Busman sac 3

operations management

the management of resources to achieve efficient output of goods and services, have the primary goal of ensuring effectiveness and efficiency of the production process in the business

efficiency

how well a business has used its resources to achieve its stated objectives

effectiveness

the degree to which a business achieves it stated objectives

responsibilities of operations management

• Managing quality of products

• Managing the materials used to make a product

• Ensuring they have enough materials/products to meet production targets/customer demand

• Implementing technology to aid the production process

• Minimising waste in the production process

• Distribution of products to customers

operations and business objectives

• Operations use resources to create high quality products that will satisfy customers

• This may help the business achieve objectives such as:

  • Increase profit

  • Meet shareholder expectations

  • Fulfil a market need

  • Fulfil a social need

  • Increase effectiveness

  • Increased productivity/efficiency

  • Reduced levels of waste

manufacturing business

produces a tangible, physical good either as a finished product or a component part that is used as an input in another manufacturing system

service business

provides an intangible product, services are performed rather than produced and usually involve provision of labour or expertise in return for payment

differences between manufacturing and business

similarities

• Utilise technology

• Plan and develop organisational objectives

• Deal with customers and suppliers

• Aim to produce high quality products or services at the lowest cost

• Aim to reduce costs of production

• Aim to reduce waste

key elements of an operations system

inputs, process, outputs

inputs

the resources that will be converted into outputs

inputs can include:

• Materials

• Technology

• Facilities, machinery, equipment

• Human resources (labour)

• Knowledge and skills

• Time

process

• processes are the activities that help transform inputs into outputs

• Processes involve ‘doing’ such as storing, sorting, blending, packaging

• The effectiveness of your processes can impact areas such as quality, wastage produced and productivity (through the speed of producing outputs)

outputs

final goods or services that are produced and ready for customers, the quality of the output is a reflection of the inputs and processes used in the operations system

connecting key elements to the characteristics of operations

strategies to improve efficiency and effectiveness

technological developments, materials, quality, waste minimisation, lean management

technology

practical application of science to achieve a commercial or industrial objective

technological strategies

automated production lines, robotics, computer aided design, computer aided manufacturing, artificial intelligence, online services

automated production lines

• Equipment and machines are arranged in a sequence and controlled by computer systems to perform tasks automatically

• Often used for mass production

• Series of workstations that perform a specific operation and the product is processed step by step as it moves along the line in a sequence

• Each workstation is linked by an automated transfer system which moves products between stations

• Timing and sequencing of equipment controlled by computers

• Human role reduced to: system design, making adjustments to equipment, supervision and monitoring

automated production lines advantages

• Improved productivity through reduced production time (efficiency)

• Faster production allowing the business to meet customer demand (effectiveness)

• Improved workplace safety (effectiveness) as dangerous tasks performed by technology rather than humans

• Repetitive, boring and difficult jobs replaced by automation

• Reduction in waste (efficiency) due to greater precision and less defects

automated production lines disadvantages

• Huge initial costs in purchasing systems

• Ongoing maintenance expensive because involves employment of highly skilled maintenance workers

• Reduce available employment opportunities (negative CSR impact)

robotics

• Integrates computer science and engineering in the design, construction and use of machines to perform manual tasks

• Robots often perform tasks such as handling raw materials, welding, assembly and product packing

• Robots are programmable machines with the ability to detect changes in their environment

robotics advantages

• Speed of robot reduces production or service time improving efficiency

• Robots are more accurate than humans reducing wastage, improving efficiency

• Robots can be programmed to deliver a consistent quality improving customer satisfaction leading to increased effectiveness

• Robots can replace dangerous jobs improving workplace safety

robotics disadvantages

• Initial cost in purchasing robots

• Downtime for maintenance and repairs if the robot breaks down (reducing efficiency)

• Reduce available employment opportunities (negative CSR impact)

computer aided design (CAD)

• Software that creates product possibilities from a series of parameters

• Standard in most manufacturing and design businesses

• Creation of 3-dimensional diagrams, allowing for accurate predictions of what final product will look like from all angles without building it

