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Operations: HSC study notes Role of operations management: working with & through other people – ensure production deadlines met in effective/efficient manner) Strategic role of operations management – cost leadership, good/service differentiation Operations strategic role = minimising expenses to...

Operations: HSC study notes Role of operations management: working with & through other people – ensure production deadlines met in effective/efficient manner) Strategic role of operations management – cost leadership, good/service differentiation Operations strategic role = minimising expenses to achieve overall business goal of maximising profits → achieving competitive advantage Cost leadership • Strategy implemented maximise profits/ gain competitive advantage • Aims provide customers best value for relatively low price = sustainable competitive advantage • Achieved by reduction costs (input, labour, processing, inventory, quality management) • Business strive be profitable/ avoid inhibiting quality product/service → produce goods/services cheaply, sell at maximum profitable mark-up (interdependence with marketing/ finance) • Economies of scale: cost advantages created as result of an increase in scale of business operations → enables business negotiate better rates with suppliers, take advantage improvements in technology i.e. IKEA & Holden car plant in South Australia Good/service differentiation (product differentiation) Distinguishing products in some way from competitor’s Differentiating GOODS: 1. Varying actual product features One basic model, then others increasing complexity → white bread: 9 grain bread 2. Varying product quality Low-quality model = very affordable, higher-quality reflected in high price i.e. generic, exclusive 3. Varying any augmented features Refers any add-ons/ additional benefits i.e. car manufacturer allowing for capacity fit spoiler, GPS Strategic role of operations management = determine which differentiation strategies undertaken while still maintaining cost leadership. Differentiating SERVICES: 1. Varying amount of time spent on a service a. 2. Varying level expertise a. 3. Experienced trades people generally charge more services as it more specialised Varying qualifications/ experience of service provider a. 4. Time differentiating factor service-providers i.e. 4 hours/1 hour Highly qualified/experienced affect quality service provided i.e. professional/apprentice Varying quality materials/tech used service delivery a. Use CAD, ICT software affect quality service provided Operations management decide service mix used to ensure requirements customer met, while maintaining cost leader focus. BOTH GOODS/SERVICES, DIFFERENTIATION CREATED FROM CROSS-BRANDING OR STRATEGIC ALLIANCES Goods/services in different industries INDUSTRY SECTOR Primary GOODS/SERVICES PRODUCED Includes all those businesses in which production is directly associated with natural resources • Mining, fishing, grazing, forestry Involves taking raw material and making it into a finished or semi-finished Secondary Tertiary Quaternary • Take output of firms in primary sectors (raw materials) and process it into finished, semifinished product • Iron ore, coal → steel (semi-finished product) Performing service for other people • Retailers, dentists, solicitors, banks Includes services that involve the transfer and processing of information and knowledge • Telecommunication, property, computing, finance, education Includes all services that have traditionally been performed in the home Quinary • Hospitality, tourism, craft-based activities, childcare ROLE OPERATIONS MANAGEMENT Responsible for: • • • • Obtaining resources Supply chain management Quality of outputs Meeting deadlines Interdependence with other key business functions Finance collect/analyse financial performance op Marketing will specify product design, development based op capabilities/ limitations human resources provide suitable staff based op's requirements OPERATIONS Influences on operations management Globalisation, technology, quality expectations, cost-based competition, government policies, legal regulations, environmental sustainability INFLUENCE EXPLANATION Globalisation • Movement around globe goods, people, capital, financial resources, technology, facilitated by reduction/ removal trade barriers → opportunities/ threats for business IMPACT ON OP MANAGEMENT • Significantly affect op in terms SUPPLY CHAIN → business needs very predictable, reliable supply chain highly responsive changes in demand. • GLOBALISATION = opportunity enter global web: aims achieve costleadership principles by locating reliable suppliers close manufacturing facilities • Relocating production overseas = cost advantage through low cost employment i.e. Bonds, Shell IMPACT QANTAS • • • Outsourced functions (maintenance) & IT → lower costs Access new markets overseas Launch new airlines Asia, cost minimisation be more internationally competitive Technology • • Quality = how well designed, made and functional goods are, and degree of competence with which services