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Week 2 notes - Very helpful by Heizer

Operations Management (University of KwaZulu-Natal)

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Q. As Operations Manager of a firm, how would

you contribute to an improvement of the three

economic productivity variables? (12 marks)

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1 Labour (1 mark)

 Ensure that the basic skill levels of workers

are appropriate for their jobs

 Maintain and enhance skill levels of workers

through appropriate training

 Ensure that the labour force is adequately

nourished

 Take into account/invest in social overhead

 Support HRM initiatives (team bld,

motivation, etc.)

(3 marks)

2 Capital (1 mark)

 Invest in appropriate capital equipment

 Monitor the capital invested per employee
and compare with industry benchmarks

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 Respond to environmental changes

(inflation, taxes, interest rates, quotas) when
making capital budget decisions
 Monitor return on investment (ROI)
(3 marks)

3 Management (1 mark)
 Ensure effective deployment of labour and
capital
 Adopt appropriate technology
 Select the appropriate inputs
 Respond to customer demands
 Focus on the ten OM decisions
 Develop the firm’s core competencies
(3 marks)

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NOTES ON OM PERFORMANCE OBJECTIVES OR

STRATEGIES

1. Differentiation
 Providing uniqueness
 Providing customer perceived added-value
 May comprise:
 Broad product line
 Innovative product features
 Product related service
 Convenience
 With services, differentiation may be
achieved through creating an “experience”

2. Cost leadership
 Does not imply poor quality
 Focuses on providing optimum customer
value
3. Response
 Speed
 Dependability/Reliability
 Flexibility

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FLEXIBILITY

The ability to change operations. Flexibility can

comprise up to 4 aspects:

1. The ability to change the volume of

production
2. The ability to change the time taken to
produce
3. The ability to change the mix of different
products or services produced
4. The ability to innovate and introduce new
products and services

TRADE-OFF

The concept based on the premise that a firm

can’t excel at all aspects of operations
simultaneously
Therefore OM requires a single clear goal
determined by a priority list of performance
objectives

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WHAT FACTORS RELEVANT TO OM

CONTRIBUTE TO CORPORATE SUCCESS

Based on data collected in PIMS study and using

ROI as a measure of success:

1. High product quality

2. High capacity utilisation
3. High operating efficiency (ratio of expected
to actual performance)
4. Low investment intensity (in relation to
sales)
5. Low direct cost per unit (relative to
competitors)

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DEVELOPING A LOW COST COMPETITIVE

ADVANTAGE WITH AN AIRLINE

1. Ticketless travel- automated ticketing

machines
2. No free on-board catering- no meals, snacks
or drinks
3. Efficient use of airports- lower gate costs at
secondary airports that have reduced
landing fees, no baggage transfers
4. Paperless operations- all mgt and admin
done entirely on IT systems
5. Use of internet- sell more than 95% of tickets
online
6. Standardise aircraft- minimise training costs,
maximise staff efficiency, reduce
maintenance inventory, supplier leverage
through scale advantages
7. Empowered employees- quicker decision
making, improved performance, quicker
turnaround time

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CORE COMPETENCIES

The unique resources & strengths that an

organisation’s management considers when

formulating strategy

1 Workforce

 Well trained & flexible workforce that can

respond to mkt. changes NB. Service

organisations

2 Facilities

 Well located to provide better customer

service, better access to inputs & reduced

lead times

 Flexible facilities that can respond rapidly to

changes

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3 Market and Financial Ability

 ability to differentiate the goods & services

produced

 supportive/keen shareholders

4 Systems and technology

 Effective IT systems and enterprise resource

planning

 Unique or specialist skills and knowledge

CORE PROCESSES

1 Customer relationship mgt (CRM)

2 New service/product development

3 Order fulfilment

4 Supplier relationship

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CONTRIBUTORS TO GLOBALISATION

1. Improved transportation and information

technologies
2. More relaxed regulations on financial
institutions – firms can locate where capital,
supplies and resources are cheapest
3. Increased demand for imported services &
goods
4. Reduced import quotas & other international
trade barriers – GATT, NAFTA, SADC
5. Comparative cost advantages – primarily
labour rates

DISADVANTAGES OF GLOBALISATION
1. Potential loss of proprietary technology
2. Political risks
3. Alienation of historic customer base
4. Retraining costs, cultural limitations
5. More difficult to achieve cross-functional
integration and connection

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GLOBAL OPERATIONS MANAGEMENT

International Business
 Conducting transactions across
international borders

Multinational Businesses
 Businesses that own or control facilities
in more than one country

Global Strategies
 Two dimensions influence strategic
decisions:
o Need to respond to local considerations
o Need to achieve cost reductions
 Gives rise to four generic strategic options

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GLOBAL STRATEGIES
1. International Strategy
 The firm exports its products or licenses
production of its products in global
markets
 Little cost reduction possible and little or
no responsiveness to local considerations

2. Multidomestic Strategy
 Separate business units with high level of
autonomy (e.g.franchises, joint ventures)
 No cost reduction opportunities but
enables local responsiveness
 Is effectively exporting management and
processes but not an entire product

3. Global Strategy
 Central headquarters & decision making
 Standardisation & leveraged scale
economies to achieve cost reductions
4. Transnational Strategy

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 Combines global scale economies with

local responsiveness
 “Think global act local”
 Resources & activities specialised but
dispersed

ACHIEVING A SUSTAINABLE COMPETITIVE

ADVANTAGE
1. Implement an appropriate strategy
 In response to SWOT analysis

2. Identify critical success factors (CSFs) in the

different functional areas and develop core
competencies
 Marketing – 4Ps and service
 Financial – WACC, leverage, working
capital
 Operations – in terms of 10 OM decisions

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