T3 Business Studies HSC

Operations

The business processes that involves transformation (Transforming input into output) Adding value so output its more value than all inputs combined

Strategic role of operations

 Operations assist business in achieving its overall goal of profit maximilisation

• Cost Leadership (Keeping costs low) 

• Differentiation (Increasing revenue) 

Cost leadership:

Aim to have the lowest cost or to be the most price competitive in the market
- Profit centres directly generate income. Cost centres incur costs. Key strategic aspect of Operation is cost management

Cost Leadership Strategy and how

Keep costs as low as possible

• Larger profit

• Drop prices create competitive advantage

How

• Invest in technology, research and development

• Lower production costs

• Economies of scale : Advantages when business increase scale of operations

Relationship between cost and quality

• Standard of material, labor and other inputs must align with precision of speed and facilities

• Low input cost = Price will reflect quality.

• Management of operation must determine quality and costs levels

Good/Service differentiation:

Aim Distinguishing products from competitors based on factors other than price

• Enhanced or additional features, unique products achieve brand loyalty

Goods Differentiation

• Features

• Quality (Affordability)

• Augmented features (Additional benefits associated)

Service Differentiation

• Time taken to deliver service 

• Experience and qualification

• Quality of materials and technology

Cross Branding:

Two business forms strategic alliances offering customer added benefits from cross branding agreements.

• E.g Uber and spotify (Listen to favourite music during ride)

Standardised Goods:

 Mass produced, meet quality expectations, assembly line and are uniform in quality. E.g Clothing, books, toys

Customised Goods:

Varying according to the needs of customers, market focused instead of product focused. E.g Hearing aids, glasses

Classifications of goods

Perishable - Short lifespan, consumed quickly e.g milk

Non perishable - Durable, last longer e.g Phones, Furniture

Marketing Interdependence

 Communicate to determine product design , subsequent sale to meet consumer needs

• E.g Product marketed to be sold at a certain date operations must make it happen

Finance Interdependence

Profitability, provides funds that determines what strategies operations can undertake and what inputs are to be used.

• Quality (Higher quality=Higher prices), Costs (Cost leadership), investment (New facilities and tech boost efficiency) 

Human Resources: Interdependence

Acquiring, training, separating, developing, staff. 

• Skill and expertise of employees and also impact the efficiency 

• Technology affects efficiency of work, speed and quality.  

Globalisation

Removal of trade barriers between nations enables greater exchange of capital, labour, knowledge, financial resources, and tech increased global interaction and integration.

Opportunities

• New markets

• Supply Chain management

• Production

New Markets, Supply Chain Management, Production

Potential customers/sales 

• Productions levels increase to meet growing demands

• Opportunities for economies of scale and cost savings

Relationship between business and supplier

• More sources of raw material and factories (Global sourcing)

• Locating closer facilities to suppliers lower transport cost

Manufacturing

• Outsourcing overseas 

• Flexibility of location 

Threats

Global business

• Increased competition in new markets

• Operation manager work harder to stand out from competition

Domestic business

• New global competitors with better cost cutting strategies can overtake

• Operation managers reduce cost to stay competitive 

Technology

Use/application of innovative devices, system and machinery in process

Administrative technology:

 Organising, planning and decision making controlling all operations processes

• Sequencing and scheduling tools

• Office technologies

• Software (Word processing, graphic and publishing programs)

Process technology:

Carry out functions like manufacturing, logistics and quality management

• Machines

• Robotic (Highly complex) 

• Computer technology 

Quality Expectation

How well designed, made and functional goods are. Overall degree of competence of which services are organised and delivered.

QE Goods 

• Quality of design: How well product ideas are developed and executed. How innovative and quality of materials

• Fitness for purpose: Does intended job

• Durability: How long goods last easy to repair or maintain

QE Service

• Professionalism: Manner that staff engages with customers and environment

• Reliability: Competence and efficiency of service provider

• Level of customisation: How well tailored to meet customer needs

Cost-based competition

Determining break-even point and then applying strategies to reduce cost. 

• Aim to achieve cost leadership by reducing fixed and variable costs. 

• Reduce costs rather than increase revenue to improve profit. 

