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CHAPTER

3
Operations processes
Operations processes are the activities to wholesalers, retailers and customers, Components
involved in the transformation of inputs and provides after-sales customer Components are a part or
into outputs. This may also be referred to service. The business may take a top- piece that is assembled
as the production system or operations down approach to operations where the with other components to
create a finished good.
system. Each activity adds value so that operations business function interprets
the output has a greater value than the the overall business strategy and aims
cost of inputs. The outputs will be sold to play its role in achieving the business
for a profit. Key questions that must be objectives. Alternatively, a systems
answered are: management approach focuses on
s What production activities are required? integrating operations with the other key
s What will be the sequence of the business functions of marketing, finance
activities? and human resources to create sustainable
s How often will the process need to be competitive advantage.
changed or adjusted?
s What technology will be used?

Passengers reach
Aircraft, pilots, flight Taking bookings and
their destination
attendants, fuel transporting passengers
safely and on time

Shaping and welding steel,


Steel, plastic, glass, Cars that perform
making parts, assembling
robotics, labour and safe to drive
components

Figure 3.1 Transforming inputs into outputs operations for different products, an airline and
an automotive factory.

The operations manager has a role in


every part of the operations process. The
Inputs
value-added objectives are to produce The inputs into an operations system are
goods and provide services right the first more than the physical raw materials and
time, save time by eliminating delays and components used to make a good or the
improve delivery times, producing in skills, creativity or knowledge to provide
a dependable and flexible manner and services. Inputs are more complex and
control input costs. When assessing the have links with the other key business
performance of the operations functions functions: marketing, finance and human
the manager determines how effectively resources. Inputs may be classified as
the business makes and assembles materials, people or physical resources
raw materials and components into and further categorised as transformed or
finished goods and services, distributes transforming resources.

CHAPTER 3: OPERATIONS PROCESSES 37


Table 3.1 Types of inputs

Materials People Physical


Raw materials Labour (physical and mental) Factory and office building
Parts and components Managers Land
Power and energy Engineers Machines and tools
Supplies Maintenance Office equipment
Computers

There are also the intangible inputs as good citizens ready for the workforce.
of time and money. A business will need Some inputs are transformed resources and
enough time to finish operations before a others transforming resources. That is, the
deadline and enough finance to purchase transforming resources change and convert
inputs to pay for the operations processes. the transformed resources.
When inputs are transformed they are
converted into goods and services, known Transformed resources
as the outputs. For example, at school
These are the inputs that are changed
the inputs are the classrooms, students
and converted into something else such
themselves, textbooks, computers and the
as a component or a finished good or
teachers. The transformations that occur
service. Businesses use a combination
involve educating and socialising students
of materials, information and customers,
and the outputs are knowledgeable
however, depending on the nature of the
students who can learn new skills quickly
industry or type of business one of these
will be more important. For service-based
businesses such as schools, doctors and
financial advisers, information will be
processed to produce a product unique to
specific needs of the customer. Therefore,
customers are the most important resource.
Manufacturers will focus on materials as
their most important resource. Businesses
involved in transporting customers such
as airlines will probably have the most
equal split between these three. Materials
in the form of aviation fuel is a significant
expense, information about flights,
destinations, bookings and maintenance
will be used and, finally, customers
determine what type of service they desire,
ranging from first-class seats to budget-
economy seats, and are transported to their
new destination.

38 CAMBRIDGE HSC BUSINESS STUDIES SECOND EDITION TOPIC 1: OPERATIONS


Materials is an input for information-processing
businesses such as accountants or banks.
Materials are the raw ingredients,
The information is analysed and then
components, parts and supplies used up
presented in a new form such as a tax
in operations. Supplies are different to raw
return or investment advice.
materials because they help in producing
the output and are not a component of
the final good or service. For example, in Customers
a real estate office supplies would include Customers can be changed in different
stationery, printer cartridges and the fuel ways. Doctors and hairdressers transform
used in the cars of sales representatives. how customers feel and look. Airlines
All materials can be considered current and travel companies change the location
assets that are constantly flowing in and of their customers. When customers are
out of the business and not kept for entertained by theatres and movies, or
longer than 12 months. Some operations stay in a hotel or resort, value has been
do not use up materials but change added to their quality of life. Customers
their location as in a courier business are also an input because it is their needs
or transport company. Other businesses and desires that drive the operations
organise a change in the possession of the of a business. Businesses can no longer
materials retailers do this. Materials may produce what they think customers want
merely be stored or warehoused, however, and expect to maintain a competitive
inventory kept securely for another advantage. Therefore, this area of
business is still a materials input. operations is closely connected to the
marketing function, in particular market
Information research.
Businesses must know information
relevant to their operations. Information Transforming resources
is stored in files, in computer programs These are the resources that remain in the
and in databases. This information is business and are applied to the inputs to
used to make plans, execute operations change them to add value.
and keep controls over materials inputs.
Examples of information include the Human resources
know-how to operate equipment,
Many businesses recognise that people
work schedules such as critical path
are their greatest asset. This is because
analysis diagrams, architectural designs,
the skill, knowledge, capabilities and
customer orders, engineering plans and
labour of people is applied to materials
quality analysis reports. Information will
to convert them into goods and services.
come from analysis of the performance
There is a strong relationship with the
of the operations system. As a form
human resources function to provide the
of feedback, lessons learned from
business with suitably qualified, skilled and
operational mistakes or failing to achieve
experienced employees. Motivated and
performance objectives will also be an
loyal employees are essential as well.
input into future operations. Information

