the influence of human, marketing and finance resource availability on operations decisions

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9.1 Location and Scale

9.1.1 Factors that Influence the Choice of Location

  • Labour considerations: size of the local skilled‑labour pool, wage rates, union activity.
  • Transport & logistics: proximity to suppliers, customers, ports, rail and road networks; transport costs per unit.
  • Market proximity: distance to the main consumer market(s) and the need for rapid delivery.
  • Infrastructure: availability of reliable electricity, water, broadband, and specialised facilities.
  • Regulatory & tax environment: local taxes, incentives, environmental regulations, import‑export duties.
  • Political & economic stability: risk of disruption, exchange‑rate volatility.
  • Social & cultural factors: language, work‑ethic, community attitudes.

9.1.2 Scale of Operations

Concept Explanation Simple numerical illustration
Economies of scale Average cost per unit falls as output rises because fixed costs are spread over more units and specialised processes become viable. Fixed cost = £200 000. Variable cost = £30 per unit.
At 5 000 units: AC = (£200 000 + £30×5 000)/5 000 = £70.
At 20 000 units: AC = (£200 000 + £30×20 000)/20 000 = £40.
Diseconomies of scale Beyond a certain size, coordination, communication and bureaucracy raise average costs. When output exceeds 50 000 units, extra supervisory layers add £5 per unit, raising AC from £30 to £35.
Internal vs. external economies Internal: cost advantages that arise within the firm (e.g., bulk buying of raw material).
External: advantages that arise because of the industry cluster (e.g., shared suppliers, skilled labour pool).		 Internal – a car maker negotiates a £0.10 per tyre discount by buying 10 000 tyres a month.
External – a textile hub in Bangladesh provides a ready supply of trained stitchers, lowering recruitment costs for all firms.

9.1.3 Off‑shoring, Reshoring and Globalisation

Off‑shoring – moving part or all of the production process to a lower‑cost country.
Reshoring – bringing previously off‑shored activities back to the home country, often to improve lead times, quality or brand image.
Globalisation – the overall integration of markets, supply chains and production networks across borders.

Case study (UK apparel maker)

  • Original situation: production in the UK, unit labour cost £12, lead time 8 weeks.
  • Off‑shored to Vietnam (labour £3) → unit cost fell 30 % but lead time rose to 20 weeks and quality complaints increased.
  • Reshored 30 % of the range to a UK “near‑shoring” facility (labour £9) to serve the premium market, reducing lead time to 4 weeks and restoring brand reputation.

9.2 Quality Management

9.2.1 Quality Control (QC) vs. Quality Assurance (QA)

  • QC – inspection‑oriented; checks that output meets specifications (e.g., visual inspection, statistical process control charts).
  • QA – process‑oriented; builds quality into the system through standards, procedures and audits (e.g., ISO 9001, process audits).

9.2.2 Total Quality Management (TQM)

  1. Customer focus
  2. Leadership commitment
  3. Employee involvement (training, empowerment)
  4. Process approach
  5. Continuous improvement (Kaizen)
  6. Fact‑based decision making
  7. Supplier partnership

9.2.3 Benchmarking

Type Purpose Example
Internal Compare performance of different plants or departments within the same firm. Plant A’s defect rate 2 % vs. Plant B’s 0.8 % – identify best practices.
External Compare against competitors or industry leaders. Compare order‑lead‑time with the market leader to set improvement targets.

9.2.4 Resource Influence on Quality Management

  • Human: training programmes, employee motivation, involvement in Kaizen teams.
  • Marketing: brand promises, customer‑satisfaction targets, warranty expectations.
  • Finance: budget for inspection equipment, cost‑benefit analysis of defect‑reduction projects, ROI of quality certifications.

Practice Question (Quality)

“A bakery wants to reduce its product‑return rate from 3 % to 1 %. The cost of a new inspection machine is £45 000 and it will save £0.25 per unit in re‑work. The bakery produces 200 000 units per year. Using a simple cost‑benefit analysis, should the bakery purchase the machine? Show all calculations.”

9.3 Operations Strategy – Operational Decisions

9.3.1 How Human, Marketing and Finance Resources Influence Operational Decisions

Operational decisions are the day‑to‑day choices a business makes about how it will produce goods or deliver services. For each decision the three resource groups (Human, Marketing, Finance) exert a distinct influence.

