Operations Notes for HSC PDF

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OPERATIONS Business Studies

HSC TOPIC 2 Normanhurst Boys High-school

1.0 ROLE OF OPERATIONS MANAGEMENT Operations is a key business function whereby the process by which inputs are transformed into outputs through production 1.1 Strategic Role of Operations Management

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Strategic means “affecting all business operations” Involves gaining long term competitive advantage over its competitors, by improving productivity, efficiency and quality. May also use either a cost leadership or product differentiation strategy

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Strategic operations decisions focus on:

o

o o o o o o o 1.1.1  

Products to be created How to produce products Capacity or size of operations Organisation of inputs and equipment in operations Location of operations Employees used in operations Quality

Cost Leadership Operations strategy

A strategy where a business aims to have the lowest costs or to be the most pricecompetitive in the market Creating low cost basis may be achieved by: o o o o o o o o

1.1.2

Using less expensive inputs Maximising efficiency through minimising waste and saving time Maximising productivity by producing more outputs from less inputs Technology Producing faster Lower quality outputs Increasing size of operations to reduce average cost of each item. Economies of scale refers to cost advantages that can be created because of an increase in scale of business operations

Good/Service Differentiation Operations strategy

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Strategy to obtain advantage over competitors by having outputs unique outputs in industry

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Achieved through having

o o o o o

Better quality outputs Quicker supply of outputs Custom designed outputs/more variety More features, application, versatility New technology

PRODUCT DIFFERENTIATION: GOODS Varying the actual product features o

Goods usually come in one basic variety and then in other varieties of increasing complexity

o

E.g. Cereal could be grain and milk, but the addition of nuts, fruit

o

Making a low quality affordable product then increasing quality on another

o

Add-ons or additional benefits associated with particular goods

o

E.g. Car comes with GPS and selfparking system

o

Time is a factor that differentiates between service provider

Varying the level of expertise brought to a service

o

If a person has more expertise they can provide a more specialised service

Varying the qualifications and experience of the service provider

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Highly qualified and experienced service providers can significantly affect quality of service

o

The use of computer based technology like CAD and CAM can affect quality of service provided

Varying product quality

Varying augmented features

PRODUCT DIFFERENTIATION: SERVICES Varying amount of time spent on a service

Varying the quality of materials/technology used in service delivery

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Cross Branding approach adds value to products by offering consumers added benefits from a cross branding arrangement

o

E.g. Woolworths/Caltex: products are differentiated but the differentiation is not from the product itself but rather from an external factor that the business has brought into the mix

1.2 Goods and services in different industries GOODS

SERVICES

Tangible Can be reusable

Intangible Only used once

More capital intensive Can be stored Hard to modify once manufactured

More labour intensive More interaction with customers Easer to change and customise

1.3 Interdependence of Operations with other key business functions 

Specialisation o Where business is separated into different functions each of which is highly skilled at its specific task or role

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Interdependence

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o

Where the different parts of a business must rely on each other to perform their task or role

o

Marketing research outlines and discovers the nature of goods consumers desire and the marketing strategy to encourage purchases, thus telling operations what products must be produced. Finance will create budgets and allocate funds to for the purchase of inputs to be transformed to outputs, whilst human resources ensures that there are sufficient employees with the appropriate skills to assist in the production process.

As a result of specialisation, there will be interdependence between the key business functions and a constant flow of information between operations marketing, finance and HR

2.0 INFLUENCES Operations management occurs in a dynamic environment (constantly changing)

Globalisation

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Refers to the increased integration between economies and nations increasing degree of capital transfer, labour, technology and financial resources Provides opportunities for a business to source its inputs, finance raw materials, labour from a global market Selling finished product/service in global market Global consumers: seek global brands and ted to seek standardised products; and increasingly been able to access a global market for g/s o Global branding has dramatically expanded consumption opportunities

COST REDUCTION  Operations/production may be cheaper overseas but managers must be careful of quality and reliability of supply  Capitalise on outsourcing of labour and factories as it is cheaper

PRODUCT DIFFERENTIATION  Product variation is essential as various countries have different tastes, preferences, safety regulations, cultural values and government policies EFFECT ON OPERATIONS MANAGEMENT Led to methods of reducing costs such as outsourcing Technology Technology is the design and application of innovative devices such as machinery upon operations processes  Adapting to new technology introduced by competitors   Prevents loss of competitiveness by adapting to new technologies widely adopted  There is a heavy reliance on the operations manager to be aware of this technology and assess its application to the business for example: Robotics:  increase productivity and reduce costs as: they are more precise, don’t have to be paid and never fatigued  Computer Aided Design (CAD) - efficiency  Computer Aided Manufacturing (CAM) -less errors 

