Topic 1 - Operations PDF

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Role of Operations Management ●

Operations - process of transforming resources (inputs) such as raw materials and labour into goods and services

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Transformation - conversion of inputs into outputs

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Value Adding - creation of added value as inputs are transformed into outputs

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Refer to Figure 1.2 - 1.3

(outputs)

Strategic Role of Operations Management ●

Design, implement and improve processes to achieve business objectives: ○

Maximise profits ■

Increase revenue/income

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Minimise costs → reduce expenses incurred

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Improve efficiency to reduce costs (cost leadership)

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Gain long-term competitive advantage over local and overseas competitors

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Product differentiation → satisfy customers’ needs

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Profit Centres - directly derive revenue and profits

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Cost Centres - costs directly attributed

Cost Leadership ●

Obtain advantage over competitors be being the lowest cost manufacturer within its industry

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Allows for lower product prices against competitors

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Strategies: ○

Cheaper inputs

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Minimise waste → improve efficiency

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Reduce lead times

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Produce more outputs with less inputs → increase productivity

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Innovative technology → increase output, gain competitive advantage

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Increase scale of operations → reduce average cost of producing each item (economies of scale)

Goods/Services Differentiation ●

Distinguish product characteristics from its competitors to gain competitive advantage ○

Better quality outputs

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Quicker supply of outputs

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Customised outputs or varieties to suit different needs

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More features, applications and versatility

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Incorporate new technology

Goods Differentiation ●

Goods: physical and tangible

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Strategies include varying: ○

Actual Product Features: colour and variation

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Product Quality: low or high quality model

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Augmented Features: add-ons and additional benefits

Services Differentiation

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Services: intangible

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Strategies include varying: ○

Amount of Time Spent

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Level of Expertise: higher level → specialised

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Qualifications and Experience: impacts quality

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Quality of Materials / Technology:

Cross Branding ●

Adds value to product by offering consumers added benefits from cross-branding arrangement (alliances)

Goods in Different Industries ●

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Standardised Goods ○

Mass-produced usually on assembly line

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Uniform in quality

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Predetermined quality level

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Production focus

Customised Goods ○

According to customer’s needs

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Market focus

Perishable Goods ●

Short life span, e.g. grocery sector

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Operations integrate: ○

High standards of quality, safety and cleanliness

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Short lead times and distribution

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Robust packaging and cold storage during processes of production and distribution

Non-Perishable Goods ●

Long shelf life and durable, e.g. household/business goods such as furniture, appliances, technology

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Quality and inventory management issues often arise

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Operations integrate: ○

Manage quality throughout entire process

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Implement effective inventory management strategies

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Highly responsive to demand

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From sourcing to production to distribution

Intermediate Goods ●

Processed more than once; proceeds on set of operations processes and become inputs into further processing

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e.g. metal → screws → electronics

Services in Different Industries ●

Standardised services, e.g. fast food industry

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Customised services are professionally educated and trained people, e.g. medical centres, legal services, accounting

Self-Service

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Customers take initiative to help themselves, e.g. financial services sector, travel industry

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Online websites allow customers to access information and compare prices before transactions

Interdependence with Other Key Business Functions Marketing O→M ●

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Advertise ethical practices during production ○

Environmentally friendly packaging

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Better working conditions

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No animal testing

Results: ○

Improves business reputations

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Increased customer base

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Competitive advantage

M→O ●

Promotes to increase awareness of product → increase sales and profits

Human Resources O → HR ●

Determine quality/quantity of employees needed to produce products ○

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Affect acquisition process of hiring staff

Results: ○

Improves productivity

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Quality customer service → customer base

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Competitive advantage

HR → O ●

Make employees redundant → reduce costs

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Replaced by machinery → involuntary separation

Finance O→F ●

Output quality determines prices

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High costs of output → increase prices to cover costs

F→O ●

Source cheaper inputs for final output → lower prices → increase sales/profits

Influences on Operations Management Globalisation ●

Removal of barriers between nations

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Allows interconnection between countries with the sharing of capital, labour, ideas, financial resources and technology

