OPERATIONS

ROLE OF OPERATIONS MANAGEMENT

Strategic role of Strategic management of any key business function refers to how it contributes to the overall direction or goals of a business.
operations management - The effective management of operations is required to ensure such goals are achievable.
– cost leadership,
good/service
Cost Cost Leadership means being the most price-competitive or achieving lower costs than competitors in the production
differentiation
Leadership process. Minimising the costs associated with operations enables a business to increase its overall profitability.

1. Lower costs = larger profits

2. Lower prices = competitive advantage

Using economies of scale:

Businesses can compete based on their prices, boosting profits

Product Product Differentiation refers to the ability to distinguish a product from its competitors. This may focus on the
Differentiation product features, quality and/or add ons.

Goods Features, quality and augmented features

Services Time, experiences + qualifications and quality of materials + technology

Distinguishing Goods and Services from competitors

Cross Branding Forming an alliance to offer extra benefits to customers

Businesses can compete based on their product

Goods and/or services in Depending on the type of goods a business produces, operational processes will vary.
different industries
Standardised are produced in high volumes, usually on assembly lines. This means they're designed and manufactured to meet the
Goods same quality standards.

Standardised can lead to cost leadership. When processes are simplified, they can be completed with greater efficiency, although
Services this isn’t always a viable option for service providers.

Customised are customised, or tailored, to meet the needs of individual consumers.

Goods

Customised involve a higher level of interaction with the customer, such as legal or medical services.
Services
Perishables require short lead times, efficient distribution and appropriate packaging and storage.
 Non-perishables need quality and inventory levels managed closely.

Interdependence with Interdependence refers to the need for those key business functions to work together to achieve the overall goals of a business.
other key business
functions Operations refer to the processes and systems that are involved in producing and delivering products or services, including manufacturing,
logistics, supply chain management, and quality control.

Operations & Marketing refers to the process of promoting and selling products or services, including market research, advertising,
Marketing pricing, and distribution.

Operations and marketing must communicate to make sure products are of the correct standards to satisfy customer
needs. (eg) if a product is marketed to be sold by a certain date, operations must make this possible.

Operations & Finance refers to the management of money and other financial resources, including budgeting, investing, borrowing,
Finance lending, and accounting.

Finance provides the funds that determine what strategies operations can undertake and what inputs are able to be used.
- Profit Maximisation

Cost One of the key goals of operation management is to achieve

cost leadership.
Minimise the cost of production = increased profit margins

Quality Instead of aiming for low costs, businesses can strive for
quality.
Higher quality = sold at higher prices = higher revenues +
profits

Investment Finance investing in new areas such as facilities and

technologies can lead to faster processing speeds and less
waste in operations.
Investment = more efficiency = more profits

Operations & HR (Human Resources) refers to the management of the people who work for an organization, including recruitment,
Human training, compensation, benefits, and employee relations.
Resources
The relationship between human resources and operations is constantly changing.

New New technologies are changing the way work is done. Therefore, skills and qualities businesses are
Technologies looking for in employees are also changing.
(eg) Factory workers may need to be trained to use new technologies, or hired based on their tech
 experience.

Outsourcing Outsourcing is also changing the nature of operations.

- HR Communication
- Reliance on technology
Outsourcing also means that many employees aren’t needed anymore, so the HR function must let them
go

INFLUENCES
Globalisation,
technology, quality
expectations, cost-based
competition, government
policies, legal regulation,
environmental
sustainability

Technology Technology is the use and application of innovative devices, systems and machinery in the operations process.

Administrative These technologies revolve around organising, planning and decision-making! They’re
responsible for controlling all operations processes.
↪ Planning technologies: sequencing and scheduling tools (gantt charts)
↪ Office technologies: those you can find in any office (computers, printers, telephones)
↪ Software: word processing, graphic and publishing programs (photoshop, microsoft word)

Process Used to carry out functions like manufacturing, logistics and quality management.
↪ Machines: found in manufacturing plants (assembly lines)
↪ Robotics: used in highly complex production processes
↪ Computer Technologies: Computer Aided Design (CAD), and Manufacturing (CAM).

