages while retaining design, final quality checks or distinctive craft in-house. This may preserve brand/knowledge and test the provider before a larger commitment, though coordination and duplicated capability still cost money.