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Expands production facilities and orients practices towards global market → meet needs of global consumers ○

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Practices include: ■

Product design

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Location of manufacturing facilities

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Quality management

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Logistics and inventory management

Businesses establish: ○

Supply Chain

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Range of suppliers a business has and its relationships with them

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Must be highly responsive to changes in demand → production flows smoothly

Global Web ■

Suppliers a business chose on the basis of lowest cost overall, lowest risk and maximum certainty in

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Aims to reduce costs across supplier range

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Opts for location with appropriate proximity to suppliers

quality and timing of supplies

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Advantages ○

Expansion opportunities

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Increased customer base

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Access inputs from overseas suppliers

Disadvantages ○

Entry of competing businesses take over domestic firms, reducing its market share

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Value of AUD affects business activities ■

Low AUD → increase costs → increase prices sold overseas → IC falls for local businesses

Technology ●

Design, construction and/or application of innovative devices, methods and machinery upon operations

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Applied or used in process

● Administration Technology

Process Technology

Used for organisation, planning, decision-making and

Used in manufacturing, logistics and distribution and

controlling

quality management

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Planning Technologies, e  .g. scheduling and

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Large Machines in Manufacturing Plants

sequencing tools (Gantt Charts, CPA)

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Robotics, for processes that require great

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 .g. computers, scanners Office Technologies, e

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 .g. word processing, spreadsheeting Software, e

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Computer-Aided Design (CAD)

programs

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Computer-Aided Manufacturing (CAM)

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Computer Integrated Manufacturing (CIM)

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Rapid Manufacturing (RM)

precision

Innovation ●

Occurs when business creates new products and becomes a market leader

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Improve existing product by adding new, original features

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Globalisation - allows firms to adopt innovative ideas from other businesses

Quality Expectations ●

Quality: how well-designed, durable and functional goods are for the purpose it was created for and its overall degree of

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Customers set expectations for quality standards

competence with which services are organised and delivered

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Personal level of satisfaction with their experience of the product indicates whether consumer expectations are met or not

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Determines how products are designed, created and delivered to customers

● Goods

Services

Quality of Design

Professionalism of Service Provider

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Considers consumer needs

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Cleanliness and layout of physical facilities

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Material type used

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Courtesy and professionalism of staff in

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Innovative → minimise waste

Fitness for Purpose ●

interactions Reliability of Service Provider

How functional it is for the purpose it was

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Efficiency and time-effectiveness

designed for

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Competency levels

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Ease in usage

Level of Customisation

Durability

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Reliability and long-lasting

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How easily repaired and maintained it is ○

How well customer’s needs are met by staff expertise and experience

After-Sales Service, e.g. warranties, servicing

Cost-Based Competition ●

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Firms reduce overall costs to maximise profits. ○

Fixed Costs: do not change regardless of levels of business activity

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Variable Costs: vary in direct relationship to levels of business activity

Reduce by: ○

Bulk-buying inputs

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Using economies of scale (lower cost per unit of output)

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Waste elimination by using/selling by-products

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Standardisation → reduce number of inputs and machinery required

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Automated production systems

Government Policies ●

Changes in government or social expectations affect business rules and regulations

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Political decisions affecting firms: ○

Taxations, e.g. company tax, GST

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WHS

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Environmental policies

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HR

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Trade and industry policies

Legal Regulations ●

Compliance: obey laws otherwise, if breached, there is a risk of penalty

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Shape practices and procedures as it reflects society’s standards

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Compliance Costs: expenses associated with meeting requirements of legal regulations

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Relate to labour, environment and public health

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Work Health & Safety

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Working conditions

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Safety training, protective equipment

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Machines abide by noise, pollution and safety standards

Training & Development ○

Technology and methods work effectively

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Fair Work & Anti-Discrimination Laws

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Environmental Protection

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Protect employees from being mistreated

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Minimise pollution

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Safely disposing toxic residue

Public Health ○

Fair trading rules influencing product safety standards and product’s fitness for purpose

