Business Studies – Operations
Role of Operations Management Operations – refers to the business process that involve transformation or more generally production.
In manufacturing, operations refer to the process involved in turning raw materials into outputs of finished goods. In service sector operations refers to the processes involved in actually carrying out the service
Transformation – conversion of inputs (resources) into outputs (G/S) Value adding – creation of extra or added value as inputs are transformed into outputs Operation functions now must consider the customer i.e. minimal waste, fair value for labour,
operate at low cost, environmental awareness, reflect changing consumer needso Minimising waste – lean production aims to eliminate waste at every stage of production. It
involves analysing each stage of the production process, detecting where inefficiencies and correcting them. Sources of waste include error, over production, defects, waiting times
o Reflect fair value for any labour used in process – business operate fairly and compensate/treat employees appropriately – Fairtrade movement
o Operate at low cost to maximise affordability – consumers buy g/s at low cost. Lowering the cost of making case ensure same profitability with a cheaper price for consumer. Global sourcing and astute supply chain management (SCM) are essential features of effective operations management. Operating at low cost based on product sourcing and transportation
o Operations processes adjust to shifting needs – changing needs = adapting. Strategic Role of operations management
Strategic – affecting all key business operations, operations managers contributing to the strategic direction or strategic plan of the business
Either revenue needs to be maximised to bring greatest possible volume of money. Conversely costs need to be minimised to reduce overall level of expenses incurred
Revenue targeted by financial and marketing aspects of business Costs not only left to just human resources and operations as all aspects of businesses incur costs Profit centre – aspects of business that directly derive income Cost centre – those that do not directly derive income but do incur cost Cost Leadership:
o Involves aiming to have the lowest costs or to be the most price-competitive in the market. A key aspect to cost leadership us that although trading with the lowest cost, the overall business should still be profitable
o Costs that are a feature of operations function Input – land, facilities, resources, interest/investment, machinery leases, installation
and testing Labour – employment, subcontractors, overtime, recruiting/training, redundancy Processing costs – electricity, product design, template, prototyping Inventory costs – back order, logistics/distribution. Storage, insurance, theft Quality management costs – prevention of loss through planning and training,
sampling and inspection of goods/process, error and remediation, machine errorso Economies of scale – cost advantage that can be created as a result of an increase in scale of
business operations. Typically the cost savings come from being able to purchase lower cost per unit and from efficiencies created through improved use of technology and machinery
Good/service differentiation:o Services are a result of demand. Goods exist prior to demando Product differentiation – distinguishing products in some way from competitorso Product differentiation: goods
Varying actual product features i.e. breakfast cereal Varying product quality – low quality model that is more affordable then increasing
quality reflected in higher price i.e. apple iPhone Varying any augmented features – additional benefits
o Product differentiation: services Varying amount of time spent on a service
Varying level of expertise brought to a service Varying qualifications and experience of the service provider Varying quality of materials/technology used in service delivery
o Cross branding: G/S differentiation van be created through strategic alliance or cross branding. This approach adds value to products by offering consumers added benefits from arrangement. i.e. Woolworths-Caltex, Coles-Shell
CHARACTERISTIC GOOD SERVICETANGIBILITY AND PERISHABIITY tangible intangibleCUSTOMISATION Goods tend to be standardised Services generally customisedOWNERSHIP Goods can be owned and transferred
between people through sale of ownershipServices cannot be owned
TIME BETWEEN PRODUCTION AND CONSUMPTION
Length of time between production of goods and consumption
Production of services and the consumption of services simultaneous
DETERMINATION OF VALUE Value independently ascertained through costing all inputs and adding a margin. Inputs can easily be determined: cost of labour, materials, and transformation plus a margin for profit
Value is highly subjective and depends what the market is prepared to bare. However, value will increase with the service provides giving high levels of skill, longer time, high levels of educating and experience, and high levels of ability and expertise
Goods and/or services in different industries Goods in deferent industries – vary depending on standardised or customised
o Standardised goods – those that are mass produced, usually on an assembly line. Uniform in quality and meet a predetermine level of quality. These are generally produced with a production focus
o Customised goods – those that are varied according to the need pf customers. These goods are produced with a market focus rather than a production focus
o Choice of the process selection is strategic as it requires a high degree of cross-functional interaction and coordination
o Goods categorised into perishable goods or non-perishable Perishable – high standards of quality, safety and cleanliness. Very short lead times
and distribution that is as quick and effective as possible. Appropriate and robust packaging and cold storage processes both through production and distribution
Non-perishable – inherently more durable than perishable goods and therefore the issues of quality and inventory management arise for the operations function. Operations needs to integrate following factors – manage all aspects of quality in the process from sourcing to distribution. Implement effective inventory management strategies
o Intermediate goods – feature of production processes is that something goods may be processed more than once. Goods completed, having gone through one set of operational processes, may then become inputs into further processing.
Services in different industrieso Mostly customised, some standardisedo Cost leadership and standardised products - g/s
Standardised – costs associated with the production of the product can be minimised – clear with respect to goods, mass produced without variation and economies of scale
Same for services – bring cost leadership to the service by standardising how that service is performed. This can be seen in the quick meal industry/fast food.
Self-service – encouraging the customers to take initiative to help themselves Drip pricing – means that a business advertises one price but the process of a
customer purchasing the service numerous additional charges and costs are added. The effect is that the final price can be much higher than the price advertised. Drip pricing is an issue in respect of airline ticketing and travel products sold online.
