VCE Business Unit 3 AOS 3

Operations management

all the activities in which managers engage to produce goods or services

Inputs

resources used by a business to produce a good or service

can be:

• natural resources and materials

• physical resources

• human resources

• time

Processes/transformation

the actions performed to transform inputs into outputs

Outputs

the final product presented to the customer, either as goods (tangible) or services (intangible)

Operations management at manufacturing businesses

• produce goods that are tangible (can be touched)

• Manufactured goods can be stored for later use

• little customer involvement in production as the consumer is typically not present when the good is produced

• Production process and consumption are not linked

• Manufactured goods tend to be homogenous or standardised

• Examples are bread, clothing and cars

operations management at service businesses management

• produce services that are intangible (cannot be touched)

• services cannot be stored

• The customer is involved in production, as the consumer is typically present when service is produced

• production process and consumption occur at the same time

• Services tend to be differentiated or tailored to individual customers

• Examples are haircut, transport or education

Automated production lines

Comprises machinery and equipment arranged in a sequence with components added to a good as it proceeds through each step, with the process controlled by computers.

• does not require employees directly involved in its operation, as all or part of the process is automatic or self- operating

advantages of automated production lines

• high accuracy and precision, which leads to an increase in quality

• reduced wastage from improved accuracy

• opportunity for production to run 24/7

• productivity rates generally increase

• removes the need for employees to perform repetitive or mundane tasks

disadvantages of automated production lines

• initially very expensive to set up

• If the system fails, the production process could see major disruptions

• Technical training is needed to operate and maintain machinery

• can lead to large-scale redundancy of employees

Robotics

combination of science, engineering and technology that produces machines called robots which are capable of complex tasks

advantages of robotics

• High accuracy and precision, which leads to an increase in quality

• reduced waste from improved accuracy

• opportunity for production to run 24/7

• removes the need for humans to perform repetitive or mundane tasks

disadvantages of robotics

• initially very expensive to set up

• If the system fails, the production process could see major disruptions

• can lead to large-scale redundancy of employees

Computer-aided design (CAD)

• digital design software that aids the creation, modification and optimisation of a design and the design process

• Programs can allow for 3D designs

• Architects and engineers can use these programmes to draw and adjust 3D designs based on client requests

advantages of CAD

• High accuracy and precision can create 3D simulations without having to make expensive prototypes

• Customers have the flexibility to adapt designs without higher production costs

• reduced wastage as physical prototypes do not need to be manufactured

• greater creativity for designs

disadvantages of CAD

• initially expensive due to costs of software

• If the system fails, both the design and the production process could be disrupted

• Technical training is required to operate design programmes

• could make some designs redudant

Computer-aided manufacturing (CAM)

• the use of software that controls and directs production processes by coordinating machinery and equipment through a computer

• Machines are fed instructions from a computer, which then manufactures the product

• 3D printing – remote manufacturing and cheap prototypes

advantages of CAM

• high accuracy and precision which leads to an increase in quality

• reduced wastage from improved accuracy

• opportunity for production to run 24/7

• removes the need for humans to perform repetitive or mundane tasks

disadvantages of CAM

• Initally expensive to set up

• If the system fails, the production process could see major disruptions

• Technical training is needed to operate and maintain machinery

• can lead to large-scale redundancy of employees

Artifical intelligence (AI)

using computerised systems to simulate human intelligence and mimic human behaviour

How it can be applied at businesses:

• advanced web search engines

• recommendation systems

• automated decision-making

• understanding human speech and predicting human behaviour

adavantages of AI

• high accuracy and precision in anticipating, assessing and responding to customer needs

• provides access to a ‘big data’ pool of information so tech can make quick and informed decisions

• can assist with production forecasting and reduce waste in the production process

• removes the need to perform repetitive tasks, allowing capacity for more creativity

disadvantages of AI

• initially expensive to set up and test

• If the system fails, there could be major disruptions to production or service

• requires technical training to maintain

• can lead to large-scale redundancy of employees

Online services

the web pages, apps and platforms that allow businesses to provide their service to customers through the internet

A website can be used by a business to enable customers to purchase products online or communicate with the business. It can also be used to improve communication with employees and suppliers

advantages of online services

• can be used to deliver consistent messages to customers and suppliers and can also be used to gain customer feedback

