Operations Management (Operations Notes (1) PDF)

Operations Management Topic 1 - Role of Operations Management Operations management (Definitions) Operations management is the transformation of inputs to outputs to meet the requirements of customers while making efficient use of resour...

Operations Management Topic 1 - Role of Operations Management Operations management (Definitions) Operations management is the transformation of inputs to outputs to meet the requirements of customers while making efficient use of resources. Effective operations management adds value to the business by increasing productivity, reducing costs and improving quality. This is to achieve a strategic competitive advantage through lower costs and/or differentiated goods. Case Study Example: McDonald's uses strategic planning Interdependence — refers to the mutual dependence that the key functions have on one another. The strategic roles of the KBFs can be briefly summarised as follows: Marketing: Determining/influencing an appropriate marketing mix to maximise sales in the chosen target market(s), contributing to profit maximisation Human Resources: Managing the human resources cycle (ADMS) to effectively support the relationship between the employee and employer to achieve business goals Operations: Managing the transformation process effectively to achieve competitive advantage through cost leadership and/or contributing to product differentiation Finance: Sourcing and managing funds effectively to achieve financial objectives (PLEGS) Case Study Example:  Operations Process 2.1 Inputs - Inputs are the resources used in the transformation process. Some inputs are owned by the business, while others are provided by suppliers. Inputs may be classified as: Transformed Resources Materials, Information and Customers. They are converted in the operations process. (they undergo change) - Materials - (intermediate goods) Materials are the basic elements used in the production process and consist of raw materials and intermediate goods. Information (internal+external) Information is the knowledge gained from research, investigation and instruction which results in increased understanding. Customers (needs, feedback) Customers are also a transformed resource as their needs and desires drive the operations process of a business. For example, a business needs to understand its customer's needs and wants in order for the operations process to meet its quality expectations. Case Study Example: - Transforming Resources - Human Resources and Facilities. Human resources (labour) Capable workers can bring higher productivity and efficiency to business operations. The effectiveness with which human resources carry out their work duties and responsibilities can determine the success with which transformation and value-adding occur.  Facilities (plant, factory or office) Facilities refer to the plant and machinery used in the operations processes. Major decisions include the design layout of the facilities, the number of facilities to be used, their location and their capacity. - They carry out the transformation process, they enable the change and value-adding to occur. (they do not change, but facilitate change) Case Study Example: 2.2 Transformation Processes The 4 V’s Transformation is the conversion of inputs into outputs. The Transformation process will need to address the following questions: How much to make — what volume of input to purchase and process? How much variety — what range of outputs should be made? How much variation in demand will there be — and how quickly can the operations processes respond to changes in demand? How much visibility (customer contact) should there be and what, if any, role should it have on transformation processes? Volume is the actual number of products produced. Higher volumes generally mean more complexity (requires more sophisticated resources to achieve) Case Study Example - 5-start restaurant High Volume Serving fewer customers and having a lot more workers Case Study Example - McDonald's Variety Has to do with the number of variations a product may have. Case Study Exmple - All the different types of burgers, wraps, snacks, meat or chicken that McDonalds offers. Low variety - Bline bus, follows the same route every day (not much variation) High Variety - Uber drivers, different destinations on every journey. Variations in demand for a product can change according to the time of day or week, seasonal, public holidays or economic/market conditions. Eg everyone buying toilet paper once covid hit which created a shortage Visibility includes the degree to which customers see the transformation process. Service-based businesses will have a high level of visibility, while customers will rarely see the operations process of a manufacturing business. Eg the Mcdonalds at the international airport has see through windows so you can watch them make your food and you can see when its coming to you through the drop box machine they have. Low Customer contact - Online university course / Ordering mcdonalds via uber eats High Customer Contact - Restaurant or getting a coffee and watching them make it / Going to eat at McDonalds in store The amount of visibility does affect customer satisfaction and feedback. Two aspects that assist with structuring and ordering the transformation processes so that tasks occur in the most efficient order. Sequencing and Scheduling - Sequencing refers to the order in which activities in the operations process occur - Scheduling refers to the length of time activities take within the operations process Technology, Task Design and Process layout Technology involves the use of machinery and systems that enable businesses to undertake the transformation process more effectively and efficiently. Technology is commonly used by most, if not all, businesses in their transformation process. The capital cost of technology is relatively high so businesses need to