Interdependence with other key business functions Interdependence – mutual dependence that the key functions have on one another. Each area
depends on support of the others if it is to perform at capacity. Occurs when each key business function area is committed to the same business goals and work in a coordinated and collaborative manner
Tasks within key business functions – closely related tasks are groupedo Operations – incorporating manufacturing, provision of services, other value adding, may be
domestic or globalo Marketing – sales and advertising, product design, marketing strategies.
Marketing – meeting consumer demand through provision of products at prices the market is prepared to pay. Highly specialised – looks at all processes associated with a purchase including the psychology.
Interdependent with operations as marketing is concerned with product design and sale to meet customer needs. Operation involves acquisition of products for resale or the sourcing of inputs for production. = product design
o Finance – recording and summarising financial transactions into a series of reports that can be easily interpreted.
Income statements determine the amount of money the business had earned after its expenses have been paid – very useful to stakeholders
Other key reports – balance sheets and budgets Objective of profitability – excess of revenue over expenses Direct relationship with operations - cost of production minimised when profit
margins increase. Operations focus on quality can charge higher priceo Human resources – deal with employees and issues arising from employment
Covers acquiring, developing, maintaining, motivating, and separation Operations charge with technology having impact on human resources – as nature
of work changes so does the skills and qualities sought in employees Outsourcing – use of specialised outside providers of business services to undertake
the task ordinarily done within the business – operations decision to outsource shapes the nature of the workplace and the skills/qualities required of the human resources.
Influences on operations managementGlobalisation, technology, quality expectations, cost-based competition, government policies, legal regulation, environmental sustainability, corporate social responsibility (legal compliance, ethical responsibility, environmental sustainability, social responsibility)
Globalisation – removal of barriers of trade between nations. Characterised by increasing integration between national economies and a high degree of transfer of capital, labour, intellectual capital, technology. Provides market opportunities, but acts as a threat if cost leadership is not effectively applied
o Influence on operations – orienting practises towards global market to meet the needs of global consumers
o Product design, choice of manufacturing location, quality management – all orientated towards global market
o Manufacturing plants for production of goods means that businesses can achieve economies of scale
o Services on a global scale – travel, transport, communications impact – large scale services seek to standardise
o Supply chain management (SCM) and the global web – Supply chain – range of suppliers a business had and the nature of its relationship
with those suppliers. Business needs reliable and predictable supply chain – sourcing essential to ensure smooth production process
Inputs – sourcing (domestic and global), E-commerce, raw materials, other inputs (energy)
Transformation processes – throughput, value adding
Outputs – finished or semi-finished G/S, logistics, distribution Global web – network of supplier a business has chosen on the basis of lowest
overall cost, lowest risk, and maximum certainty in quality and timing of supplies. Minimise cost by opting for supplier proximity (location)
Technology – design, construction and/or application of innovative devices, methods and machinery upon operations processes. Enables people to communicate better and enable improved processes
o Technology and operations management – tech can be applied to and integrated with a range of processes with the operations function. Administrative tech assist with organising and planning, processing tech helps with manufacturing, logistics, and distribution, quality management and inventory management
Planning tech – Materials Requirement Planning (MRP), Gantt Charts, Critical Path Analysis
Office tech – phone, computer, fax Software – word-processing, graphics packages, spreadsheet, graphing, and
multimedia programs Large machines – assembly lines Rapid manufacturing and tooling tech Use of computer Aided Design (CAD), Computer Aided Manufacture (CAM), and
Computer Integrated Manufacturing (CIM) technologyo Amazon – ships 1600000 orders worldwide per day. Without exceptional technology they
would not be able to cope with the magnitude of orders passing through their system
Quality expectations – quality is a specific reference to how well designed, made and functional goods are, and the degree of competence with which services are organised and delivered. People have inherent belief of quality standards and personal satisfaction indicates if quality was met
o Quality expectations and operations management – must follow particular standards or minimum level of excellence.
o This level is based on design, conformance, and serviceo Quality control – inspection, management, and interventiono Quality assurance – application of international quality standardso Quality improvement – total quality management and continuous improvement
Cost-Leadership – cost is a performance objective refering to the minimisation of expenses so that operations processes are conducted as cheaply as possible.
o Fixed cost – costs that do not change regardless of the level of business activityo Variable cost – those that vary in direct relationship to the level of business activity (level of
production)o Cost based competition – business reduce costs through:
Eliminate waste Economies of scale Bulk buy input Produce standardised products for larger markets Produce high volume output Use automated production systems
Government Policies – political-legal environment. Political decisions affect the business rules and regulations which affect the management of key business functions.