Cost Savings: Processes can run more effectively, safely and without error, which creates cost savings.
↪ Lower production costs in long term by boosting efficiency, thus creating cost leadership
↪ Technology can also reduce or eliminate the need for staff, so businesses can locate production facilities anywhere.
(eg) Apple outsources manufacturing to Foxconn who use robots for dangerous/repetitive work.
 Competitive Advantage: Product quality can be improved as there is reduced human error, and businesses can lead to
new products, which leads to differentiation.
↪ Elements of supply chain management, like ordering, logistics and inventory management can also become more
efficient.

Quality Quality refers to the degree of excellence of a product.

Expectations ↪ Quality impacts the entire production process, including the way that products are: designed, manufactured and
delivered.
↪ To ensure goods and services meet a certain standard, operations managers usually adopt quality management processes: quality
control, quality assurance and total quality management.

Quality Goods are tangible, so quality revolves around how well they are designed.
Expectations
of Goods
Quality of How well a product idea has been developed and executed
Design ↪ includes how innovative the product is and the quality of materials used.

Fitness for How well the product does the job it was intended to, and how easy it is to
Purpose use.

Durability How long goods last

↪ how easily goods can be maintained and repaired - includes aspects of after-
sales service (warranties)

Quality
Expectations
Professionalism The manner that staff engage with customers and the physical environment.
of Services
Reliability The overall competence and efficiency of the service provider.

Level of How the service is tailored to meet the individual customer needs.
Customisation

Globalisation Globalisation refers to the removal of trade borders between nations, creating more interactions between businesses
across the globe, increasing imports and exports.

Opportunities · New markets: more potential customers and sales

· Supply Chain Management: more sources of raw materials and places for factories
 · Production Benefits: outsourcing overseas, flexibility of location

Threats · (global) Increased Competition from new markets: operations managers need to work harder
to stand out from the competition
· (domestic) New global competitors with better cost-cutting techniques can overtake their
markets. ↪ operations managers need to reduce their costs to stay competitive.

Cost-Based Cost based competition is when competitors try to create cost advantages over each other.
Competition ↪ Businesses try to reduce costs rather than increase revenue to maximise profits.

Sourcing Supply costs can be lowered by

Supplies · Sourcing lower quality inputs
· Sourcing from lower-cost nations
· Bulk-buying inputs.

Production
Economies of · Better use of machinery and boosted efficiency.
Scale (EOS)

Standardised · Less inputs, and simpler and faster production.

Products

Automated · Streamlined processes can speed-up production

Production

Lean · Aims to minimise waste and costs.

Production

Output Economies of Scale (EOS): High volume of output reduces production costs.
· This spreads fixed costs across a large number of outputs.

Legal Legislation that is enforceable by law.

Regulation · Legal regulations shape the practices and procedures the operations function must follow.
↪ If a business fails to comply, they risk penalties, like fines.

Compliance: when businesses follow and abide by legal regulations.

Compliance Costs: the expense involved with compliance
Compliance Department: responsible for ensuring that the business obeys relevant laws.

Regulation Effect on Operations

 Work Health and Ensures workers are subject to a safe working environment with minimal risks.
Safety Act 2011

Training and Employees operating machinery and technology need to be trained to do so safely and
Development effectively.

Environment Operation processes are undertaken without damaging the environment.

Protection Laws

Australian Consumer Products need to be fit for purpose so operations needs to implement quality management
Law (ACL) 2011 is processes.
set out in the C&CA
2010

Environmental Operations processes need to be shaped around protecting the planet and developing a long-term sustainability plan.
Sustainability · Businesses need to reducing their carbon footprint

Minimising CO2 · Minimising the use of non-renewable resources (coal, oil)

· Sustainable use of renewable resources (installing solar panels or wind energy)
· Reduce and minimise waste (recycle glass/paper/metal, lean production techniques)
· Smart inventory control (not purchasing too much which becomes obsolete waste)

Government The long-term plans of action that apply to businesses

Policies (eg) taxation rates, environmental policies, public health policies and work health and safety standards.

