Business Studies (HSC)

TOPIC ONE

OPERATIONS

Define the operations function

refers to business processes that transform and add value to inputs to produce outputs, part of the value chain

Define the operations process

Inputs - Transformation - Outputs (More Value then Inputs)

Define strategic role of operations management

'affecting all key business areas in the longer term' - meeting key objectives of profit maximisation and competitive advantage

What is Michael E. Porter known for?

Cost Leadership + Product Differentiation → Competitive Advantage (Book on Competitive Advantage)

Define cost leadership

involves aiming to have the lowest costs or to be the most price competitive in the market - business should still trade profitably

List 3 cost saving measures businesses can use as cost-saving measures

Economies of scale, use of standard components, minimisation of waste

Define economies of scale

cost advantages resulting from an increase in the scale of business operations, these efficiencies result in lower costs per unit produced and in turn a lower price for the consumer

Define use of standard components

a measure that speeds up manufacturing and reduces costs, as the same units can be purchased and used on multiple products and all around the world

Define minimisation of waste

also called lean production, is designed to eliminate waste - if waste can be minimised then production processes are most efficient

List 3 measures to achieve service differentiation

Time spent on a service, level of expertise brought to a service, qualifications and experience of the service provider

Define product differentiation

distinguishing the product/service in some way from its competitors - establishing a competitive advantage leading to increased sales and profitability

List 3 ways to achieve product differentiation

varying product features, varying product quality, varying augmented features

What is meant by varying product features (product differentiation)?

changing the options that are available for your product. E.g. provision of leather seats in motor vehicles

What is meant by varying product quality (product differentiation)?

businesses can produce the same products however with differing quality levels - higher quality = higher price (price points)

What is meant by varying augmented features (product differentiation)?

add-ons i.e. SLR camera, consumers have the options to buy different lenses.

List 6 types of goods

Customized, standardized, perishable, non-perishable, intermediate, final

Define customised goods

Goods that are varied according to the needs of the customers. These goods are produced with a market focus. (Differentiated goods)

Define standardised goods

Goods that are mass-produced. They are uniform in quality and are produced with a production focus (undifferentiated goods)

Define perishable goods

Goods that can only be used once and only last a short time These goods need to be of high standards, quality, safety and cleanliness. Their length of production will be very short and storage is essential.

Define non-perishable goods

Goods that can be used more than once and are more durable. Effective inventory management systems are necessary for these types of goods.

Define intermediate goods

Goods that are completed but then become outputs for other goods.

Define final goods

A good or service purchased directly by the consumer. They are the final output of production processes.

Define interdependence (functions)

the mutual reliance that the key functions have on one another - work best when they overlap and employees work towards common goals

How is marketing impacted by operations?

- Types of products that can be produced

- Speed of production

- Cost at which they are produced

How is finance impacted by operations?

- Amount of money required to buy the inputs

How is human resources impacted by operations?

- Number of staff required

- Skills

- Working methods

How does marketing impact operations?

- Providing information on what the market wants

- Types of products that can be marketed effectively

How does finance impact operations?

- Amount of money available

- Determining types of inputs & suppliers

- Determining quality of inputs & suppliers

How does human resources impact operations?

- Quality of staff they provide

- How staff are managed

- Motivation levels of staff

- Permissible working conditions

List four operations input processes

Sourcing, acquiring, storing, managing / maintaining

Define sourcing

Finding a range of suitable suppliers that meet the price, quality and availability requirements of the business.

Define acquiring

Ensuring the required resources are available to use when needed i.e. getting the resources to the business

Define storing

Determining a suitable location to store inputs which minimises costs but maximises efficiency

Define managing/maintaining

Activities to ensure the inputs of the business are not lost, damaged, stolen or wasted

Define transformed resources

Passive resources: resources that are changed or converted during the operations processes. i.e. materials, customers

Define transforming resources

Active resources: resources that are used to change or convert other resources during operations processes i.e. human resources, facilities

List specific transformation processes

- determining the desired volume and variety of products

- sequencing and scheduling of activities

- integrating technology

- determining job design and process layout

- controlling to monitor and improve outcomes

Define volume (transformation process)

The amount of products that will be produced (i.e. the amount that meets customer demand and allows the business to achieve cost efficiencies)

Define variety (transformation processes)

The range of products available (this will impact on the size of the operations and the types of transformation processes used)

Define variation (transformation processes)

How they can incorporate flexibility into their transformation processes to allow for variations in demand over a production period. E.g. turn off one of the machines when the business is impacted by seasonal changes (seasonality)

Define visibility/customer contact (transformation processes)

The amount of customer feedback sought and how the operations function will process and incorporate customer feedback on their level of satisfaction with the business' products

Define sequencing

Sequencing refers to the order in which the activities in the transformation process take place.

Define scheduling

Scheduling refers to the length of time each activity will take within the transformation process.