Corporate Social Responsibility ●

Accountable business actions based on respect for people, society and broader environment; more than just complying

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Triple Bottom Line: financial profitability, social impact and environmental impact of business

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Reflect society’s concerns and expectations

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Manage effects of activities on society and environment

with laws

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Understand where/how inputs are sourced

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Recruitment includes diverse range of employees

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Draws from suppliers that adhere to appropriate standards

Difference Between Legal Compliance & Ethical Responsibility Legal Compliance ●

Required to obey laws and prescribed standards of behaviour

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Breached → penalty

Areas of Legal Compliance ●

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Labour Law Compliance ○

Ensure minimum wages are paid

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Provided good working conditions

Environmental & Public Health Compliance ○

Ensure pollution and waste disposal does not create pollution or concerns

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Business Licensing ○

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Rules, e.g. zoning or being certified seller

Taxation ○

Paying tax on profits to government

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Funding superannuation accounts for employees

Trade Practices ○

Not misleading consumers

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Ensure products are safe to store and use

Migration & Offshore Skilled Labour ○

Ensure minimum standards apply to labour brought from other nations

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Intellectual Property

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Financial & Accounting Regulations

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Address issues related to moral rights, e.g. copyright, patents

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Conducting financial records and reports

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Ensure directors follow rules as fiduciary ■

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Corporations Law

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Human Rights

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Person in position of financial trust with respect to others’ money

Impose duties on those working in responsible positions

Restrict discrimination

Outsourcing ●

Contracting third-party specialists to operate key business activities

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Onshore: use of domestic businesses as outsourcing provider

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Offshore: taking activities to an overseas provider ○

Take advantage of permissive laws compared to strict laws in their own country

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Cost-Savings → reduce compliance costs:

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Lower taxation rates

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Lower labour standards, e.g. wages, entitlements

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Weak environmental laws (permissive)

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Weak intellectual property laws (may be copyright laws)

Raise ethical issues concerning business behaviour

Ethical Responsibility ●

Meets legal obligations and goes further by being morally right and acceptable to society

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Laws differ globally → difficulties in being ethical

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More expensive than compliance as it allocates funds above compliance to show it values more than profitability

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Accounts for social and environmental concerns

International differences in standards for labour (wages, WHS, training, etc.)

International Labour Organisation (ILO) ●

Promotes social justice and internationally recognised human and labour rights

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Set international labour standards that businesses may choose to follow to be ethical

Environmental Sustainability

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Adapt to practices that consumer resources without compromising access to resources for future generations ○

Renewable resources

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Reduce usage of non-renewable resources

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Precautionary Principle: where environmental impacts are uncertain, actions most likely to cause least environmental impact is undertaken

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Long-term sustainable view of resource management ○

Minimise waste

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Recycle water, glass, paper and metals

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Reduced Carbon Footprint: carbon emissions produced that enter environment

Social Responsibility ●

Obligation towards welfare and interests of society and stakeholders

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Aims:

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Expand

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Provide for the greater good of society

Impacts: ○

Increases sales and profits

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Gain ‘Green Credentials’ for being eco-friendly → improve brand reputation and increase customer base → competitive edge

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Eco-friendly products → differentiates from competitors

Areas of Social Responsibility ●

Environmental sustainability

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Profit maximisation should not cause increased amount of damage to environment ○

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Instead, conserve the earth for future generations

Sustain environment through efficient operations that: ○

Do not waste resources

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Minimise environmental damage

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Produce products that add value to stakeholders lives

Impacts of CSR ●

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Benefits ○

Become socially, ethically and environmentally friendly

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Promotes goodwill

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Positive image and reputations

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Increased sales and market share

Costs ○

Most economically-lucrative course of action may not be socially, ethically and environmentally responsible

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Business does not embrace CSR → harm sales and share price

Operations Processes Inputs ●

Resources used in transformation process

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Labour ○

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Human mental and physical effort

Energy ○

Electricity or fuels → heat, movement, light...