decide whether to purchase technology or to lease it. Eg The self serve machines at McDonalds Task Design Structuring job activities to determine the most efficient way for an employee to perform and complete the task successfully. Eg Each employee is rostered on doing their own individual job, someone will be on burgers, someone will be on nuggets and someone will be on the till etc. Process Layout Physical layout of the factory or office. The layout is influenced by: - Size of equipment - Work area - Storage space  - How flexible and customised the product is Monitoring and Controlling Monitoring and control lead to improvements when there is a focus on quality and standards - Monitoring is the process of measuring actual performance - Control occurs when KPIs (key performance indicators) are assessed against predetermined targets and corrective action is taken if required. - Corrective action is where operations management 2.3 Outputs The end result of the business efforts i.e the goods and services that is provided or delivered to the customer. The goal of operations management is to produce products that have more value than its inputs and meet and satisfy customer expectations as well as have a competitive advantage over its competition Outputs may also be responsive to customer demands. Issues of quality, efficiency and flexibility must be balanced against the resources and strategic planning. Customer service Intangible service provided by a business to its customers before, during, and/or after a purchase. Customer service impacts how well a business meets and exceeds the expectations of customers in all aspects of its operations. Customer service is an output of all businesses and is an essential part of both service and manufacturing-based businesses as it can achieve a competitive advantage. Warranties A promise made by a business that they will correct any defects in the goods that they produce or in the services that they deliver. The promise can either be made automatically due to the Australian Consumer Law, or the warranty can be an extra promise made by the seller that is in addition to the statutory warranty. Retailers and manufacturers must comply with the warranty and may need to provide a replacement product if a consumer is not satisfied. Generally, it is the responsibility of the seller to organise this and take the problem to the manufacturer. The manufacturer may replace the product or repair faulty goods with skill and care, using spare parts of suitable quality, and return the product or goods to the consumer. A business may offer an extended warranty above the legal minimum, such as a three-year replacement warranty. This is on top of the statutory warranty and covers the product for manufacturing defects or faults for an additional length of time. This usually comes at an extra cost, as it represents an additional service provided by the business. The number of claims made against a business on a particular product line or product range allows a business to assess the effectiveness of its operations processes. Operations Strategies 3.1 Performance Objectives - Strategy that involves operations management setting objectives, and monitoring and controlling these in order to achieve the performance level. - Performance objectives are goals that relate to particular aspects of the transformation process. These are set so that the business becomes more efficient, productive and profitable. Performance objectives inform the other operations strategies. - There are 6 performance objectives, outlined below. Quality Quality is how well designed, made and functional a good is and the degree of competence with which services are organised and delivered. Quality is often determined by consumer expectations, which are then used to inform the production standards applied by the business. (Reviews and Ratings) - Price and quality are interlinked, for example, a low price tends to reflect a low-quality product and lower consumer expectations. This also applies to - vice versa. ​Case Study Example: While McDonald’s customers don't expect gourmet dining, they do anticipate a reasonable level of quality and taste for the price they pay. Speed Refers to the speed of production of a good or delivery of a service. Speed aims to satisfy customer demands as quickly as possible. Therefore, goals for speed include; - Reduced wait times - Shorter lead time (with suppliers and to customers) - Faster processing Achieving these goals requires a reduction in procedural and technical bottlenecks and smooth internal communications. Operations processes can only move at the speed of its slowest machines - bottlenecks occur where operations cannot handle any more increase in speed. The speed of operations can be increased with technology. Case Study Example: McDonald's plant and process layout are designed to ensure the logical placement of ingredients and equipment Flexibility Flexibility refers to how quickly operations processes can adjust to changes in the market and what is in/out of demand. Changes in the market could relate to changes in customer wants / needs, or changes in the volume demanded by customers. Changes in market demand can influence production levels. A particular issue is the inability to meet high levels of demand due to limited production capacity. Flexibility can be best achieved by: - increasing the capacity of production. This can be achieved through new technologies, changing the product design, or increasing production facilities (e.g. adding spare capacity). These options enable the business to better meet fluctuations in demand. - In respect of services, flexibility can be achieved by increasing the number of service providers, increasing the provider’s skill level and improving the level of technology used when providing the service. Demand for a product also changes due to external influences and also according to the product life cycle. A business needs