VCE Business Management Unit 3 AOS 3

What is operations management?

Is the running of the systems within the business to efficiently and effectively produce goods and/or services.

What is efficiency?

Is how productively a business uses its resources when producing a good or service.

What is effectiveness?

Is the extent to which a business achieves its stated objectives.

What are business objectives?

The goals a business aims to achieve over a certain period of time.

- To make a profit, increase market share, fulfil a market need, fulfil a social need, meet shareholder expectations, improve efficiency, improve effectiveness

What is the relationship between operations management and business objectives?

If the operations team is able to work efficiently and effectively, and provide value, it can help the business achieve objectives such as increased profit, increased market share, fulfilling a market need, etc

What are some possible operations strategies to achieve business objectives?

- Technological strategies, waste minimisation, lean management, quality strategies, materials strategies

What are the three stages of the operations system?

Inputs, processes and outputs

What are inputs and what do they include?

Are the resources used by a business to produce goods or services.

Inputs include:

- labour resources (employees)

- raw materials, such as flour and iron

- capital resources (such as equipment and machinery)

- time

- utilities, such as electricity, water and gas

- information

What are processes and what do they include?

Are the actions performed by a business to transform inputs into outputs.

Processes include, but are not limited to:

- mixing, baking, cutting, washing

- designing, assembling, constructing

- computing

What are outputs and what do they include?

Are the final goods or services produced as a result of a business's operations system, that are delivered or provided to customers.

Characteristic of manufacturing and service businesses - tangibility

Manufacturing businesses - transform inputs into tangible outputs (the ability to be touched).

Service businesses - transform outputs into intangible outputs (something that cannot be touched).

Characteristic of manufacturing and service businesses - storability

Manufacturing businesses - products can be stored.

Service businesses - products can not be stored.

Characteristic of manufacturing and service businesses - customer contact

Manufacturing businesses - very little customer involvement in production.

Service businesses - often high level of customer involvement when service is delivered.

Characteristic of manufacturing and service businesses - consistency

Manufacturing businesses - produce standardised goods (goods that are produced consistently and are virtually identical to one another) through mass production

Service businesses - services usually not standardised and tailored specifically to individual customer needs.

Characteristic of manufacturing and service businesses - production process

Manufacturing businesses - have highly automated processes that are capital intensive.

Service businesses - have production processes that are labour intensive.

Characteristic of manufacturing and service businesses - Occurrence of production and consumption

Manufacturing businesses - production and consumption of the product occur at separate times.

Service businesses - production and consumption of the service occur simultaneously.

What are the similarities between the characteristics of manufacturing and service businesses?

• Both service and manufacturing businesses aim to optimise their operations to produce high-quality outputs at a low cost of production.

• Both service and manufacturing businesses have to deal with suppliers during the process of managing operations.

• Both service and manufacturing businesses can utilise forms of technology in their operations systems.

• Both service and manufacturing businesses aim to optimise efficiency and effectiveness in their operations.

What are the strategies to improve efficiency and effectiveness related to technological developments?

- Automated production lines

- Robotics

- Computer-aided design

- Computer-aided manufacturing techniques

- Artificial intelligence

- Online services

What are automated production lines?

Involve machinery and equipment that are arranged in a sequence, and the product is developed as it proceeds through each step.

- Usually moves product components along a conveyor belt.

- Still requires employees to monitor, maintain, and supply the production line with parts.

How can automated production lines improve efficiency and effectiveness?

It can improve efficiency as:

- Automated production lines can perform at speeds much faster than humans, reducing the amount of time taken to produce outputs, thus improving productivity.

It can improve effectiveness as:

- They perform tasks with a high degree of accuracy, which reduces production errors. This enhances the overall product quality, which can increase customer satisfaction, sales and market share.

What are robotics?

Are programmable machines that are capable of performing specified tasks.

- Used to perform repetitive tasks, allowing a streamline workflow.

- Can be used in both manufacturing and service businesses.

How can robotics improve efficiency and effectiveness?

It can improve efficiency as:

- Robotics can perform specific tasks quickly and with high levels of accuracy. This can reduce the amount of time and resources wasted in production, therefore resources are used more optimally, improving productivity.