Sourcing Supplies (Cost-based Competition)

• From lower quality inputs

• Lower cost nations

• Bulk buying

Production (Cost-based Competition)

• Economies of scale: Better use of machinery and efficiency

• Standardised products: Less inputs simpler and faster production

• Automated Production: Streamlined process speeds up production

• Lean production: Minimise waste and costs

Output (Cost Based competition)

EOS high volume of output reduces production cost

• Spreads fixed cost across large number of outputs 

Environmental sustainability

Operations shaped around practises that consume resources without compromising access to future resources.

• Sustainable use of renewable resources

• Reduction in non-renewable assets

• Application of the precautionary principle 

Corporate Social Responsibility CSR

Refers to open and accountable business actions based on respect of people, society and environment.

Triple bottom line:

Complying with laws and regulations, demonstrates that business values more than financial gain and profits, and considers community concerns and societal expectations.  

• Money

• Community

• Environment

Difference between legal compliance and ethical responsibility:

Difference between legal compliance and ethical responsibility: Legal compliance is required business to follow the law and ethical responsibility is describing meeting obligations in good spirit.

In a CSR-oriented business

• Employees' increased motivation, productivity and engagement 

• Allows businesses to define partnership and pathways aligning with community values and drives a positive impact. 

• Following guidelines like the International Labour Organisation, businesses can promote rights at work, social protection and working conditions

Inputs

Resources used in transformation (Production process)

Transformed resources

are those inputs changed or converted in the operations process

Materials

 Basic elements in the production process

• Raw goods: Essential substances in their uncompressed stages

• Intermediate goods: manufactured and used further in manufacturing

Information

Knowledge gained from research, investigation, and instruction which result in an increase in understanding. Used to inform how inputs are used, where sourced, which suppliers are available. Come from externals sources or internal (KPI)

Customer (Transformed resources)

 Transformed resources when their choice shapes inputs used. Acts as input and desires act as the transformed resource. Critical to be custom orientation at the beginning of the production process to fulfil needs and interest.

Transforming resources

 Inputs that carry out the transformation process. Enable change and value adding to occur.

Facilities

Plant and machinery influences a businesses ability to transform. 

• Determine location, size

• Distrbution of facilities together or divided

• Restrictions and regulations in locations

Human resources (Transformation)

People with skills and knowledge to carry out operations function. Well-considered job design, appropriate training, flexible work practices assist in maximising operational efficiency and business productivity. 

• HR policy to attract, recruit, retain and motivate

Transformation

 Conversion of inputs into outputs. A manufacturer transform into tangible either automated or manual. Service uses interactions with customers. 

Volume

 Amount of products made. Ability to respond to volume changes (Volume flexibility) ensuring order is able to be fulfilled in the moment. 

Variety

Mix of goods and services offered. The greater the variety the more operations has to cater for this capacity.

Variation in demand

Changes in needs and wants over time. Fluctuation in nature of volumes, change in demand will alter amount of inputs such as labour, energy, resources to meet demand. Business try to forecast demand e.g seasonal and act accordingly. 

Visibility(Customer contact)

 involvement of customers in transformation of customer process. Service has high, manufacturing has low. Heterogeneous good, homogenous good low.

Sequencing

order in which activities in the operational process occur

Scheduling

Length of time activities taken within operations process

Gantt chart:

Bar chart displaying scheduled and completed work within a specific amount of time. Common for specific steps and activities need to be completed. 

Adv of gantt

• Forces manager to plan steps needed to complete a step. 

• Easier to monitor and control the operations process by comparing actual performance against planned. And take corrective action needed.

Critical path analysis:

 Scheduling method that shows what task needs to be done, how long they take and the order to be completed. 

• Shortest amount of time to complete all tasks necessary, each must be completed to produce the final product.

Technology

 Use of machinery and systems that enables business to undertake processes efficiently and effectively. 

• To gain sustainable competitive adv, incorporate leading edge tech. Initial capital cost is high but long term benefit due to productivity. Or lease for tax deductible 

Main forms of technologies:

Office technology - Computer, Eftpos

Manufacturing technology - Robotics, CAD, CAM 

Leading edge technology - Artificial intelligence 

Task Design:

 Classifying job activities to be easy for employees to perform and complete.

• Interdependence with HR through application of job analysis, description and specifications. 

• Requires skills to be organised and allows employees to be compared with the skills required by the business

• Skills audit to determine skills and shortfall that needs to be covered through training.

Process Layout:

 Arrangement of machines and equipment in which they are grouped together by the function (Process) they perform. 