the flexibility to match the change in demand and avoid running out of stock or holding excess stock. Case Study Example: McDonald's operations were forced to be very flexible during the COVID-19 pandemic, making the business lose a lot of money. This was advanced on through mobile ordering due to dining-in closures. They also doubled down on the 3 D’s (Digital, Delivery and Drive Thru) Dependability Refers to how consistent and reliable a business’s products or operations process is. In respect to goods, dependability is measured by warranty claims. A high level of warranty claims indicates problems within the operations process that need to be addressed in order to meet customer quality expectations more consistently. In addition, a dependable operations process is able to reliably meet consumer demand through maintaining correct inventory levels (e.g. avoid out of stocks) and minimising unexpected interruptions to production (e.g. due to poor maintenance). In respect of services, dependability is measured by the number of complaints received; the fewer the complaints the more dependable the service. Case Study Example: Consistent service and food quality, Mcdonald's have the same burgers in different countries. Customisation Refers to the creation of individualised products to meet the specific needs of customers. Services are generally customised, although aspects of services can be standardised as seen in the fast-food sector. A business with a focus on customisation will need to have close contact with customers to understand their needs and translate these into design specifications or service requirements. Highly customised products usually sell for higher prices. The cost of customisation is higher than the cost of mass-producing standardised products, so for this reason only businesses with a product that can be easily adapted tend to customise. Case Study Example: Introduced a level of customisation that was not compatible with McDonald's focus on speed. However, McDonald's does offer a degree of customisation about its products. Cost Cost refers to the minimisation of expenses so that operations processes are conducted as cheaply as possible. A cost leadership strategy is used by a business to gain a competitive advantage by aiming to achieve the lowest average costs within its industry. A challenge of reducing costs is ensuring that quality is not sacrificed at the same time. Reducing costs can be achieved through a number of other operations strategies, such as through: - Global sourcing - Managing inventory - Improving logistics. The acquisition of new technologies can also help a business to reduce operational costs by using inputs more efficiently and by minimising wastage. Case Study Example: Mcdonalds are able to offer such a low price to their customers as they have cut expenses in wages and salaries by adding self serve kiosks and mobile app ordering. 3.2 New Product / Service Design And Development Operations must work with marketing in the design or development of new products. If operations encounters issues in the production of an existing product they can also propose design changes to reduce cost or enhance product performance. Product design and development is led by marketing, but operations play a key role in determining how products can be made, what materials can be used, or how features can be made to work in the product. Operations Management is responsible for the development process which aims to eliminate unnecessary expenses and design issues through extensive research. Approaches to product design and development include: - Consumer approach - find out about customer preferences through market research to upgrade product features/quality - Capability Approach - where changes in technology allow for advanced product functionality and the development of new, appealing products Case Study Example: In Spring 2018, McDonald’s swapped out frozen beef for fresh, cooked to order beef in it’s quarter-pounder burgers, following the change there was an increase in sales. Lots of organisation must go into this process in terms of cooking procedure, shipping storage, correct temperature and hygiene rules around fresh raw meat. 3.3 Supply Chain Management Supply Chain Management (SCM) involves integrating and managing the flow of supplies through the inputs, transformation processes (through value adding) and outputs in order to best meet the needs of customers. Supply chain management involves both sourcing (supply-side) as well as logistics and distribution. Logistics Involves the distribution, storage and handling of physical raw inputs and the distribution of physical outputs to markets in the most efficient way and for the least amount of cost.  - Planning and scheduling are important responsibilities of logistics - Distribution and transportation is concerned with the physical movement of inventories. The type of product and cost of transportation will determine the mode of transportation. - Storage involves finding a secure place to hold stock until it is required. - Warehousing is defined as the use of warehouses for the storage, protection and later distribution of stock - Distribution centre is slightly different to a warehouse in that is it not intended for long-term storage. Instead, they are strategically located to minimise the time it takes to supply stock to retail outlets - Material Handling is an important aspect of the movement and storage of goods, and therefore particular standards and methods of operating need to be applied. This is because some products require particular skills, care or attention when being moved. Case Study Example: Amazon serves consumers through both online and physical stores with a focus on selection, price and convenience. Items that are available online are stored in Fulfilment Centres (FCs). E-Commerce Involves buying and selling via the Internet. E-Commerce could be used for transactions between businesses