o Carbon pricing – the item used for putting a price on carbono Gov policy and operations management:
Taxation rates, required materials handling practices, Work Health and Safety standards, training and rules, public health policies, environmental policy, employment relations. Trade and industry policies
Policies van inform law-making – lead to business opportunities, operations managers need to be aware of policies and compromise
Legal Regulation
o External factor that affects the operations function – range of laws business must collectively comply with is termed ‘compliance’. Regulations have risk of penalty
o Compliance costs – the expenses associated with meeting the requirements of legal regulations. i.e. abiding by all laws
o Legal regulations and operations management – Operations function involves transformation and value adding – involves use of
labour, tech, finance, machinery, and energy Work Health and Safety – in use of machinery and in interaction – safe and healthy
working conditions given appropriate training, use of protective equipment, and work with machines that abide by noise, pollution and safety standards
Training and development – application of technology Fair work and anti-discrimination Environmental protection – use of minimising pollution, eliminating and safely
disposing of and toxic residue Apply rules related to public health – fair trading rules and product safety standards
o Laws: Racial Discrimination act 1975 (Cth) Sex discrimination act 1984 (Cth) Disability Discrimination act 1992 (NSW) Anti-discrimination Act 1977 (Cth) Fair Work Act 2009 (Cth) Corporations Act 2001 (Cth)
Environmental sustainability –o (ecological sustainability) means that business operations should be shaped around practices
that consumer resources today without compromising access to those resources for future generations
o Carbon footprint – amount if carbon produced and entering the environment from operations processes
o 2 main aspects of environmental sustainability – sustainable use of renewable resources and a reduction in the use of non-renewable resources
o Environmental sustainability and operations management – Significantly affected by the rise in climate change awareness and need to integrate
long term sustainable view of resource management into business planning Business reduce and minimise waste, recycle, and reduce carbon footprint
Corporate social responsibility Corporate social responsibility – open and accountable business actions based on respect for people,
community/society, and the broader environment. Involves businesses doing more than just complying with the laws and regulations (formally called ‘triple bottom line’)
CSR places value on financial returns as well as social responsibility and environmental sustainability. Drive for CSR is not profitability, but reflection of community expectations/concerns
Difference between legal compliance and ethical responsibility –o Penalty acts as deterrent assisting businesses to understand their legal obligationso Difference – legal requirements require that a business follows the law/prescribed standards
of behaviour, ethical responsibility sees businesses meeting all legal obligations and taking it further by following the legal intention opposed to finding loopholes
o Compliance costs money (compliance costs) – to fulfil ethical responsibility this is even more expensive – demonstrates it values something other than profit maximisation
o Compliance includes: Labour law compliance – minimum wage, working hours, leave payment, on-costs
with labour Environmental and public health compliance – regulations, stopping dumping,
pollution, waste disposal
Business licensing rules – certification, zoning restrictions, content and disclosure restrictions, restricted working hours
Taxation – levies and duties as well as taxes imposed on profits. Superannuation can be considered a form of taxation that is invested for retirement purposes. Taxation can be applied to encourage or penalise particular practises
Trade practices and fair market dealings – address issues of market power, misleading and unfair conduct, price collusion, monopoly behaviour, market concentration, and product safety
Migration and rules around use of offshore skilled labour – aim to ensure minimum standards are applied to labour brought in from other nations
Intellectual property – moral rights and copyright, patent, trademark, and original ideas/work
Financial and accounting regulations and corporations law – aim to standardise methods and rules around financial records and reports, as well as ensuring company directors follow rules as fiduciaries (fiduciary is a person in a position of financial trust with respect to others money)
Corporations law – imposes duties on directors and others who work in responsible positions within corporations
Human rights – rules restricting discrimination on grounds of disability, culture, sexual preference, gender, age, and other distinguishing features
o Outsourcing, compliance, and business behaviour Outsourcing – involves the use of outside specialists to undertake one or more key
business functions Onshore outsourcing – involves the use of domestic businesses as the outsourcing
provider Offshore outsourcing – involves taking the activities to a provider in another country Compliance requirements are different between the nations chosen and allow the
business to take advantage of significant cost savings. Lower tax rates, lower labour standards, weaker environmental and intellectual property regulations
Use of service level agreements can be an ethical way to ensure the outsourcing provider adheres to high standards of conduct
o Ethical responsibility Manufacturing operations there can be significant international differences in
standards for labour – business may choose to follow international labour standards that come from the International Labour Organisation (ILO)
ILO – devoted to advancing opportunities for those in need of obtaining decent and productive work in conditions of freedom, equity, security, and human dignity. AIMS:
Protect working rights Encourage decent employment opportunities Enhance social justice and strengthen dialogue in handling work related
issues Holds annual conventions on matters including: working women and
maternity protection, provision of safe working conditionso Environmental sustainability and social responsibility
Must be a balance between economic concerns and environmental concerns (environmental sustainability)
The principle of ecological sustainability requires a business to evaluate the full environmental effects of their operations
Consumer expectation for products to be lean, green and safe – led to policies of conservation, recycling, and restoration – changing management practices
Community expects: Adopt greenhouse abatement (reduction) measures Encourage the development of long term sustainable strategies
Customers reward businesses that are socially responsible by purchasing more of their products – CSR costs money short term but is beneficial in the long term
Operations processes Operations processes are those processes
involved directly with transformation – classified as per their role in transformation:
o Inputs into transformation processeso The actual processes of
transformationo Outputs of the transformation
process Inputs
o Inputs – are the rsources used in the transformation (production) processo Common direct inputs
4 common direct inputs – labour, energy, raw materials, machinery and technology (capital equipment)
Labour – human effort – used in sourcing and supply chain, tech support, maintenance for machinery, production, logistics, quality processes