• Used a lot by architects, engineers and designers

• Used to draw and adjust 3-dimensional designs based on client requirements

CAD advantages

• Customers are able to make suggestions and alterations to their product (improving effectiveness through increased satisfaction)

• The design process is streamlines and less resources are used designing the product and making prototypes (improving efficiency)

• Enables product to be tested before going into production —> reducing wastage by making less mistakes (improving efficiency)

CAD disadvantages

• Costly to introduce

• Requires technical training to use

• May replace human labour

computer aided manufacturing (CAM)

• Software used to allow the production process to be directed and controlled by computers

• Machines are fed programmed instructions from a central computer

• This reduces the need for manual resetting of machinery

• This often works in tandem with CAD to allow machines to create objects directly from computer designs and software rather than engineers having to set up machines and processes manually

CAM advantages

• Greater accuracy and consistency, improving the quality of the end product (effectiveness)

• Reduces need for manual resetting of machinery = save time and labour costs (efficiency)

CAM disadvantages

• Costly to introduce

• Requires technical training

• If computers break down, it can lead to expensive downtime that halts production (negative impact on efficiency)

artificial intelligence (AI)

• Deals with the development of computer programs that imitate human intellect

• AI helps machines to collect and extract data, acknowledge patterns, learn and adapt to new situations and environments through machine intelligence and speech recognition

• AI is used extensively across many industries including banking, healthcare, retail, logistics and government sectors

AI advantages

• Can analyse information and make decisions for businesses quickly, increasing efficiency

• Can allow services to be provided to customers 24/7 e.g. through chat bots

• Can increase accuracy as it is not prone to human error

AI disadvantages

• Difficult to ensure accuracy — prone to errors which could lead to poor decisions

• Require ongoing testing and validation which is time consuming

• Can involve analysing personal data which requires adhering to privacy laws — time consuming to ensure you are adhering to laws

online services

• Providing information or support over the internet

• Examples

  • Online booking systems e.g. hotels, restaurants, events, beauty, medical appointments. By using an online database and diary it reduces scheduling issues and saves time

  • Feedback forms — allow businesses to gather information quickly to improve quality and enhance the customer experience

  • Could be used for customers to place orders online, and products are only manufactured after order is received (reducing waste and improving efficiency)

online services advantages

• Can be used to gather customer feedback which can be used to help improve quality (effectiveness)

• Can be used to automatically take customer orders and assist with effective materials planning

• Booking appointments online requires less human energy (efficiency)

online services disadvantages

• Web designers can be expensive

• Time consuming to develop website

• Security risks as websites and data are at risk of hackers

materials management

• Involves the planning and coordination of all inputs that are required for an operation system

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

• A major issue for businesses is running out of stock. If a business doesn’t have enough materials so production can meet demand they may lose sales

• The operations manager needs to consider how much to purchase based on a number of factors:

  • Having enough materials on hand for production to flow continuously

  • The cost of purchasing materials and having them delivered

  • The storage required, availability and cost of storage

  • Are the materials likely to go to waste or get damaged while being stored?

materials strategies

forecasting, master production schedule, materials requirement planning, just in time

forecasting

• Planning strategy where past data and trends are used to predict future demand so informed decisions can be made around materials

• Some ways of forecasting include:

  • Looking at past data

  • Looking at market trends

  • Assessing business information (supplier lead times, new marketing campaign etc.)

forecasting link to efficiency and effectiveness

• Effectiveness: the business can then ensure they have enough materials on hand to meet the production needs, ensuring consumer demand is met, allowing the business to maintain sales revenue and profit (less wastage, less storage costs

• Efficiency:

  • Improve productivity because production does not need to wait

  • Reduces overstocking which reduces wastage

forecasting advantages

• Ensures stock and materials are on hand as required to meet demand

• Factors in lead-time for suppliers to deliver which reduces chance of supply shortages

forecasting disadvantages

• It is just a prediction and cannot be relied upon 100%

• Global events can impact supply or demand such as weather events, political and legal decisions, fads etc.

master production schedule (MPS)

• Outlines what is going to be produced in what quantities and when it is going to be produced

• Elements in the MPS include:

