Describe some basic aspects of operations management (methods of production, value addition and stock administration)

Methods of production are the ways goods and services are created, each suited to different business needs and scales of operation.

Job production

Job production creates a single, customized product at a time to meet specific customer requirements. Each item is unique and made according to the customer's exact specifications.

Advantages: High personalisation; high worker job satisfaction; high quality and workmanship; flexibility in design

Disadvantages: Products are expensive due to time, skill, and effort involved; time-consuming process; no economies of scale

Example: Mary Kamugisha, a fashion designer in Arusha, creates custom wedding gowns. Each gown is made individually according to the bride's specific wishes, which is why they are expensive but highly sought after.

Batch production

Batch production makes a set number of identical products simultaneously. After completing one batch, production moves to another product.

Advantages: Employees develop task specialisation; lower labour costs; machinery can enhance efficiency; benefits from economies of scale

Disadvantages: Work is repetitive and less engaging; requires additional workspace for storage; requires larger inventories of raw materials; production time may be lost adjusting machinery between batches

Example: A bakery producing 200 loaves of a specific bread type before switching to a different variety, or Bridal Elegance boutique ordering 20 identical gowns in different sizes from Mary Kamugisha.

Flow production (Mass or assembly-line production)

Flow production manufactures products continuously and in large quantities using an assembly line. Products move along a conveyor belt, with different components added at each stage.

Advantages: Products are affordable due to economies of scale; large volumes produced efficiently; consistent and standardised quality; reduced labour costs through machinery; can operate continuously through shift work; high production speed

Disadvantages: Work is repetitive and monotonous; risk of accidents with machinery; products are uniform and lack variety; requires significant capital investment; machinery breakdowns can halt entire production; traditional skills may be lost

Example: Super Bridal Creations (Mary's expanded factory) uses an assembly-line system where employees are assigned specific stages of gown-making, producing many gowns efficiently but losing the personal touch.

Just-in-time (JIT) production

JIT is a stock control method where materials arrive exactly when needed for production, minimising库存积压.

Advantages: Capital is used efficiently; minimal warehousing required; faulty supplies detected quickly; excess stock and waste minimised; final products are more affordable

Disadvantages: Heavily reliant on efficient ordering; production can halt if incorrect materials arrive; suppliers face pressure to meet precise schedules; requires close coordination between company and suppliers

Value addition is the process of enhancing a product or service to increase its worth or appeal to customers. This can involve physical transformation, new methods, different marketing, or niche classification.

Importance of value addition

• Increases profitability: Businesses can charge premium prices for processed or improved products
• Creates product differentiation: Value-added products attract new customers and enable distinct brand identities
• Stimulates innovation: Encourages adoption of new technologies and creative approaches
• Creates employment: Value-added industries require diverse human resources
• Strengthens the economy: Increases export potential and boosts productivity

Approaches to adding value

• Product transformation: Converting raw materials into processed forms (e.g., maize into flour, timber into furniture)
• Enhanced packaging: Improves preservation and market appeal
• Quality improvement: Aligns with consumer expectations through certification and standardisation
• Innovation and technology: Creates unique features through modern processes
• Branding: Establishes distinctive brand identity for premium pricing
• Market segmentation: Targets specific consumer groups (e.g., organic, luxury)
• Customer service: Provides after-sales support and warranties
• Efficient distribution: Improves accessibility through effective delivery systems

Stock administration manages goods to ensure sufficient quantities without overstocking or understocking. Stocks include finished goods, raw materials, and work-in-progress.

Functions of stock administration

• Receiving stock: Accepting deliveries, inspecting quantities and quality, maintaining records
• Issuing stock: Verifying requisitions, releasing goods, recording stock movements
• Care of stock: Keeping goods in good condition, sorting spoiled items, maintaining fragile goods
• Placement of stock: Proper allocation for convenience, safety, and easy access

Stock levels

Re-order level (stock order point): The level at which new stock must be ordered.

When minimum stock is not maintained: $\text{Re-order level} = \text{Maximum consumption} \times \text{Maximum lead time}$

When minimum stock is maintained: $\text{Stock order point} = (\text{Daily sales} \times \text{Delivery time}) + \text{Minimum stock level}$

Minimum stock level: The lowest stock to maintain, also called safety or buffer stock.

$\text{Minimum stock level} = \text{Re-order level} - (\text{Average usage} \times \text{Average lead time})$

Where: $\text{Average usage} = \frac{\text{Maximum consumption} + \text{Minimum consumption}}{2}$ $\text{Average lead time} = \frac{\text{Maximum lead time} + \text{Minimum lead time}}{2}$

Maximum stock level: The highest stock held after receiving an order.

$\text{Maximum stock level} = \text{Re-order level} + \text{Re-order quantity} - (\text{Minimum consumption} \times \text{Minimum lead time})$

Average stock level: The normal quantity held over time.

$\text{Average stock level} = \frac{\text{Opening stock} + \text{Closing stock}}{2}$

Stock turnover

Stock turnover shows how many times stock is sold and replaced in a given period.

$\text{Stock turnover} = \frac{\text{Cost of sales}}{\text{Average stock}}$

Where: $\text{Cost of sales} = \text{Opening stock} + \text{Purchases} + \text{Carriage inwards} - \text{Purchase returns} - \text{Closing stock}$

Example 1: Re-order level

A bakery uses 2,000 to 5,000 tins of margarine per week. Orders take 4 to 6 weeks to arrive. Calculate the re-order level.

Solution: $\text{Re-order level} = \text{Maximum consumption} \times \text{Maximum lead time}$ $\text{Re-order level} = 5,000 \times 6 = 30,000 \text{ tins}$

The bakery must order new margarine when stock reaches 30,000 tins.

Example 2: Stock order point with minimum level

A rice business sells 2,000 kg daily, takes 10 days for delivery, and maintains 500 kg minimum stock. Calculate the stock order point.

Solution: $\text{Stock order point} = (2,000 \times 10) + 500 = 20,500 \text{ kg}$

Example 3: Stock turnover

A business had opening stock of TShs 67,000, purchases of TShs 402,000, and closing stock of TShs 52,000. Calculate stock turnover.

Solution: $\text{Cost of sales} = 67,000 + 402,000 - 52,000 = 417,000$ $\text{Average stock} = \frac{67,000 + 52,000}{2} = 59,500$ $\text{Stock turnover} = \frac{417,000}{59,500} = 7 \text{ times}$

The business sold and replaced its stock 7 times during the year.

Example 4: Minimum stock level

A company has re-order period of 7 to 9 days and daily consumption of 200 to 550 units. Calculate minimum stock level.

Solution: $\text{Re-order level} = 550 \times 9 = 4,950 \text{ units}$ $\text{Average consumption} = \frac{550 + 200}{2} = 375 \text{ units}$ $\text{Average lead time} = \frac{9 + 7}{2} = 8 \text{ days}$ $\text{Minimum stock level} = 4,950 - (375 \times 8) = 1,950 \text{ units}$

A Form 6 student in Tanzania visiting local supermarkets like Shoprite or local markets in Kariakoo will observe operations management in action. For instance, when a mama lishe (vegetable vendor) at Mlimani City decides to package her tomatoes in branded plastic containers instead of selling them loosely, she is adding value to increase profits. Similarly, understanding stock levels helps a small shop owner in Mbeya calculate when to reorder Saga maize flour to avoid stockouts during peak demand periods while avoiding overstocking that ties up capital.