Responses: Subcontract production, invest in new capacity, raise prices to reduce demand
Optimal utilisation: Typically 80–90%. Some buffer capacity prevents breakdown emergencies disrupting delivery; full capacity creates fragility.
Lean Principles
Lean Production: Eliminating Waste
Core Principle
Lean production aims to eliminate all forms of waste (muda) — time, materials, movement, defects — while maintaining or improving quality. Originated at Toyota.
Just-in-Time (JIT): Materials delivered exactly when needed — zero inventory; eliminates storage costs; requires reliable suppliers
Kaizen (continuous improvement): All workers propose small daily improvements — cumulative gains; empowers workforce; cultural change
TQM (Total Quality Management): Quality is everyone's responsibility, built into every stage — not just inspected at the end
Cell production: Workers in small teams produce complete units — multiskilled; accountable; flexible
Project Management
Critical Path Analysis (CPA)
What is CPA?
CPA maps all activities in a project with their durations and dependencies, finding the critical path — the longest sequence of activities that determines the minimum project duration.
Node: A circle representing an event (start/end of activities); contains Earliest Start Time (EST) and Latest Finish Time (LFT)
Activity: An arrow representing a task with a duration (days/weeks)
Critical path: The longest sequence of activities — any delay here delays the whole project
Float: Spare time in non-critical activities; Total Float = LFT − EST − Duration
CPA Worked Example
Reading a Network Diagram
Project: Open a New Restaurant (simplified)
Activities: A (sign lease, 2 days) → B (design interior, 5 days); A → C (order equipment, 3 days); B+C → D (fit out, 8 days); D → E (staff training, 4 days).
Path 1: A → B → D → E = 2 + 5 + 8 + 4 = 19 days
Path 2: A → C → D → E = 2 + 3 + 8 + 4 = 17 days
Critical path = Path 1 (19 days) — any delay in A, B, D or E delays the opening
Float for C: 19 − 17 = 2 days — equipment ordering has 2 days of float; can be delayed up to 2 days without affecting the opening
Business use: CPA allows managers to focus resources on critical activities, identifies where delays matter, allows crashing (speeding up critical activities by adding resources) and enables parallel scheduling of non-dependent tasks.
Technology & Automation
Technology Transforming Operations
Automation & Robotics
Replaces repetitive manual tasks — 24/7 production; no sick days
Reduces unit labour costs; improves consistency
High capital investment; maintenance requirements
Example: Amazon fulfilment centres — Kiva robots move 40% faster than human pickers
AI & Data Analytics
Predictive maintenance — prevents breakdowns before they occur
Demand forecasting — aligns production with sales patterns
Quality control — AI vision systems detect defects faster than humans
Example: Tesla uses AI-driven production scheduling to optimise factory throughput
Evaluation: Automation increases productivity and reduces unit costs but requires high upfront capital and can cause structural unemployment. In labour-intensive industries, a hybrid of automation and skilled human oversight often delivers the best outcomes — full automation is rarely optimal.
Operational Strategy
Outsourcing, Offshoring & Reshoring
Outsourcing: Contract a third party to perform non-core functions (e.g. IT support, payroll, logistics) — focus on core competencies
Offshoring: Move production to a lower-cost country — reduces labour costs; risks: quality control, logistics complexity, cultural issues, PR risk
Reshoring: Bringing production back home — rising wages abroad, supply chain risks (exposed by COVID-19), automation making domestic production cost-competitive
Near-shoring: Move production to nearby lower-cost countries — compromise between cost savings and supply chain resilience
Performance Measurement
Setting Operational Objectives
Cost efficiency: Minimise unit cost; target unit cost below industry average — drives pricing flexibility
Quality: Defect rate, customer returns, warranty claims — measured against industry benchmarks
Flexibility: Ability to adapt output volume/mix quickly — critical in fast-changing markets
Speed: Lead time from order to delivery — competitive advantage in e-commerce (Amazon Prime effect)
A factory has maximum capacity of 3,000 units per week but currently produces 2,100. What is its capacity utilisation and what is the most appropriate response?
A70%; the factory should immediately invest in new machinery to raise capacity
B70%; the factory could subcontract spare capacity or boost marketing to increase demand
C30%; the factory is near maximum and should recruit more staff
D70%; the factory is over-utilised and risks quality problems
B is correct. CU = 2,100 ÷ 3,000 × 100 = 70%. At 70% the factory is under-utilised — fixed costs are spread over fewer units, raising unit costs. The appropriate response is to increase output (better marketing, new customers) or generate revenue from idle capacity (subcontracting). Investing in more capacity (A) would worsen the problem.
Practice Question 2
A project has two paths: Path X (activities A+B+C = 14 days) and Path Y (activities A+D+E = 18 days). The project manager wants to crash the project by 2 days. Which activities should be targeted?
AActivities B or C on Path X — they have the most float
BActivities D or E on Path Y — they are on the critical path
CActivity A — it appears on both paths
DPath X activities — they are fastest to complete
B is correct. Path Y (18 days) is the critical path — any delay here delays the project. To crash (reduce) project duration, you must speed up critical path activities (D or E). Speeding up Path X activities (A, B, C) would have no effect on project completion since Path X already takes less time (14 days).
Practice Question 3
A manufacturer implements Just-in-Time production. A key supplier then experiences a major strike lasting 3 weeks. What is the most likely immediate operational impact?
AProduction quality will improve as workers focus on fewer components
BProduction will halt almost immediately due to zero inventory buffer
CStorage costs will rise sharply as the firm stockpiles components
DThe firm will switch to batch production to compensate
B is correct. JIT means zero or minimal inventory — materials arrive only when needed. If the supplier strikes, no buffer stock exists to cover the gap. Production halts almost immediately. This is the key vulnerability of JIT: it requires highly reliable suppliers and is fragile to supply chain disruption — starkly illustrated by COVID-19 disruptions to global supply chains.