Key Operational Decisions (Cambridge 9609 list)

  1. Capacity
  2. Technology / Process selection
  3. Location of facilities
  4. Layout of the production / service area
  5. Workforce planning and scheduling
  6. Inventory management
  7. Quality management

Resource Influence – concise bullet points

Decision Human (HR) Marketing Finance
Capacity Skill level & labour cost set the feasible output per shift. Sales forecasts, seasonality and brand positioning dictate required capacity. Capital availability, borrowing cost and expected ROI determine scale of investment.
Technology / Process Workforce competence decides whether automation, CNC, or manual processes are viable. Product differentiation & speed‑to‑market influence need for flexible or rapid‑change tech. Up‑front capital, depreciation, operating cost vs. expected savings.
Location Proximity to a skilled labour pool reduces recruitment & training expenses. Customer proximity, distribution channel requirements, market demand patterns. Land/building costs, tax incentives, transport expenses, exchange‑rate risk.
Layout Workforce size & skill mix affect suitability of product‑oriented, process‑oriented or cellular layouts. Product variety & order‑fulfilment speed dictate need for flexible layouts. Capital for re‑configuration and expected ROI from reduced handling/throughput time.
Workforce Planning & Scheduling Labour availability, shift preferences, training needs shape rosters and overtime policy. Promotional peaks, new‑product launches require temporary staffing adjustments. Wage rates, overtime premiums, cost of temporary staff.
Inventory Management Competence of inventory controllers improves accuracy, lowers safety stock. Demand forecasts, product‑life‑cycle stage, service‑level targets set optimal stock levels. Working‑capital limits, interest cost on stock, cash‑flow considerations.
Quality Management Training, employee involvement, motivation are essential for TQM and continuous improvement. Brand reputation and customer expectations drive required quality standards. Budget for quality‑related equipment, inspection, and cost‑benefit of defect reduction.

9.3.2 Flexibility and Innovation

Process (technological) flexibility

  • Ability to change production volume quickly (quick change‑over, modular equipment).
  • Driven by: HR – skilled operators; Finance – investment in adaptable machinery.
  • Example: A smartphone assembler uses re‑configurable lines that can switch between models within 48 hours.

Product (design) flexibility

  • Capability to produce a range of products or customisations without large cost penalties.
  • Supported by: Marketing – insight into varied customer preferences; HR – workers able to handle different specifications.
  • Example: An automobile plant offers mass‑customisation (colour, trim, engine) through a “build‑to‑order” cell layout.

Process Innovation

  • New production methods, equipment or organisational techniques that improve efficiency, quality or speed.
  • Requires: capital (Finance), training (HR), market data (Marketing).
  • Example: Introduction of lean‑manufacturing (Kaizen, JIT) to cut waste and reduce lead times.

Product Innovation

  • Development of new or significantly improved products.
  • Heavily dependent on market research (Marketing), workforce capability (HR) and R&D funding (Finance).
  • Example: Launch of a biodegradable packaging line that meets a new environmental niche.

9.3.3 Impact of Resource Constraints on Operational Decisions

Short‑term constraints

  • Cash‑flow pressure → lower inventory, reliance on just‑in‑time deliveries.
  • Skill shortage → overtime or temporary staff, higher unit costs.
  • Reduced marketing spend → conservative capacity planning, fewer promotional runs.

Long‑term constraints

  • Insufficient capital for automation → sustained higher labour costs, lower competitiveness.
  • Poor training programmes → difficulty adopting future technologies.
  • Weak brand positioning → continuous pressure on product‑innovation budgets.

Typical trade‑offs (resource‑driven)

Trade‑off Resource driving the decision Operational outcome
High capacity vs. flexibility Finance (large capital outlay) & HR (skill availability) Large specialised plant → low flexibility; modular plant → higher per‑unit cost but adaptable.
Quality improvement vs. cost Finance (budget) & Marketing (brand expectations) Investment in inspection equipment reduces defects but raises overheads.
Inventory holding vs. cash flow Finance (working capital) & Marketing (service level) Higher safety stock improves service but ties up cash.

