Operations

Strategic role of operations management

Cost leadership, goods/services differentiation

Cost leadership

A strategy where a business aims to become the lowest-cost producer in its industry

Goods.service differentiation

A strategy where operations create products/services that customers perceive as unique compared to competitors

Standardised goods

produces in large quantities with uniform features and specifications e.g. bottled water

Customised goods

Designed or modified to meet the specific requirements of individual customers e.g. personalised phone case

Perishable goods

Have a limited shelf life and can spoil easily e.g. milk, fruit

Perishable goods impact on operations

needs fast distribution and delivery systems, refrigerated storage, and quality control to monitor freshness

Non perishable goods

Can be stored for long periods without deteriorating or losing value e.g. stationary

Non-perishable goods impact on operations

Needs warehousing for extended periods, and bulk production and storage

Intermediate goods

Products that are used as inputs in the production of other goods and services e.g. steel

Interdependence with finance

Operations supports finance through efficient resource use and increased productivity

Interdependence with marketing

Operations provides marketing with quality standards and production schedules

Interdependence with HR

Operations supports HR through identifying skill requirements and establishing staffing needs

Influences

GTG LE COQ

Globalisation

more opportunities to access larger overseas markets, enables global sourcing (cheaper labour), increased competition

Technology

Increase productivity and efficiency, improve accuracy, need for training

Quality expectations

Businesses must continuously improve product and services, influences production standards and employee training

Cost based competition

Encourages businesses to reduce production costs, drives improvement in productivity and efficiency

Government policies

Influence costs and production decisions, affect international competitiveness through trade agreements and tariffs

Legal regulation

requires businesses to comply with workplace, environment and consumer laws

Environmental sustainability

Requires businesses to minimise environmental impact, influences sourcing, production, packaging, and waste management

Legal compliance

Meet minimum legal requirements

Ethical responsibility

Voluntarily exceed legal requirements, may include using safer products and environmentally friendly production methods

Environmental sustainablity

Reduce waste, lower emissions, improve resource efficiency, and adopt sustainable production methods

Social responsibility

Provide safe working conditions, ensure fair treatment of employees, support local communities, source materials ethically

Negative CSR practices

Damaging the environment, exploiting workers, misleading customers through self-advertising, prioritising profits over stakeholder welfare

Inputs

Transformed, and transforming resources

Transforming resources

Human resources, facilities

Transformation processes

influence of 4Vs, sequencing and scheduling, technology, task design and process layout, monitoring, control and inprovement

Volume

Quantity of products/services produced, higher volume = greater efficiency and cost per unit

Variety

Range of different products/services offered, high variety = more customisation and flexibility

Variation in demand

Changes in demand over time, businesses must adjust production to match demand

Visibility

Degree of customer involvement in the operation, high visibility = direct customer interaction (e.g. retail)

Gantt charts

visual timeline showing tasks and deadlines, helps plan, monitor and track projects

Critical path analysis

Identifies the longest sequence of tasks that must be completed on time, shows minimum completion time for each project

Technology

Machinery, equipment, and systems used in production, improves, speed, quality, and efficiency

Task design

Allocation and organisation of employee tasks, aims to improve productivity, motivation, and job satisfaction

Process layout

Physical arrangement of equipment and work areas, designed to maximise efficiency and workflow

Monitoring, control and improvement

Quality control, quality assurance, total quality management, benchmarking, key performance indicators

Outputs

Customer service, warranties

Customer service

assistance and support provided before, during and after a sale, helps build positive reputation, and loyalty.

Warranties

Business repairs, replacements, or refunds increase customer confidence when purchasing, and can provide competitive advantage

Performance objectives

Cost, speed, quality, dependability, flexibility, customisation

Cost

the minimisation of expenses so that operations processes are conductes as cheaply as possible

Speed

The time it takes for the production and the operations process to respond to changes in market demand

Quality

How well the product meets the standard of a prescribed design with certain specifications

Dependability

How consistent and reliable a business’s products are

Flexibility

How quickly operations processes can adjust to changes in the market

Customisation

Creation of individualised products to meed the specific needs of the customers

Steps in product design and development

Market research, product design, prototype testing, product refinement, product launch

