AOS 3 - OPERATIONS MANAGEMENT

Operations management

the management of resources and functions within a business to achieve efficient and effective output of finished goods or services

* An example of operations management is the coordination of raw materials, machinery, technology, training of employees, and quality

Effectiveness

the degree to which a business has **accomplished its stated objectives**

Efficiency

refers to **how well a business uses resources** in achieving these objectives

* An efficient operations management system means that the production process is making the optimum use of the resources it has available

Productivity

a measure of the **amount of output compared to the amount of inputs** going into production

Business objectives

 the stated, measurable targets of how to achieve business goals

Relationship between Operations Management and Business objectives

* Define operations management & business objectives
* To achieve business objectives, operations management will seek to use strategies to improve quality, manage materials, use technology, and reduce waste
* As a result of these strategies, operations management aims to increase productivity rates and improve the quality of the goods and services they produce
* Lead to a better reputation with customers, higher quantities of products being sold, lower costs per unit, and a higher profit margin
* Thereby achieving the business’ objectives

How can efficiency and effectiveness be measured/improved in operations management?

**Efficiency:**

* **Employee engagement –** well trained, satisfied by their work and communication processes enhanced
* **Technology –** new technology such as automated production lines and robotics can speed up production and make processes more durable
* **Equipment and facilities –** good-quality working equipment and facilities that are maintained regularly will increase reliability and reduce the likelihood of breakdowns and downtime
* **Minimisation of wastage and defects –** well-trained employees and appropriate technology will reduce the amount of waste and defects

\
**Effectiveness**:

* **Cost** - operating expenses, cost of goods sold
* **Quality** - customer satisfaction, on-time delivery
* **Employee** - employee productivity, absenteeism rate, staff turnover rate

Manufacturing business

A manufacturer will transform inputs into tangible products

Service business

A service business will transform inputs into services; services are intangible.

Differences between manufacturing and service

Manufacturing:

• Tangible - goods are physical; they can be seen and touched

• Production and consumption occur separately - e.g: distributing soft drinks for customers to purchase

• Can be stored as inventory

• Easily standardised and mass produced (ensuring consistent quality)

• Minimal customer contact

• Produced - capital-intensive production process

Service:

• Intangible - customers pay for the skill and expertise of the service provider, individualised output

• Production and consumption occur simultaneously - e.g: a doctor who performs a service

• Difficult to store - record of service is maintained

• Specially customised to meet individual client/customer requirements

• High degree of customer contact

• Performed - labour-intensive production process

Similarities between manufacturing and service

* require decision-making about how to optimise the productivity and quality levels
* aim to produce high-quality products or services at the lowest cost / cost of production
* aim to reduce waste
* utilise technology
* deal with customers

Operations System

the transformation of inputs into a final output (good or service)

Inputs

resources used by a business to produce a good or service

Inputs examples

* Raw materials
* Component parts
* Utilities
* Human resources (labour)
* Capital resources (buildings/machinery/equipment)
* Entrepreneurial resources (personal attributes)
* Time

Processes

All the activities that help transform inputs into outputs provided for customers or clients

* E.g: melting, mixing, packaging

4 broad types of processes

* manufacture involving the physical creation of products
* transport involving the movement of materials or customers (e.g. ride-share services)
* supply where there is a change in the ownership of goods (e.g. retail)
* ensuring quality service to a customer

Outputs

The final goods or services produced as a result of a business’s operations system, that are delivered or provided to customers

* quality of the outputs reflect quality of inputs and the quality of processes used
* e.g: delivery of service

examples of outputs

* manufacturing (e.g: pair of shoes)
* service (e.g: treated patient)

Technology

The application of scientific knowledge to invent new systems or processes

Technological development Strategies

* Automation
* Robotics
* Computer-aided design (CAD)
* Computer-aided manufacturing (CAM)
* Computer-integrated manufacturing (CIM)
* Artificial intelligence (AI)
* Online service
* Website / e-commerce

Automation

the replacement of human activity and effort by machinery and technology 

Automated Production Line

where equipment and machines are arranged in a sequence and controlled by computer systems to perform a task automatically

* **application:** performing certain processes without human interaction

Robotics

integrates computer science and engineering in the design and construction of robots to perform manual tasks