and their customers (e.g when selling outputs) - E-commerce has made the supply chain more efficient due to the speed with which information can be transferred via the Internet. It has also increased dependability through the associated computer systems and software, for example by helping to ensure stock is not over or under-ordered. Advantages - Greater availability of information, speed and cheaper to access global markets Disadvantages - Privacy and security issues Case Study Example: Shopify allows stores to create an online storefront where customers can purchase their products from the comfort of their own home or even if they are away from home. This increases business traffic, maximising sales. Global Sourcing Refers to the purchasing of inputs without being constrained by location. Sourcing refers to the purchasing of inputs for the transformation process. In terms of supply chain management, global sourcing means buying or sourcing from the suppliers that best meet the sourcing requirements. - Assess consumer demand so that input volumes are known - Determine the quality of inputs so that standards are maintained - Assess how flexible the supplier is with changes in demand - Evaluate the cost of inputs from the supplier against other suppliers offering similar quality Advantages - Access to a wider range of products and materials  - Potential cost savings due to cheaper labour and production costs in other countries - Ability to access specialist skills or unique resources not available locally Disadvantages - The increased cost of logistics, storage and distribution - Longer lead times due to transportation and customs - Increased complexity (e.g logistics, implications of different laws in different countries, currency fluctuations, communication barriers, time zone differences) Case Study Example: McDonald's and its franchisees purchase food, packaging, equipment and other goods from numerous independent suppliers. McDonald's also purchases services, such as transport / distribution. McDonald's maintains a Supplier Code of Conduct that applies to all of its suppliers around the world. McDonald’s supply chain for goods is a complex web of direct and indirect suppliers that are held to clear standards. Direct suppliers are those McDonald's purchases directly from. Indirect suppliers are part of McDonald's supply chain, but do not sell directly to McDonald's. 3.4 Outsourcing Refers to the use of external providers to perform non core business activities such as IT, transport and maintenance. A decision to outsource is based on the expectation that this will be cheaper and more efficient than performing the task in house. An alternative to outsourcing is vertical integration in which the business performs ALL the manufacturing tasks and makes all the inputs in-house. - It is important not to mix up sourcing and outsourcing - Sourcing refers to the process of acquiring resources (inputs) from external suppliers - Outsourcing involves hiring a third party to handle tasks or functions that were either previously done in-house or would typically be done in-house by the business. In other words, instead of task/function being done in -house, it is now sourced externally (outsourced) Advantages and disadvantages of Outsourcing Advantages Disadvantages Simplification: this arises from reducing the Reliance on other businesses - become number of activities performed within the vulnerable to other businesses risk and poor business. performance Payback periods and cost: this refers to Efficiency and cost savings: access to  cheaper labour, regulatory differences and how long it takes to repay the cost of skilled labour in offshore locations all lead organising outsourcing and make the to cost savings for business. required organisational changes. Over time businesses will experience cost savings; however, it could take two or three years. If a business reduces internal inefficiencies, businesses may become more efficient and productive without using outsourcing. Increased process capability: this comes Communication and language: As outsourcing from access to improved technologies and often occurs across two or more regions, there highly skilled labour. Improved process can be cultural differences, language capability means products are produced differences and differences in the way and delivered to the market with improved business issues and problems are managed. levels of service. This can lead to a misalignment between the business and the outsourcing vendor. There may also be misunderstandings about what the agreed service levels are and what KPI measures are acceptable. Increased accountability: through the use Organisational change and re-design: of service level agreements, which outsourcing may be accompanied by a contractually bind the vendor to high level of business change and pre-determined targets on KPIs organisational redesign such as downsizing, causing the loss of domestic employment. Access to skills/resources lacking within Loss of corporate memory and the business: a business outsourcing to a vulnerability: a significant disadvantage nation such as India or Vietnam, may well arises from the reliance on the outsourcing find that there is access to highly skilled provider. Key knowledge of processes and and disciplined labour at low cost. This solutions may be lost with the transfer of gives a double saving as there is then no business processes to outside parties. need to spend money on training and Business may also require that the developing labour resources. outsourcing vendor have strategies in place in case there is a regional crisis (such as an earthquake) that severely disrupts communication and leads to information losses. Capacity to focus on core business or key competencies: the use of outsourcing enables a business to focus on that which it cannot outsource: its vision, purpose, sustainable advantage through innovation and so on. Case Study Example: Apple uses outsourcing to take advantage of skilled labour and cost effective manufacturing, enabling them to produce their products at scale. Concentrating manufacturing through outsourcing partners like Foxconn has enabled Apple to achieve high production volumes, quality and dependability in its production processes. This supports both product differentiation and cost leadership. 