Section 4
Operations Management
Covers how businesses produce goods and services — including production methods, managing costs and break-even, maintaining quality, and making decisions about where to locate.
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Section 4 Topics
4 topicsJob Production
Each product is made individually to customer specifications. High quality and customisation but slow and expensive.
Batch Production
Groups of identical items are made together. More flexible than flow production but equipment must be reset between batches.
Flow Production
Continuous production of identical items on an assembly line. Low unit costs but inflexible — suited to mass-market goods.
Productivity
Output per worker per time period. Raised by better training, technology or motivation. Higher productivity lowers unit costs.
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Fixed vs Variable Costs
Fixed costs don’t change with output (e.g. rent). Variable costs rise and fall with output (e.g. raw materials).
Economies of Scale
As output increases, average costs fall. Types include purchasing, technical, financial and managerial economies.
Diseconomies of Scale
Beyond an optimal size, average costs begin to rise — due to communication problems, lower morale and coordination difficulties.
Break-Even Analysis
The output level at which total revenue equals total costs. Used to assess risk and plan pricing. Break-even = Fixed Costs ÷ (Price − Variable Cost).
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Quality Control
Inspecting products at the end of production to identify defects. Rejects faulty goods but does not prevent them being made.
Quality Assurance
Checking quality at every stage of production. Aims to prevent defects rather than catch them at the end.
Total Quality Management (TQM)
A culture where every employee is responsible for quality. Continuous improvement (Kaizen) is built into every process.
Why Quality Matters
Poor quality leads to returns, reputation damage and lost customers. High quality builds brand loyalty and supports premium pricing.
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Factors Affecting Location
Labour costs and availability, proximity to raw materials, proximity to customers, infrastructure, government incentives and land costs.
Manufacturing vs Service
Manufacturers often locate near raw materials or ports. Service businesses usually locate near customers or in accessible areas.
Multinational Location
Businesses may locate production in countries with lower labour costs, fewer regulations, or closer to growing overseas markets.
Relocation
Moving an existing operation — often to cut costs or access new markets. Involves weighing costs of moving against long-term savings.
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