Strengths of Automation and Robotics

* Improved productivity through lower labour costs, reduced production times and lower cost of production
* High accuracy and precision, which hopefully leads to an increase in quality / effectiveness
* Reduced wastage/waste material from improved accuracy
* It removes the need for humans to perform repetitive or mundane tasks and human labour costs → improved safety levels

Limitations of Automation and Robotics

* High initial set-up costs
* additional costs such as preventative maintenance, and the cost of training employees to operate the machines
* large-scale redundancy of employees
* Ongoing maintenance of equipment may be high, requiring highly skilled maintenance workers

CAD

a software tool that facilitates the creation and development of the design process

Strengths of CAD

\- High accuracy and precision (i.e: 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, and clever designs can reduce raw material waste, e.g. T-shirt cut out templates.

\- Greater creativity for designers

Limitations of CAD

\- Initially very expensive 

\- If the system fails, both the design and subsequent production process could be disrupted

\- Technical training is required to operate design programs

\- Could make some designers redundant

CAM

the use of software applications that create detailed instructions to facilitate parts of the manufacturing process

e.g: laser cutters

Strengths of CAM

\- High accuracy and precision, which hopefully leads to an increase in quality. 

\- Reduced wastage from improved accuracy. 

\- Opportunity for production to run 24/7. 

\- Productivity rates increase so cost per unit can fall. 

\- It removes the need for humans to perform repetitive or mundane tasks

Limitations of CAM

\- 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 

\- It can lead to large-scale redundancy of employees

Similarities and Differences of CAD & CAM

Similarities

• Initially very expensive

• Requires technical training

• May replace labour

Differences

• CAM is done during production while CAD is done prior

• CAD allows for businesses to use a 3D design tool to help visualise an end product, CAM instead uses a system to create products

AI

deals with the development of computer programs that imitate human intelligence

* **application:**

\- analysing past data of seasonal trends

\- automatically adjust the production line to change production flows and speeds to meet these changing demand levels

\- quickly and accurately detect fraudulent activity.

Strengths of AI

\- High accuracy and precision in anticipating, assessing, and responding to customer needs

\- Provides access to a ‘big data’ pool of information, so technology can make quick and informed decisions 

\- Can assist with production forecasting, and reduce waste in the production process

\- It removes the need for humans to perform repetitive tasks, allowing capacity for more creativity

Limitations of AI

\- Initially very expensive to set up and test. 

\- If the system fails, there could be major disruptions to production or service.

\- Requires technical training to maintain. 

\- It can lead to large-scale redundancy of employees, e.g. the development of self-driving cars/lorries/trains could replace transport drivers

Online service

 provide information or services over the internet

Strengths of Online service

\- Businesses can use cloud services to allow employees flexibility in working remotely. 

\- Customers can access business services 24/7 from anywhere in the world. 

\- Reduces costs through potentially removing or decreasing the need for physical brick-and-mortar stores. 

\- Reduces costs through potentially reducing the number of employees needed

Limitations of Online service

\- Initially expensive to set up the software platforms.

\-  If systems fail, the provision of services could experience major disruptions. 

\- Requires technical training to operate and maintain. 

\- It can lead to large-scale redundancy of employees.

Website & E-commerce

**Website:** a collection of web pages that promote products and services over the internet

* assists with purchasing
* communicate with global customers

**E-commerce:** websites enable the buying and selling of goods and services directly with a business

Materials management

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

4 Materials management strategies (FMpsMrpJ)

* forecasting
* master production schedule (MPS)
* material requirement planning (MRP)
* just-in-time (JIT)

Forecasting

A planning strategy where past data and trends are used to predict future demand so informed decisions can be made around material

• assists in identifying what needs to be produced, in what quantities, how and when

• avoids the risk of having to outsource to other suppliers as they do not have enough inputs currently to supply

• Application: analyse data and make predictions about the amount of materials required for an upcoming period / predict demand and order sufficient materials

• considerations:

  • Special customer demand times

  • Supplier delivery times

  • Market conditions can change

effectiveness & efficiency - forecasting

* **Effectiveness** - ensure they have enough materials on hand to meet production needs, ensuring consumer demand is met
* **Efficiency** - improves productivity because production does not need to wait, reduces overstocking which reduces wastage/optimises resources

Strengths of forecasting

\- Allows businesses to **anticipate seasonal changes** and adjust orders to **save on costs and wastage**, which benefits their **environmental reputation**.