3.6 Inventory Management Inventory or stock refers to the raw materials, work-in-progress and finished goods that a business has on hand at any particular point in time. Business engaged in purchasing inventory must make strategic decisions regarding the optimal levels of stock to carry, aiming to achieve maximum efficiency whilst maintaining the ability to satisfy consumer demand. It is important to hold enough stock to meet consumer demand and avoid out of stock of popular products, yet not have too much that it sits in warehouses and becomes obsolete and there is no demand for the product, or can no longer be sold because they have expired (i.e perishable items). Managing inventory effectively is very important to achieve a business’s strategic goals. Advantages of holding stock Disadvantages of holding stock Consumer demand can be met when stock is The costs associated with holding stock including available, generating revenue. This may prevent storage charges, spoilage, insurance, theft and lost sales / the consumer seeking to buy from an handling expenses. Holding more stock generally alternative business. increases these costs. If a particular product line runs out, an alternative The cost of obsolescence, which can occur if can be offered, thereby generating income for the stock remains unsold. business instead of a lost sale. Provides a buffer against uncertainties such as Opportunity cost: Money tied up in inventory (i.e. supplier delays and unexpected demand surges. used to purchase all the inventory) could have been used for other opportunities. If inventory is not selling quickly, the opportunity cost of tying up that capital is considerable. Reduces lead times between order and delivery, providing a quicker response to customer needs. Stocks are a current asset and are of value to the business (shown on the balance sheet). Purchasing inventory in larger quantities may reduce costs as there are economies of scale in purchasing inputs (e.g. due to bulk discounts or reduced shipping costs). However, these savings could be offset by higher storage costs.  LIFO & FIFO - (last-in-first-out), (first-in-first-out) At the end of the accounting period, financial management needs to determine the value of stock sold throughout the year (i.e. cost of goods sold) as well as the value of remaining stock (current asset on the balance sheet). The main inventory valuation techniques include: - Last in First Out (LIFO) LIFO is a stock valuation method that means when a business selss goods it will sell stock that it purchased at the latest (most recent) date first. Assuming inflation (rising prices), the impact of using LIFO is: - The rising prices of inputs will make the COGS more expensive than if prices were falling, therefore reducing gross profit (and tax payable). This is because the inventory bought last (at the highest price) is sold first, increasing the cost of goods sold. - The value of stock on hand / inventory (on the balance sheet) will also be lower, reducing current assets. This is because the remaining inventory was purchased at an average lower price than the more recent inventory which was sold. - SIDE NOTE: At the moment LIFO can't be used in Australian financial reports due to current Australian accounting standards. It can still be used by companies in the USA because they have different accounting standards. - First in First Out (FIFO FIFO is a stock valuation method that means when a business sells goods it will sell stock that it purchased at the earliest date first. ASSUMING inflation (rising prices), the impact of using FIFO is: - The rising prices of inputs will make the COGS less expensive, therefore increasing gross profit (and tax payable). - Stock value is higher than the LIFO method, impacting closing stock on the balance sheet and increasing the value of current assets. FIFO is the most appropriate method for perishable products with short shelf lives (Used for food products - think F for Food). For example, a supermarket sells the oldest stock before it reaches its use-by date - the old stock will be placed at the front of the shelf and new stock will be placed behind, ready to replace it as the old stock that came in first sells. 3.5 Technology Technology includes the equipment, materials and knowledge available to to the business to perform functions or make products. - Technologies enable people to communicate more easily and enable improved processes - At an administrative level, technologies assist with organisation, planning and decision making and are in control of operational processes. - At a production level, technologies are used in manufacturing, logistics and distribution, quality management, all aspects of inventory management, supply chain management and sourcing. - The implementation of technology has three broad aims:  1. To save time and money 2. To introduce new products or services 3. To give business better control over operations, particularly quality Long term advantages include: - Improved quality - Development of new methods of production that increase productivity or reduce costs (e.g reduced waste, reduced labour requirements) - Increased speed of production (products produced more quickly) Operations Processes can incorporate leading edge technology and / or established technology.\ - Leading edge technology is the most advanced or innovative technology in the market at any point in time, still undergoing development and at the forefront of research. - Leading edge technology is also known as "cutting edge" technology. It creates a competitive advantage however does have associated risks and costs. Leading edge technology can assist a businesses to create products more quickly and achieve higher standards, with less waste, and may also help them operate more effectively. 