Quality Expectations

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Cost based competition

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Smartphones and the Internet have allowed service based businesses to penetrate global markets with the international distribution of information

Defined as meeting, or exceeding a customer’s expectations Expected that products will be produced with high levels of quality Value for money Reliability: How long a product functions without needing maintenance Durability: How long a product lasts Fit for purpose: How well the product achieves the characteristics it advertises Low-cost strategy concerned with driving costs down o Warehousing o Transportation o Spreading overhead costs Concerned with providing consumers best value for money

(Talk about cost leadership) Government policies

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Impact operations by encouraging or discouraging aspects operations or ways it is conducted

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 Legal regulation

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Environmental sustainability

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o Regulation o Subsidies o Grants o Taxes/Tariffs Political decisions affect a business rules and regulations which affect the management of operations; such methods including WHS, taxation, environmental policies and discrimination laws are all used by government to encourage operations to be more innovative and competitive as o Monetary policy – Influence on IR - lower IR creates a greater demand for g/s o Fiscal Policy – Influence on injections such as government spending and leakages such as taxation o Competition Policy – Monetary/non monetary incentives for businesses to become more efficient e.g. reduction of protection on industries E.g government policy for a greener future Laws that regulate the way things are done Each state government has legal regulations that govern behaviour of employer and employee More responsible operations functions develop culture of safety Compliance costs are the expenses associated with meeting the requirement of legal regulations Environmental sustainability means that business operations use practices that consumer resources today without compromising access to those resources for furture generations Concerned with air, water, waste and environmentally sustainable products and operations practices Increasing community concern for environment Focus: What should be done to reduce global warming/reducing carbon emissions While it may increase costs, they will produce a positive social impact through stewardship, may include increased sales. E.g. Ethanol e10 fuel and recyclable packaging

2.2 Corporate social responsibility   

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Duty of care a business has towards its stakeholders Ensure business activities have positive impact on society Refers to the open and accountable actions of a business based on respect for the environment, employees, consumers and the community (Involves doing more than just complying with the laws but also covers topics of ethical responsibility such as human rights, corruption/collusion and labour standards. TRIPLE BOTTOM LINE: places values on financial returns as well as environmental and social sustainability CASE STUDY: ANZ developed mentoring programs to provide jobs for indigenous young people

2.2.1 Difference between legal compliance and ethical responsibility 

Legal compliance is concerned with obeying the letter of the law

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Ethical responsibility is concerned with doing the “right thing” and having a positive impact in which the business operates Social responsibility refers to a business’s management of the social, environmental, political and human consequences of its actions CASE STUDY: ANZ Bank’s mentoring scheme to encourage young indigenous people into the workforce

2.2.2 Environmental sustainability and social responsibility  

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Environmental sustainability refers to the economic, social and environmental performance of a business Usually concerned with: o Energy efficiency and climate change o Water and waste management Legal compliance and ethical responsibility contributes to a better quality of life for society such as through the “Australian SAM sustainability index’ which determines the performance of Australian companies in terms of sustainability CASE STUDY: Walmart have made carbon neutrality a major goal for their business and suppliers.

Water Management Externalities: When the community bears the cost rather than business

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Waste Management Collection, transport, processing and recycling of waste materials Corporate responsibility is to reduce amount of waste, mainly by recycling Focus is the reduction of landfill waste E.g BMW AG design their cars to ensure that as much of it is built with recyclable materials.

Triple Bottom Line: o Triple Bottom Line (TBL) reporting is becoming an accepted approach for organizations to demonstrate they have strategies for sustainable growth. o

It focuses on decision-making and reporting which explicitly considers an organization’s financial, environmental and social performance. As such, TBL can be seen as both as an internal management tool, and an external reporting framework

3.0 OPERATIONS PROCESSES 3.1 Inputs Common direct inputs: o Labour o Energy o Raw Materials o Machinery and technology Labour  Human effort Energy  Required to bring inputs to the business, to transform them and distribute them to consumer market 

Raw Materials

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Machinery and Technology

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Basic components of manufactured goods are wood, unprocessed agricultural products, natural resources Sourced through supply chain Process raw materials, design and make products Capital substitution o Tech replaces people