Decision‑making framework

Use a Venn diagram with three overlapping circles (HR, Marketing, Finance). The central overlap represents the “optimal operational mix”. Inside place the key decisions (capacity, technology, quality, location) and annotate each with the specific contribution of the three resources.

9.3.4 ERP, Lean Production and Operations‑Planning Tools

Enterprise Resource Planning (ERP)

  • Integrates finance, HR, procurement, production, and sales data into a single real‑time system.
  • Supports: capacity planning, material requirements planning (MRP), demand forecasting, and cost control.
  • Resource links:
    • HR – workforce data, training records.
    • Marketing – sales forecasts, order intake.
    • Finance – budgeting, cash‑flow monitoring.

Lean Production

  • Key principles: eliminate waste (Muda), continuous improvement (Kaizen), respect for people.
  • Typical waste categories: over‑production, waiting, transport, excess inventory, motion, defects, over‑processing.
  • Tools: Just‑in‑Time (JIT), Kanban, 5S, Value‑Stream Mapping.
  • Resource impact:
    • HR – need for cross‑trained, empowered workers.
    • Marketing – accurate demand signals to drive JIT.
    • Finance – reduced inventory holding reduces working‑capital requirements.

Operations Planning Tools

  1. Critical Path Analysis (CPA) – identifies the longest sequence of activities (critical path) that determines the minimum project duration.
  2. Network diagrams (PERT/CPM) – visualise activities, dependencies and time estimates; useful for new product launches.
  3. Gantt charts – simple timeline view of scheduled tasks, helpful for workforce scheduling.
  4. Aggregate Production Planning (APP) – balances capacity, inventory and workforce over a medium‑term horizon (3‑18 months).

9.3.5 Integrated Example – Launch of a High‑Tech Smartwatch

  1. Marketing insight: Premium‑segment demand forecast of 12 000 units in Year 1, with custom strap colours required.
  2. Financial analysis: CNC‑machining centre cost £1.2 million; 4 % loan over 5 years → annual financing cost ≈ £48 000.
  3. Human resources assessment: Existing technicians lack CNC skills; 6‑month training programme for 10 staff costs £80 000.
  4. Operational decisions:
    • Invest in CNC equipment (Finance).
    • Schedule training before first production run (HR).
    • Adopt a flexible cellular layout to enable rapid strap‑colour change‑over (Process flexibility – Marketing).
    • Maintain two‑weeks of finished‑goods stock to meet custom orders while keeping working capital within limits (Finance & Marketing).
    • Use ERP to synchronise demand forecasts with material orders and production schedules.
    • Apply lean JIT principles for component supply to minimise inventory.

9.3.6 Summary Checklist for Students

  • For each operational decision, state which resource (HR, Marketing, Finance) is the primary constraint and why.
  • Explain how a change in one resource (e.g., a rise in wage rates) creates ripple effects on capacity, technology choice, inventory and quality.
  • Distinguish process flexibility from product flexibility and give a real‑world example of each.
  • Use quantitative data (sales forecasts, capital cost, wage rates) to justify a recommendation.
  • Discuss short‑term and long‑term implications of the chosen operational strategy.
  • Show how ERP, lean tools or CPA can support the decision‑making process.

9.3.7 Practice Questions

  1. Explain how a shortage of skilled labour might affect a company’s choice of production technology. Provide a real‑world example.
  2. A firm has a limited marketing budget but expects a surge in demand due to a seasonal promotion. Discuss how this situation influences its inventory and capacity decisions.
  3. Define process flexibility and product flexibility. For each, give an example of a company that uses that type of flexibility to gain a competitive advantage.
  4. Calculate the break‑even point for a new piece of equipment that costs £500 000, has an annual operating cost of £120 000, and is expected to save £30 per unit on variable costs. Assume the product sells for £80 per unit and the current variable cost is £50 per unit. (Show calculations using LaTeX.)
  5. Using a simple cost‑benefit analysis, decide whether a bakery should purchase a £45 000 inspection machine that saves £0.25 per unit. The bakery produces 200 000 units per year. Include the impact on cash flow and ROI.
  6. Briefly outline how an ERP system can help a company balance the three resource constraints (HR, Marketing, Finance) when planning a new product launch.
  7. Describe the three types of waste targeted by lean production and suggest one improvement action for each.

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