CHAPTER 3: OPERATIONS PROCESSES 39


Facilities up. Machinery and equipment will be
used to physically change the shape
Facilities are the buildings, land,
and features of materials. Other facilities
equipment and technology the business
are concerned with storing and moving
uses in operations. They are the non-
materials and partly finished goods to
current assets of the business because
warehouses. Technology is an essential
facilities are used to generate profit
element as it can enable a business to
through their use for a period longer
use its transformed resources in a more
than 12 months. Facilities remain in the
efficient and effective way.
business after materials have been used

Table 3.2 Examples of transforming resources in different industries

Transforming resources School Airline Soft drink manufacturer


Human resources Teachers Pilots Machinery operators
Cleaning staff Maintenance engineers Chemists and food
Maintenance staff Flight attendants technology scientists
Parent volunteers Cleaners Engineers
Administration staff Baggage handlers
IT support Aircraft refuellers
Drivers Check-in staff

Facilities Buildings Aircraft Mixing vats


Playing ovals Hangers Warehouses
Library Terminals Labelling machines
IT equipment and computing lab Computerised booking system Packing machinery
Classrooms

Activity 3.1 Comprehension


Identify the transformed and the transforming resources used to provide a restaurant meal,
a theatre performance and a car.

40 CAMBRIDGE HSC BUSINESS STUDIES SECOND EDITION TOPIC 1: OPERATIONS


Transformation used to create this unique product, thereby
adding further value.
processes There are many different ways of
producing a product. The operations
Every business must consider how it will
manager must select the optimal process
produce goods and supply services. The
considering the following factors:
transformation processes are those activities
s available capacity of the facility
that determine how value will be added.
s available knowledge skills of employees
These processes can add value in four ways:
s type of production, whether it be job,
s physical altering of the physical inputs
batch or flow production
or the changes that happen to people
s layout of plant and equipment
when they receive a service
s occupational health and safety
s transportation of goods or services,
s production costs
such as having them delivered to a
s maintenance requirements.
more convenient location for access by
The transformation process therefore
consumers
needs to be designed, planned and
s protection and safety from the
controlled to make this flow as smooth and
environment; for example, a bank keeps
uninterrupted as possible.
savings secure
s inspection by giving customers a better
understanding of the good or service.
A local bike store offers bikes for sale
and carries a range of brands and types.
For a particular customer who wanted a
racing bike the shop was able to add value
in different ways. First, the owner sourced a
quality carbon fibre frame from a distributor
and a range of components such as wheels,
gears and the seat. The owner then built the
bike using the different components to create
a value-for-money road racer for under
$2000, which was the customers desire.
This was the physical altering of the physical
inputs. By sourcing and bringing all the
components together at the local bike store
Influences volume,
the shop was adding value from transport. variety, variation and
As the customer could not afford to purchase visibility
the bike all at once, the shop kept the bike There are four dimensions of operations,
securely in a locked room until final payment referred to as the 4Vs. Depending on
was made. Finally, when the customer paid which of the 4Vs is considered the most
for and picked up the new bike the owner important to the business, this will affect
took time to carefully explain the value, the type of production method used. One
performance and features of each component of the most important considerations is