  • Each good/service that will be produced

  • The exact quantities of each good/service

  • How, when and where the production will take place

MPS link to efficiency and effectiveness

• Effectiveness

  • Enables the business to have a clear picture on what needs to be produced to meet customer orders, increasing revenue and profit

• Efficiency

  • Helps the business plan the exact amount of materials needed so the correct materials can be ordered, preventing over production and reducing wastage

MPS advantages

• Assists decision making to ensure adequate resources and labour is available to fulfil contracts

• Reduces stress as production plans are clear

• Creates clear guidelines and expectations for staff

MPS disadvantages

• Delays to supply delivery times may cause the schedule to be interrupted

• Changes to customer demand could lead to changes in the MPS

materials requirement planning (MRP)

• An itemised list of materials that are required to meet specific orders

• To successfully plan the required materials, the operations manager must:

  • Consider stock already on hand

  • Lead times (how long it takes for the materials to arrive

  • Number of materials required to meet the orders

MRP link to efficiency and effectiveness

• Effectiveness:

  • Ensures production has a continuous flow without waiting for materials

  • Enough materials on hand to meet demand, increasing sales revenue and profit

• Efficiency:

  • Prevents overstocking, reducing wastage

MRP advantages

• Ensures stock and materials are available for specific orders

• Ensures productivity levels in production can be maintained due to adequate stock levels

MRP disadvantages

• Delays to supply delivery times may cause the schedule to be interrupted

• Glitches in computer system could lead to orders not being received

just in time (JIT)

• Is a strategy that ensures the right amount of materials arrive just as they are needed for production

• Ensures there is very little stock on hand

• The exact amount of materials arrive only as they are needed

• Saves money on storage and minimises the issues that come with large storage — lost or damaged stock, wastage

• However if materials don’t arrive on time, production will slow or halt

JIT link to efficiency and effectiveness

• Effectiveness:

  • Aims to have a continuous flow of production, reducing downtime and minimising expenses

  • Businesses can use extra space to maximise production

  • Money saved (not tied up in inventory) can be used in other areas of the business

• Efficiency:

  • Reduces storage cost

  • Reduces wastage

JIT advantages

• Save storage costs as you are not storing stock

• Less wastage as only what is required is ordered

• Money saved (not tied up in inventory) can be used in other areas of the business

JIT disadvantages

• Delays may occur

• Industrial action at suppliers (e.g. strike) impact production

• Shortages of materials from suppliers may impact production

• More frequent deliveries can be costly

quality

refers to achieving a standard of excellence in a finished good and service that is provided or delivered to an end customer

quality management

• The management of the production process that ensures the outputs produced are consistently reliable and durable

• Quality strategies aim to:

  • Minimise waste in production process

  • Minimise defects

    • Achieve set quality standards to ensure customer expectations are met

quality strategies

quality control, quality assurance, total quality management

quality control

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

quality assurance

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

total quality management (TQM)

a holistic approach to quality where all members of an organisation focus on continuous process improvement, customer focus, defect prevention and universal responsibility

Core TQM concepts:

1. Continuous improvement — there is an ongoing commitment to achieving quality. It is a journey rather than a destination

2. Customer focus — every work group must think about providing value to the people who use their product. This may be an internal or external customer. Involves finding out what the customer wants and ensuring the process provides it

3. Defect prevention — prevent defects in products or services before they arise rather than relying on inspection

4. Universal responsibility — quality is the responsibility of every employee, not just inspection department

2 of the most popular strategies that can achieve TQM are:

• Quality circle: a group of workers who meet regularly to discuss quality and production issues; proposed changes to production methods are then put forward to management

• Kaizen: the Japanese notion of continuous improvement — all employees work proactively to achieve incremental improvements in the production process in an attempt to reduce waste and costs in production

quality — improving efficiency and effectiveness

• All the quality strategies will improve effectiveness as they will improve the overall quality of the products being produced. This leads to objectives such as increased sales, reduced customer complaints and increased market share

• All the quality strategies will improve efficiency because errors are either reduced or at the very least identified early, ensuring less wastage from faulty products being thrown out or needing to be put back into production for reworking

quality advantages and disadvantages

waste minimisation

• Waste includes any action in the production process that does not add value for the customer

