WHY IS COST IMPORTANT IN OPERATIONS MANAGEMENT? - Nigel Slack et al.
To the companies which are offering low price products or services and competing directly on price like low cost airlines, cost will clearly be their major operations objective. The lower the cost of producing their goods and services, the lower can be the price offered by them to their customers.
Even those companies which do not compete on price will be interested in keeping costs low to get more profit from the same sales. So cost reduction is a universally attractive objective.
The operations function will spend its money on staff (the money spent on employing people), facilities, technology and equipment (the money spent on buying, caring for, operating and replacing the operation’s ‘hardware’) and materials (the money spent on the ‘bought-in’ materials consumed or transformed in the operation).
Keeping operations costs down
All operations have an interest in keeping their costs as low as possible while keeping the levels of quality, speed, dependability, and flexibility that their customers require.
Rational cost reduction is achieved by increasing productivity.
Productivity is the ratio of what is produced by an operation to the inputs used to produce it.
Productivity = Output from the operation/Input to the operation
Often partial measures of input or output are used and comparisons are made.
For example, in the automobile industry a partial productivity measure is the number of cars produced per year per employee. This is called a single-factor measure of productivity.
Singlefactor productivity = Output from the operation/One input to the operation
Multifactor productivity = Output from the operation/All inputs to the operation
Improving productivity
One obvious way of improving an operation’s productivity is to use low cost alternatives of its inputs while maintaining the level of its outputs. This means reducing the costs of some or all of its transformed and transforming resource inputs. For example, a bank may choose to relocate its call centres to places where its facility-related costs (for example rent) are cheaper. A software developer may relocate its entire operation to India or China where skilled labour is available at rates significantly less than in European countries. A computer manufacturer may change the design of its products to allow the use of cheaper materials.
Productivity can also be improved by making better use of the inputs to the operation. For example, garment manufacturers attempt to cut out the various pieces of material that make up the garment by positioning each part on the strip of cloth so that material wastage is minimized.
All operations are increasingly concerned with cutting out waste, whether it is waste of materials, waste of staff time, or waste through the under-utilization of facilities.
Cost reduction through internal effectiveness
● High-quality operations do not waste time or effort having to re-do things, nor are their internal customers inconvenienced by flawed service.
● Fast operations reduce the level of in-process inventory between processes as well as reducing administrative overheads.
● Dependable operations do not spring any unwelcome surprises on their internal customers. They can be relied on to deliver exactly as planned. This eliminates wasteful disruption and allows the other processes to operate efficiently.
● Flexible operations adapt to changing circumstances quickly and without disrupting the rest of the operation. Flexible processes can also change over between tasks quickly and without wasting time and capacity.
Industrial increases productivity through facilities industrial engineering, product industrial engineering and process industrial engineering.
INTRODUCTION TO MODERN INDUSTRIAL ENGINEERING Pdf File. Free Download.
by Narayana Rao Kvss. Top 0.5% of Publications on Academia.Edu.
https://www.academia.edu/103626052/INTRODUCTION_TO_MODERN_INDUSTRIAL_ENGINEERING_Version_3_0
Operations Management - Industrial Engineering Interface. PDF file. Free Download.
Operations management books describe cost management through productivity improvement. But they do not adequately discuss industrial engineering, the discipline that focuses on productivity improvement and rational cost reduction. Management books in general have not described industrial engineering. Even engineering management curriculum does not include industrial engineering as a subject.
https://www.academia.edu/105277135/Operations_Management_Industrial_Engineering_Interface
Ud. 6.8.2023
Pub 23.7.2023
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