Inputs can be divided into Transformed resources and Transforming resources

3.1.1 Transformed Resources o Materials

Inputs that are changed or converted in the operations processes   

Information

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Customers

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Consists of raw materials and intermediate goods Raw Materials: o Essential substances in their unprocessed state Intermediate goods: o Goods manufactured and used in further manufacturing/processing Knowledge gained from research, investigation and instruction which results in an increase in understanding. Internal o Gathered from financial reports, quality reports and key performance indicators o Customer feedback o Acts as a transformed resource when it creates process improvements External o Market reports, statistics from industry observers, government statistics from ABS o Integrate relevant information into operations process Transformed resource when choice shapes inputs Customer Relationship Programs (CRM) refers to the systems businesses use to maintain customer contact Take preferences and interests of consumers as the starting point of production process

3.1.2 Transforming Resources 

Inputs that carry out the transformation process

Human Resources

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Employees coordinate and combine other resources to produce g/s Well-designed HR policies and practices can improve performance and productivity

Facilities

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o Flexible practices o Open communication Refers to the plant and machinery used in the operation process Needs to decide: o Energy/water requirements o Most efficient plant design o Optimum plant/process layout o What impact restrictions such as zoning can have

3.2 Transformation Process 

Transformation: conversion of inputs into outputs with ‘value added’ based on the intricacy of the transformation o o

3.2.1

A manufacturer transforms inputs into tangible products A service based business transforms inputs into intangible products

Influence of volume, Variety, Variation in demand and Visibility

Volume

Variety

Variation in demand

How much of a product is made Volume flexibility o How quickly the transformation process can adjust to increases or decreases in demand o Can over produce leading to wastage or under produced leading to loss of sales  Mix flexibility known by consumers as product range of choice  The greater the variety, the more operations needs to allow for variation o More variety = cater to individual customer needs increasing customer satisfaction Refers to how much the level of demand changes over time. Products not affected by seasonal changes such as furniture tend to have more predictable demand than products affected by seasonal changes  

Increase in demand leads to increased inputs from suppliers, HR, energy use, machinery  Businesses will try to forecast demand so adjustments can be anticipated and acted on  Increased demand will be hard to meet if labour is not flexible or the supply chain is ineffective Visibility is the customer contact or feedback that can directly affect transformation processes, customers and their preferences shape what businesses make  Direct contact involves customer feedback through surveys, reviews, letters  Indirect contact involves review of sales data giving info on consumer preferences  Manufacturing business = low visibility 

Visibility

3.2.2 Sequencing and Scheduling – Gantt charts, critical path analysis  

Sequencing refers to the order in which activities in the operations process occurs Scheduling refers to the length of time activities take within the operations process

Gantt Charts:     

Outlines the activities to be performed, the order and the length expected to take Used for scheduling simple routine tasks such as homework assignment or building a dam Used for any process that has several steps and involves a number of different activities. Advantages include forcing a manager to plan steps out ahead and makes it easy to monitor actual progress against planned activities Disadvantages: doesn’t show relationship between the tasks

Critical path analysis (CPA)   

Scheduling method that shows what tasks needs to be done, length and order Critical path is the shortest length of time to complete ALL tasks Tasks can be performed simultaneously such as painting and testing components

3.2.3 Technology, task design and process layout 

Technology o Involves the use of machinery and systems that enable businesses to undertake the transformation process more efficiently and effectively o Capital cost is high so businesses need to think about renting or buying

o

Additional costs include set up, siting, cabling and loss of workers who may be displaced

Office Technology

Manufacturing Technology

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Computer, keyboard, CD ROM, mobile telephones, printer These technologies have allowed workers to work faster and at a greater distance from office Telecommuting and working from home Robotics allow a degree of precision and accuracy unmatched by labour Work without complaint, consistent, high standard, efficient o CAD (Computer Aided Design)  Computerised graphical design tool that generates three dimensional diagrams o CAM (Computer-aided Manufacturing  Software to allow the manufacturing process to become computer controlled  Benefits including the storage of existing purchasing records to assist with future purchasing decisions

Task Design o o o

Involves classifying job activities in ways to make it easy for an employee to successfully perform and complete the task Allows business to continually analyse and adjust each activity to ensure continuous improvement E.g

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Attracting the right candidate for the job is the final process that starts with task design and ends with selection o Task design -> Job description -> Person specification -> Recruitment -> Selection

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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

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Process Layout o o

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Arrangement of machines such that they are grouped together by the function they perform Typical for hospitals such as maternity wards and intensive care units

Includes: o

a) Process layout for intermittent production: type of production is linked to high variety, low volume production; called intermittent because it moves around departments ⟶ the machinery is arranged according to sequence and parts are manufactured in smaller quantities

o

b) Product layout: this is based on manufacturing high volume and high-quality goods (usually an assembly line), equipment arrangement is based on the sequence of tasks performed ⟶ work stations are arranged to match the sequence of flows e.g. Assembly of motor vehicles

o

c) Fixed po...