Energy – form of electricity of fuels converted into heat, movement, light, sound, etc. – energy required to bring inputs to a business transform them, and distribute them to consumer markets – value adding directly proportional to amount of energy expended
Raw materials – basic components to manufactured goods are wood, unprocessed agricultural products, natural resources in form of mineral and fossil fuels, water, etc. Sourced through the supply chain – volume of materials required against level of demand
Machinery and technology – process raw materials, design, and make products. Concern about ‘capital-labour substitution’ means that the machinery and technology displace people by doing the work they do
o Input classification Classified as transformed or
transforming resourceso Transformed resources (transformed
inputs) Transformed resources –
inputs that are changed or converted in the operations process. Includes materials, information, customers
Materials Materials – basic elements used in production process and consist or raw
materials and intermediate goods Raw materials – are the essential substances in their unprocessed state Intermediate goods – goods manufactured and used in further
manufacturing or processing Information
Information – knowledge gained from research, investigation and instruction, which results in an increase in understanding
Internal and external sources – acts as transformed resources when it is used to inform how inputs are used
External Informationo Info that comes from reports, statistics, industry bodies, gov stats,
media reporto Independent source – influence on new tech can influence which
machinery and technology is purchased and how it is applied to the operations function
Internal information
o Fathered from financial reports, quality reports, and internal key performance indicators (KPIs) (specific criteria to measure the efficiency and effectiveness of the business’s performance i.e. lead times, inventory turnover rates, and production data)
o Further source is the customer feedback – analysis of warranty data or from scanning social media
Customers Become transformed resource when their choices shape inputs – consumer
orientation takes the preferences and interests of consumers as the starting point to production processes – customer acts as input and desires act as transformed resource
Customer relationship management (CRM) – refers to system that businesses use to maintain customer contact
Info can be retrieved and entered by employees – improves services, cuts production costs, and customer feedback to respond more effectively to customers
o Transforming resources (transforming inputs) Transforming resources – inputs that carry out the transformation process – human
resources and facilities Human resources
Effectiveness of staff determines success with value adding – employees who coordinate and combine other resources such as machinery, tech, raw materials
Well-designed human resource management policies and practises imprive performance of operation processes
Facilities Facilities refer to the plant or factory or office and machinery used in the
operations processes – design, layout, location, capacity Business decide: capacity and number of sites, legal issues of zoning,
special conditions i.e. energy requirements, efficiency, and optimum layout Transformation Processes
o Transformation is the conversion of inputs into outputso Process differs for goods and services – one forms tangible, one forms intangible productso Transformation processes and value adding
Costs are incurred when transforming inputs to form outputs adds valueo Influence of 4 V’s
Volume Refers to how much product is made Lead time – the time it takes for an order to be fulfilled from the moment
it’s made Volume flexibility – how quickly transformation process can adjust to
changing demand Variety
Mix flexibility – mix of products made, or services delivered through the information process
Greater variety made the more operations process needs to allow for variation/specialisation
Variation in demand Increase in demand requires increased inputs from suppliers, increased HR,
increased energy use, and increased use of machinery/technology Demand hard to meet if: suppliers are slow, labour is now flexible/skilled,
adopted machinery cannot adjust to increased capacity quickly, increased energy unable to be sourced
Decrease in demand requires operational flexibility as staff may need hours reduced, production slows, suppliers place pressure due to contracts
Predicting demand – businesses attempt to forecast due to seasonal factors so adjustments can be made accordingly
Visibility (customer contact) Customer feedback impacts transformation processes – customer ad
preferences shape what business makes Direct contact -survey interview, warranty claim, letter, blogs Indirect feedback – review of sales data gives indication of customer
preference, through observation of people’s decision making Business seeks to maximise sales, customer contact is essential
o Sequencing and Scheduling Sequencing – the order in which activities in the operations process occurs Scheduling – the length of time activities takes within the operations process –
scheduling tools include Grantt charts and Critical Path Analysis Grantt chart
Type of bar chart that shoes both the scheduled and completed work over a long period of time. It is often used in planning and tracking a project
Created 1917 – outlined activities and order to be performed and how long each is expected to take.
Used for process with several steps and a number of different activities ADVANTAGES of use: force managers to plan steps needed to complete a
task and specify the time required. Make it easier to monitor actual progress against planned activities
Critical Path Analysis CPA – scheduling method that shows what tasks need to be doe, how long
they take and what order is necessary for those tasks Critical path is shortest length of time to complete all tasks necessary to
finish a project – some formed simultaneously, each activity must be completed to make final product
Allows manager to see what needs to be done and allows timing to be considered – scheduling gives direction and organisation and managers can see which tasks can be done at the same time
o Technology Application of science/knowledge that enables people to do new things or complete
tasks in better ways – involves use of machinery that enable business to undertake transformation more effectively and efficiently
Manufacturing – technology used to shorten processes and enable fuller utilisation of raw materials – more cost effective
Service – office/communication technology enabled whole markets to open up and allow for SMEs to trade globally
Capital cost of tech is high – can purchase or lease – leasing more common as its cheaper
Additional costs of tech is set up, cabling, displacement of workers, cost of retraining workers
Office technology: Computer, data storage, modem, phone, pager, personal digital assistant,
electronic fund transfer Opportunity to do more work in less time, work at greater distances
Manufacturing technology Robotics – used in engineering and on assembly lines where a
programmable machine capable of doing several different tasks is required – provides degree of precision and accuracy, work without complain, can do boring dangerous jobs
Computer-aided design (CAD) – computerised design tool that allows businesses to create product possibilities from a series of input parameters. Computerised graphical design that created three-dimensional diagrams – can be viewed from multiple angles
o Cost of project quantified – input parameters
o Can design sequence of steps necessary to create the desired product in shortest lead time using least amount of materials
Computer-aided manufacturing (CAM) – is software that controls manufacturing processes