CHAPTER 3: OPERATIONS PROCESSES 41


Job production the type of production method that will be production. A business that must produce
Producing a single used: job, batch and flow. The type will a variety of models with different features
unique item. be strongly influenced by the 4Vs, known that requires considerable skill will use
Batch production
as volume, variety, variation and visibility batch production and even jobbing. Batch
to customers. production will suit a business that must
Producing a small
number of the same Job production suits those products satisfy variations in demand. As demand for
item. and services that require much more than a particular good increases, the business
the standard product. Outputs are made on can simply add more batches of the same
Flow production
demand to suit what the customer requests. product and delete batches of products not
Producing a large
It is a highly flexible system but with a low in demand.
number of items at the
same time.
output. There tends to be less capital and
more emphasis on high labour content Volume
and skill. At the extreme end are projects
Volume is the actual number of products
such as building a unique architecturally
or services produced by the operation.
designed home as a one-off job. Costs per
A business using mass production will
unit are quite high.
produce a high volume with a high degree
Batch production is similar to jobbing
of process repetition. A low volume
except products are made in groups or
business will use a production process that
batches. A good example is a bakery that
allows lots of stoppages and adjustments.
makes a number of slightly different breads,
The implication for operations when
using the same process and produced in
volume has the strongest influence is that
batches of 50200.
there will be a large amount of capital,
Flow production involves a continuous
facilities, technology and materials used
flow of inputs and outputs through the
and much less labour. Assembly lines using
operations and is often associated with
conveyor belts will be common and will be
assembly lines. Products tend to have little
organised in a fixed sequence of activities.
variation. Labour will be used to supervise
Low volume operations will use much less
equipment. Fuel refineries use a continuous
equipment with the emphasis on multiskilled
flow process where it is extremely difficult
labour and may be a craft-type industry
to halt production. Costs per unit tend to
such as custom-designed car restoration.
be low.
A business that has as its object low costs
A business that must be a high volume
will use a high-volume operation, while a
producer such as a mining company or
business that chooses customisation and
car assembly plant will have to use flow
flexibility will use a low-volume operation.

Low volume High volume


Example: Example:
5-star restaurants Fast-food restaurants

Figure 3.2 Flowchart of the volume of operations comparing restaurants.

42 CAMBRIDGE HSC BUSINESS STUDIES SECOND EDITION TOPIC 1: OPERATIONS


Low variety
High variety
Example:
Example:
Car factory with small
Financial advice
variations of a standard model

Figure 3.3 Flowchart of the difference of the volume of operations.

Variety in the pattern of demand, operations will


need to be highly flexible. The operations
Variety refers to the number of different
manager will need to anticipate and plan
models and variations offered in the
for changes in the demand and have a high
products or services. If the business has
level of contact with the market.
customers with different needs, goods
and services will have to be modified or
a wide variety of models and options will Visibility
be provided. Low-variety operations are Operations will also be influenced by
routine in producing a high-volume of the degree to which customers can see
standardised product with a low cost. the operations in action. Service-based
Therefore, the influence on the operations businesses will have a high level of
process will be similar to the influence of visibility, while customers will rarely see
volume. A business producing a high volume the operations process of a manufacturing-
product with low variety will be capital- based business.
intensive, with assembly lines and a focus on The implication for operations of a
producing at lowest costs per unit possible. highly visible operations process is that
the quality of labour will be significant.
Variation Operations will need to have well-
trained, highly skilled, adaptable staff to
Operations will be strongly influenced
handle the individual needs of customers.
by the variation in demand over time.
A close relationship with the human
Variation can change according to time
resources function will be essential. Speed
of day, season, holidays and time of year.
of operations will also be important as
Where there is a steady, predictable level of
customers usually have a much lower
demand with little variation, operations will
tolerance for waiting. So short time lags
be similar to those that produce low variety
between customer ordering and delivery
and high volume. That is, operations are
will be needed, otherwise the customer
routine, with low unit costs and using more
will move on to a competitor.
capital than labour. When there is volatility

Low variation High variation


Example: Example:
Staples such as bread and milk Ice-cream factory

Figure 3.4 Flowchart of the difference of the volume of operations on food staples.

CHAPTER 3: OPERATIONS PROCESSES 43


Low customer contact High customer contact
Example: Example:
Online university course Restaurant

Figure 3.5 Flowchart of the difference of the volume of operations on customer service.

Many businesses may have a mixture Of the 4Vs the most significant
of operations with high visibility for some influences on the operations process will
aspects and low visibility for others. For be volume and variety. A business that
example, the operations by bank tellers chooses to produce a high volume will be
will be highly visible, while back office limited in its flexibility to produce a large
operations such as processing credit variety or respond quickly to a change
card transactions and managing loan in demand. A business that is strongly
contracts will not be seen. Further, this influenced by marketing will tend to
low visibility has allowed many banks produce a higher variety of goods, and
to offshore these processes to countries unless the business has very sophisticated
such as India to reduce operating costs. technology, will produce in lower volumes.
A business can change from having a The 4Vs will also be influenced
high visibility operation to a low one. For by the product life cycle. During the
example, a retailer may decide to close the establishment phase there will be a slow
physical shop and move to only selling growth in demand and volume and with
products online. The changing nature of a higher level of customisation or changes
the customer has meant that a high level in design. A business can expect demand
of personal customer contact is no longer to increase dramatically once it has
necessary to make the sale. passed through the establishment phase

Job Batch Flow using


production production assembly lines

Volume Low volume High volume

Variety High variety Low variety

Variation in demand High variation Low variation

Visibility
High visibility Low visibility
(customer contact)

Figure 3.6 Influence of the 4Vs on operations.