It can improve effectiveness as:

- They perform tasks with a high degree of accuracy, which reduces production errors. This enhances the overall product quality, which can increase customer satisfaction, sales and market share.

What is computer-aided design (CAD)?

Is a digital design tool that enables businesses to generate and modify technical illustrations of a product.

- Used to facilitate the design process.

- Designers use CAD software to develop three- dimensional designs that enable the business and the clients to view a product plan from multiple angles before the product is produced.

- CAD allows clients to modify a design to satisfy their requirements.

How can CAD improve efficiency and effectiveness?

It can improve efficiency as:

CAD can reduce the time and labour needed to design a product, allowing resources to be used more optimally and productively.

It can improve effectiveness as:

A business can use CAD to develop various prototypes and choose the best design to produce. Choosing the best option enables the business to manufacture the highest quality design, which can increase customer satisfaction, sales, and market share.

What are computer aided manufacturing techniques (CAM)?

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

- Machines, equipment and tools used during production are given instructions from Computer-aided manufacturing (CAM).

Businesses often use CAM and CAD together.

- CAM controls the manufacturing process of the design made using CAD to produce the final product.

How can CAM improve efficiency and effectiveness?

It can improve efficiency as:

- CAM does not require machinery to be manually reset by humans which reduces the amount of time and labour resources used in the production process, thus improving productivity.

- CAM can follow specific instructions and complete tasks more accurately than humans which can reduce the amount of waste that is generated during production, and therefore optimise a business's use of resources.

It can improve effectiveness as:

- CAM software is able to coordinate tasks so they are performed with a high degree of accuracy, enabling the business to achieve a consistent level of quality, which can increase customer satisfaction, sales, and market share.

What is Artificial Intelligence (AI)?

Refers to systems or machines that mimic human intelligence to perform tasks that are traditionally done by humans.

How can AI improve efficiency and effectiveness?

It can improve efficiency as:

- AI can reduce the time and labour used to complete complex tasks that would usually require human intelligence. This can allow resources to be used more optimally and improve productivity.

It can improve effectiveness as:

- AI can perform complex tasks, such as providing timely and high-quality customer assistance, which can increase customer satisfaction, sales and market share.

What are online services?

Are services that are provided via the internet.

- This can include booking platforms, online marketplaces, food ordering platforms, streaming media content, online retailers like amazon.

How can online services improve efficiency and effectiveness?

It can improve efficiency as:

- Online services can remove the need for employees to perform certain tasks and enable labour resources to be used more efficiently.

It can improve effectiveness as:

- Implementing online services within an operations system can improve convenience for customers, increasing levels of customer satisfaction, sales, and market share.

What are advantages of technological developments?

- Uses fewer human resources, thus reducing labour costs and increasing profit.

- Reduces wastage due to improved accuracy.

- Performs tasks quicker than humans.

- Removes tasks that may be tedious or dangerous for employees.

What are disadvantages of technological developments?

- High establishment costs.

- A business may develop a poor reputation if technology makes employees redundant.

- Breakdowns of technology may halt production and reduce productivity.

- Ongoing maintenance costs.

- There may be expenses associated with training employees to use technologies.

What is materials management and what are the four materials strategies?

Materials Management is about managing the way materials are received and stored within a business.

- Businesses need to ensure that they have the right amount of materials on hand so production can meet demand.

Forecasting

Master Production Schedule

Materials Requirement Planning

Just in Time

What is forecasting?

Is a materials planning tool that predicts customer demand for an upcoming period using past data and market trends.

- Forecasting assists managers in making informed decisions about the materials and quantities needed to meet predicted customer demand.

How can forecasting improve efficiency and effectiveness?

Efficiency:

- Forecasting decreases the likelihood of ordering and storing excessive amounts of materials which optimises the use of resources by reducing wastage.

- Having enough materials minimises halts in the production process which improves productivity.

Effectiveness:

- Forecasting improves a business's ability to meet customer demand which can contribute to increased customer satisfaction, sales, and market share.

What are advantages of forecasting?

- Informed decisions about the quantity of materials required can ensure the business meets customer demand.

- Prevents the excessive ordering of materials that may go to waste if unneeded.

What are disadvantages of forecasting?

- If a business is too reliant on forecasting, it may be unable to meet unexpected increases in customer demand.