3.7 Quality Management Refers to the process that a business undertakes to ensure consistency, reliability and fitness of product purpose. Quality is measured by the customer in relation to the extent the product meets or exceeds their expectations. Customer satisfaction results in sales, customer loyalty and profitability. The Quality Management approaches are: - Quality control — inspection, measurement, and intervention (checkpoints) - Quality assurance — use of a quality management system which may be externally certified (e.g. ISO 9000 series) - Quality improvements — continuous improvement and total quality management (TQM) Quality control Quality Control involves the use of inspections (checkpoints) at various stages in the production process to check for problems, errors and defects that may occur and to ensure the process is meeting specified standards. - Quality Control requires a business to define their quality standards and parameters and broadly apply them across a range of products and processes. Once the standards have been set this establishes a benchmark for production and quality of final output. Case Study Example: McDonald's have implemented a "Digital Food Safety (DFS)" initiative in 88% of restaurants. DFS is an initiative comprising several phases to digitise food safety tasks in restaurants. It simplifies restaurant food safety management while mitigating risk by implementing digital systems Quality Assurance Quality Assurance (QA) involves the use of a quality management system to ensure that production meets a predetermined set of minimum quality standards. QA is a proactive approach which prevents products having problems before they occur. QA includes the notion of ‘fitness for purpose’ or how well a product does what it is designed to do, as well as the desire to achieve ‘right first time’ so that products do not need to be reworked, which wastes time, energy and other resources. Quality assurance might involve certification of a quality management system (QMS) against external standards Case Study Example: Mcdonald’s quality management systems and processes involve ongoing product reviews, virtual supplier visits, and third party verifications (audits). To ensure audits are robust, McDonald's hosts calibration sessions with its approved third-party auditing firms Quality Improvement Quality improvement is a focus on continuous and ongoing improvement throughout the operations process and ensures controls are put in place so that poor quality products never reach the customer. - Quality improvement (QI) focuses on two aspects: continuous improvement and total quality management. Whilst quality assurance is more about adhering to a documented quality management system in order to maintain a quality level, quality improvement is more about long term improvement in the desired quality level (i.e. increasing the performance target). - Continuous improvement is an ongoing commitment to improving a business’s goods or services. Improvement may be a monumental breakthrough achieved through innovation all at once or it may be incremental and gradual over time. Case study example: At McDonald’s, we’re listening to our customers to evolve our offerings, while maintaining the same taste they know and love. I’m particularly proud of the work that’s gone into the evolution of our Happy Meal Offerings, and how our markets are promoting more balanced choices for families than ever before. Over the last five years, we made significant progress toward five Happy Meal Nutrition Goals that we set in 2018 in 20 of our major markets 3.9 Global Factors Globalisation has presented many opportunities for businesses to improve operations however also creates new risks to manage. There are a number of strategies a business can use to leverage these opportunities. These include global sourcing, economies of scale, scanning and learning, research and development. Global Sourcing Global sourcing under global factors is a repeat of the theory covered under 3.3 Supply Chain Management  Economies of Scale Refers to cost advantages that can be gained by producing on larger scale. Businesses operating in global market can produce more due to the ability to sell in many markets. As a business produces higher levels of output, their average cost to produce each unit of output tends to fall (i.e they archive economies of scale of scale). This happens for a number of reasons, including: - The ability to purchase inputs in bulk and therefore access bulk purchase discounts. - - The ability to spread fixed costs over a larger amount of production, therefore reducing the fixed cost per unit of output. - - As more of a certain product is produced, a business is likely to invest in specialised resources (e.g. facilities) that can reduce average costs in the long term. - - Holding prices constant, and lowering average production costs through economies of scale increases profit margins and profitability. Scanning and Learning Scanning and learning means scanning the global environment to identify and learn about global trends such as new technology and innovation. By scanning the global environment businesses can learn about best practices from around the world. Businesses can integrate learnings from global trends into improving their production process. Sources of information that facilitate scanning and learning could include: Management journals, industry and business associations, conferences and other forums Staff members and managers who have worked in other businesses and in other nations. 