• A website means that a business is accessible for sales 24/7

• reduces costs of labour and of leasing or purchasing physical space

disadvantages of online services

• Designing, registering and publishing a website can initially be expensive and time-consuming

• requires technical training to operate and maintain

• System failure can cause major disruptions

Materials management

• the strategy that manages the use, storage and delivering of materials to ensure the right amount of inputs is available when required in the operations system

• involves organising and monitoring the delivery, storage and use of raw materials required for production

Forecasting

a materials planning tool that predicts customer demand for a future period based on past data and market trends

advantages of forecasting

• ensures that a business maintains an appropriate level of materials for the operations system without overproducing

• allows businesses to anticipate seasonal changes and adjusts orders to save on costs and wastage

• can prevent over-ordering, taking up valuable storage space

disadvantages of forecasting

• Using historical data does not guarantee that past events will continue into the future.

• requires a lot of time to track, anticipate and analyse all potential impacts on the supply chain

Master Production Schedule (MPS)

A plan that describes what is to be produced, in what quantities, and how and when.

Includes:

• what goods to be produced

• how production will occur

• when production is to take place

• who will do the work (staffing needs)

• which materials are required

advantages of MPS

• aids in determining very accurate ordering quantities and timings, which saves on time and costs

• Production processes and their sequence are very clear for staff to understand

• works well for standardised production

disadvantages of MPS

• initially time-consuming and expensive to track

• difficult to account for every situation

• not very flexible to changing conditions

Materials Requirement Planning (MRP)

involves developing an itemised list of all materials involved in production to meet the specified orders

includes:

• stock or raw materials required for the quantity determined in the MPS

• materials/stock on hand

• materials/stock to be ordered

advantages of MRP

• helps reduce wastage and expenses

• reduces the amount of storage space needed

• reduces amount of machinery sitting idle

• can improve a company’s environmental reputation

disadvantages of MRP

• initially expensive to set up a dedicated system that can track materials through the site

• can be time-consuming to constantly measure the levels of raw materials/stock

Just in Time (JIT)

A materials management strategy that ensures that the right amount of material inputs will arrive only as they are needed in the operations process.

• requires complex tracking of supplies, often using a computer monitoring system. Requires a very good relationship between a company and its suppliers to be successful

advantages of JIT

• Holding less stock in storage reduces storage costs and improves efficiency and effectiveness

• reduces the risk of any wastage occurring in storage

• ensures that production can continue to flow smoothly with the right amount of materials arriving just as they are needed

disadvantages of JIT

• hugely reliant on suppliers to deliver on time all the time.

• If suppliers don't meet business requirements on time, it can impact the entire production line

• Delivery costs may increase if more frequent deliveries are needed.

Quality

A good or service’s ability to satisfy a customer need

Quality control

the use of inspections at various points in the production process to check for problems and defects

• uses a check and reject principle, which is a reactive process aiming to detect and reject the faults onnce they have occured

Strengths of quality control

• prevents poor-quality goods or services from reaching the customer

• relatively inexpensive to set up

• works well for standardised production (cars, chocolate)

• easier for new staff to learn production routines

weaknesses of quality control

• very wasteful, as rejected products involve raw materials, time and processes not sold to customers

• doesn't always isolate the cause of the problem

• Unless quality control is performed on every product, some inferior goods may slip through

Quality Assurance

When a business achieves a certified standard of quality in its production after an independent body assesses its operations system

• a proactive process, as it aims to build quality into work processes and thereby avoid errors in the first place

strengths of quality assurance

• great for marketing

• gives a competitive advantage in domestic and global markets

• reduces wastage, as the proactive focus aims to stop errors occurring before the good or service is produced

limitations of quality assurance

• Gaining certification can be expensive

• Preparing documents and processes prior to inspection can take some time

Total quality management (TQM)

An ongoing, business-wide commitment to excellence that is applied to every aspect of the business operations

Employee empowerment (TQM)

• A fundamental part of TQM is employee involvement

• Many businesses use quality circles where employees come together to meet and solve problems relating to quality

Continuous improvement (TQM)

• An ongoing commitment to achieving perfection

Customer focus (TQM)