↪ Government Policies create the rules and regulations that businesses have to follow.
(eg) if tax rates fall, businesses can produce more production with less tax, leading to higher revenue
(eg) new WH+S standards or environmental policies cause businesses to respond with innovative solutions and more
efficient production and higher product quality.

Corporate social Corporate Social Responsibility (CSR) revolves around open and accountable business practices that show concern for social, environmental,
responsibility and economic issues.
- the difference between ↪ CSR is a behaviour that goes beyond the bounds of legal requirements
legal compliance and
ethical responsibility ‘Triple Bottom Line’
– environmental
sustainability and social Social involves a company's responsibility to contribute to the well-being of society by supporting social causes and improving
responsibility the quality of life for its stakeholders.
· This can include activities such as charitable donations, community service, and ethical employment practices.

Environmental involves a company's responsibility to operate in a manner that minimises its impact on the environment.
 · This can include activities such as reducing carbon emissions, conserving natural resources, and supporting sustainable
development.

Financial involves a company's responsibility to operate in a financially responsible manner.

· This can include activities such as transparent financial reporting, ethical investment practices, and responsible
corporate governance.

Legal Compliance All businesses must follow laws. If they don’t, they face penalties like fines.
↪ the government actively works to enforce laws and ensure businesses follow them.

Ethical Businesses are legally compliant and show a commitment to the ‘spirit of the law’
Responsibility

Environmental AIM: Ensure business development isn’t at the expense of the environment
Sustainability ACTIONS: ethically sourcing materials, responsible outsourcing, adopt policies on conservation, recycling and
sustainable production, reduce their carbon footprint.

Social AIM: Contribute to the greater good of society.

Responsibility ACTIONS: ethical production (observe human rights with the working conditions of employees)
Product quality (observe quality standards and ensure products meet safety requirements)

OPERATIONS PROCESS

Inputs
– transformed resources
INPUTS Inputs are the components used in the transformation process.
(materials, information,
customers)
Transformed Transformed resources are the inputs that are transformed by the operations process.
Resources
– transforming resources
(human resources, Materials Raw materials or intermediate goods
facilities) - Raw materials that are unprocessed (wood, grains)
- Intermediate goods that are semi-finished and will be manufactured further (flour)

Information Information defines how each input is used and where it’s sourced from

Internal data sources Financial statements, employee knowledge, market research, sales
reports

External data Australian Bureau of Statistics, scientific studies

sources

Customers Customer choices define a business’s goods and services

Products · Customer → exercise machine → lose weight and become fitter

Services · Customer → visit to hairdresser → new hair colour or length

· Customer with back pain → massage → customer with no more back pain

Transforming Transforming resources are required to convert the transformed resources (materials, information, customers) into an
Resources output (final good/service).

Human Resources Employees that design, create and deliver products.

· Responsible for combining other resources to create goods and services
· Should be motivated and skilled → makes transformation efficient and effective

Facilities Plants and machinery used to carry out the transformation process.
↪ location, size, layout, type/amount/extent used of machinery
· Fewer accidents and absences
· Less waste
· Faster completion times
· Higher volume production

Transformation processes The transformation process is the change of materials, the flow of supplies and inputs to add value for the business.
The 4 V’s are factors that shape operations processes.
– the influence of
volume, variety,
Volume Volume refers to the amount of output that will be produced.
variation in demand and Ideally high Operations need to have volume flexibility, (eg) how quickly the production process can adapt to changes in demand.
visibility (customer
· Slow response to falling demand → overproduction → high inventory costs and wastage
contact)
· Slow response to rising demand → underproduction → lost sales and profits
· If this is balanced right, businesses can shorten lead times.
– sequencing and
scheduling – Gantt
Variety Variety refers to the range of products that a business offers.
charts, critical path Ideally low The more variety, the more that operations has to adapt
analysis
· More Inputs → Wider range of materials
· Larger range of transformation processes → More facilities
– technology, task design
and process layout Variation in Variation in demand refers to how much market demand will change and how operations will respond to these changes.
Demand To manage variation effectively, businesses need to be able to anticipate changes in demand.
– monitoring, control and Ideally low · High demand for toys during Christmas
improvement ↪ High production during Christmas
· Low demand for sweaters during summer
↪ Low production during summer

Rising Demand Requires: More inputs from suppliers, more employees, energy and efficient machinery

Falling Demand Means: Staff hours are reduced, production is slower

Visibility Visibility is the level of consumer contact the businesses have and the extent to which this influences their operations
(customer process.
contact)
Ideally low · Marketing: Consumer needs and wants shape the products that businesses create.
· Operations: The business decides how much customer input there should be.
Therefore, operations managers and marketing should work together to shape which goods and services the business
offers.