3.8 Overcoming Resistance to Change All businesses are subject to change from the external environment such as legislative and regulatory changes, changes in economic conditions, social changes over time and technological breakthroughs, which all impact on the business and shape its operations. Implementing change can be difficult due to restraining forces that hold back businesses and resist change. These can be obstacles to businesses achieving their goals and they may need to implement change management strategies to successfully implement the change and address the resistance to it. Resistance to change The main resistances to change arise from financial costs. Financial costs associated with change include: - The cost of purchasing new equipment - new technology which is required to improve operations process - The cost associated with structural reorganisation of the business, including reorganising plant layouts - The cost of redundancies - payments to workers whose job has been replaced, often by technology - The costs of retraining employees - retraining of employees whose job has changed as a result of the change to operate new equipment and technology Although the purchase of new equipment can be high, there can be very significant advantages such as improved processing flexibility, improved processing speeds and shorter lead times, more consistency in production and higher overall quality of processing. Change management strategies To manage significant change, a business should formalise its approach to change management. This can be done by: - Identifying the source(s) of change and assess whether there is a need to accommodate change through adjustments to business processes. - Lower the resistance to change through communicating with employees about the need for change and getting widespread support for the change. - There may be a need to use change agents (internal staff or external professionals). If staff are included in the process of creating a culture of change and setting goals, they will generally be more supportive. - Provide training/retraining programs and counselling, and negotiate. Case Study Example: McDonald's 4.0 Operations Influences Globalisation Sample Response  "GTG le coq" + CSR globalisation, technology, quality expectations, cost-based competition, government policies, legal regulation, environmental sustainability, corporate social responsibility Globalisation refers to the removal of barriers of trade between nations. It is characterised by an increase in the integration between national economies and a high degree of transfer of capital (facilities and/or machinery), labour, intellectual capital and ideas, financial resources and technology. Globalisation has lead to the interdependence of different national economies, creating a global economy through trade, technology, deregulation and development of global businesses. As a result, there is an increased flow of goods, services, people, finance and information around the world. Geographic location and distance have become much less important issues for business due to increased reliance on technology such as email, internet and other communication methods. Globalisation has led to the emergence of global consumers and opens up new markets. Operations may need to change the features, design, quality or information for a good or service to suit these new markets The Impact of Globalisation on Operations Strategy Globalisation has significant implications for operations management and these can be linked to specific strategies from the syllabus. Technology - Globalisation has facilitated the increased sharing of ideas/skills/technologies across national borders - The increased access to technology and the pace of technological change present opportunities and threats for operations management. For example, opportunities could include increased automation and efficiency, data analytics and business intelligence. Threats could include cybersecurity risks (e.g data breaches), dependence on technology (increased vulnerability to disruption), and the cost of implementation. Quality management Globalisation has led to a more interconnected and competitive business environment, emphasising the importance of quality management. - Ensuring consistent quality throughout a global supply chain has become more complex, requiring effective quality control or assurance measures and collaboration with international suppliers. - Businesses face more competition in a global marketplace, and consumers are more informed / have higher expectations regarding product quality. Consumers can also  share negative experiences globally through social media. All of this makes it crucial for businesses to prioritise and manage quality effectively. - The principles of Total Quality Management (TQM) and continuous improvement are crucial in a globalised context. Businesses seek to optimise processes continually, enhance product quality, and adapt to changing market dynamics to stay competitive on a global scale. Outsourcing Globalisation has increased both the opportunities for outsourcing and the complexity of outsourcing decisions. - Globalisation has made it easier for companies to reduce costs by providing opportunities to outsource to locations where labour is less expensive. Globalisation has also provided access to a larger number of specialist outsourcing partners, supporting increased quality. - Outsourcing globally has challenges, including cultural differences, data security concerns, currency fluctuations and geopolitical risks. Influences - Marketplace Quality Expectations Quality expectations refer to the standards customers anticipate in terms of a product's quality level, which operations are required to meet. Quality expectations in operations management may be summarised into several key features that customers look for in products, such as quality of design, fitness for purpose, durability, professionalism of the service provided, reliability of the service provider and level of customisation. People have an inherent belief in what the quality standards should be for products and their personal level of satisfaction with their experience of the product will indicate whether or not their quality expectations have been met. Quality expectations and maximising customer satisfaction is a key influence on business operations and significantly influences the production process. Managers must develop quality control processes and standards to meet the expectations of consumers. Operations do not necessarily have to make a high-quality product; just a product that matches customers’ expectations (for the price they paid). Sometimes the most popular products are not of the best quality. A business that falls short of customers’ expectations will suffer long-term damage to its goodwill and reputation.  