44 CAMBRIDGE HSC BUSINESS STUDIES SECOND EDITION TOPIC 1: OPERATIONS


and entered the growth stage affecting determine the separate parts of the entire Task analysis
the volume the business must produce. process of making a good or providing a The breakdown of exactly
Once in the maturity phase the business service. Task analysis is the breakdown of how the manufacture of
will have low variations in demand and exactly how the manufacture of a good a good or activities to
provide a service is to be
may offer more variety to attract different or activities to provide a service is to be
accomplished.
target markets. As the business enters the accomplished.
decline phase, demand and volume will Gantt chart
fall and some variations on the standard Gantt charts Records the number of
product will be dropped from production. tasks involved in each
One of the most common scheduling particular project and the
Therefore, businesses need to be flexible
techniques is a Gantt chart. A Gantt estimated time needed
in their capacity, and have access to
chart records the number of tasks for each task, but will
resources and the use of technology to not show the relationship
involved in each particular project and
meet these changes in the 4Vs over the between each of the
the estimated time needed for each task.
life cycle of the business. tasks.
The business can set specific dates for the
Activity 3.2 Comprehension completion of each stage of operations.
These dates are sometimes referred to
Construct a business life cycle diagram as milestones. At each of these points
indicating the changes in 4Vs over the critical decisions may need to be made. A
course of the life cycle. business that organises production based
on customer orders may use a Gantt chart
for production scheduling. The chart may
Scheduling and sequencing show the schedule for orders on a day-
by-day or week-by-week basis using bars
Scheduling and sequencing tools are
to show the starting and completion dates
used to identify all steps in the operations
for each order. In this case, the milestones
process and organise them into the most
would allow the firm to quote the dates
efficient order to complete. Any sort of
for the completion of future orders and
production scheduling and sequencing tool
be the basis for rostering additional staff
will need information about:
and determining the schedule for future
s what production activities are used
business operations.
s when a particular activity will occur
The Gantt chart allows the business to
s how long an activity will take to finish
compare actual progress to its originally
s what activities are independent and can
planned progress. Businesses that do not
therefore occur at the same time
keep to production targets may find their
s what activities are related so that one
customers moving to other suppliers. A
has to occur before the other
Gantt chart does have limitations. It will
s what resources will be used.
not show the relationship between each
Therefore, a key role of the operations of the activities. Also, it will not show
when scheduling and sequencing is to which activity relies on other activities for
perform a detailed task analysis to materials or machinery.

CHAPTER 3: OPERATIONS PROCESSES 45


Critical path analysis
(CPA) Order no. Customer Week 1 Week 2 Week 3 Week 4 Week 5 Week 6
A scheduling tool
used in an operation 011 Hanna
involving repetitive tasks,
especially if the exact 012 Lee
time each task will take
is known. 013 Smith

014 Grover

015 Nguyen

Figure 3.7 A simple Gantt chart where production is based on customer orders.

Activity 3.3 Construct


Construct a Gantt Chart based on the following passage.

Building a house is a project that requires careful planning otherwise expensive mistakes can be
made such as having to remove a concrete floor to install plumbing.Task analysis has indicated
that there are many different tasks that must be performed, some can occur at the same time
as others. First, the architect must finish the design and plans for the builder.This takes a total of
four weeks. Once all the approvals have been granted (taking two weeks), the foundations can
be laid.While the foundations are being finished the builder will order all the necessary materials
for building the house. Before the bricklayers begin, the plumber installs all the taps, pipes and
outlets that are needed.The work of bricklayers, carpenters and electricians takes four weeks.
Once their work has finished, the plumber will finish installing the bathroom and kitchen fittings,
which only takes three days.The house will then be painted and carpeted. Painting occurs before
the carpets are laid so that they are not damaged. After a final inspection the project manager
may have some minor corrections or work to finish and then the house is ready.