o Can be linked with CADo Can store historic purchasing records to assist with purchasing
decisions Task design
o Task design: involves classifying job activities in ways that make it easy for an employee to successfully perform and complete the task
o Skills audit – formal process used to determine the present level of skilling and any skill shortfalls that need to be made up either through recruitment or through training
o Workplace layout – process layout, Product layout, fixed position layout Plant layout – arrangement of workspace to streamline the transformation
process Process layout – the arrangement of machines so that the machines and
equipment are grouped together by the function they perform – sometimes called the functional layout – e.g. used in hospitals
Process production deals with high-variety, low-volume production – each product has a different sequence of production and the production is intermittent, moving from one department to another – machinery arranged according to this sequence. Approach also lends itself to ‘job lots’ this is the manufacture of parts in small quantities – in service industry, process layout is used to accommodate the handling of customers with different needs
Used by business – creation of worker cells or work teams to be used to create combinations of machinery and equipment to produce a single product or a range of similar ones
Product layout – where the equipment relates to the sequence of tasks performed in manufacturing a product
product production (mass production) is characterised by the manufacturing of a high volume of a high volume of quality goods – mostly assembly line – production line: Ford
Fixed position layout – an operational arrangement in which employees and equipment come to the product due to the products weight or bulk
Project production – layout requirements for large scale, bulky activities such as the construction of bridges, ships, aircrafts, or buildings
Office layout – enable work to be performed efficiently in a safe office environment
Workstations – desk areas required by office workers, usually fitted with access to a computer monitor, keyboard, telephone, mouse and mouse pad, storage, and close access to a printer, scanner and facsimile
Manufacturing = often informal layout Office designed in a way that allows smooth workflow, but should also
provide space for employees to take a break from the work environment
Hot-desking – power points, lockable draws, a person can sit wherever a person wants – popular due to casualisation of workforce = saving business money as they do not need extra desks for causal staff
Monitoring, control, and improvemento Operations processes should be motored for their effectiveness – main transformation
processes should be subject to control – focus on improvemento Monitoring –
The process of measuring actual performance against planned performance – measuring all aspects of operations – supply chain, inputs, transformation process, etc.
Arranged around needs to measure key performance indicators- predetermined values measured so that appropriate controls to operations processes can be made, include:
Lead/wait times Inventory turnover rates Repair rates and warranty claims IT and maintenance costs
Monitoring gives operations managers chance to measure how the business is going against target performance
o Control – Occurs when KPIs are assessed against predetermined targets and corrective
action is taken if required – compares intension with what actually occurred KPI – KEY PRODUCT INDICATORS Strict control by setting challenging but reasonable performance targets – then
measured and scrutinised. Regularity crucial – indicate issues and areas for correction Corrective action – operations manager makes changes to transformation
process such as redesigning layout or tech adjustmento Improvement –
Refers to systematic reduction of inefficiencies and wastage, poor work processes and the elimination of any bottlenecks
Bottleneck – aspect of transformation process that slows processing speed or creates impediment leading to backlog of incompletely processed products
Improvement sought in: Time – minimisation of bottlenecks, assessment of necessity in all
transformations processes and wait/lead times Process flows – smoothness of transitions between transforming
processes Quality – pursuit of the goal – measurement of product standard and
an assessment of returns and warranty claims Cost – assessment of per unit costs of production, review of fixed and
variable expenses, and per unit costs of delivery Efficiency – reduction of waste and greater output per unit input
Continuous improvement – ongoing commitment to achieving perfection – setting of higher and higher standards in continual pursuit of improvement
McDonalds using processes in the production:Product layout Production line, highly ordered steps
Kitchen custom build – planned and practiced layout – intensive researchGrill, counter, fry station and sauce stations all relate to the sequence of task performed in the maling of a McDonalds meal
Monitoring Constant monitoring – quality control, monitored other businessesMonitored sales – what was selling and what wasn’tMonitoring staff performance
KPIs such as capacity and volume rates 30 secs to serve burgerKPIs of customers served during busy times
Control Controlled through highly specific processesRedesigning the layout of the restaurant on the tennis courtBuilding sauce squirt guns
Improvement Fries are tested and temperature/cook times are changed
Outputs
o Outputs – end result of the business efforts – the good/service that is provided or delivered to the customer. End result of transformation process
o Must always be responsive to customer demand – quality, efficiency, flexibility balanced with resources and strategic business plan
o Customer service – how well a business meets and exceeds the expectations of customers in all aspects of its operations
Customer focus shapes operation processes – all processes aimed at meeting/exceeding customer expectations
If customer expresses dissatisfaction – not meeting quality expectations - operations process needs review
Market research: business provide superior customer service = charge 10% more for same g/s on average, grow 2x as fast as competitors
Research shows: one dissatisfied customer tells 11 others, who will tell another 5 – word of mouth communication
o Warranty: Warranty – a promise made by a business that they will correct any defects in
the goods that they produce or in the services that they deliver – issue must arrive from transformation
Rectification costs money – ensures correction by manager – warranty claims lead the business to improve transformation processes
Assess business operation through monitoring warranty – large number of claims indicate problems in operations - reviewing process and developing strategies to rectify fault and improve the transformation process and positively impact customer service and quality of product
IKEA has 5, 10, 15, and 25 year guarantee Warranty can be claimed if:
Not as described Not fit for purpose Not acceptable quality – looks ok, safe, durable Refunds for major failures – compensation Minor – retailer can decide to refund/replace
Operations strategies – “Pogo squint” – P - Performance objectives O – outsourcing G - global factors O - Overcoming resistance to change S - supply chain management Qu - quality management I - inventory management N - new product design T - technology
Performance objectives – Quesadilla Football Club – Quality, speed, dependability, flexibility, customisation, cost
Operations strategies Performance objectives
o Performance objectives – goals that relate to particular aspects of the transformation process – set for efficiency, productivity, and profitability.