Sequencing describes the order of activities in the operations process.

Scheduling refers to the time taken to complete activities in the operations process.
Sequencing and scheduling are planning tools that coordinate the operations process to provide a sense of direction and organisation to
ensure everything is running smoothly within the business.

Gantt Charts Gantt Charts outline each step in the operations process, the order in which they’ll be done, and the time needed for
each step.
- Are used for any process that has several steps and involves a number of different activities
- Forces manager to plan the steps needed to complete the task and specify time required
- Makes it easy to monitor actual progress against planned activities

Critical Path Critical Path Analysis (CPA) outlines the (minimum length of time) activities that need to be done, how long each activity
Analysis takes, and the best order in which to complete them.
 - Shortest length of time it takes to complete all tasks necessary to complete the process or project
- Not suitable for complex projects

Technology Technology refers to the use of machinery and systems to perform the transformation process more efficiently and
effectively and thus increase labour productivity.

Manufacturing Manufacturing technologies are used in manufacturing.

Robotics Specialised machines programmed to carry out complex processes

· Not prone to human errors → higher quality, better efficiency and less waste

CAD Computer Aided Design: Computerised design tool that uses inputs to generate
product ideas

CAM Computer Aided Manufacturing: Software that controls the production process

Service-Based/ Allows employees to complete more tasks in less time

Office · Allows people to telecommute (work from home)
· Printers · Internet
· Software · Telephones

Advantages Disadvantages

· Provides access to higher quality inputs · Need to be leased if they are expensive
· Makes transformation process more efficient, · Requires retraining and redundancy costs
reducing costs ↪ Brings financial costs
· Reduces waste → full utilisation of materials ↪ Time consuming
↪ Reduces employee morale

Task Design Task design involves classifying job activities in ways that make it easier for employees to successfully complete their
tasks.
· Breaks a larger task down into a series of jobs in order to match the right employee to a specific job
· (eg) skills audit to assess if there are any skills that require recruiting or training employees (HR)

Process Layout Workplace Layout involves designing a workplace to boost productivity and ensure processes run smoothly.

Process Process Layout is when machines and equipment are arranged according to the function (process)

Outputs
– customer service
– warranties
OPERATIONS STRATEGIES
Performance objectives –
quality, speed,
dependability, flexibility,
customisation, cost
they perform.
Product Product Layout is when machines and equipment are arranged according to the sequence of
operations / the order in which a product is made.
· Used when a product is standardised and being produced in very large volumes.
Fixed Position Fixed Position layout is when employees and equipment are brought to the task or products.
· Used when the product cannot be moved around due to size, shape, weight, etc.
Office The office layout is where employees are provided with equipment at different workstations.
· Allows employees to work efficiently.
Monitoring Monitoring is the process of collecting data to measure performance.
- Operations managers should measure how the business is going and see if they’re achieving their goals/ This
involves all parts of the operations process.
Control Controlling is comparing KPIs against plans or targets, and identifying areas that need corrective action.
-
Improvement Improvement is making changes to the transformation process to reduce inefficiencies, (eg. waste, ineffective processes
and bottlenecks)
Operations managers should focus on Kaizen and improve on:
- Product Quality
- Process Flows
- Costs
- Speed
- Efficiency
Customer Customer Service involves efforts to ensure customer satisfaction with goods and services.
Service
Warranties A warranty is a written guarantee provided by the manufacturer of a good, promising to repair or replace a defective
good within a specified time period.
Performance objectives are goals that relate to particular aspects of the transformation processes.
The key performance objectives of operations include quality, speed, dependability, flexibility, and cost (2CDSFQ)
- Efficiency, Productivity and Profitability
 CCDSFQ
Cost Cost is the minimisation of expenses via outsourcing, cheaper suppliers, buying in bulk, in operations process which will
increase profits.
- To achieve cost leadership.
- Lower costs can lower prices for customers - wider market share and competitive advantage.

