Business Management and Enterprise (Year 12) - Management (U4)
Purpose of Production Management Systems
Production management systems (PMS) are to processes and sequences involved with transforming factors of production into a final good or service. These systems monitor, control and evaluate the production process, ensuring the efficient allocation of resources.
They set goals regarding production in terms of the right quantity and quality. They aim to meat deadlines as well as help to keep costs as low as possible.
Features of Product Development
A new product tends to be one of two types:
Disruptive innovation – a new, innovative product different to anything else sold on the market
Incremental innovation – a significant upgrade of an existing product, now with new features
The steps in product development vary on a firm-to-firm basis however, there are some common steps:
1. Idea Generation
An individual/group comes up with a new idea.
2. Market research
Can be both primary and secondary
Involves identifying needs and gaps in the market
Analyses production capacity of the business and possible reasons for expansion
Considers the marketing orientation and strategy of the business
3. Product development and testing
Prototypes are built and tested
Cost-benefit analyses are conducted, considering time, cost and possible market price
Test marketing is performed and feedback is considered
Refinement of the marketing mix
4. Feasibility study
Consider legal and financial implications
Ensure there are no breaches of intellectual property
Seek to patent or trademark the product, allowing for commercial exploitation of the idea
5. Launch product
Similar to ‘introduction’ stage of the product life cycle
Assess the distribution channel and supply chain
Consider timing of product launch
Many businesses have begun focusing on quality for the following reasons:
Heightened competition in the market and quality is used to differentiate their business and products from others
Consumer protection laws enforcing quality standards
Advocation from consumer groups
Pressure from public relations
Potential costs of fighting lawsuits due to defective products
There are many benefits of quality management:
Develops brand loyalty
Saves on costs associated with customer complaints and refunds
Less advertising is needed, as the business establishes themselves as a high-quality brand
The business can charge a higher price
Quality control (QC) involves the inspection, testing and sampling of products to assess their quality. It involves the detection of faulty products and taking action during the production process.
Businesses tend to take a sample from a batch of products. They then assess its quality before deciding if it is suitable to be sold. This ensures that products meet the required quality standards before the product reaches the consumers.
Quality assurance (QA) involves activities that are designed to ensure that the processes used by businesses are able to meet their objectives. A product’s quality is compared to consumer expectations or quality standards set by the International Standards Organisation (ISO).
There is an emphasis placed on ‘doing things right the first time’. This can be done by checking and reviewing the production process.
Quality improvement (QI) involves both QC and QA activities and encourages improving quality overall. It entails the effort taken to increase efficiency and achieve additional benefits for the business and its users.
Inventory Control Techniques
There are many costs associated with inventory:
The actual cost of purchasing
Labour costs, like handling and stocking
Just-in-time (JIT) production is when the vendor ships just-in-time for production and assembly, following which the finished goods are given to the consumer.
The steps with JIT are often as follows:
Consumer places order
Materials are called
Production of good
Good is delivered to consumer
There are different benefits to JIT production:
Results in efficient use of space allocation
Lower levels of capital (money) being tied up in inventory
Reduced product damage
Higher quality as error and faults can be identified earlier
There are certain disadvantages to JIT production:
Lost sales when there is higher demand that exceeds capability
Idle production resources
Special orders can be expensive
Small order quantities tend to mean higher prices
Just-in-case (JIC) production is when an organisation has large amounts of inventory ready to go at all times. This strategy is particularly useful when the business has trouble predicting the demand of their goods and the number of sales is highly volatile.
JIC production has some advantages:
Ensures that the business will not run out of stock
The business is quicker to fulfil orders
Better customer and staff satisfaction when there is a reliable amount of stock
There are some disadvantages associated with JIC production:
Requires more warehouse space for storage
Increased stock requires increased capital investment, which reduces cashflow
Larger risk of goods perishing/expiring before being sold