o To achieve business objectives businesses implement a series of strategies to capitalise on in positive influences and mitigate the negative impacts of negative influences
o 6 main performance objectives: quality, flexibility, speed, customisation, dependability, costo Quality
Determined by consumer expectations used to inform production standards Quality of design – how well a product is made/service delivered. Design begins
prior to creation, determines inputs and how the transformation process is arranged. Typically, high quality design obvious due to materials, care and presentation of good, functionality, durability, and aesthetics – attracts higher price. High quality inputs reflected in higher price
Quality of conformance – the focus on how well the product meets the standard of a prescribed design with certain specifications – consistently meets specifications
Quality of service – reliability, meets consumer needs, timely and responsive delivery.
o Speed Speed – refers to the time it takes for the production and the operations process to
respond to changes in market demand – aims to satisfy customer demands as quickly as possible
Goals include reduced wait times, shorter lead times, faster processing times – to achieve – reduction in procedural and technical bottlenecks and smooth communication
o Dependability Dependability – performance objective, refers to how consistent and reliable a
business’s products are Goods – how long they are useful for before they fail – measured in warranty claims
– durability = dependable – perishable are dependable if they perish at a consistent or predictable standard
Services – consistency of service standards and reliability – measured by complaints received
o Flexibility Flexibility – refers to how quickly operations processes can adjust to changes in the
market Faster the processing time the greater the likelihood that processes can be adjusted
quickly Achieved by increasing the capacity of production – through use of technology or
changing product design - enable business to meet broader range of consumer desires
Services – increased number of service providers – skill and technologyo Customisation
Customisation – refers to creation of individualised products to meet the specific needs of the customers (often with services)
Goods – some level of differentiation/customisation in goods i.e. colour, size, functionality
Mass customisation – process that allows a standard, mass0produced item to be personally modified to specific customer requirements
Full customisation of goods is rare – special order with higher cost Advancements in technology and logistics now enable customisation for the mass
market rather than just luxury consumers i.e. Shoes of preyo Cost
Cost – performance objective refers to the minimisation of expenses so that operations processes are conducted as cheaply as possible
Efficiency and new technology lower costs and minimise waste – reduction in operational cost – reduce supplier cost, manage inventory to reduce movement costs, cost effective distribution
Allocated particular target/goal and measured against target New Product or service design and development
o Product design and development Specific approach to product development – preferences and desires of consumers,
as identified by market research, determine the products that are designed and developed
Changes in technology – new products made because of advanced technology giving greater functionality i.e. Apple’s major strength is that it maintains complete control over control of software and hardware
Steps in product design and development process: Market research, product concept and specification development Product design and prototype development, with quality parameters
decided Prototype testing and assessment (including market testing) Product refinement and production processes refined Production, product launch, distribution, and overtime, product line
extension Considerations of design and development – quality, supply chain management,
capacity management and cost Supply chain management – new product will draw from suppliers and extend range
of supplies sought, the timing or volume Quality based on customer demand – new products impact on capacity and increase
range of present resources Cost – addition of value through processing – determined through input, time, and
energy used in processing. Value related to cost and customer’s perception of product utility – product utility:
usefulness and value from a consumers POVo Service design and development
Customised – consumer is the starting point but some services not requiring consumer interaction are standardised in nature i.e. shelf packer
Explicit service – tangible aspect of the service being provided, such as the application of time, expertise, skill and effort
Implicit service – allowing or giving the means for something to be carried through (based on feeling of being looked after)
o Services using goods Additional aspects i.e. goods assist in the delivery of service also technological
breakthroughs in equipment can create new services Supply Chain Management
o Supply Chain Management involves integrating and managing the flow of supplies throughout the inputs, transformation processes (throughput and value adding) and outputs to best meet the needs of customers – more than sourcing, influenced but what is sold, returned, logistics and distribution
o Inputs: sourcing from multiple suppliers (domestic and global), E-commerce, Raw materials, other inputs (energy)
o Transformation Processes: throughput, value adding, change of inputs, using facilities and human resources
o Outputs: finished or semi-finished g/s, logistics, and distributiono Sourcing –
Refers to purchasing of inputs for the transformation processes – drawn from a range of suppliers, when choosing a supplier:
Assess consumer demand so volume of inputs is known
Quality of inputs to match quality of output Responsive (flexible) a supplier is in relation to demand Comparative cost of supplies/inputs
Global sourcing Broad term refers to businesses purchasing supplies/services without being
constrained by location – wherever a supplier best meets sourcing requirements
Benefits – cost and expertise advantages and access to new tech/resources.