• Waste minimisation is the process of reducing the amount of discarded resources created by the businesses operations system

types of waste

waste minimisation strategies

• Reduce: Decrease use of resources, activities, labour and time to decrease waste production

• Reuse: if waste is produced, make effort to repurpose instead of discarding

• Recycle: convert waste materials into useable products

• Recover: recover waste that cannot be reused or recycled instead of discarding (not specifically mentioned in SD)

waste minimisation link to efficiency and effectiveness

Efficiency:

• When a business reduces waste they are using fewer resources which therefore increases their efficiency

Effectiveness:

• Waste prevention leads to significant cost savings. This can have a positive impact on the objective of increasing profit through decreased expenses

• Examples of cost savings include: lower waste disposal costs, lower energy costs, lower storage costs, cost recovery through the sale of recyclable materials

lean management

• Aims to deliver customer value by systematically reducing waste and focusing on continuous improvement

• Lean management is a philosophy, a way of thinking

• It first considers what the customer is willing to pay for

• Activates that do not add value to the end product or customer are defined as waste and should be reduced or eliminated to free up resources to be used for adding value

• Lean management can be described as ‘a way to do more and more with less and less — less human effort, equipment, time and space — while coming closer and closer to providing customers exactly what they want

principles of lean management (POTZ)

pull, one piece flow, takt, zero defects

pull

• Production of the good or service is only started when the customer places an order. The customer order ‘pulls’ at the production system with their demand

• This ensures inventory is kept to a minimum, waste is reduced, and customer satisfaction is assured as orders received are less likely to be damaged

one piece flow

• An uninterrupted flow of process from the beginning until the end of the production process

• When all steps are aligned, value is added one piece at a time and unnecessary activities that are wasteful are removed from the process

takt

• The operations process seeks to create a rhythm whereby all the steps in the production of the good or service are synchronised to create a ‘continuous flow’

• Takt is the German word for ‘timing’

zero defects

Focuses on quality, identifying potential defects as soon as possible to ensure that any issues are resolved quickly and efficiently, resulting in high quality

lean management advantages

• Less infrastructure is required, with only essential building space, equipment and manpower (reduces expenses, contributing to objective of increased profit — effectiveness)

• Responsive to customer needs develops strong customer relationships (may lead to increased sales revenue, contributing to objective of increased profit — effectiveness)

• Reduces wase production and improves productivity as unnecessary resources are removed (improves productivity levels as less resources are used, improving efficiency

lean management disadvantages

• Focus on short-term gains and waste reductions may be made at the expense of long term sustainable solutions

• Time consuming to actively review all procedures to make changes to reduce wastage

• Employees may be resistant to removing certain processes or resources

lean management link to efficiency and effectiveness

• Efficiency is improved as wastage in all areas of the business is reduced

• Products are made faster and with fewer resources

• Can lead to increased profits and market share through decreased expenses and/or increased revenue

• Can improve customer value

corporate social responsibility (CSR)

• The commitment by business to go above and beyond legal obligations to ensure they are acting in an ethical manner in relation to social, economic and environmental considerations

• Pressures to adopt socially responsible business practices come from:

  • Employees

  • Customers

  • Shareholders

  • Media

  • Suppliers

why be socially responsible

• Communities expect businesses to act in a CSR manner

• Shareholders examine performance of corporations based on social, environmental and economic performance (triple bottom line reporting)

• Reputation of not behaving in a CSR manner gains negative reputation

CSR and environmentally sustainable inputs

Environmentally sustainable inputs

• Environmental sustainability refers to a business making decisions that will allow it and the rest of society, to interact with the environment both now and into the future

• Inputs used in the production process should not have a serious or negative impact on the environment

Select sustainable suppliers

• Adopt a purchasing policy that includes social responsibility criteria to be applied when choosing suppliers e.g. does the supplier have appropriate environmental and social responsibility policies in place?