\- It can help to **prevent over-ordering** taking up valuable storage space

Limitations of forecasting

* **time consuming** to anticipate, track and analyse all potential impacts on supply chain
* unexpected events can still occur which impact production

Master production schedule (MPS)

A plan that outlines what a business intends to produce, in specific quantities, within a set period of time

* plans how many materials they require to meet production needs

e.g: quantity to produce to meet orders, time period to be produced, location of production, staffing needs

effectiveness & efficiency - MPS

* **Effectiveness** - enables the business to have a clear picture on what needs to be produced to meet consumer orders
* **Efficiency** - helps the business plan the exact amount of materials needed so the correct materials can be ordered-preventing overproduction, reducing wastage

Strengths of MPS

\- Helps determine very accurate ordering quantities and timing - **avoid wastage, time and costs**

\- Very clear to all staff of processes and their sequence (strong communication = higher productivity)

\- Very good for standardised production (eg. cars)

\- Reduced general wastage and waste of raw materials

Limitations of MPS

\- Initially time-consuming and expensive to track, record and write up the ‘manual’

\- Not very flexible

\- If information is inaccurate, errors will occur.

\- Training required to operate software

MRP (material requirement planning)

a process that itemises the __types and quantities__ of materials required to meet production targets set out in the master production schedule

**considers:**

* what needs to be produced and the quantities required determined in MPS
* materials already on hand
* lead times (e.g: The time it takes for order of new products to arrive from supplier at warehouse)

effectiveness & efficiency - MRP

* **Effectiveness** - ensures production has a continuous flow without waiting for materials, enough materials on hand to meet demand
* **Efficiency** - prevents overstocking, reducing wastage

Strengths of MRP

* It helps to reduce wastage and expenses.


* It reduces the amount of storage space needed.
* It reduces the amount of machinery sitting idle.
* It can improve a company’s environmental reputation

Limitations of MRP

\- Initially expensive to set up a dedicated system that can accurately track materials through the site

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

Similarities & Differences of MRP and MPS

**Similarities**

* Provides the basic information necessary for materials management planning
* Completed using technology
* Both MPS and MRP allow a business to avoid overproduction and underproduction. 
* Predict the future needs of the business and determine materials required.

**Differences**

* MRP, demand is passed down from what is needed to produce an item while MPS demand is directly from customer requirements

Just In Time

an inventory management system that aims to avoid holding any stock, with supplies arriving just as needed for production, and finished products being immediately dispatched

* deliveries occur more regularly as fewer materials are on hand at a given time
* materials are not idle for a long time

effectiveness & efficiency - JIT

* **Effectiveness** - aims to have a continuous flow, business can use extra space to maximise production, money saved can be used on other areas of the business
* **Efficiency** - reduces storage cost, reduces wastage

Strengths of JIT

\- Reduces the storage space required for inventory

\- Reduces waste and obsolescence as stock does not sit in storage unused

\- Reduces theft - less stock, less opportunity to steal stock

\- Increases liquidity - reduces the amount of money tied up in stock

Limitations of JIT

* Dependent on reliable and frequent deliveries of materials
* Can be costly to set up and maintain
* Shortage of supply can harm production levels

Quality Management

The management of the production process that ensures the outputs produced are consistently reliable and durable

* **Reactive:** identifies defects after they occur 
* **Proactive:** acting in anticipation to prevent defects from occurring

3 Quality Management strategies QQT

* quality control (reactive)
* quality assurance (proactive)
* total quality management (proactive)

Quality control

process of checking the quality standards of work done and quality of raw materials or component parts

• reliant upon developing an initial set of standards to which the quality of items is compared to

Requires:

- established standards of quality

- regular inspections

- comparison against standards

- goods or services to be removed if they don’t meet standards

- e.g: sampling and laboratory tests, where products are being sourced from, different suppliers

Strengths of quality control

• Prevents poor quality goods or services reaching the customer

• Simple and easy way of ensuring quality

• Meet customer expectations as established standards are met

• Less time consuming compared to quality assurance and TQM

• Competitiveness will increase as the costs associated with waste are reduced which means profit margins can be improved (potentially lower prices can be passed on to undercut rivals and generate greater sales)

Limitations of quality control

\- Very wasteful as the rejected products involve raw materials, time and processes which are not sold to the customer

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

\- Due to it being a reactive process, it can harm every product if error is made through same production process

Quality assurance

a system established to ensure that predetermined quality standards are achieved, often set by an independent body (i.e ‘certification body’).