Critical path analysis = 4 + 4 + 4 + 4 = 16. Therefore, the critical


path for this business would be 16 weeks.
A critical path analysis (CPA) is an
Note: In Figure 3.8, some of the components
appropriate scheduling tool for use in
at G need to be processed through H before
an operation that involves a series of
they are joined together with the other
repeated tasks.
G components at I. Think of the paths as
It is a flow diagram that shows the
being like a book, where the front cover
interrelationship of tasks. As all tasks need
has special pictures on it and the back
to be completed for the project to be
cover is blank. The G to H to I path may
finished, the critical path time period is the
be like the front cover, which takes longer
longest path taken to complete the whole
than the process from G straight to I, which
project. In the CPA shown in Figure 3.8, the
could be the back cover.
longest path is from A to G to H to I to F

46 CAMBRIDGE HSC BUSINESS STUDIES SECOND EDITION TOPIC 1: OPERATIONS


C Process technology
B 1 The improvements in the
1
2 E machines, equipment and
devices used to transform
A 1 6
inputs into outputs.
1

C
4 F

4
5
G I
4 4

H
Figure 3.8 A critical path analysis. Note: Each number indicates how many weeks it takes to complete
each stage or task.

Technology, task design amounts of cash. Product technology is quite


and process layout different and this is the innovation in the
products themselves. A laptop computer is a
Technology good example of product technology and
Technology is a key input into the operations when made on an assembly line using CAM
process. A business may wish to achieve a and robotics without the use of labour is
sustainable technological advantage over process technology.
its rivals by using leading-edge technology Technology can improve the
in its operations. A more conservative competitiveness of operations by giving it
strategy would be to use technology that more flexibility as it allows the business
has already been established, tried and to respond to changes in the market more
proven in operations without the risk of easily. The business can change volumes
investing in a new technology that may fail. to meet a sudden increase in demand or
Computer-aided design (CAD), computer- produce different variations of products
aided manufacturing (CAM) and robotics are to satisfy changing consumer demands
technologies used in operations processes and produce non-standardised versions of
and have been described in Chapter 2. The its standard product to satisfy individual
improvements in the machines, equipment clients. This is in addition to the commonly
and devices used to transform inputs into understood improvements to productivity,
outputs are called process technologies. less waste and more efficient use of time.
Even the most labour-intensive industries Perhaps the most significant impact on
use process technology. For example, the businesses from process technology in
local organic farmers market that takes place recent years is the application of computer
once a weekend in the grounds of the high software modelling programs, the internet
school uses wireless EFTPOS machines so and wireless communication to the
that customers do not have to carry large operations process.

CHAPTER 3: OPERATIONS PROCESSES 47


Task design
Deciding how a task will
be completed.

Figure 3.9 A flexible manufacturing system.

Flexible manufacturing systems (FMS) employees may need training to improve


are an integrated approach to using their level of efficiency, and some
technology and will have an impact on may require supervision and appraisal
task design and the layout of the facility. programs. Even if the process of operations
This type of manufacturing can perform is already established, task design allows
multiple tasks at once, reducing the ongoing analysis and adjustments in each
number of individual tasks performed activity to ensure continuous improvement
by separate pieces of equipment. Rather in productivity. New ideas, technological
than have a process or a product layout, change, training and the skills of the
the business may have semi-independent workforce available will necessitate
automated workstations to which all the continual revision of the operations process
inputs are transported. in order to maintain competitiveness.

Task design Process layout


The operations process determines Once the task has been analysed and the
what tasks are to be completed to finish technology requirements determined, the
a project. Next management decides next strategic decision is to plan the physical
how the task will be completed. This is layout of the businesss factory or office.
referred to as task design. Each individual This is called facilities layout planning
task is analysed and broken down into and will also be influenced by the size of
separate steps and allocated to machines equipment, work areas and storage space.
and employees with the appropriate The aim is to have as an efficient flow of
skills, knowledge and capabilities. Some resources through the business as possible.

48 CAMBRIDGE HSC BUSINESS STUDIES SECOND EDITION TOPIC 1: OPERATIONS


A process layout is where all the an office where certain roles are placed
machinery is arranged by what they do; together such as marketing or human
that is, the functions used to make the resources. A process layout requires
good or provide the service. The product staff to be specialised and know how
moves from department to department, to use the equipment and tools in their
depending on what transformation is department.
needed. This allows for more flexibility Process layout is quite different to
and customisation of the product. This product layout where a product moves
is also known as a functional layout and from station to station such as in a car
illustrative examples include a factory assembly line. Product layouts are used
such as a bakery where some items will for assembly line manufacturing of large
need decorating and others will not, or in volumes of goods with few variations.

Discharged from
Reception Emergency
hospital

Kept as inpatient Consult by


Surgery
in hospital bed specialist

X-ray

Figure 3.10 Process layout diagram for a patient in a hosptial.