What processes due operations managers use to organise the scheduling and sequencing of tasks?

gantt charts and critical path analysis

Define gantt charts

used to assist with sequencing and scheduling, they determine the activities that need to be performed to complete a task - shown on the grid indicating the order of activities, the activities that can be performed simultaneously and how long is spent on each activity.

Why are gantt charts useful?

Force the managers to plan the steps in completing tasks, can be used to monitor progress

Interpret and construct gantt charts

refer to study document / sheets

Define critical path analysis

shows the shortest possible time that it takes to complete ALL tasks necessary to complete a process or project (i.e. the longest route through all the necessary steps to perform the process) - it is a scheduling method

Why is critical path analysis important?

can help the business to determine how long processes will take allowing the business to increase efficiency, reduce costs and increases profit

List the process of task design

task design > job description > person specificatin > recruitment > selection

Define plant layout, what should be considered when determining plant layout?

refers to the arrangement of machinery and staff within the business - considerations include physical space available and what is required by specific activities, ensuring an efficient flow of goods through the layout, compliance with WH&S standards

List 4 types of plant layouts

process, product, office, fixed position

What is a process layout?

Organising the layout by grouping of machinery / work together that perform similar processes

What is product layout?

Organising the location of machinery and work according to the sequence it is performed i.e. an assembly line

What is fixed position layout?

The product remains in one location and machinery and employees come to it.

What is office layout?

The focus is on providing a work environment that promotes efficiency by eliminating disruptions and time wastage. Offices are often organised around workstations.

Draw sketch of each type of plant layout

Refer to sheets

Define office technology

including computers, telecommunications products etc. that can make transformation processes more timely and mobile

Define manufacturing technology

includes the use of robotics, computer aided design (CAD) and computer aided manufacture (CAM) to improve quality, speed and consistency

List specific indicators for monitoring, controlling and improvement

Lead / wait times, inventory turnover rates, defect rates, repair rates and warranty claims, capacity rates, maintenance costs

List 2 operations processes that relate to outputs

warranties and customer service

Define customer service (ouput process)

Customer service relates to how well a business meets the expectations of customers. Businesses need to maximise customer service through activities / processes to ensure on time delivery, high quality products etc.

Define warranties (output process)

Warranties are a promise that a business will correct any defects in the goods and services they provide. Businesses need to ensure their processes to honour warranty obligations are transparent and completed in a timely manner.

List 4 facts about IKEA factories

- Over 500 million customers every year

- World's largest furniture maker

- 42 Distribution Networks, over 1000 Suppliers

- 5 major production factories across europe

How does marketing impact operations at IKEA?

Each item for sale in the stores, whether furniture or other products, is part of a coherent whole, designed in accordance with expectations of specific segment which can be young or hold, high or low income, modern or classic etc.

How does finance impact operations at IKEA?

In the 2016 year, the company, IKEA generated a global revenue which exceeded 35 billion euros. This can determine the types and quality of inputs and suppliers.

How does human resources impact operations at IKEA?

Exchange (as in retailing), there are less staff for distribution in stores. Thus the potential for e-commerce at IKEA is available. IKEA can make use of e-commerce in order to integrate its suppliers and distribution networks.

How is marketing impacted by operations at IKEA?

There is no costly advertising at IKEA. These elements all keep expenses and prices down and they reinforce each other. IKEA's design is made synonymous with middle-class taste and thereby becomes the vehicle by which visible signs of affluence are made accessible to people of modest mean.

How is finance impacted by operations at IKEA?

Making the customers assemble their own furniture enables IKEA to save money on manufacturing and distribution, which they then pass on to customers in the form of lower prices at retail.

How is human resources impacted by operations at IKEA?

The shortage of salespeople affords customers the opportunity to shop in freedom and take notes. JIT inventory management also improves employee morale and increased customer satisfaction.

Connect product differentiation to IKEA case study

Refer to sheets

Connect cost leadership to IKEA case study

Refer to sheets

Define operations strategies

actions taken by the business designed to improve the outcomes of the operations function and processes leading to reduced costs, differentiated product/service, increased flexibility and competitive advantage

What is an acronym for remembering the operations strategies?

STOP GOINQ

List the operations strategies from the syllabus

- performance objectives

- new product or service design and development

- supply chain management (logistics, e-commerce, global sourcing)

- outsourcing

- technology (leading edge, established)

- inventory management (LIFO, FIFO, JIT)

- quality management (control, assurance, improvement)

- overcoming resistance to change (financial costs, purchasing new equipment, redundancy payments, retraining, reorganizing plant layout, inertia)

- global factors (global sourcing, economies of scale, scanning and learning, research and development)

What are performance objectives?

They are the desired outcomes of strategies. They include quality, flexibility, speed, customisation, dependability, and cost.

How is 'quality' a key performance indicator?

Businesses look to improve the quality of their processes and outputs. This may be in relation to:

quality of design/conformance/service.