Supply chain management

Integrating and managing the flow of supplies throughout the inputs, transformation processes and outputs to best meet the needs of customers (logistics, e-commerce, global sourcing)

Logistics

Transportation, the use of storage, warehousing and distribution centres, materials handling and packaging

Logistics (transportation)

The type of good and cost of transportation will determine the mode of transportation e.g. coal and crude oil can only be transported by a freighter or train

Logistics (storage, warehousing and distribution centres)

finding a secure place to hold stock until required, the use of a facility to hold stock, strategically located to minimise lead times

Logistics (materials handling and packaging)

Glassware needs to be transported and stored carefully, some goods can be dangerous, and their transportation can carry particular hazards, the government has regulations for this

E-commerce

Buying and selling goods online, e-procurement is the use of online systems to manage supply, allowing suppliers direct access to the business’s level of supplies

Global sourcing

To acquire supplies or services without being constrained by location, that is to engage with the suppliers that best meet its sourcing requirements

Technology

leading edge, established

Leading edge technology

the most advanced or innovative at a point in time, e.g. nanotechnology, robo-advisors

Established technology

Has already been developed and is widely used and accepted, e.g. CAD, CAM, barcoding

Advantages of Inventory management

Consumer demand can be met when stock is available, and it reduces lead times.

Disadvantages of inventory management

costs include storage charges, spoilage, insurance, theft, handling expenses, and the cost of obsolescence

Advantages of LIFO

Cost of goods sold reflects more recent prices, more realistic measure of current operating performance when prices are rising

Disadvantages of LIFO

The inventory figure on the balance sheet may not reflect the current market value, can make financial statements harder to compare with businesses using FIFO

Advantages of FIFO

Stock is rotated, reducing spoilage and obsolescence, ending inventory value is more up to date as newer stock remains

Disadvantages of FIFO

During inflation, profits may appear higher, leading to higher tax payments, COGS may not reflect current replacement costs, can make a business seem more profitable

Advantages of JIT

Reduces storage, warehousing costs, wastage and improves efficiency and inventory turnover

Disadvantages of JIT

Risk of stock shortages if demand increases, requires highly reliable suppliers

Quality control

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

Quality assurance

The use of a system to ensure that set standards are achieved in production, done through taking a series of measurements e.g. ISO

Quality improvement

emphasises continuous improvement and total quality management

Continuous improvement

an ongoing commitment to improving a business’s goods or services, e.g. six sigma is designed to achieve near perfection in the operations process through the elimination of defects

Total quality management

an organisation wide approach where all employees continuously work to improve the quality of products, services, and processes to meet or exceed customer expectations

Overcoming resistance to change

financial costs, purchasing new equipment, redundancy payments, retraining, reorganising plant layout, inertia

Financial costs

Expenses associated with implementing change, can discourage businesses from adopting new strategies

Purchasing new equipment

New machinery/technology may be required to improve productivity and efficiency, but can involve significant costs

Redundancy payments

Common during restructuring or automation, can be expensive for the business

Retraining

Helps staff adapt to change, improves acceptance of new technologies and methods

Reorganising plant layout

Improves workflow and efficiency, but may cause temporary disruption and costs

Intertia

resistance to change due to comfort with existing methods, employees and managers may fear uncertainty

Global factors

Global sourcing, economies of scale, scanning and learning, research and development

Economies of scale

costs advantages gained from producing on a larger scale as average cost per unit decreases as output increases, achieved through bulk purchasing, specialisation and technology

Scanning and learning

monitoring competitors, customers and market trends, helpts identify opportunities and threats

Research and development

encouraged innovation and business growth, can create competitive advantage, but may be costly and risky

Strategies to overcome resistance

Identify needs for change, set achievable goals, create a culture of change, change agents, effective communication, and positive leadership

Identify needs for change

assess external business environment, SWOT analysis, proactive rather than reactive

Set achievable goals

Include staff in the setting of goals based on change

Create a culture of change

Encourage staff to be involved, communicate with staff about change, foster teamwork and change agents who encourage change

Change agents

Individuals who are influential in the business to act as catalysts to help manage the change process

Effective communication

open communication channels to assist in the transfer of information

Positive leadership

Having high expectations of employees’ abilities to initiate and implement a change process will generally result in people who are willing to embrace change