Operations: Cost Leadership & Differentiation

• Operations encompasses the business processes that transform inputs into outputs.

Cost Leadership

• Involves strategies to produce goods/services at the lowest possible cost, maintaining customer acceptance.
• Achieves economies of scale by increasing production to lower costs.
• Benefits customers through cheaper products due to lower production costs.

Differentiation

• Applies to both goods and services.
• Achieved through varying product features, quality, augmented features (like warranties), time spent, expertise level, and material/technology quality.

Standardised vs. Customised Goods

• Standardised goods are mass-produced with uniform quality, focusing on production (e.g., Apple products).
• Customised goods vary based on customer needs, focusing on the market (e.g., McDonald's menu variations globally).
• Services can be both standardised (fast food) and customised (accounting).

Intermediate Goods

• Goods that undergo multiple production cycles, serving as inputs for further processing (e.g., rubber for car tires).

Perishable vs. Non-Perishable Goods

• Perishable goods require high safety, quality, and cleanliness standards, short distribution chains, sturdy packaging, and cold storage.
• Non-perishable goods include household/business items and need effective inventory management.

Interrelation of Business Functions

• Marketing identifies consumer needs, and operations produces/distributes products to meet this demand.
• Finance creates budgets for operational inputs and aims to minimise production costs for maximum profit.
• Human Resources ensures the availability of skilled employees for operations.

Globalisation

• Globalisation involves countries breaking down obstacles for trade and enabling businesses to attract new markets, lengthen product life cycles, scale operations, access resources, decrease costs and access labor.
• Global web is the network created through the integration of suppliers for global businesses.
• Offshoring, a globalisation phase, relocates business functions to other countries for cost and efficiency gains.

Technology

• Technology involves innovative devices/machinery applied to operations.
• Improves efficiency, increases output, reduces labor reliance (lowering costs), speeds up customer delivery, and eases service access.

Quality Expectations

• Reflect consumer beliefs about quality standards; satisfaction indicates whether these expectations are met.

Cost-Based Competition

• Arises from competitors' actions and prices.
• Requires determining the breakeven point and using operations strategies to gain cost advantages.
• Ways to reduce costs include eliminating waste, buying in bulk, achieving economies of scale, and automating production systems.

Government Policies

• Government policy shapes acceptable business conduct and influences operations.
• Minimum wage laws impact labor costs, prompting staffing level adjustments.

Legal Regulation

• Legal regulation enforces government policies through laws, shaping business conduct with enforceable penalties.
• Regulations turn policies into practice.

Environmental Sustainability

• Increased societal awareness encourages businesses to adopt sustainable practices.

Corporate Social Responsibility (CSR)

• Integrates social and environmental concerns into business operations.
• Emphasises the triple bottom line: people, planet, and profit.
• Recognises that profitability can be achieved ethically.

Legal vs. Ethical Responsibility

• Legal compliance meets compulsory legal obligations (minimum wage, etc.).
• Ethical responsibility exceeds legal requirements, addressing broader social, community, and environmental concerns (charity support, etc.).

Environmental vs. Social Responsibility

• Environmental sustainability considers the environment in business actions (recycling, emission reduction).
• Social responsibility considers the business's effect on the local community (family-friendly workplace, using local employees).

Inputs

• Resources used in the transformation process: labour, energy, raw materials, machinery/technology.
• Classified as transformed or transforming resources.

Transformed Resources

• Inputs changed or converted in the operations process: materials, information, and customers.
• Customers shape the product offering.
• Information shapes production, pricing, and distribution.

Transforming Resources

• Inputs that carry out the transformation process: human resources and facilities.

The Transformation Process

• Relates to converting inputs to outputs, influenced by the 4 Vs: volume, variety, variation in demand, and visibility.

Volume

• Refers to the quantity produced.
• Greater volume using the same process leads to cost savings.

Variety

• Production processes must be flexible to offer variety, adapting to customer needs.

Variation in Demand

• Relates to how consumer demand changes over time.
• Increased demand requires more inputs, HR, energy, and technology.
• Decreased demand requires operational flexibility (reduced staff hours, slowed production).

Visibility (Customer Contact)

• Requires businesses to build customer relationships, build loyalty, and improve operations, especially in service industries.

Sequencing and Scheduling

• Sequencing indicates the order of activities in operations using Gantt charts.
• Scheduling indicates the time activities take, using critical path analysis.

Gantt Chart

• Bar chart showing scheduled and completed work over time, used for project planning and tracking.
• Outlines activities, order, and expected duration.

Critical Path Analysis (CPA)

• Shows tasks, duration, and necessary order.
• The critical path is the longest path.
• Helps managers schedule tasks and consider timing.

Technology

• Hardware and software automate processes and reduce lead times.
• Reduces per-unit costs and increases production speed.
• Allows businesses to allocate dangerous tasks away from employees.

Task Design

Task design breaks work into a series of jobs that contribute to the final goal, ensuring a logical sequence for successful task allocation.

• Task design involves defining tasks, identifying responsible parties, breaking tasks into skills/duties, and allocating time/difficulty levels.

Process Layout

• Involves arranging machines based on task and emphasising smooth production flow and safety.
• Fixed position layout involves bringing employees/equipment to the product.

Monitoring, Control, and Improvement

• Monitoring measures actual vs. planned performance.
• Control assesses KPIs against targets and takes corrective action.
• Improvement systematically reduces inefficiencies and bottlenecks.