Deliveries Cooling and drying Shaping, cutting

Raw material
Cooking Packaging
storage

Mixture poured
Mixing vat Storage before
into moulds
delivery

Figure 3.11 Product layout diagram for a food manufacturer.

CHAPTER 3: OPERATIONS PROCESSES 49


Monitoring, control and Key performance objectives of
improvement operations will not be achieved without
adequate monitoring of operations, controls
No matter how well managed, operations
to ensure that operations are on track and
can always be improved. Monitoring,
strategies to improve the process.
control and improvement relate to
The purpose of monitoring and control
performance objectives of quality, speed,
is to ensure the operations process runs
dependability, flexibility, customisation and
efficiently and effectively, producing the
cost in operations. Quality management
goods and services it was designed to do.
systems are discussed in detail in Chapter 4.
Control is a management function that aims
Monitoring, control and improvement are
to keep the businesss actual performance
illustrated in Figure 3.12 as they occur at
as close as possible to what was planned
each stage of the operations process.
by making adjustments to the operations
A business needs to accurately know
process. It is coping with changes as they
how well its current operations are working
occur; for example, changes in demand.
in order to make improvements. A business
Adjustments and readjustment may need to
will find it difficult to assess its performance
be made to day-to-day activities in the short
and make improvements without adequate
term and even the entire operations process
information. Data will be collected about
in the long term. Effective controls ensure
the following areas:
that the business makes and supplies
s operations costs
an appropriate quantity of its products,
s waste from operations such as leftover
in an appropriate time frame and to the
materials
required level of quality according to what
s defects and substandard goods
it planned.
s quality in terms of the product meeting
A key question that must be answered
design specifications
by the manager is whether the current
s speed of manufacturing or response to
operations are satisfactory, and there
customers
will always be areas for improvement.
s volume of output.

Inspecting, monitoring, quality control and quality improvement

Inputs Transformations Outputs

Figure 3.12 Monitoring, control and improvement occur at each stage of the operations process.

50 CAMBRIDGE HSC BUSINESS STUDIES SECOND EDITION TOPIC 1: OPERATIONS


Improving operations is a key strategic goal
of all businesses. Businesses will compare
Outputs
themselves against competitors and industry The purpose of the operations function is
benchmarks in order to determine areas to produce outputs that have a value to
that need improvement. Generally, a customers that is greater than the cost of
business will seek a competitive advantage its inputs. Outputs are the final products or
through improvements in the following services that a business offers to customers.
areas of performance: Customers may be final consumers who
s quality by getting it right the first time are members of the public or other
and having defect-free products and businesses. An output of one business
error-free services can therefore be an input for another.
s speed by increasing speed of For example, cotton fibre produced by a
production and delivery of services cotton farm will be an input for a clothing
s dependability by being on time with manufacturer. Waste, defective products
a reliable operations system, equipment and worn-out machinery may also be
and employees considered a secondary output.
s flexibility through having processes
that are able to change and offer new Table 3.3 Outputs from different industries
products and more choice Industry Output
s cost improvements by being efficient
Banking Financial services such as
and productive to offer more value.
home loans and investment
advice, security for savings
Operations
Education Socially responsible young
Strategy
adults with knowledge and
skills to learn, adapt, work
and related abilities
Operations
Improvement Construction Buildings, homes, roads
Process
that meet the specifications
of architects, designers and
engineers
Monitoring
and control Consumers understand the difference
between the physical product they buy
Figure 3.13 Monitoring, controlling and
and the services provided by businesses.
improving process.
However, customer service is also an
In this manner, improvements in output of all businesses and perhaps
operations will be the source of competitive not considered as an essential part of
advantage for the businesses. The challenge what manufacturing-based business
is to maintain continuous improvement and provides. Goods-based businesses can
a system like total quality management will achieve a competitive advantage through
assist in obtaining this. improvements in customer service.