• Audit suppliers to see which suppliers satisfy the criteria

Other strategies

• Purchase sustainable inputs e.g. recyclable materials

• Purchase energy-efficient technology e.g. company vehicles with hybrid engines

• Purchase and use green energy potions e.g. solar panels, wind farms

• Choose local suppliers — support local economy/less impact on co2 emissions as there is less distance to travel

CSR and processes

• Reuse of resources

• Recycling of resources

• Utilisation of green technologies

• Retain all processing within Australia to ensure all Australian workers are employed

• Adopt processes that increase accuracy and decrease waste e.g. technology

CSR and outputs

• Ensure that product is durable and reliable (beyond legal requirements) e.g. lasts longer than expected warranty period

• Create sustainable packaging e.g. sign the Australian Packaging Covenant — commitment to reduce amount of packaging and use more sustainable packaging

• Final output is biodegradable

CSR and operations strategies

Technology

• Implement ‘green’ technology e.g. hybrid vehicles

• Implement technology to increase accuracy and reduce wastage

Materials

• Implement JIT to avoid wastage

• Develop relationships with ethical supplies

• Source sustainable inputs

• Minimise deliveries to decrease carbon emissions

Quality

• Implement quality strategies to ensure product lasts beyond warranty period

• Implement TQM to involve employees into quality strategies (feel valued, increase morale)

Waste minimisation

• Implement lean manufacturing to reduce wastage and landfill

• Empower workers to develop waste reduction strategies in lean management (feel valued, increase morale)

• Implement prevention techniques to minimise landfill 3Rs

global considerations

The global economy and technology have meant that a business must look beyond the borders of its country of origin when running its operations system while optimising competitiveness

supply chain management

• Supply chain refers to the flow of supplies from the supplier, through the operations system and to the end consumer

• Supply chain management involves meeting consumer demand for goods and services while making the most efficient use of the production process and the distribution of the finished product to the customer

• A business must consider the interests and expectations of a number of stakeholders in a global supply chain:

  • Customers

  • Producers

  • Employees

  • Governments

types of global considerations

Businesses participate in the global supply chain through the following methods:

Global sourcing of inputs

• A business uses suppliers from overseas countries

Overseas manufacture

• When the production of a good occurs in an overseas location. This may be done by the business or outsourced (global outsourcing)

Global outsourcing

• Where a business hands over part of its operations to an overseas business e.g. non-core business activities such as IT are often outsourced but it can be manufacturing (overseas manufacture)

global sourcing of inputs advantages

• Opportunity to take advantage of global efficiencies

  • Due to types and quality of resources some countries have natural advantages in producing specific products e.g. Aus produce wheat/wool at lower cost to other nations

• Resources not found in home country can be utilised

global sourcing of inputs disadvantages

• Increased shipping costs and time

• Risk of damage in shipping increases with disrance

• Inefficiencies associated with time zones, cultural differences and language barriers

• May be tariffs (taxes)

• Exposed to changes in exchange rates

• Not buying locally — can be seen as unethical

overseas manufacturing advantages

• Lower cost of production

  • Labour costs in Australia is much higher than developing countries, so it can be cheaper to manufacture overseas

• Skills and resources not found in home country can be utilised

  • e.g. Ripcurl manufactures wetsuits in tropical areas such as Thailand which has plentiful supplies of rubber trees. This also reduces transport costs of raw materials

• Potential to be close to other markets

  • Australia is a long way from many countries

overseas manufacturing disadvantages

• Increased shipping costs and time if going to ship products back to Australia

• Inefficiencies associated with time zones, cultural differences and language barriers

• More difficult to manage the quality of manufactured products

• Loss of Australian jobs — can be seen as unethical

global outsourcing advantages

• Skills not found in home country can be utilised

• Outsourced to people who are specialised in their field — have specific equipment and technical expertise

• Access to cheaper labour rates

global outsourcing disadvantages

• Inefficiencies associated with time zones, cultural differences and language barriers

• Customer frustration with language barriers

• Loss of Australian jobs — can be seen as unethical

issues to be addressed in global sourcing

• Local labour costs and conditions — must ensure you act ethically

• Environmental impact — emissions generated by transport

• Exchange rates — affect cost of doing business

• Tariffs — tax on importing products can impact final cost of product