Role of operations management

What is the strategic role of operations management?

The strategic role of operations management is to drive long-term profitability and create a competitive advantage through good/service differentiation.

Define cost leadership

Cost leadership involves aiming to have the lowest costs or being the most price competitive in the market.

Define product differentiation

Product differentiation is where firms distinguish products (goods or services) in some way from those of competitors.

How may goods be distinguished?

Methods of differentiation for goods include better quality, faster delivery, custom designed products, more features, or new technology

How may services be distinguished?

Services may distinguished through time, expertise, flexibility, self service and quality.

Define standardisation

Standardisation refers to the making of products that are homogeneous or identical. Standardisation is typically used to achieve lower per-unit production costs through mass producing products and EOS on assembly lines (i.e. milk cartons, fast-food services)

How else may differentiation be created?

Differentiation can also be created through cross branding/strategic alliances, adding value to products through added benefits i.e. Woolworths - Caltex.

Define standardised goods

Standardised goods that are mass produced, usually on an assembly line. Standardised goods are uniform in quality and meet a predetermined level of quality. These are generally produced with a production focus.

Define customised goods

Customised goods that are varied according to the needs of customers. These goods are produced with a market focus rather than a production focus.

Define intermediate goods

Intermediate goods are partially processed or semi-finished goods that act as transformed resources (inputs) in the operations process that require further processing. i.e. screws.

Operations interdependence on marketing

Operations reliant on Marketing:

• Marketing determines product design based on consumer needs - this directly dictates what operations must produce or source. Product design directly affects the operations function.

• Marketing's objective of profitability (maximise sales) sets a cost target - operations are expected to minimise production costs specifically so profit margins can increase.

Marketing reliant on Operations:

• Whatever operations sources/produces is what marketing actually has available to sell - marketing's product design only becomes real revenue if operations can deliver it.

• The quality of operations' processes determines product quality, which lets marketing charge higher prices and generate more revenue - quality is an operations output but a marketing lever.

Operations interdependence with finance

Operations reliant on Finance:

• Finance's reports (budgets, income statements) give decision-makers the financial data needed to judge whether current operations spending is sustainable.

• Budgets set by finance constrain what operations can spend on production (extension - not explicit in the text, flag as own reasoning if asked to cite).

Finance reliant on Operations:

• Operations is the function that actually incurs the production costs finance reports on - the accuracy of an income statement's expense side reflects operations' cost decisions.

• If operations minimises costs, profit margins rise - the improved profit figures finance reports on are a direct output of operations performance.

Operations interdependence with human resources

HR reliant on Operations:

• Operational change (new technology, faster processing) directly changes how work is done, forcing HR to change recruitment and training focus - the skills and qualities sought in employees shift as a result.

• HR's job of developing and maintaining staff has to be reactive to whatever operational systems are currently in place.

Operations reliant on HR:

• Operations depend on HR to supply staff with the right skills and training to run production processes efficiently.