Challenges – relocation of aspects of operations, increased cost of logistics, storage, and distribution, managing different regulatory conditions between nations
E-commerce E-commerce – buying and selling of G/S via the internet. Impact of e-
commerce explained (sourcing) customer and order received electronically E-procurement: online systems to manage supply, allows direct access to
the business’s level of supplies – when stock falls to a pre-determined point supplier will supply without formal request – business-to-business arrangement (B2B) – direct access from one business (supplier) to another (buyer, allowing the supplier to assess needs of a buyer and meet in a timely manner
E-commerce and the consumer – Business to consumer (B2C) – business sells direct to consumers via the internet or that allows other internet-based nosiness to do so clearly must be able to manage supplies that are affected by this diversity of ordering options – stock levels must be well managed
o Logistics Term broadly referring to distribution includes: transportation. Use of storage,
materials handling and packaging Distribution – refers to the way pf getting G/S to the customer – business may use
different form of physical distributiono Transportation and distribution
Physical movement of inventories – type of product and cost of transport determine mode of transportation – some must have a particular mode of transportation (coal, crude oil – freighter or train), others there is a variety of choices
Storage, warehousing and distribution centres Storage – secure place to hold stock until required
o Storage for inventory is necessary when there are numerous outlets through which stock is sold when demand is variable and needs a responsive supply chain
o May be long term or short term – cold storageo Alternative inventory options such as just-in0time, which minimise
storage and associated costs Warehousing – use of a facility for the storage, protection and distribution
of stocko Also called distribution centres or distribution hubs – places for
holding inventories and particular costs associated include: Premises Insurance and security Stacking and moving Carrying excess or redundant stock Shrinkage costs and losses from theft Stock subject to damage
o Useful for durable items needing transport on short notice
o Distribution centres – different to a warehouse not intended for long term storage, strategically located – minimise time taken to supply stock retail outlets
Materials handling and packaging – important to movement and storage of goods – particular standards of operating need to be applied because some products require certain skills
Outsourcingo Use of external providers to perform business activities, theory that when a service is
performed by an external provider that specialises in a particular business function it will do so at a lower cost with greater effectiveness.
o Business Process Outsourcing (BPO) – Operations: manufacturing, design, merchandising, sourcing, distribution Human resources: employee counselling, pensions, data management, training and
development Administrative work: data entry Information technology: data work, desktop outsourcing Finance and accounting outsourcing: financial accounts, reports, analytics, taxation
compliance Knowledge process outsourcing: outsourcing of managerial work such as marketing
strategy, public relations and management decision making Legal process outsourcing: paralegal support. Legal support, research, trademarks
etco Captive or in house: onshore (commonwealth bank), offshore (Dell or Intel in Penang serving
Dell globally)o Non-captive external providers/vendors: onshore (Unilever India, using Capgemini in
Bangalore and Dairy Farm in Hong Kong using Capgemini) offshore (general motors using AT&T)
o Outsourcing decision: Whether to outsource –
assessing cost, geographical location, what vendor, contract details
Onshore – same nation Offshore – third nation that
can be outside immediate region
Near-shore – close nation within a region
Technology enhances communications and = better management
Benefits of outsourcing: cost savings, improvements in quality, specialisation
Criticisms: brad perception, quality, loss of domestic employment
o Co-sourcing: Two parties are fully involved in managing the success of the particular aspect of
business – external expert works within the business as a contractoro Advantages of outsourcing:
Simplification – reduced number of activities a business performs Efficiency and cost savings – cheaper labour and skilled labour Increased process capability – improved service levels due to skill and tech
Increased accountability – service level agreements that contractually bind the vendor to pre-determined targets on KPIs
Access to skills/resources lacking within a business – saves on resources and training costs
Capacity to focus on core business or key competencies – business focuses on is purpose and innovation
Strategic benefits: Get around trade barriers Expertise gained from outsourcing to competitors Trading in different time zones – overnight work completed Strong partnerships - lead to vendor suggesting innovative solutions to the
business that may increase the business efficiency and productivity over time
Improvements to in house performance – focusing on core competencies focus on making internal change
o Disadvantages of outsourcing Payback periods and cost Communication and language – negotiation and ongoing relationship, cultural and
language differences Loss of control of standards and information security Hierarchies Organisational change and redesign – loss of domestic employment Loss of corporate memory and vulnerability – reliance on another, key processes
and solutions lost Information technology – adaptation of IT to specific circumstances
Technologyo Leading edge technology
Leading edge technology – most advanced or innovative at any point in time. Operations distinguished through utilising best available technology – quicker, better quality, reduce waste
Created by innovative processes and innovative thinking – innovative inputs create new products, changing markets
Also called cutting edge technology – innovations that drive change in businesso Established technology
Established technology – tech that has been developed and widely used and is simply accepted without question – i.e. computers and software packages in operations – establish basic standards for productivity
Established technologies include: Barcoding and point-of-sale (POS) data for inventory management Robotics for complex and detailed manufacturing Computer-aided design (CAD), computer-aided manufacturing (CAM) and
computer-integrated manufacturing (CIM) IT for admin, logistics, input modelling, demand analysis, distribution Flexible manufacturing systems for transformations processes
Inventory managemento Inventory/stock – amount of raw materials and finished goods that a business has on hand at
any point in time. o Stock – product either in partial or full transformation, which has yet to be sold – represents
difference between what is supplied to the business as product inputs and what leaves as outputs
o Advantages of holding stock: Consumer demand can be met when stock is available Product line runs out, alternative offered, reducing risk of loss of business Reduced lead times between order and delivery Stocks give opportunity to generate immediate revenue Stocks can be distributed to distribution centres = rapid transport to demand