Business considering process layouts

Product layout, Fixed Position layout and office layout

Product layout, Fixed Position layout and office layout

Product layout: Where equipment is arranged in relation of sequence to task performed

Fixed Position layout: Operational arrangement which employees and equipment products the product

Office layout: Desk areas are designed in a manner that allows smooth workflow

Monitoring

Measuring actual performance against planned performance. Measuring aspects of inputs and outputs while being arranged around the needs of KPI. 

• KPI e.g lead times, defect rates, warranty claims and maintenance costs  

Control

When KPI are assessed against predetermined goals and corrective action is taken if required.

• Important to ensure high standards, regular performance reviews to find issues. 

Improvement

Refers to systemic reduction of inefficiencies and wastage, poor work processes can eliminate bottle necks.

• Bottleneck: Slows down overall processing speed 

• Reducing inefficiency and improve,  business can undertake 6 sigma which aims to make products 99.9% defect free.

• Set high standards in pursuit fo continuous improvement 

Outputs

Refer to the end result of business effort which are g/s delivered or provided to the customer. Manager link transformation process to operation activities performed, ensure outputs are fulfilling demands.

Customer service

How well businesses meet and exceed expectations of customers. 

Operation process a reviews if 

• Defective, does not meet quality expectation, wait times, high rate of returns, high warranty claims 

Warranties

Promise made to cover defects in products produced and service delivered. By assessing warranty claims business augment transformation process to become effective and increase dependability 

• Covered under ACL

Performance objectives

 Goals related to aspects of transformation. Represent targets that need to be more efficient, productive and profitable.

Quality

How well-designed, well-made and functional goods are/Degree of competence with which services are organised and delivered.

• Determined by customer expectation - production standards

• Quality objectives is quality of design, quality of conformance and quality of service

Speed

Time taken for production and operation processes to respond to market demand changes. 

• Requires a change in input level and processing time to respond to demand. 

• Satisfying customer demands as quickly as possible through reduced wait times. 

• Faster speed = fewer bottlenecks and smooth internal communications

Dependability

How consistent and reliable business products are. 

• Goods - Durability is how long products function until they fail, measured through warranty claims 

• Service - Durability is the consistency of service and reliability measured through customer complaints.

Flexibility

How quickly operations process adjust to changes in the market. Time and flexibility related: Faster processing time means that more likely adjustments can be made

• Achieved through increasing the capacity of production, e.g., leading-edge technology 

Customisation

Creation of individualised products to meet specific needs. 

• Service - can be customised

• Product - variation in colour, size, and features offers a high level of differentiation. However = higher costs than standardised

Cost

Minimisation of expenses so that the operation process can be conducted as cheaply as possible. 

• New tech is used to lower costs. 

• More effective use of inputs to minimise wastage

• Reduce supplier cost, manage flexibility and find time/cost effective distribution methods

New Product/Service design and development:

For business to attain a sustainable competitive advantage, the business must design, develop, launch and sell new/innovative products

Product design and development

Consumer approach:

Consumer preference identified by market research, which determines which products are then design/developed.

Product design and development
Changes in innovation and tech:

Enable businesses to use new and appealing products via leading-edge tech and provide greater functionality 

Steps in the design and development process:

1. Market research

2. Product design, prototype development, and quality parameters were decided.

3. Prototype testing and assessment 

4. Product refinement and production processes refined 

5. Production, product launch, distribution and eventually product line extension 

Service design and development:

Business takes the position of customer as the starting point of design, service can be standardised and does not require high customer contact

Businesses must consider explicit and implicit service when designing (Explicit and implicit)

• Explicit: Tangible aspect of service - time, expertise, skill and effort

• Implicit: Intangible aspect - feeling, meaning and physiological wellbeing involved in the service

SCM

Integrating and managing the flow of supplies through inputs, the transformation process (Value adding) and outputs to best meet the needs of customers. 

• Logistics

• Ecommerce

• Sourcing (Global sourcing) 

Logistics

Distribution including transportation, use of storage, warehousing and distribution centres, material handling and packaging. 