Outputs

• The final goods/services received by consumers.
• Customer service addresses customer expectations.

Customer Service Review

• Reviews are needed when customers express dissatisfaction through defects, unmet quality, long wait times, returns, or warranty claims.

Warranties

• Warranties promise to correct defects, exceeding legal guarantees.

Quality

• Is dictated by consumer expectations.

Quality of Design

• Addresses understanding consumers and their preferences when producing or delivering a product.

Quality of Conformance

• Measures uniformity and standardisation, indicating consistency with desired specifications.

Quality of Service

• Addresses the reliability of meeting client-specific needs.

Speed

• Refers to the time taken to respond to market demand by reducing wait times, shorten lead times, and reducing process times.

Dependability

• Shows how consistent and reliable a business’ products are. It can be measured by warranty claims, consistency of service standards/complaints

Flexibility

• Indicates how quickly processes adjust to market changes via increased capacity or service providers.

Customisation

• Involves creating individualised products, at a higher cost than standardised production.

Cost

• Focuses on minimising expenses through new technologies, better input use, reduced wastage, and lower supplier/inventory costs.

Product Design and Development

• Driven by consumer preference and technological innovations.
• Important factors include quality, features, supply chain management, capacity management, and cost.

Services

• Explicit services involve time, expertise, skill, and effort.
• Implicit services are intangible, based on feelings.

Supply Chain Management (SCM)

• Involves integrating and managing the flow of suppliers throughout the inputs, transformation processes and outputs in order to meet the needs of customers.
• Consists of sourcing (including global sourcing), e-commerce, and logistics.

Sourcing

• Purchasing inputs for transformation processes.
• Global sourcing purchases supplies/services without location constraints.

Global Sourcing Benefits

• Include cost/expertise advantages and access to new tech/resources.

Global Sourcing Challenges

• Possible operational relocation, increased logistics costs, different laws, and complexity.

E-Commerce

• Buying/selling via the internet.
• E-procurement manages supply online, allowing supplier access to stock levels.

Logistics

• Encompasses distribution, transportation, storage, warehousing, materials handling, and packaging

Distribution

• Involves transportation and warehousing to get goods to customers, with distribution centers for quick retail supply.

Warehousing

• Involves the use of warehouses for the storage, protection and later distribution of stock.
• Can save costs if used well.

Outsourcing

• Uses external providers for business activities, focusing on core functions at lower costs.

Outsourcing Advantages

• Include simplified management, cost savings, specialised support, and new opportunities.

Outsourcing Disadvantages

• Inlcude dependency on the provider, unmet service levels, language issues, time zone variations, and security risks.

Leading-Edge Technology

• Is the most advanced available.
• Helps businesses create products faster, to higher standards, and with less waste or allow a business to run more efficiently.

Established Technology

• Has been well-developed and widely used technologies, such as computers and software packages.
• Essential components for most businesses. Devices such as mobile phones, printers, scanners, laptop computers, security systems and EFTPOS machines

Inventory Management

• Considers perishability, seasonal demand, and transportation time.

Advantages of Holding Stock

• Meeting demand, offering alternatives, reducing lead times, generating revenue, and utilising bulk production cost savings.

Disadvantages of Holding Stock

• High costs include storage, spoilage, insurance, theft, capital, and obsolescence.

Last In First Out (LIFO)

• Recently purchased stock is sold first (canned goods) or goods that have no use by date; can be stocked in front of old.

First in first out (FIFO)

• Oldest products will be sold first (appropriate for perishable items).

Just in Time (JIT)

• Aims to hold minimal stock and only bring stock from suppliers as required, which enhances efficiency, and improves product quality.

Benefits of JIT

• include enhanced efficiency and improved quality control.

Disadvantages of JIT

• Includes dependency on suppliers and the risk of supply chain disruptions.

Quality Control

• Reduces defects through inspections, measuring quality against set standards (reactive approach, can lead to wastage).

Quality Assurance

• Uses a system to ensure set standards in production ('right first time' approach).

Quality Improvement

• Continuous improvements in all areas focusing on effectiveness and efficiency

Change Management

• Uses the unfreeze, change, refreeze model.
• Unfreeze prepares the business for change by breaking down existing systems (change agents may be used internally or externally to initiate change).
• Change communicates and implements new procedures and behaviours.
• Refreeze makes the change last by offering positive reinforcement.

Financial Costs of Change

• Purchasing new equipment improves flexibility, processing speeds, and reduces wastage.
• Involves retraining and redundancy payments (legally required).
• Reorganising layout involves transportation costs, downtime, and productivity loss.

Inertia

• Describes a psychological resilience to change.

Strategies to Overcome Resistance to Change

• Change must be planned, managers must be proactive, overall impact must be considered, a culture for employee participation should be encouraged

Global Sourcing (as an Operations Strategy)

• Outsourcing decisions must be exposed in the global market.
• It includes any outsourced business operations that give the business cost advantages.
• May use a global web strategy to reduce operation costs.

Economies of Scale

• Cost advangates happen due to cost advantages by producing on a larger scale reducing per unit input.

Operations management involves transforming inputs into outputs. Cost leadership aims to produce goods at the lowest cost, while differentiation focuses on varying product features and quality. Standardized goods are mass-produced, whereas customized goods vary based on customer needs.