Customisation Customisation refers to the creation of individualised products to meet the specific needs of the customers.

Mass allows for a standardised, mass produced item that is personally modified to specific customer
Customisation requirements.

Dependability Dependability refers to the consistency, reliability and durability of the product.
Goods = amount of warranty claims
Service = number of complaints received.

Speed Speed refers to the time it takes for the production and the operations processes to respond to changes in market
demand.
Goals for speed include : reduced wait times, shorter lead times, faster processing times.

Flexibility Flexibility refers to how quickly operations processes can adjust to changes in the market.
- Manufacturing business = better machinery and plant
- Services = increasing technological use and skill level.
If a business is not flexible, it runs the risk of losing customers to competitors.

Quality Quality is determined by consumer expectations. Quality objectives include:

➢ Quality of Design – how well a good is made or a service is delivered
➢ Quality of Conformance - how well the product meets a prescribed design with a certain specification
➢ Quality of Service – how reliable, suitable and timely the service delivery is.

New product or service An important strategy for the operations process is the design and development of new products which enables a competitive edge for a
design and development business.
● Consumers have ever-changing needs and wants, so products have a limited lifespan
- Maintain customer satisfaction
- Maintain a greater market share for long term growth
- Gain a competitive advantage and keep their business relevant

Different approaches:

Consumer Preferences and desires of consumers dictate profits.

Approach

Innovations in Enable new appealing products to be made because they use advanced technologies, which give products greater
Technology functionality.
 Important considerations when designing and developing a product are: quality, supply chain management, capacity management and cost.

Services Differ from goods in that they are intangible and as they are produced they are also
‘consumed’. Service design, being customised in nature, has always taken the position of the consumer
as the starting point in design.

Explicit Services Tangible aspects

Implicit Services Intangible aspects

Supply chain Supply Chain Management is the process of managing the flow of goods, services, info and resources.
management – logistics,
e-commerce, global
Logistics Logistics involves the planning and organising of inventory management, from the purchasing of required materials,
sourcing
transportation and warehousing. Efficient logistics will contribute to the goal of reducing inventory.

E-commerce E-commerce involves the buying and selling of goods and services via the internet.

E-procurement E-procurement refers to the use of online systems to manage supply; allow suppliers direct access to
the business’s level of supplies.

B2B B2B refers to the direct access from one business (the supplier) to another (buyer), allowing the
supplier to assess the needs of the buyer and meet them in a timely manner.

B2C B2C is the selling of goods and services to consumers over the internet, with payment usually by credit
card.

Advantages Disadvantages

- Greater availability of information - Privacy Issues

- Speed and flexibility
- Reduces costs of operation

Global Global sourcing is a broad term that refers to businesses purchasing supplies or services without being constrained by
Sourcing location.

Benefits cost and expertise advantages, access to new technologies and resources.

Challenges possible relocation of aspects of operations, increased cost of logistics, storage and distribution and
managing different regulatory conditions between nations.
Outsourcing – advantages Outsourcing is the use of external businesses to perform business activities.
and disadvantages
Advantages Disadvantages

- Reduces the number of activities which are performed by
the business, therefore simplifying the process.
- By outsourcing offshore businesses receive cost advantages
as processing through outsourcing may be cheaper than
doing it within the business.
- Various stakeholders including internal such as employees
and external such as customers may not like the changes
that outsourcing brings.
- By outsourcing, due to lower costs, the business may create
lower quality components than they were before they were
outsourced, which may make customers lose faith in the
good.

Technology – leading
edge, established
Leading Edge Leading edge technology refers to the adoption of the most recent developments in research and innovation in the
operations process.
Such a strategy can provide a competitive advantage by improving efficiency and reducing costs of production.