Main issues to consider when devising business logistics include

• Distribution: Way of delivering to the customer 

• Transportation: Physical movement of inventory

• Storage: a secure place to hold the stock until required

• Warhousing: Contain, protect and distribute stock 

• Material handling: Apply standards when moving goods, e.g., dangerous/hazardous

E-commerce:

Buying and selling of goods via the internet (Two types)

• Business-to-business (B2B) - direct access from supplier to buyer, allowing the supplier to assess the needs of the buyer and meet them 

• Business-to-customer (B2C) - selling of g/s over internet with payments including credit card

E-procurement:

Use of online systems to assist in managing supply and allowing suppliers direct access to supply levels. When the stock falls to a predetermined point, supply will be fulfilled automatically 

Sourcing

Purchasing of inputs for the transformation process. Factors influencing sourcing include

• Supplier cost

• Demand

• Required quality 

• Flexibility and readiness of supply

Global sourcing:

Business purchasing supplies/services without being constrained by location

• In SCM, global sourcing means sourcing from suppliers that best meet requirements.

• Benefits involve cost, expertise advantages, as well as access to technology and resources

• Challenges involve regulatory differences between nations and the complexity of operations when sourcing from diverse nations

Outsourcing

use of external providers to perform task and business activities

• Theory: Specialising in a function will lower cost and greater efficiency contributing to the goal of cost leadership 

Factors do consider when outsourcing

• Favourable geographical location

• Which vendor/supplier to use

• Details of outsourcing, contract, length and KPI

Advantages of outsourcing

• Increased simplification

• Effieicny and cost savings

• Increased processing capabilities 

• Increased accountability 

• Access to new skills and resources that is lackinging

Disadvantages of outsourcing 

• High payback period and costs

• Potential of miscommunication

• Cultural incompatibility 

• Loss of control standard and information security 

• Organisational change and redesign 

Technology

Equipment available and used by businesses to perform functions to produce g/s.

• Manager to scan business environment and investigate new/innovative tech that could benefit business in term of reduced cost and efficiency 

Leading-edge technology:

Advanced and most innovative at any point in time.

• Allows to differentiate products and competitive adv

• Distinguish products by using best technology that allows reduction in lead time and inefficiencies.

• Increases automation and substitutes for capital labour reducing significant expenses of wage 

Established Technology

Developed and widely used, normalised. 

• Functionally sound, establishes basic standards for productivity and speed. Through integrating the production process with tech such as CAD. business speed process due to high level of automation.

Inventory or stock:

 Amount of raw material, work in progress or finished goods that business as in any point of time

Advantages of holding stock

• Meet consumer demand

• Alternative products can be offered if another runs out 

• Reduce lead times between order and delivery

• Generate immediate revenue

• An asset adds value to a business on the balance sheet

Disadvantages of holding stock

• High costs of holding stock, e.g., storage and handling expenses

• Invested capital, labour and energy could be used elsewhere

• Risk of obsolescence if the stock is unsold 

LIFO

Pricing inventory that assumes the last goods purchased are also the first goods sold; therefore, the cost of each unit is the last cost recorded. 

• Assumes each unit is sold at the last cost recorded

• Under accounting standards, LIFO is illegal in aus. Can be used for goods that get better over time like cheese/wine as well as tech.

LIFO ADV AND DISADV

• Adv is price used to calculate sales and gross profit are more recent and reflect economic value. 

• Disadvantage is overstates costs and undertste profit, can act as a tax minimisation strat. 

FIFO

Pricing inventory that assumes first goods purchased are also first goods sold, therefore cost of each unit is first cost recorded.

• Used for perishable in which arranged by expiry, ensuring stock is going to expire earlier is sold first so stock does not become wasted.

• Using fifo allows business to understate costs and overstate profits = Looks more profitable and attracts investors

JIT:

Inventory management approach ensuring exact amount of material arrive only as they are needed in operations process

• Application aims to overcome end of period stock valuation as it acts as a lean production method.

• Aim to have business have enough products to meet demand, saving money as no expensive holding/insurance costs

• Mnimise shrinkage and obscelences loss

• If business wants to employ JIT inventory management, they must have flexible operations process that allows for quick adaption to market demand

Quality management:

processes that business undertake to ensure consistency, reliability, safety and fitness of purpose of products

Quality control:

 Inspection at various touchpoints in the production process to check for problems, errors and defects.

• Defining standards/parameters of quality, assessing quality of products against the standards. 

• Enables effective control and takes corrective action immediately. 

• Quality control is a reactive approach, balanced with continuous improvement measures