- The quantity of materials ordered may be incorrect as historical data and market trends may not reflect future demand.

- It can be time consuming to analyse historical data and market trends.

- Production halts may occur if the business has insufficient materials due to inaccurate predictions.

What is master production schedule (MPS)

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

How can MPS improve efficiency and effectiveness?

Efficiency:

- Prevents a business from producing an excessive amount of products which optimises the use of resources by reducing wastage.

- Promotes an organised operations system and minimises the number of avoidable errors that occur which improves productivity by reducing the number of interruptions to production.

Effectiveness:

- A business is more likely to produce an amount that meets customer demand which meets the objective of meeting customer satisfaction and increasing sales.

Advantages of MPS

- Improves a business's reputation by having a minimal impact on the environment, due to limited wastage by producing the right amount of products.

- Can provide employees with a clear schedule of operations that includes the timeline and quantity of production targets.

- By determining production targets, businesses are more likely to meet customer demand, which can increase sales.

- By determining specific details about how production will occur, it is less likely that production will be brought to a halt and time is wasted due to an organisation error.

Disadvantages of MPS

- Businesses that are constantly changing details of their operations system may find a MPS unhelpful as it is not a flexible program.

- It can be time consuming to map out details of production.

Implementing and maintaining this plan can be expensive.

What is materials requirement planning?

Is a process that itemises the types and quantities of materials required to meet production targets set out in the master production schedule.

- Materials requirement planning (MRP) creates a detailed plan of the exact materials needed to meet production targets.

How can MRP improve efficiency and effectiveness?

Efficiency:

- Having the exact materials required reduces avoidable halts in production which enhances productivity by allowing operations to flow smoothly.

- Having the exact materials needed for production reduces the amount of excess stock that expires or becomes damaged in storage which optimises resources by reducing waste.

Effectiveness:

- Ensures there are sufficient materials to meet customer demand. Meeting customer demand helps meet the objective of increasing customer satisfaction and sales.

Advantages of MRP

- Improves a business's reputation by having a minimal impact on the environment, due to limited wastage by producing the right amount of products.

- By determining the exact materials required, it is less likely that production will halt due to insufficient materials or organisational errors.

- Accurate ordering of the quantities of materials required avoids excess storage and therefore reduces associated expenses.

Disadvantages of MRP

- It can be time consuming to constantly update and maintain the materials plan.

- Implementing and maintaining the materials plan can incur costs.

What is just in time (JIT)

Is a strategy that ensures the right amount of materials arrive only when they are needed for production.

- Ensures that there is very little stock on hand, and the exact amount of materials arrive only when they are needed (no wastage).

How can JIT improve efficiency and effectiveness?

Efficiency:

- Holding minimal stock can free up areas in the workspace that can be used to increase production.

- Minimising the amount of stock held can prevent resources from becoming damaged or expiring, allowing resources to be used optimally.

Effectiveness:

- A reduction in stock can reduce expenses associated with waste which can meet the objective of increased profits.

- Costs saved from reducing storage space can be used in other areas in the business, such as sales and marketing, which can meet the objective of increasing sales.

Advantages of JIT

- JIT eliminates idle stock, thus limiting the amount of stock wasted from expiry or damage in storage. This can help minimise the business's impact on the environment and improve its reputation.

- Allows a business to switch to the production of a different product without wasting resources as there are minimal materials on hand to go through.

- Reduces storage costs and expenses associated with waste, meaning this money can be used in other areas of the business.

Disadvantages of JIT

- A business may fail to meet customer demand from a lack of reserves stock which may damage their reputation.

- Discounts from bulk buying supplies may be reduced.

- Delivery costs may increase due to more frequent deliveries.

- If suppliers are unreliable and fail to deliver the correct materials at the right time, production may be brought to a halt.

- There may be less time to check the quality of stock as it must be used as soon as it arrives, which could result in errors in products.

What is quality management?

Quality management is the management of the production process that ensures the outputs produced are consistently reliable and durable.

- Poor quality leads to unhappy customers and wastage

What is quality control?

Is a procedure that aims to ensure that a manufactured good or performed service adheres to a set of quality criteria by performing checks at regular intervals.

- The business can check every single product or just 1 in every 50 products (random check).