Older stock discounted encouraging cash flow and attract sales Stock is an asset reflecting well on the balance sheet Capital gains Bulk buying reduces costs as there are economies of scale in purchasing inputs
o Disadvantages of holding stock: Storage, spoilage, theft, insurance costs associated with holding Invested capital, labour, energy used to create stock cannot be applied elsewhere Cost of obsolescence – unsold stock Depreciation of stock Recalls of stock
o Inventory valuation methods Value of unsold stock must be determined so that profit is correctly determined LIFO (last-in-first-out)
Apply cost on a last in first out basis, stock bought last would be sold first Advantage – prices used to calculate cost of sales, and therefore gross
profit are more recent and more closely reflect economic value – in times of falling prices, LIFO overstates profits and maximises taxes
FIFO (first-in-fist-out) Business apply cost on a first in first out basis, stock bought first would
assume to have been sold first Neither are generally better – in periods of price changes, two businesses could
legitimately report differing profit levels depending upon the inventory valuation method used – inventory valuation such a powerful impact on gross profit, business must state in the footnotes to its financial accounts which method is used
LIFO may overstate cost and understate gross profit (if cost of good rises over time) and undervalue stocks on hand at the end of a period
FIFO – stock costs may be understated and profits overstated and stocks at the end of time overvalued
o Just-in-Time (JIT) Inventory management approach ensuring the exact amount of material inputs will
arrive only as they are needed in the operation process – aims to overcome problem of end of period stock valuation
Business makes enough products to meet demand – display wider range of products and store less – saving money on holding and insurance costs, obsolescence costs minimised
Requires very flexible operations function with flexible processing and high ability to respond to changes in market demand and reliable supplier deliveries
NOT inventory valuation technique – method of flow and storage management – no separate or alternative – business can use LIFO or FIFP and apply the JIT method
Quality managemento Refers to those processes that a business undertakes to ensure consistency, reliability, safety
and fitness of purpose of product Quality control – inspection, measurement and intervention Quality assurance – application of international quality standards Quality improvement – total quality management and continuous improvement
o Quality control (QC) Involves use of inspections at various points in the production process to check for
problems and defects Business needs pre-determined standards/quality targets and failure to meet target
needs to be assessed and action taken to correct Reactive approach must be balanced with proactive Inspection and quality control: attribute inspection – passed as okay or defective
o Quality assurance (QA) – international quality standards Involves use of system to ensure that set standards are achieved in production Through measurements and assessment against pre-determined standards -
proactive
Important to QA: product does what its designed to do, and that the product is right the first time
Globalisation and emphasis on international quality – universal standards – ISO 9000 series of quality certifications (ISO – International Organisation for Standardisation), voluntary and done to increase competitiveness
o Quality improvement (QI) Continuous improvement and total quality management Continuous improvement
Ongoing commitment to improving G/S Based on staff inclusion in improvement processes – encouraged to
innovate and suggest areas of improvement – all processes improved simultaneously
Total Quality Management (TQM) Concept focuses on managing the total business to deliver quality to
customers – ‘holistic’ Quality is a responsibility of every employee – ongoing business-wide
commitment to excellence applied to every aspect of the businesses operation – emphasis on employees and prevention
4 elements of achievement: benchmarking, employee empowerment, focus on customer, continuous improvement
Overcoming resistance to changeo Changes: legislative, economic, social, technological – shape operationso Adaption may require significant internal realignment – resisted due to uncertainty as it
represents risko Resistance to change is due to: financial, psychological/emotionalo Financial costs:
Cost of equipment, redundancies, retraining, structural reorganisation Purchasing new equipment – machinery/tech at high capital cost – advantages:
improve flexibility, speed, consistency, quality, reduce waste – leasing may be more expensive in long run
Redundancy payout – loss of work due to skills being no longer required or relevant in a workplace. Employees seek jobs needing to retrain and upskill – redundancy payout given to employees forced out of work – based on: wage, unused leave, length of employment
Retraining – reorganisation of businesses internal hierarchy or tech. roles change or purchase of tech requiring new training
Reorganisation of layout – may require re-engineering of systems = extensive organisation – costs of transport, placing, bringing power, loss of productivity
o Psychological resistance to change (inertia) – if you don’t do anything about it will be an issue Fear of the unknown leads to resistance
o Strategies to overcome - proactive Identify reasons and manage for successful adaption Successful managers anticipate and adjust to change instead of being
passive/unprepared. Proactive rather than reactive Constructive changes: occur at a pace in which they can be integrated into a
business, evaluated thoroughly to assess impact, introduced into workplace culture supports employee participation
o Change management strategies Identify source and asses if need to accommodate Communication about change and gain support Change agent – someone who initiates change or facilitates the change process
(internal staff or external professionals) Offer retraining
o Overcoming resistance = sustainable competitive advantageo Change management -
Global factors
o GESRo Global sourcing –
Refers to business purchasing supplies or services without being constrained by location – involves sourcing of any business operations that gives cost advantage
Non-core business activities can be out-sourced – global ensures decision is based on cost, efficiency, productivity, technical ability
Benefits: cost advantage, new tech, specialisation, access to resources, operate over extended hours
Challenges: relocation, storage, logistics, complexity (contractional), financial (rate fluctuations)
o Economies of scale – Cost advantage gained by increasing the size/scale of production – business lower
per unit cost Global – increase in demand necessitate higher product volumes Can be derived on capital investment and improved use of technology Multinationals – arise in marketing with global branding saving on costs of
duplication, human resources through application of trainingo Scanning and learning –
Compare business to international best business practises (i.e. Continuous improvement)
Management journals, industry and business associations, conferences, and forums act as opportunity to learn
Diversity of experience – flexibility and insighto Research and development –
Create leading edge tech and create innovative products and solutions Gov may offer tax advantages and grants to assist business with resource allocation