How is 'speed' a key performance indicator?

Speed refers to how quickly operations processes can meet market demand. This involves reducing wait and lead times and speeding up processing by reducing bottlenecks.

Differentiate between lead times and bottle necks

The LEAD TIME refers to the time between initiation and completion of the production process. Whereas BOTTLENECKS refer to an issue in one area of the production process that reduces the capacity of the whole process causing a stall in production.

How is 'dependability' a key performance indicator?

Dependability describes the degree of consistency and reliability of outputs in the production process. It is largely related to quality aswell.

How is 'flexibility' a key performance indicator?

Flexibility refers to how quickly operations can respond to market changes, relating to production capacity. Operations can meet increases or decreases in consumer demand without concern.

How is 'customisation' a key performance indicator?

Customisation refers to the ability to tailor products to meet specific consumer needs. Customisation often will come at the expense of cost because it requires individualised production processes rather than standardised processes.

How is 'costs' a key performance indicator?

Refers to the minimisation of expenses in order to lower the costs of operations. This is inversely related to quality, because reductions in cost MAY reduce the overall levels of quality.

Define 'new product or service design and development' as an operations strategy

This is related to the introduction of new products or services and their production into the operations function. Operations must respond to changes in technology and quality expectations.

What are some approaches to the development of new products?

- Customer-focused design (satisfy customer wants)

- Product focused design (consider changes in technology to come up with new appealing products)

What are the 5 steps in new product or service design and development?

1. Market research and specification development

2. Design product prototype

3. Test prototype

4. Product and production process refinement

5. Full commercial production and distribution

Make links between the 5 steps in new product or service design and development and IKEA

1. Market research and specification development

Life at home reports and visits

2. Design product prototype

IKEA Test Lab in Almhult, Sweden

3. Test prototype

IKEA Test Lab in Almhult, Sweden

4. Product and production process refinement

IKEA hires manufacturers, technologists etc.

5. Full commercial production and distribution

IKEA has almost 300 stores in 36 countries and 42 distribution centres in 18 countries and over 1000 suppliers

Discuss IKEA's democratic design as a means of new product or service design and development

IKEA's Democratic Design has 5 Dimensions which are form, quality, low price, sustainability and function. Marcus Engman (Head of Design at IKEA)

stated that "good design should be accessible for everyone". This impacts operation management as it changes the inputs used, design and production processes and finished look of all of their products and increasingly their services.

What is a supply chain?

refers to the linkages between a business and its main suppliers of inputs such as raw materials, services, utilities, capital equipment and information

What is supply chain management?

SCM involves activities to integrate, manage and control this flow of supplies through the operations processes. It involves sourcing, logistics, and e-commerce.

How can cost leadership be achieved through the supply chain?

Integrating, managing and controlling the supply chain and its process, by reducing costs and/or shortening the length of the chain will result in reduced final costs for the business AND a lower price for consumers.

What is sourcing?

Relates to the purchasing of inputs and the way which this is done can be adapted and altered - a business can either rationalise its suppliers, implement backwards vertical integration or engage in global sourcing

What are logistics in terms of operations strategies?

Refers to the movement and handling of inputs and the distribution of outputs. It considers the type of transport used, the storing/warehousing, materials, handling and packaging.

What do effective logistics strategies involve?

Involves low cost transportation of unit loads such as containers and pallets and quick service response times. Businesses which employ effective strategies often maintain storage and large distribution centres to consolidate orders and dispatch goods to their stores speedily, helping to meet demand and reduce the cost of distribution.

What is e-commerce?

The buying and selling of information, goods and services via the digital space. It can be B2C (business to consumer) and B2B (business to business). It can be used to shorten the supply chain OR allowing more rapid responses.

What is outsourcing?

It involves the use of external providers to perform operations activities. Key operations activities that may be outsourced include manufacturing, design, sourcing of inputs, and logistics. Outsourcing can be used to take advantage of external providers who have expertise, relevant skills, resources and a comparative advantage. It can allow the business to adopt a leaner, more responsive structure.

What are the advantages of outsourcing?

- simplification of business processes

- focus on key business activities

- greater efficiency

- cost savings

- access to latest technology/skills/resources

- avoid trade barriers

- knowledge of competitors

What are the disadvantages of outsourcing?

- up-front cost and sizeable payback period

- communication and language barriers

- loss of control over standards/information safety

- resistance to change

- loss of corporate memory

- damage to brand reputation

How is outsourcing used at IKEA?

IKEA has outsourced labour-intensive

manufacturing to Romania and Poland to satsify European markets. In the Asia Pacific, IKEA's outsourced labour-intensive production to China, Malaysia, Vietnam and Myanmar. This takes advantage of low wage cost, proximity to key raw materials and consumer markets. They also outsource ovens/dishwashers/fridges to Electrolux. Their accounting and financial services are outsourced to KPMG.