organised/delivered. • Customers have expectation goods/service purchase good quality/ value for money • Allow business gain competitive advantage i.e. savings human resources (staff replacements) Management consider: technology used by competitors, staffing implications, cost technology & how financed (interdependence) CAD = 3-D diagrams emailed clients anywhere in world (create wide client base) CAM = links design to manufacturing process through computers → less wastage, lean prod. Operations completed basic minimum standard (satisfy customers) Goods: quality of design, fitness for purpose, durability Services: professionalism, reliability, level customisation Derived determining break-even point, then applying strategies create cost advantages over competitors Business apply cost leadership reduce fixed/variable costs BY: achieve economies scale, reduce waste, bulk buy inputs, produce standardised products larger market, produce high volume output, use automated production services • Design, construction and/or application of innovative devices, methods and machinery upon operations processes • • • • Quality expectations Cost-based competition • • • • • • • Adoption, continued upgrading tech. inherent Qantas → maintain cost leadership, competitive advantage Newer planes, newer operational processes, more training required Customers make purchase on expectation quality Qantas ensure customer expectations fully met → arriving/ departing on time, comfort based features (online check in, flight entertainment) Ongoing focus cost minimisation Achieve lowest competitive cost → intro technology, restructure, outsource Balance between quality + cost Government policies All business operating Australia subject to policies applied by three levels government – local, state, territory or federal • • Legal regulations Environmental sustainability Range laws which businesses comply collectively termed ‘compliance’. Businesses must ensure operations use resources in a manner that does not compromise future generations access to those resources • • • • Government policies impact business operations i.e. OH&S → changes to business operations such as installation of safety equipment Operations managers need be fully aware contemporary government policies and what they comprise All aspects business MUST abide by law OHS → alterations business operations i.e. safe, healthy working conditions must be provided, safety equipment • Need integrate long-term sustainable view of resource management into business planning/practice Recycle water, reduce carbon footprint • • • • Economic policies (monetary, fiscal) → level economic activity → demand for services Fed Gov’t new policy Fair Work Act → increased operating costs Subject regulatory control of Civil Aviation Authority Worker’s Health & Safety Act; antidiscrimination Boeing 787 and Airbus A380 more fuel efficient than ones replaced Impact globalisation/ technology on operations strategy • • • Technology driver of globalisation → technological advances encouraged/ facilitated global expansion Both significantly shaped contemporary operations strategy Globalisation → supply chain management (enabled business to source products in global market based on cost-leadership principles i.e. purchase inputs Asian market due to low cost goods, cheap labour) • • • • Relocating production overseas → supply raw materials easier, cheaper Forces businesses pitch product at global consumers i.e. high quality, standardised Supply chain management → cost leadership principles integral selection suppliers (global web strategy aims achieve this locating suppliers close manufacturing facilities) Technology → allows businesses access increased technology → gain competitive advantage Identify breadth of government policies that influence operations management • • • • Every business impacted government policies Occupational Health & Safety (OH&S) standards, environmental regulations, employment relations, trade industry policies significantly impact operations → operations managers need be aware of, fully understand policies Federal government provision tax breaks, grants to businesses that export → facilitated global expansion many Australian businesses around globe Qantas likely face hundreds millions dollars in expenses as result Government new environmental policy (Carbon Tax) → $22.00 per tonne Investigate how business operations can operate positively for environmental sustainability • • • • • Environmental sustainability – using natural resources in a manner that will not compromise future generations access to resources Businesses increasingly need consider their role in sustaining high standards living future generations Operations managers can implement environmentally friendly practices within business i.e. reduce, reuse, recycle natural resources i.e. water Governments implementing initiatives to reduce impact development i.e. Carbon Trading Scheme July 2012 → Australia’s biggest polluters have pay every tonne carbon pollution they emit → hoped reduce carbon pollution by at least 160 million tonnes a year by 2020, equiv. taking 45 million cars