Established
Established technology refers to existing and widely adopted technologies that have been in use for a considerable period
of time and have become well-established in the market e.g. email, printer, word processors, information systems
(internet)

Inventory management –
advantages and
Disadvantages of holding
stock, LIFO (last-in-first-
out), FIFO (first-in-first-
out), JIT (just-in-time)
Inventory or stock refers to the amount of raw materials, work-in-progress and finished goods that a business has on hand at any particular
point in time.
Advantages of - Meeting customer demand - Cost savings through bulk purchasing
Holding Stock - Buffer against supply chain disruptions - Fulfilling large orders
Disadvantages - Holding costs - Storage limitations
of Holding - Risk of obsolescence - Risk of stockouts or overstocking
Stock - Capital intensity

LIFO (last-in-first-out) Last-In-First-Out, is a method used in inventory management and accounting to determine the cost of goods
sold (COGS) and the value of ending inventory. Under the LIFO method, the most recently acquired or produced
items are assumed to be sold or consumed first, while older inventory items remain in stock.

FIFO (first-in-first-out) First-In-First-Out (FIFO), is a method used in inventory management and asset tracking, particularly in the
context of managing perishable or time-sensitive goods. It follows the principle that the first items received or
produced are the first to be consumed or sold.

JIT (just-in-time) Just-in-Time, often referred to as JIT, is a production and inventory management approach aimed at minimising
 inventory levels and associated costs by receiving or producing goods only as they are needed in the production
process or for customer orders.

Quality management Quality Management involves all activities and tasks required to maintain a desired level of excellence.
– control
– assurance
Quality Control Quality Control involves the inspection of products in the production process to ensure they meet specifications.
– improvement
eg. Employees in factory Foxconn (China) are adequately trained in assembling and monitoring of the iPhone production

Quality Quality Assurance is a strategy aimed to reduce issues with quality control by setting production standards in the design
Assurance and development of a product, reducing inefficiencies, additional costs and delays in production.

Quality Quality improvement refers to systematic and continuous efforts aimed at enhancing the quality of products, services,
Improvement processes, or systems within an organisation.

Overcoming resistance to Overcoming resistance to change refers to the process of addressing and mitigating the reluctance or opposition that individuals or groups
change – financial costs, may exhibit when faced with organisational or personal changes.
purchasing new
equipment, redundancy
Financial Costs Financial costs refer to the expenses incurred by a business or individual in relation to various financial activities
payments, retraining,
or decisions.
reorganising plant layout,
inertia
Purchasing New Purchasing new equipment refers to the process of acquiring additional or replacement machinery, tools, or
Equipment other physical assets for a business or organisation

Redundancy Payments Redundancy payments are financial compensations provided to employees when their positions become
redundant or are no longer required within an organisation.

Retraining Retraining involves providing additional training and development opportunities to employees to enhance their
skills, knowledge, and competencies.

Reorganising Plant Reorganising plant layout refers to making changes to the physical arrangement, design, or configuration of a
Layout manufacturing or production facility.

Inertia Inertia refers to the resistance or hesitation to change or adapt to new circumstances, strategies, or market
conditions.

Global factors – global Global Factors refer to various influences and conditions that have a widespread impact on a global scale.
sourcing, economies of
scale, scanning and
Global Global sourcing refers to the practice of procuring goods, services, or components from suppliers or manufacturers located
learning, research
Sourcing in different countries.
and development
- involves sourcing products or services from the most cost-effective or competitive markets globally.
Economies of Economies of Scale are cost advantages that result from increased production and operational efficiency as a company's
Scale scale of operation expands.
- As production volumes increase, the average cost per unit decreases, allowing businesses to reduce their per-unit
costs.

Scanning and Scanning and learning refer to the processes of gathering information, monitoring external environments, and acquiring
Learning knowledge about market trends, competitors, technologies, and consumer preferences.
- Involves systematically scanning the business environment, analysing relevant data, and learning from the
information collected to make informed decisions and adapt strategies accordingly.

Research and Research and development refers to the systematic and purposeful effort aimed at creating new knowledge, technologies,
Development products, or processes to enhance a company's competitiveness and generate future growth.
- Involves scientific research, experimentation, and innovation activities to discover or develop new ideas, improve
existing products or services, or solve technical challenges.