- Reactive.

How can quality control improve efficiency and effectiveness?

Efficiency:

- Identifying and fixing the cause of an error prevents the error from reoccurring, which results in less waste being created during production. Reducing waste allows a business to optimise its use of resources.

- Identifying and fixing the cause of an error reduces the number of potential errors that could halt production, enabling the operations system to flow continuously without interference and increasing productivity.

Effectiveness:

- Removing defective products prevents customers from receiving faulty goods or services. This can allow a business to meet the objectives of increasing sales and market share.

What are advantages of quality control?

- Providing customers with high quality products can improve their reputation.

- Reducing the number of faulty goods or services that are sold to customers can minimise the number of refunds the business is required to complete.

- Inexpensive to implement as it is controlled internally by the business.

What are disadvantages of quality control?

- Unless every product is inspected, defective goods may still reach a customer, potentially causing the business to develop a reputation for selling poor-quality products.

- It can be boring and time consuming work for employees to check the production line for defects.

- Errors are eliminated after they occur, usually when the product has already been created. This may cause a business to incur costs associated with waste.

What is quality assurance?

Is a system where the business meets a set of predetermined quality standards often set by an independent body.

- When approved, the business can advertise the certification on their packaging or website.

- Quality assurance certification can improve consumer confidence in buying products.

- This strategy is proactive as it aims to improve quality in work processes and avoid errors entirely.

What is the effect of quality assurance on efficiency and effectiveness?

Efficiency:

- Preventing errors before they occur reduces the number of faulty products produced, reducing a business's waste. This can allow a business to optimise its use of resources.

Effectiveness:

- Customers are more inclined to purchase from a business with certified quality standards. This can allow a business to increase its sales and meet the objectives of increasing profit and market share.

What are advantages of quality assurance?

- Quality assurance can reduce the number of defective products produced, which reduces waste and increases a business's reputation as it is perceived to be environmentally friendly.

- The proactive prevention of errors can minimise the number of resources wasted. This can allow a business to utilise its resources optimally and avoid having to repurchase wasted inputs.

- Gaining external certification can be harnessed as a marketing tool by the business, allowing it to increase sales.

What are disadvantages of quality assurance?

- Employees have to be trained to comply with new procedures.

- Completing documentation required for the external body to check the operations system can be time consuming.

- It can be expensive to organise an external body to assess the operations system of a business.

What is Total Quality Management?

Is a holistic approach where all employees are committed to continuously improving the business's operations system to enhance quality for customers.

What is the effect of TQM on efficiency and effectiveness?

Efficiency:

- Continuously improving the quality of the production system can prevent errors from occurring and reduce the number of discarded products. This can allow a business to optimise its use of resources.

Effectiveness:

- By determining the needs and wants of a customer, TQM can improve levels of customer satisfaction and allow a business to meet the objectives of increasing sales and profit.

What are advantages of TQM?

- A business can adapt TQM to suit its specific business requirements.

- A business engaging in TQM can minimise the amount of waste generated, improving its reputation, as customers perceive the business as having a positive environmental impact.

- Employees may feel increasingly valued if they are involved in the process of improving quality.

- The proactive prevention of errors can minimise the number of resources wasted. This can allow a business to utilise its resources optimally and avoid having to repurchase wasted inputs.

What are disadvantages of TQM?

- Employees may feel confused about their role in improving quality if managers fail to communicate the TQM strategy clearly.

- It may take time for a business to enjoy the benefits of TQM as it requires a shift in culture.

- Introducing TQM can be costly for a business as employees may have to be trained so they can continuously identify methods to improve quality.

What is waste minimisation?

Is the process of reducing the amount of discarded resources (material, time or labour) created by the business's operations system.

What is the effect of waste minimisation on efficiency and effectiveness?

Efficiency:

- By minimising the amount of time wasted in operations, a business produces goods and services at a quicker rate, increasing efficiency.

- By reducing the number of materials discarded, a business optimises its use of resources and increases efficiency.

Effectiveness:

- Reducing waste lowers operational costs which can allow for a business to offer lower prices to customers. This can increase the number of sales and meet the objective of increasing market share. The increase in sales will also increase revenue, which can assist in the achievement of making a profit.

