Continuous Operations

What Are Continuous Operations?

Continuous operations are the core profit-making activities within a business or organization that are ongoing and sustained in the event of a business disruption. In this context, it is also known as continuing operations.

Continuous operations also can refer to a firm running its business around the clock 24/7, with downtime only for maintenance and repair in manufacturing facilities. Similarly, it can refer to a company's business continuity plan in the event of a disruption such as a natural disaster.

Key Takeaways

  • Continuous operations are activities within a business that are ongoing and sustained in the event of a business disruption.
  • Continuous operations also describe companies that operate 24/7.
  • The benefits of continuous operations include higher output, lower production costs and improved quality control.
  • Limitations of continuous operations include high capital expenditure and low production flexibility.

Continuous Operations Amid Disruption

A business needs to be able to operate in a continuous fashion, and make preparations for disruptions. In the event of an interruption of operations (such as a natural disaster or power outage) or a looming serious threat that causes a temporary shutdown of an office or facility, a company can implement its continuous operations plan (also known as a business continuity plan). Typically, this generally involves deploying back-up technology systems, activating human resources in remote sites to carry out needed functions, or adding shifts at other manufacturing plants to make up for lost production.

For example, an aircraft parts manufacturer must shut down its operations in Florida due to a hurricane. The company adds a third shift at its plant in Texas to keep finished inventories constant. In the service industry, a bank whose trading systems suffer an outage in New York City quickly diverts customer orders to a back-up system in New Jersey, thus preserving continuous operations.

Income from Continuing Operations

Continuing operations are the primary source of income for a company, generated from its principle or core business activities. For instance, a car company's core business is to make and sell automobiles. Income from continuing operations would only consist of this activity.

If a company makes a bulk of its revenues from non-core activities, some analysts may see it as a red flag. For instance, if the car company is earning more from financing activities (i.e., issuing car loans) than selling cars, it may be a sign of trouble ahead.

Round the Clock Operations

Continuous operations also apply to 24/7 business activities. This is common in industries where customers expect to be able to speak to a person live at any time of the day or night - an airline ticket holder, for example, or a credit card holder who wants to ask a question in the middle of the night.

With relentless pressures on cost containment to maintain profit margins, more manufacturing companies are migrating to continuous operations in production by consolidating facilities and running them in three eight-hour shifts instead of one or two.

Benefits of Continuous Operations

  • Higher Output: Higher volume becomes possible over a shorter duration due to continuous operations and eliminating unnecessary start-up and shutdown stages.
  • Lower Production Costs: Continuous operations encourage increased automation and the reduction of unnecessary labor, both of which lower the cost of production.
  • Improved Quality Control: Streamlined processes used in continuous operations means fewer stages to oversee, allowing companies to identify production issues quickly. Reduced manual production also reduces the potential for human error. 

Limitations of Continuous Operations

  • Capital Intensive: Purchasing and installing the necessary equipment to run continuous operations requires a significant amount of capital. Companies must also train their employees the skills required to ensure 24/7 operations run smoothly which increases human resources costs.
  • Low Flexibility: Continuous operations establishes rigid production systems. A fault in one stage of the operation can disrupt, or halt, the entire process.

Example of Continuous Operations at Tesla

In April 2018, electric car company Tesla, Inc. (TSLA) announced it would move to continuous operations of its Model 3 to meet an increased production target of 6,000 cars a week. Founder and CEO Elon Musk said the company’s previous target of 5,000 cars provided no margin for error across Tesla’s manufacturing process and supply chain.

To achieve its goal, the car maker upgraded its Fremont, California plant and made several changes to its automation processes to facilitate round the clock production.

Article Sources
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  1. U.S. Securities and Exchange Commission. "Tesla Second Quarter 2018 Update."