Cost-based Competition Cost-based competition refers to an increase in competition in the market based on cost. Competitors can reduce their prices to compete where they reduce their average costs of production. Cost-based competition is a feature of operations management when businesses bring a cost leadership approach to the operations function. That is, they focus on reducing costs to a minimum while maintaining profit margins through: - Eliminating waste - Buying bulk imports - Achieving economies of scale - Producing high-volume output - Using automated production systems Government Policies Government policies refer to the announced intentions by the government as to laws that may be made in the future. Government policies can inform law-making, and also lead to business opportunities. A change in government can also result in changes to policies that impact the business operations. Operations managers need to be fully aware of the contemporary government (and opposition party) policies and how they impact the operations process, for example through proposed changes to: - Taxation rates - Work Health and Safety Standards - Training and Rules - Public health policies - Environmental Policies - Trade and industry policies Legal Regulation Legal regulation refers to the laws that have been passed by the government and that business must comply with. In Australia there are three levels of government which create laws (Local, State/Territory and Federal) and regulate aspects of business activity. The laws are established to ultimately protect consumers and ensure businesses are not engaged in unconscionable conduct that could compromise fair competition and public health. Laws make clear the standards of society, and businesses are expected to comply with the standards of behaviour imposed by the legal regulations. Particular laws influence how operations practices and processes are conducted:  - Work Health and Safety (WHS)— requires that employees be given appropriate safety training, use of protective equipment, and work with machines that abide by noise, pollution and safety standards. - Fair work and anti-discrimination laws— requiring that employees be treated with dignity and respect. - Environmental protection— minimising pollution, eliminating and safely disposing of any toxic residues. The expenses associated with meeting the requirements of legal regulations are termed compliance costs. It is the legal responsibility of operations managers to be aware of all laws relevant to the operations function and to ensure that the business complies with them as there are serious financial consequences for failing to satisfy government regulations. If businesses break laws, negative publicity and media attention may damage brand value and reputation. This will potentially have longer-term impacts on sales and profits. Corporate social responsibility (CSR) Corporate social responsibility (CSR) refers to open and accountable business actions based on respect for people, community/society and the broader environment. It involves businesses doing more than just complying with laws and regulations. CSR places value on financial returns as well as social responsibility and environmental sustainability. The principles of the CSR require a business to manage the effects of its activities on society/community and the environment, such that negative impacts are minimised. This requires that a business understand where and how its inputs are sourced so that it only draws from suppliers that adhere to appropriate standards. It also requires that a business shapes its processes in such a way as to minimise environmental damage and waste. Difference between legal compliance and ethical responsibility Legal compliance involves making sure that laws and regulations relating to the operation of a business are strictly observed. Legal compliance includes compliance with all laws (e.g. taxation laws, environmental laws.) When businesses conduct their operations and abide by all relevant and applicable local, state and federal laws, they may incur significant compliance costs. Given that the main goal of the business is to generate maximum profit, some businesses will opt for the lowest level of compliance permissible. Ethical responsibility is the obligation to adhere to moral principles and values. Ethics is doing the ‘right thing’. When businesses act ethically that are making decisions that are not only legally but morally correct and meeting the standards of behaviour that society expects. Corporate social responsibility is a specific aspect of ethical responsibility that relates to a business's commitment to contribute positively to society through ethical business practices. To show commitment to ethical behaviour many businesses develop, implement and publish a code of conduct. This code will cover issues such as: - consulting the community prior to implementing a significant change to the business - promoting human and civil rights both in Australia and overseas. - supporting charities and local community organisations For operations, a code of conduct will be concerned with: - minimising harm to the environment - reducing waste, recycling and reusing