* **EXAMPLE**:  ISO22301 (SAMSUNG) or ISO9001
* This is a proactive quality strategy as it aims to improve the quality of the entire operations system and avoid errors entirely

**Quality assurance process:**

* invite the International Organisation for Standardisation to check all practices and procedures
* If standards met, then business is accredited with a certification that can be published on product to assure consumers that they have met these requirements
* used for marketing

Strengths of quality assurance

* Great for marketing
* Gives 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
* Costs associated with waste and faulty products are reduced
* Sales expected to increase

Limitations of quality assurance

* Can be expensive and time-consuming to have the certification
* time-consuming to prepare documents and processes prior to the inspection

Total quality management

a holistic approach whereby all employees are committed to continuously improve the business’ operations system to enhance quality for customers

Principles/Features of TQM - CCE

* **Customer focus**
* identifying customer needs and wants (e.g: online forum)
* **Continuous improvement:**
* aiming for zero defects
* workers identify cause of a problem
* inspections
* external bodies to assess standards
* **Employee participation (quality circles)**
* constant evaluation
* regular meetings (discuss errors/solutions/improvements)
* acknowledge individual contribution (empower employees)

Strengths of TQM

* Aims for zero defects
* Greatly reduced wastage
* Higher customer and job satisfaction

Limitations of TQM

* Requires a whole business cultural shift which can be time consuming and expensive to implement

similarities - quality management strategies

* implemented to see a significant improvement in the standards of quality of outputs
* incorporate the use of corrective action by staff to ensure that defects are minimised, and outputs meet expected value

Waste minimisation and its advantages/limitations

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 operations

\
**advantages:**

\- It can reduce waste treatment costs

\- It can increase marketing opportunities through being more sustainable

\- Improves productivity and reputation of business

\
**limitations:**

\- high initial costs and complexity of implementation

\- increased energy with recycling

effectiveness and efficiency improvement of waste minimisation

**effectiveness:**

* lowering long term costs
* reducing impact on environment
* enhanced reputation

**efficiency:**

* using fewer resources to produce products
* focusing on reducing and reusing can lead to more efficient processes

Reduce strategy - 3R principle of waste management

aims to decrease the amount of time, resources, labour discarded during production

• Applications:

- removing unnecessary packaging

- just in time / CAD

- implementing technology

- lower the number of employees producing goods if there is more labour than customer demand

Reuse strategy - 3R principle of waste management

aims to make use of items which would have otherwise been discarded

• Applications:

- repairing broken equipment

- repurposing items (e.g: plastic containers)

- implementing multi-use items instead of single-use (e.g: reusable ceramic utensils)

Recycle - 3R principle of waste management

aims to transform items which would otherwise have been discarded

• Applications:

- recycling cardboard from packaging boxes

- partnering with recycling services

- melt down and recycle broken bottles and glass from automated production line

Lean management

an approach to operations management that attempts to improve efficiency and effectiveness by eliminating waste and improving quality

4 Principles of Lean Management - POTZ

* Pull
* One-Piece Flow
* Takt (beat/pulse)
* Zero Defects

Pull

created to reduce waste in the production process

• led by customer demand and focus on their needs

• producing products when customer orders are received

• optimises resources, increases flow efficiency

One-Piece Flow

allows a business to move a single product through every step of the process instead of grouping work items into batches

• producing one product at a time to ensure that customers who place an order receive their product in the shortest time possible

• Improve the value stream by eliminating all types of waste - automated production line, CAD/CAM

• enables faster responses to changing preferences

• allows goods to be sent to the market continuously

Takt (beat/pulse)

takt time is the rate at which you need to complete a product to meet customer demand

• production stages being sequenced so there is no waiting time between processes

• allows for continuous and consistent flow to minimise risk of errors

• How long to produce one product, before moving onto producing the next product

Zero Defects

aimed at eliminating rework, scrap, or defective products.