off road Boeing 747, Airbus A380 fuel efficient than ones replaced → Qantas support, participate renewal process Corporate social responsibility environmental sustainability and social responsibility Corporate social responsibility (“triple bottom line”) Corporate responsibility focuses doing right by organisation’s stakeholders • • Refers open/accountable business actions based respect for people, community/society and broader environment. It involves businesses doing more than just complying with laws/regulations Starts with company’s vision, ethics, values → extends way products manufactured, marketed, priced, distributed Explain why corporate social responsibility is a key concern in managing operations of large business Difference between legal compliance and ethical responsibility Legal compliance → complying all applicable laws/regulations Ethical responsibility → sees businesses meeting all legal obligations and taking it further by following intention and ‘spirit’ of law Nicole’s Dog Washing Pty Ltd is a business that pays all of its workers the appropriate wages, as outlined by law, as well as reasonable working hours, pay for various forms of leave and workers compensation when required. Jake’s Farmhand Service Pty Ltd, however, pays all of these costs too, and has also introduced a code of ethics and has published and communicated code of ethics to all staff. This allows business to satisfy economic, stakeholders and social and environmental change within business to be perceived as an “ethically responsible” business. Within the business, staff is also given two days paid leave to devote to community projects i.e. magazine distribution by the jobless and homeless. To improve Nicole’s Dog Washing Pty Ltd ethical responsibility which, in turn, will provide the business with a positive reputation, could develop a new product of service that would allow the business to assist those in need, whilst also adhering to legal regulations. i.e. Body and Soul has developed a tea tree oil that they allow the Aboriginal Community to sell. Investigate the role of ethics and corporate social responsibility in a large business Modern society expects more businesses (Qantas) than just profitability: • Operations management take into account consequences decisions on stakeholders, ensure decisions socially, morally responsible • • Qantas Reconciliation Action Plan → focusses employing Indigenous Australians Donated over 2 million charitable causes in 2011 across community, environment, education Operations processes Inputs (resources used in transformation (production) process) • • • • Four main common direct inputs: labour, energy, raw materials, machinery/ technology Classified transformed (resources changed/converted during op process) and transforming (inputs carry out transformation process) TRANSFORMED = materials + intermediate goods, information (internal/ external), customers (needs, feedback) TRANSFORMING = Human resources (labour) + facilities (plant, factory or office) Transformation process (conversion inputs (resources) into outputs (goods/services)) • • • • Conversion inputs → outputs Manufacturer transforms inputs → tangible products (goods can be touched) Service organisation transforms inputs →intangible products (services cannot be touched) Directly involved value adding → cost related value Influence volume, variety, visibility, variation in demand • Volume – how much of product to make • • • • • Variety – mix products made, services delivered transformation process (mix flexibility) • • Low variety op = high volume standardised products with low cost Variation demand – refers fluctuations demand over time • • • • Volume flexibility – speed transformation process adjust increases/ decreases demand Essential ensure lead times met → failure = loss business Overproduction = wastage Type business determines volume output i.e. McDonalds high volume output Demand predictable (bread, milk) low variation approach taken → operations use more capital than labour, focus low costs Volatility in demand, op manager need anticipate, plan changes in demand Qantas experiences predictable increase demand for school holidays, special events (World Cup, Olympic Games) Visibility – degree to which customers can see process • • Service based industry = high level visibility → quality labour important → employees well trained, highly skilled, adaptable Businesses mix visibility • Volume & variety most influence operations process →business operate high volume, low variety likely economies of scale Sequencing and scheduling • Sequencing: order activities operations process occur • • Gantt Chart: used provide graphic illustration of schedule that helps plan, coordinate and track specific tasks in project → outlines activities need be performed, order, duration each task Scheduling: length of time activities take within op process • CPA: shows what tasks need be done, how long take, order necessary to complete them in Technology, task design, process layout • Technology: enables business undertake transformation process more efficiently, effectively • • • • • Task design: classifying job activities way make easier for employee to successfully perform, complete task • • • • Office technology: created opportunity people do more work less time = greater range tasks completed during working time → computer, modem → enabled officer workers telecommute Manufacturing technology: robotics, CAD, CAM = very high quality, consistently high standard, efficient, lean production (minimal wastage) Capital cost technology relatively high → op manager need decide whether purchase/ lease equipment Facilitated increased productivity @ Qantas, very often replacing human capital → online check in, on line booking, electronic bag tags Task design → job description → person specification → recruitment → selection (overlaps HR) Staff undertake skills audit to determine if staff appropriate for job Breaking down of full transformation process at Qantas into individual tasks to be performed Process layout: arrangement machines so that machines, equipment grouped together by function perform • • • • • • McDonald’s management great deal time planning layout workspace make sure production streamlined → flows smoothly, efficiently, quickly Process layout (functional layout) Product layout (mass production): equipment arranged related to sequence tasks performed manufacturing process Fixed position layout: operational arrangement in which employees, equipment come product; product remains one location due size/weight Operations manager need consider best layout to ensure: enough space projected volume production, effective use production equipment, conformity legal regulations concerning site/ building constraints Terminal, hangar, maintenance space – optimum layout enables Qantas utilise space, labour efficiently & eliminate bottlenecks Monitoring, controlling and improvement • Monitoring: measuring actual performance against planned performance = crucial • • Control: KPI’s assessed against predetermined targets & corrective action taken if required • • Typically arranged need KPI’s = lead times, defect rates, process flow rates Operations managers make changes to transformation process i.e. redesigning facilities layout, adjusting level technology in order correct problem → causing procedural, technical bottleneck Improvement: systematic reduction inefficiencies, wastage, poor work processes, elimination any bottlenecks • • Time, process flows, quality, cost, efficiency → areas targeted for improvement Concept continuous improvement → striving important business culture = ‘kaizen’ Outputs (customer service, warranties) End result of business efforts – good or service delivered/ provided customer Customer service • • • • How well business meets, exceeds expectations of customers in all aspects operations Intangible output requires customer contact Can increase consumer satisfaction → contribute competitive advantage: answering questions, frequent, meaningful communication Continues focus delivering highest levels customer service – adopted “Net Promoter Score” as key measure Qantas’ customer service Warranties • Promise made by business that they will correct any defects in goods that they produce or in services they deliver = $$ • Australian law requires all business ensure goods sell: have level quality comparable to price, product description, fit for purpose, match product description, free defects/ faults Operations strategy Performance objectives (quality, speed, dependability, flexibility, customisation, cost) Provide competitive advantage for business 1. Quality – determined customer expectations a. b. c. d. Design: how well product made, service delivered; determines inputs, how transformation process arranged; business needs decide quality of product it will deliver to market Conformance: focus on how well product meets standard of prescribed design with certain specifications (same every time) Service: how reliable service, well service meets specific needs of client, how timely or responsive service delivery is Aircraft clean, tidy, staff courteous, helpful, friendly, web site user friendly 2. Speed – time takes for production & operations process respond changes in market demand a. b. 3. Dependability – consistent, reliable business’s products are: a. b. c. d. 4. Change products/ services brings market – product/ service flexibility Mix of product/ services produced any one time – mix flexibility Volume products/ services produced – volume flexibility Delivery time products, services – delivery flexibility Seasonal demands (holidays) Qantas operate to flexibility performance objective to be able to adjust to major increases passenger demand Customisation – creation individualised products to meet specific needs of customers a. b. c. 6. Measured warranty claims How long products useful before fail Externally: enhances product/ service in market → avoids customer complaints Qantas measured on time departures & arrivals; dependability seriously eroded due mechanical failures, industrial disputes Flexibility – how quickly operations processes adjust changes in market a. b. c. d. e. 5. aims satisfy customer demands ASAP → shorter lead times, reduced