• All teams need to understand that they are serving a customer

• In TQM, all employees should aim to satisfy internal customers as well as external customers

strengths of TQM

• zero defects

• greatly reduced wastage by being proactive rather than reactive

• employee empowerment

• Higher customer satisfaction and improved business reputation can be a major source of competitive adavantages

weaknesses of TQM

• requires a whole business cultural shift which can be time-consuming and expensive to implement

• needs a lot of focus

Waste minimisation

a process involving the reduction of the amount of unwanted or unusable resources produced by a business in an attempt to improve the efficiency and effectiveness of operation

reduce

a waste minimisation strategy that aims to decrease the amount of resources, labour, or time discarded during production

reuse

a waste minimisation strategy that aims to make use of items which would have otherwise been discarded

recycle

a waste minimisation strategy that aims to transform items which would otherwise have been discarded

lean management

The process of systematically reducing the waste in all areas of a business’s operations system whilst simultaneously improving customer value

Pull (lean management)

• relates to avoiding overproduction and stockpiling by enabling customer demand to dictate the rate at which products are delivered

• the production of the good or service only starting when a customer places an order

One-peice flow (lean management)

• involves a piece of production moving through the operations process one at a time

• All steps in the operations process must be focused and aligned to adding value, one-piece at a time, removing wasteful and unnecessay activities

Takt

• refers to the rate of production needed to meet customer demand

• helps businesses establish a consistent workflow following a smooth pattern which is flexible and easy to regulate as demand rises or falls

Zero defects

• all about the business striving for perfection

• Errors or defects need to be identified as closely as possible to where they occur

• By not accepting or passing on defects, issues are resolved quickly, and levels of waste will be reduced.

strengths of lean management

• reduces energy and resource consumption

• increased efficiency, effectiveness and quality of processes

• increased customer satisfaction

• improved business reputation

weaknesses of lean management

• requires committed and experienced employees

• requires a continuous improvement mentality to achieve zero defects

• requires good relationships with suppliers

CSR in operations

refers to management's awareness of the social and environmental consequences of its actions.

• going above and beyond legal expectations required by regulators

Strengths of CSR

• environmental benefits

• employee satisfaction benefits

• society benefits

• good for marketing, reputation and sales

• can insulate the business with goodwill from society if a future problem occurs

weaknesses of CSR

• can be time-consuming to establish

• can sometimes be expensive to support ‘non-core’ activities or work

CSR considerations for inputs

• sourcing materials and resources that are environmentally sustainable.

• ensuring your inputs do not damage or deplete natural resources

CSR considerations for processes

• Reducing waste during production is a CSR consideration for processes. Companies may aim to reduce waste through strategies like forecasting, lean management and just-in-time

CSR considerations for outputs

• While the output of a business is meant to create value to the customer, it is socially responsible to ensure that the goods and services produced do not cause harm to wider communities

Global sourcing of inputs

when a business acquires raw materials or resources from overseas suppliers

strengths of global sourcing of inputs

• reduces costs —> cheaper materials

• ability to source higher-quality materials from overseas to improve the end product quality

• access to skills or resources that are unavailable domestically

weaknesses of global sourcing of inputs

• can lengthen delivering/supply times

• language barriers with suppliers

• Companies may be exposed to changes in exchange rates, tariffs or quotas

Overseas manufacture

• the production of a good in a country that is different to the location of the business’s headquaters

• Business still has complete control of manufacturing operations, but may be able to access labour at a higher skill level or at a lower cost than in a domestic country

strengths of overseas manufacture

• access to cheaper labour rates and cheaper costs of production

• access to a large pool of employees or skill sets that aren’t available in the domestic country

weaknesses of overseas manufacture

• lost jobs in domestic manufacturing

• language barriers in dealing with overseas manufacturing employees

• CSR, environmental and legal standards may be different in overseas countries

Global outsourcing

• transferring specific business activities to an external business in an overseas country

• mainly tasks that are not a part of core activities

strengths of global outsourcing

• improved quality due to access to expert knowledge and high-quality service

• The business is able to focus on its core activities

• Production may be quicker, as the outsourced provider should be able to focus on the task they specialise in

weaknesses of global outsourcing

• Management may have less control over the production process

• may be difficult to maintain quality

• Language barriers in dealing with overseas businesses sometimes translate into customer frustration

• may cause unemployment in the domestic country through the loss of jobs