What are the 3 waste minimisation strategies?

Reduce, reuse, recycle

What is reduce?

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

- For example, a business may choose to adjust the number of goods produced each month, so that production does not exceed levels of customer demand.

What is reuse?

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

- For example, a glass drink bottle business may choose to have customers return used glass bottles so they can clean and re-bottle drinks.

- or repair broken equipment

What is recycle?

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

- A business can implement technologies into their operations system that allow for specific resources to be recycled, such as: glass, paper-based materials, batteries, plastics, natural waste.

What is lean management? What are the 4 lean management strategies?

Is the process of systematically reducing waste in all areas of a business's operations system whilst simultaneously improving customer value.

- Pull

- One-piece flow

- Takt

- Zero defects

What is the pull strategy

A lean management strategy that involves customers determining the number of products a business should produce for sale.

- Pull prevents any unwanted products from being produced by the business and then discarded when they are not produced

What is the one-piece flow strategy?

A lean management strategy that involves processing a product individually through a stage of production and passing it onto the next stage of production before processing the next product, continuing this process throughout all stages of production.

What is the takt strategy?

A lean management strategy that involves synchronising the steps of a business's operations system to meet customer demand.

What is the zero defects strategy?

A lean management strategy that involves a business preventing errors from occuring in the operations system by ensuring there is an ongoing attitude of maintaining a high standard of quality for the final output.

What is the effect of lean management strategies on efficiency?

- Pull can reduce overproduction and minimise the number of wated materials, time, and labour, which increases productivity.

- One-piece flow can reduce the number of errors by only producing one unit at a time, improving productivity.

- Takt can allow a business to optimise its flow of materials between production stages, reducing wasted time and increasing productivity.

- Zero defects minimises errors, therefore reducing materials being discarded during the production process, thus increasing productivity.

What is the effect of lean management strategies on effectiveness?

- Pull can enable a business to reduce discarded materials, allowing it to reduce expenses, thus allowing it to make a profit.

- One-piece flow allows a business to produce higher quality products faster, improving customer satisfaction, which can enable a business to fulfil a market need and increase market share.

- Takt can improve the flow of processes and speed of delivery, which improves customer satisfaction, allowing the business to increase sales and make a profit.

- Zero defects will lead to customer satisfaction due to high quality products with no defects, which can increase a business's profit and fulfil a market need of non-defected products.

What are advantages of lean management?

- Business can improve its reputation due to actively reducing and managing waste.

- Quality is improved as processes are streamlined to ensure all activities add value to the final product and customer expectations are met.

- Employees may experience greater job satisfaction as they are actively involved in reducing waste in operations and positively impacting the environment.

- Products can be produced at a faster rate using takt and one-piece flow.

- Business can reduce the amount of time wasted between tasks.

- Reduces overall use of materials, which leads to fewer production costs.

- Quality of business products can improve, leading to greater customer satisfaction and sales.

What are disadvantages of lean management?

- If suppliers do not deliver materials on time, the business may be unable to streamline its production process to meet customer demand.

- Employees may be reluctant to commit to an attitude of zero defects due to the effort and commitment required.

- May be overwhelming for employees to implement lean management as there is a goal for constant improvement.

- It may be time-consuming to train inexperienced employees and provide them with the knowledge to commit to lean production methods.

- It can be costly to implement lean management as implementing new policies, procedures, and training employees can come at a high expense.

What is corporate social responsibility?

Is the ethical conduct of a business beyond legal obligations, and the consideration of social, economic, and environmental impacts when making business decisions.

- A business that addresses CSR considerations can improve its environmental sustainability, minimise waste, and enhance its overall reputation as customers usually perceive socially responsible businesses more favourably.

What are the CSR considerations?

To ensure it is operating in an ethical manner, it is important for a business to address CSR considerations, such as the environmental sustainability of its inputs and the amount of waste generated in its processes and production of its outputs.

How can CSR be implemented in inputs?

- Purchase from local suppliers, rather than from overseas suppliers, to reduce transport emissions and minimise the business's carbon footprint.

- Source inputs from suppliers that use environmentally-sustainable methods when extracting and harvesting natural resources.

- Procurement: ensure suppliers incorporate CSR practices.

