Business Studies Resources - Case Study - Operations PDF

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Summary

Notes on the operations part of Year 12 Business Studies Course...

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Operations Case Study Notes SYLLABUS POINT Discuss the balance between cost and quality in operations strategy Examine the impact of globalisation on operations strategy Identify the breadth of government policies that affect operations management Explain why CSR is a key concern in operations management

Assess the relationship between operations and the other KBFs in two businesses

NOTES Jet Star is an established low-cost airline in Australia. However, this low cost requires a quality sacrifice, as in 2010 it was found to have the greatest number of late flights of any domestic Australian airline. Additionally, Tiger Airways is infamous for poor service, which is again an example of sacrificing quality for cost. Conversely, Sony and Panasonic invest large amounts of money in research and development, which leads to the creation of innovative products of a greater quality, and as such these products attract a higher price to cover the cost of R&D incurred in their design. In 2011, QANTAS announced plans to enter Asian markets, as the international branch of the airline was running at a loss. Additionally, in 2012 it was announced that the domestic and international branches would be separated, to facilitate reforms to the international branch. Tobacco companies such as British American Tobacco and Imperial Tobacco will be forced to adopt a cost leadership approach, rather than the product differentiation approaches used previously, in response to the Federal Government’s plain packaging laws. The lack of GST on imports under $1000 has forced many retailers to extend their opening hours in response to declining sales (Harvey Norman experienced a 32% fall in sales in 2011). Woolworths has come under heavy scrutiny for its operations in poker machines, with the progressive social group GetUp taking Woolworths to court to try and enforce a $1 betting limit. Woolworths have so far refused, but if they decide/are forced to apply the limit, their revenue streams from this area of their operations will fall significantly. Telstra’s history as a PTE has given it a competitive advantage through its access to the largest phone line network in the country, which other telecommunications providers must pay to access. They have used this as part of their marketing strategy, particularly in the lead up to the launch of the iPhone 5, as Telstra have the largest 4G mobile network in the country. The influence of globalisation has resulted in lower sales for many domestic car manufacturers, such as Ford, Holden and Toyota, and as a result they have had to cut jobs to remain profitable.

SYLLABUS POINT Explain how operations strategy can help a business can sustain its competitive advantage.

Strategic role: - cost leadership - product differentiation Goods/services in different industries Influences: - globalisation -

technology

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quality expectations

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cost-based competition

NOTES Technology: Telstra has a competitive advantage (product differentiation) through the better technology and network coverage it offers to its customers Performance objectives: Aldi places great emphasis of the performance objective of cost (at the sacrifice of variety), which has allowed it to sustain its competitive advantage through cost leadership New product/service design/development: As Diet Coke dominated the sugar-free cola drink market, Pepsi responded through Pepsi Max, a sugar-free cola drink targeted at men, rather than women as was the case for Diet Coke and Pepsi Light Cost leadership: Aldi supermarkets offer consistently lower prices than Coles and/or Woolworths, and this forms the basis of their marketing campaign as well Product differentiation: While Lindt chocolate products are more expensive than those of their competitors, their perceived higher quality has allowed them to achieve a competitive advantage through product differentiation Businesses trading perishable products (such as Woolworths, Coles and Aldi) will employ vastly different operations strategies to other businesses, particularly in the areas of inventory and supply chain management. In 2011, QANTAS announced plans to enter Asian markets, as the international branch of the airline was running at a loss. Additionally, in 2012 it was announced that the domestic and international branches would be separated, to facilitate reforms to the international branch. In response to the growth in online international retail stores, such as eBay and Amazon, domestic retailers such as JB Hi-Fi and Harvey Norman have implemented B2C (business to customer) technology to retain market share. Consumers expect a much higher degree of quality from car manufacturers such as Mercedes Benz and BMW, and as a result their operations processes are vastly different, with a greater emphasis on quality and customisation rather than sales and production volume. Competition in the supermarket industry is almost entirely cost-based, with the so-called ‘price wars’ between Coles and Woolworths resulting in aggressive supply chain management by both businesses, as this is necessary for them to retain their market share.

SYLLABUS POINT

NOTES Tobacco companies such as British American Tobacco and Imperial Tobacco will be forced to adopt a cost leadership approach, rather than the product differentiation approaches used previously, in response to the Federal Government’s plain packaging laws. The lack of GST on imports under $1000 has forced many retailers to extend their opening hours in response to declining sales (Harvey Norman experienced a 32% fall in sales in 2011). The introduction of the Carbon Tax in 2012 will see many carbon-intensive businesses, such as electricity companies, restructure their operations to more renewable energy sources, as this will reduce business costs and possibly allow them a competitive advantage. While net fishing is perfectly legal, Safcol Tuna chooses to use pole and line fishing methods instead, to avoid the capture of other marine life in fishing nets. This is an example of a business going above the legal requirements to be socially responsible. The Westpac Group demonstrate CSR in many ways, such as its target of 40% of senior management positions being held by women by 2014, and a 30% reduction in carbon emissions between 2008 and 2013. This CSR was recognised when Westpac was the only Australian company to be listed in the Ethisphere Institute’s List of World’s Most Ethical Companies for 2010. Coca-Cola demonstrates corporate social responsibility in regards to environmental sustainability through its extensive water recycling program, which has significantly reduced water wastage at the company’s production facilities in Australia and around the world. In response to the $50 million cost of lost trolleys every year, Woolworths launched a tracking system for its lost trolleys, which also has the environmental benefits of removing abandoned trolleys from waterways and bushland. In late 2010, Leapster Explorer experienced a significant issue in relation to the influence of volume, as it had a vastly greater supply of games than it did consoles, which resulted in the consoles being sold out 4 weeks prior to Christmas, which in turn resulted in significant lost sales during the company’s peak sales period.