CHAPTER 3: OPERATIONS PROCESSES 51


7 steps to a Customer service complex and strict rules that cover every
successful sale situation on how to treat customers. Good
Within the vision and mission statements
1 Introduce yourself and customer service will increase consumer
of most businesses is a promise of good
listen to the customer satisfaction and contribute a competitive
2 Explain why the offer
customer service. Customer service is an
advantage. Customer service includes the
is important to the intangible output that requires extensive
following features:
individual customer contact with customers, is labour-intensive
and immediately consumed. As an output s handling customer returns promptly
3 Get confirmation and
explain the details it is very difficult to measure. When a s answering questions and providing
4 Credibility, show the business cannot achieve a competitive information
customer why you can advantage with a better product, it s frequent and meaningful communication
be trusted s anticipating customer needs
can differentiate itself as better than its
5 Describe what to do s following up customer enquiries and
competitors because it has better customer
and what it will cost complaints
service. Customer service is provided
6 Schedule next steps s using technology to offer a 24-hour
7 Ask for the sale
to customers before, during and after a
purchase. service: email, Facebook, Twitter.
All businesses provide some degree Technology has changed the way
of services because services are benefits customer service is delivered in many
that accompany physical goods. industries. Internet sites and automatic
Customer service is a particular output telephone-answering computers with
of service-based businesses, however all voice recognition software reduce sales
manufacturing businesses must realise that staff needs. Although some businesses are
they also provide services. restoring the human touch, as service is
Many businesses aim to have a an emotional experience and frustrated,
comprehensive service system. That is, alienated customers may leave the
policies and procedures on how to manage business.
relationships with customers. It may be Good customer service is an aspect of
as simple as a sales assistant in a clothing relationship marketing and can enable a
store following the owners 7 steps to business to charge higher prices and lessen
a successful sale guideline to more the need to reduce costs elsewhere in the

Taking an
Purchasing a overseas holiday
modular kitchen with hotels and
Purchase of iron or furniture tour guides
ore by Chinese
steel manufacturer

Figure 3.14 Increasing degree of service provided in different industries.

52 CAMBRIDGE HSC BUSINESS STUDIES SECOND EDITION TOPIC 1: OPERATIONS


business. The outcome of good customer time of a business to a customer enquiry.
service is that customers buy and keep In a school the ratio of teachers to students is
returning. It assists in maintaining the 80/20 a measure of the quality of customer service,
relationship. That is, 80% of revenue comes although the quality of delivery may vary
from 20% of the customer base who return from teacher to teacher.
BUSINESS
to the business. If a business can combine In a global business the challenge
BITE
excellent customer service with a high-quality is to replicate its service system in its
good then it can command a premium price other locations. There will be challenges
in the market and still achieve a significant from differences in language and culture.
market share. Customer service can be Training in customer relations and the
BUSINESS
measured by using the number of customer customer service policies of the business
complaints or even the average response will be very important to achieving
consistency in service delivery.

IKEAs customer service philosophy


is not to hassle the customer but
to provide them with as much clear
information as possible to help
them make their decision. The IKEA
showroom has two types of displays:
room settings show how the furniture
and accessories would look set up in a
room, while other displays have all the
same types of furniture together for
easy comparison. Staff are positioned at
specific points in the store to provide
assistance if approached by a customer.
Customers can even hire an IKEA
designer to help them select furniture
and accessories. Customer service
extends beyond the store with staff that
can assist in loading customers cars in
a large loading area and even a home
delivery and installation service (they
will even bring their own Allen key).

CHAPTER 3: OPERATIONS PROCESSES 53


Activity 3.4 Analysis
1 Outline the services that accompany the following products
a A DVD rental.
b A new car.
c A business that supplies indoor plants for decoration to office buildings.
2 Describe the benefits of faster response times to customer enquiries to a business.
3 Explain why it can be difficult to achieve an increase in productivity in the delivery of service.
4 Assess the importance of customer service to a business that supplies components to
other businesses.

Warranties shoes are a performance running shoe that


retails for over $200. Consumers can expect
A warranty is an assurance that a business
several months of comfortable running for
stands by the quality claims of the products
what they are paying, what the advertising
they make and provide to the market.
promises and based on the design of the
Under Australian law all businesses must
product.
ensure that the goods they sell:
These responsibilities make up the
s have a level of quality that is
statutory (or implied) warranty that give
comparable to the price and product
consumers legal protection under the
description
Fair Trading Act 1987 (NSW) and the
s are suitable for the purpose or job they
Competition and Consumer Act 2010 (Cth)
will be used for
in Australia. Retailers and manufacturers
s match the product description in any
must comply with the warranty and may
advertising or promotion
need to provide a replacement product
s are free from defects or faults.
if a consumer is not satisfied. Generally,
For example, Asics Gel Key-Kayano
it is the responsibility of the seller to
organise this and take the issue up with the
manufacturer. Alternatively, a manufacturer
may repair faulty goods with skill and care,
using spare parts of a suitable quality and
then return it to the customer.
A business may offer an extended
warranty above the legal minimum, such
as a three-year replacement warranty. This
comes at an extra cost as it represents
an additional service and more peace of
mind for the consumer. This is on top of
the statutory warranty and may cover the
product from manufacturers defects or
faults for an additional time.

