9 Operating Decisions. This chapter introduces the operations function through the value chain and contrasts the different operating decisions faced by manufacturing and service businesses. Operational decisions are considered, in particular capacity utilization, the cost of spare capacity and the product/service mix under capacity constraints. | 9 Operating Decisions This chapter introduces the operations function through the value chain and contrasts the different operating decisions faced by manufacturing and service businesses. Operational decisions are considered in particular capacity utilization the cost of spare capacity and the product service mix under capacity constraints. Relevant costs are considered in relation to the make versus buy decision equipment replacement and the relevant cost of materials. Other costing approaches such as lifecycle target and kaizen costing and the cost of quality are also introduced. The operations function Operations is the function that produces the goods or services to satisfy demand from customers. This function interpreted broadly includes all aspects of purchasing manufacturing distribution and logistics whatever those may be called in particular industries. While purchasing and logistics may be common to all industries manufacturing will only be relevant to a manufacturing business. There will also be different emphases such as distribution for a retail business and the separation of front office or customer-facing functions from back office or support functions for a financial institution. Irrespective of whether the business is in manufacturing retailing or services we can consider operations as the all-encompassing processes that produce the goods or services that satisfy customer demand. In simple terms operations is concerned with the conversion process between resources materials facilities and equipment people etc. and the products services that are sold to customers. There are four aspects of the operations function quality speed dependability and flexibility Slack et al. 1995 . Each of these has cost implications and the lower the cost of producing goods and services the lower can be the price to the customer. Lower prices tend to increase volume leading to economies of scale such that profits should increase as we saw in Chapter 8 . A useful .