- Implementing operations strategies, such as forecasting and Just in Time, to reduce the risk of over-ordering inputs that may later be discarded due to expiry or damage.

How can CSR be implemented in processes?

- Waste minimisation (reuse or recycle materials).

- Implement OH&S practices for employees.

- Training - Investing in employees and ensuring all employees have access to training. (Ethical element).

- Staying local - Keeping processes in Australia to support local employment.

- Implementing operations strategies such as lean management.

How can CSR be implemented in outputs?

- Create good quality products that add value for money to the customer.

- Packaging - packaging that minimises the impact on the environment e.g. biodegradable packaging, recyclable, reused.

- Honest Marketing - Being honest about the good/service in all marketing materials. Truthful information given.

- Creating products that have recyclable or biodegradable elements at the end of their lifecycle.

- Delivering products to retailers in bulk to reduce the business's carbon emissions from transportation.

Why would businesses look beyond their own borders when looking to run their operations system?

Many businesses will look beyond their own borders (outside of their home country) when looking to run their operations system.

This enables the business to take advantage of:

- Higher quality materials.

- Strategic locations (to transport their goods and services across the globe in a faster way).

- Cheaper inputs.

- Global talent.

What is global sourcing of inputs and why may a business consider this?

A strategy where a business sources its inputs from countries outside its place of origin.

Businesses may do this for a number of reasons including:

- Higher quality inputs.

- Cheaper materials.

- Cheaper labour.

- Make use of lower taxes in other countries.

What are advantages of global sourcing of inputs?

- A business can source inputs that may not be readily available in their country of origin.

- A business can source higher quality materials.

- There is greater access to cheaper raw materials, allowing a business to reduce costs.

- A business may be able to negotiate a lower price for its inputs as there is greater competition between overseas suppliers.

What are disadvantages of global sourcing of inputs?

- May be difficult to communicate with suppliers due to language barriers.

- Different time zones and locations may make it difficult to monitor the activities of suppliers.

- Materials may be damaged during transport.

- Delivery may be time consuming.

- If a supplier does not treat its employees in an ethical manner, it may reflect badly on the business's reputation.

What is overseas manufacture and why may a business consider this?

Involves a business producing goods outside of the country where its headquarters are located.

Manufacturing overseas can allow the business to:

- Reduce costs (often via lower labour costs).

- Get their products to the market quicker (due to Australia's location).

What are advantages of overseas manufacture?

- There is greater access to highly skilled employees who have expertise in production.

- Cheaper labour costs can allow a business to lower its prices, increasing customer satisfaction and sales.

- Overseas workers are provided with employment and income, allowing them to support their family.

- There is greater access to labour resources.

- Setting up a manufacturing plant overseas may be less costly than establishing and operating a local factory.

What are disadvantages of overseas manufacture?

- Manufactured goods may be damaged during the transport process back to the country of distribution.

- Poor CSR practices in the country may reflect badly on the business.

- Members of the local community may resent the business for taking jobs away from the local economy by moving its production overseas.

- Local employees may lose their jobs if a business moves its manufacturing overseas.

- Delivery is time consuming.

- Poor communication and language barriers may lead to production and delivery delays.

What is global outsourcing and why may a business consider this?

Involves transferring specific business operations or activities to an external business in a different country.

Businesses will often outsource a non-core activity which allows them to:

- Reduce costs.

- Make use of global expertise, improving quality (e.g. call centres, accounting).

- Focus on their core business which can improve productivity.

What are advantages of global outsourcing?

- The quality of business activities can be improved as the external business may be experts in the area.

- A business can decrease labour costs, as global outsourcing can reduce the need for local employees.

- The business has more time available to focus on its own areas of expertise, increasing its productivity.

- A business can allocate more resources and focus on its own areas of expertise.

What are disadvantages of global outsourcing?

- A business has reduced control over some of its activities as they have been transferred to an external business.

- It may be difficult to communicate with external overseas businesses due to language barriers.

- The quality of the business's outsourced activity may decline if the external business is completing the activities of multiple businesses at once.

- Poor CSR practices performed by the external business may reflect badly on the business's reputation.

- Local employees from the business's main operating country are likely to lose their jobs.

- Poor communication and language barriers with the external business may lead to delays.