54 CAMBRIDGE HSC BUSINESS STUDIES SECOND EDITION TOPIC 1: OPERATIONS


Chapter summary
s Operations processes or the production process are the activities involved in the transformation of
inputs into outputs.
s Inputs into an operations system are the materials, people and facilities used to make goods or
provide services. Also included as inputs are time and finance.
s Transformed resources or inputs are the materials, information and customers that are changed by
the operations process. Transforming resources act on the inputs to change them and are not used
up in operations. These are human resources and facilities.
s The transformation processes are those activities that add value to the inputs.
s Businesses that produce in high volumes, low variety and experience little variation in demand
will use a high level of capital equipment, technology, materials and facilities. Low-volume
operations, producing a wide variety of goods and are subject to a volatile level of demand will
need to have a highly flexible operations process using more skilled labour.
s Visibility of operations refers to how open the operations process is to customers. The more
visible the operations, the more customer-focused the business is; operations will produce a lower
volume, higher variety of made-to-order products unique to the customers wants.
s Scheduling and sequencing tools are used to identify all steps in the operations process and
organise them into the most efficient order to complete. Gantt charts and critical path analysis are
the most common.
s Process technology is the improvements in the machines, equipment and devices used to
transform inputs into outputs. Product technology is the innovations in the goods and services.
s Monitoring, control and improvement to operations are essential if the business is to achieve its
performance objectives and sustain a competitive advantage.
s Outputs are the goods and services provided to customers. Customer service and warranties are an
intangible output.

Chapter revision task


1 Match the following outputs with the appropriate business.

Cinema Kitchen cabinets


Printing company Mineral ore
Carpenter Printed signs to order
Accounting firm Entertained customers
Mining company Financial reports and statements

2 Categorise each of the following businesses as either a transformer of materials,


information or customer inputs:
(a) transport delivery (e) telecommunications
(b) market research (f) retailer
(c) mining company (g) warehousing
(d) dentist (h) hotel

CHAPTER 3: OPERATIONS PROCESSES 55


3 Complete the following table indicating the impact of the 4Vs on the operations process.
The first has been completed as a guide.

Book Bridge Hospital School Soft drink


publisher construction emergency canteen bottler
Volume Medium
Variety High
Variation Medium
Visibility Low

Multiple-choice questions
1 Why are human resources classified as a transforming resource?
(A) Because employees will improve their skills with training
(B) Because employees will use their skills to add value to resources
(C) Because employees are multiskilled
(D) Because employees productivity and motivation will vary
2 Gantt charts and critical path analysis are both tools that can be used for which activity?
(A) Rostering
(B) Scheduling
(C) Highlighting relationships between task
(D) Task design
3 When is a business considered capital-intensive?
(A) When it has borrowed a lot of capital from the bank
(B) When it is based in a capital city
(C) When is has a very high proportion of fixed costs
(D) When it has a very high proportion of variable costs
4 Which of the following are thought NOT to be a benefit, although it can occur with the
introduction of technology?
(A) Reductions in waste and improvements in efficiency
(B) Introduction of new and better products
(C) Industrial relations issues
(D) Improved communication
5 Which influences will cause operations to be more labour-intensive?
(A) Low volume, low variety, low variation, low visibility
(B) High volume, high variety, high variation and high visibility
(C) Low volume, high variety, high variation, high visibility
(D) The actual production process used in the business

56 CAMBRIDGE HSC BUSINESS STUDIES SECOND EDITION TOPIC 1: OPERATIONS


6 Why are scheduling tools used in operations?
(A) To work out rosters for employees
(B) To work out when products are sold
(C) To create the most efficient production process
(D) To plan production and control operations
7 What are outputs?
(A) Final goods and services
(B) What is produced by the operations process
(C) What is produced from the raw materials
(D) Components used in operations
8 Which of the following businesss operations process will be most influenced by high visibility?
(A) Restaurant
(B) Building a house
(C) Creating the next generation of smart phones
(D) Producing paper
9 What are the characteristics of a process layout?
(A) Assembly lines, robotics and CAM
(B) Activities are organised according to function
(C) Equipment is set out in the same sequence as the operations process
(D) Where all the machinery is arranged by its function
10 When do improvements in process technology occur?
(A) When a business seeks a competitive advantage through lower costs
(B) When a new invention leads to a new product
(C) When a business learns from its mistakes
(D) When a business applies technological innovation to the operations process

Short-answer questions
1 Identify the difference between a transforming resource and a transformed resource?
2 Explain the difference between monitoring and control strategies.
3 Assess why all businesses must consider improvements in customer service.
4 Explain how task design can give a business a competitive advantage.
5 Explain the difference between Gantt charts and critical path analysis.

Extended-response question
Outline the strategic goals of the operations process and explain the influence of volume, variety,
variation and visibility on operations.

CHAPTER 3: OPERATIONS PROCESSES 57