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government policies

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legal regulation environmental sustainability

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CSR: legal compliance v ethical responsibility

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environmental sustainability and social responsibility

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volume

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variety

Due to the similar nature of many involved components, whitegoods companies such as Electrolux, Westinghouse and Fisher & Paykel produce a large variety of goods as part of their operations strategy.

variation in demand

Crumpler is very inflexible in this regard, as its offshore production facilities only produce a certain number of bags per year. This number can be reduced in response to a fall in demand, but not increased to account for higher than expected demand. This ensures that the business is never overstocked (ie it avoids wastage through excess stock), but also puts a limit on the maximum revenue the business could enjoy.

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SYLLABUS POINT -

technology

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plant layout

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customer service

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warranties

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performance objectives

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new product/service design & development

NOTES Crumpler uses computer aided design (CAD) software in the design of its bags to allow for greater and easier customisation of its products. CAD is also much cheaper for the business as it reduces the time and labour required during the design process. At gymnasiums such as Fitness First and YMCA a process layout is used, whereby machines are usually grouped according to the muscle groups they target. McDonald’s restaurants use a product layout, as the layout of equipment and facilities relates to the order in which tasks must be performed. A 2012 study by CHOICE magazine found Harvey Norman to have the worst customer service of any Australian retailer, which when compounded with the growth of online retail sales, points towards an imminent collapse of the retail giant. Crumpler bags come with a lifetime warranty – known as the Til Death Do Us Part warranty – which entitles any customer whose bag breaks through regular use to a replacement bag, regardless of how much time has elapsed since the bag’s purchase Cost: all supermarkets, particularly Aldi, focus on the objective of cost in their operations management Speed: McDonald’s restaurants have time targets on drive-thru customers to ensure fast service, however as there are no time targets for in-store customers they are often forced to wait longer as drive-thru customers are given preferential treatment Dependability: Crumpler bags come with the Til Death Do Us Part warranty, which means that dependability is key otherwise the business would be issuing too many replacement bags to remain profitable Customisation: Crumpler bags come with Velcro dividers and compartments, which allow a standardised product to be customised by each individual customers to suit their individual needs Quality: Crumpler sources the highest quality inputs and ensures high quality production processes to maximise the quality and dependability of its bags Flexibility: Crumpler’s operations processes are not very flexible, as they only produce a set number of products in set volumes As Diet Coke dominated the sugar-free cola drink market, Pepsi responded through Pepsi Max, a sugar-free cola drink targeted at men, rather than women as was the case for Diet Coke and Pepsi Light. Apple is perhaps the best example of this operations strategy; with the introduction of new products such multiple versions of the iPhone and iPad ensuring continued sales.

SYLLABUS POINT -

supply chain management

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outsourcing

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technology

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inventory management

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quality management

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overcoming resistance to change

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global factors

NOTES Global sourcing: Crumpler sources various inputs from different locations around South-East Asia, all of which are much cheaper than purchasing these inputs from Australia Logistics: many businesses will outsource this aspect of operations to specialist logistical companies, such as Linfox and Toll Crumpler has outsourced the production of its bags to Asia, as this reduces overall costs through lower labour costs in these nations. However, with this comes a loss of control over the production process, and the business will be seen by many potential customers as exploiting lower labour regulations and thus as socially irresponsible. In early 2011 Yarra Precision Engineering invested in leading edge CAD and CAM software, which is directly linked to the parent business’ mainframe, allowing instant verification of product specifications. Woolworths introduced StockSmart technology in its distribution centres which can accurately forecast when stock will need to be replenished, which allows the company to order new stock before their current supply runs out, which reduces lead times and improves the speed and efficiency of the business. The Ford Motor company pioneered the JIT inventory management system, although Toyota is now recognised as the global leader in JIT inventory management. Motorola is committed to total quality management as evidenced by its development of the Six Sigma approach to quality management. Yakult uses a quality assurance approach to quality management, as its operations processes comply with the relevant ISO standards. The business also uses quality control through random inspections. When Coca-Cola purchased new equipment at its Westmead plant in the late 1990s, it soon became clear that the staff were not sufficiently able to understand the written instructions printed on the equipment, and in response the company provided training for all affected employees. Global sourcing has allowed Crumpler to reduce its overall costs and thereby maximise profitability. Businesses such as Costco achieve economies of scale by selling products in bulk across global markets....