* Strive for perfection and continuously improve - quality assurance, TQM (proactive strategy)

Strengths of lean management

* Reduced energy and resource consumption
* Reduced delays
* Increased worker productivity
* Increased customer satisfaction
* Increased quality

Limitations of lean management

\- Requires committed and experienced employees

\- Employees may resent the change to lean or may prefer not to provide any input or find it stressful

\- The constant focus on improvement and elimination of waste can result in workplace stress

\- Requires a good relationship with suppliers

\- Can involve high implementation costs

\- Time-consuming

Efficiency & Effectiveness of lean management

\
**Effectiveness**:

\- By focusing on quality, the quality of the product/service may increase. This may attract more customers leading to an increase in sales/increase in market share.

\- As waste is eliminated from the production process, costs will be minimised. This helps the business achieve a profit.

**Efficiency:**

\- As waste is reduced, production times are cut. This increases efficiency. (Increased productivity levels = greater efficiency).

Corporate Social Responsibility

the commitment to conduct business in an ethical manner, to take responsibility for the economic, social and environmental consequences of their activities

* **Core work:** Activities that directly contribute towards a business meeting its objectives and operating smoothly
* **Non-core work:** Activities that are not central to business operations

Strengths of CSR

* Environmental benefits.
* Employee satisfaction benefits.
* Good for marketing, reputation, and sales.
* Can insulate the business with goodwill from society if a future problem occurs

Limitations of CSR

\- Can sometimes be expensive to support ‘non-core’ activities

\- Can be time consuming to establish

\- Can sometimes be expensive (manufacturing costs, reducing waste)

\- May be subjected to criticism over the smallest acts

Inputs - CSR

• Purchase local suppliers

• Ensuring that your inputs (raw materials, labour, machinery, factories) do not damage or deplete natural resources (sourcing materials/resources)

• Procurement: the process of sourcing and purchasing of goods or services from a reputable source

- Sustainable procurement considers the long-term impact of social, economic and environmental factors, as well as price and quality in the procurement process

Processes - CSR

• recycling of inputs that are left over from the production process

• CAM

• Waste minimisation

• Using fair-trade ingredients

• OH&S

• Staying local

Outputs - CSR

* Packaging (recyclable or biodegradable)


* Honest marketing: unethical marketing practices risk damaging their reputation and competitiveness

Supply chain

the network involved in moving a product or service from suppliers to manufacturers and then on to consumers

Nearshoring

when overseas operations are moved to another country closer to the base of operations (i.e. Australia for an Australian business)

* allows for closer coordination of supply chains, reduced shipping times and lower costs

Supply chain management

meeting consumer demands for goods and services while making the most efficient use of input resources in both the production process and the distribution of the finished product to the customer

5 key elements of Supply chain management (PPMLR)

**- plan:** develop an overall strategy __based on forecasting__ the required resources to satisfy customer demand and expectations

**- procure:** source and acquire goods or services from a supplier or third party at the right price, the correct quantity and delivered at the right time

**- manufacture:** transform raw materials into the final product

\- **logistics:** delivery of products, including the movement of materials and products from one location to another

**- returns:** products that do not meet customer expectations are returned

Supply chain management - advantages

* Access to cheaper materials


* Access to cheaper labour
* Business is not directly responsible for factory production
* Can take advantage of global tax rates

Supply chain management - disadvantages

* Very expensive to implement


* Preparation and staff training
* Complex change is difficult to manage
* If one part of the chain breaks down, it affects all other areas.

3 global considerations (GOG)

* global sourcing
* overseas processing
* global outsourcing

Global sourcing

involves a business procuring inputs from overseas suppliers

• develop global partnerships to ensure that they could secure global sources of inputs with suppliers and other businesses to ensure a reliable supply

• The practice of seeking the most cost-effective materials and other inputs, including from countries overseas

Global sourcing - advantages

\- Opportunity to source inputs that are cheaper and potentially better quality

\- Opportunity for reduced labour costs and production costs

\- Creates employment opportunities and assists in the economic development of less- developed economies