wait times, faster processing times operational strategies implemented increase speed of service → online booking, check in kiosks Cost higher than cost mass producing Only businesses product easily adapted tend to customise Varying product in minor ways → membership in Oneworld Alliance = offer services 680 destinations in 134 countries; economy, premium economy, business, first class Cost – minimisation expenses so operations processes conducted as cheaply as possible a. b. c. Volume, visibility, variation, variety → impact costs Acquisition new technologies, use inputs better, minimise wastage → minimisation costs Performance objectives allocated targets, goals & measured against achievement of those targets New product or service design and development Enables business grow, attain competitive advantage Product design and development 1. 2. 3. 4. 5. Market research, product concept, specification development Product design & prototype development, quality parameters decided Prototype testing, assessment Product refinement & production processes refined Production, product launch, distribution Directly affects: • • • Product/service quality Production/ delivery cost Customer satisfaction Strategic decision develop new product/service entails serious commitment cost, time, resources → attempt ensure survival through new services, upgrade existing services = competitive advantage i.e. 2012 Qantas set launch 2 new airlines take advantage growth Asian aviation Service design and development • • • • Services = intangible Taken position customer/client as starting point in design Design of services, explicit service (application expertise, time, skill, effort) & implicit service (feeling being looked after) considered SOMETIMES, delivery services goods required i.e. swabs, bandages, sutures, medical equipment Supply chain management Integrating & managing flow supplies throughout inputs, transformation processes and outputs to best meet needs customers Includes production processes, suppliers raw materials, energy, labour, distribution & all sources Key aspects: (a) Sourcing = ‘procurement’, ‘purchasing’ a. b. purchasing inputs for transformation processes Determining suppliers, business assess consumer demand, quality inputs, flexibility & timeliness of supplier, cost supplies/inputs from supplier against other supplies Aim for: • Supplier rationalisation • • Backwards vertical integration • • • • Purchasing through mergers, acquisitions of suppliers → guarantees supply for transformation processes as supplier owned by business OPERATIONS MANAGER = decide whether backwards vertical integration achieve time/cost saving Apple most vertically integrated company in world (operates own retail chains, Apple hardware, software designed in house, runs own digital content store, iTunes) Cost minimisation • • Assessing number suppliers in order reduce number suppliers least amount → business then draw from remaining suppliers greater degree = less contracting, less wastage, improved timeliness Use offshore suppliers → cost minimisation Flexible or responsive supply chain processes • ‘lean’ processes relevant → minimises waste, seeks continually lower costs (b) Global sourcing a. b. c. d. (c) Logistics a. b. c. d. e. f. (d) Procurement strategy business seeks most cost efficient location manufacturing Purchasing supplies, services without being constrained by location → buying from wherever suppliers are that best meet sourcing requirements Consider: costs, control, expertise, distance, languages, laws & regulations Qantas employed pilots New Zealand, cabin staff Asia – lower wages than paid in Australian, engine maintenance carried out in Malaysia on cost benefit basis Distribution but includes transportation, use storage, warehousing, distribution centres, materials handling and packaging Ensuring Qantas has all physical inputs in quantities needed in right place at right time (pilots, cabin crew, baggage handling) Role = ‘ensure operations have right items in right quantity at right time at right place for right price in right condition’ Distribution – ways getting goods/services → customers i.e. producer, wholesaler, retailer, consumer Transportation & distribution – type product, cost transportation determine mode transportation selected i.e. van, truck, aeroplane, ship Storage, warehousing, distribution centres – (S) = finding secure place hold stock until required (W) = warehouses use storage, protection, later, distribution stock (DC)= not intended long term storage E-commerce a. b. c. d. Buying/selling goods & services via internet E-procurement (use online systems manage supply) – allows suppliers direct access business’s level supplies → stock falls pre-determined point, supplier supply even without formal request from buyer → B2B ( direct access business to another (supplier – buyer)) B2C – selling goods, services consumers over internet with payment (usually credit card) Allows payment through electronic funds transfer on internet (booking confirmations etc) Outsourcing – advantages / disadvantages Contracting out of non-core business activity Advantages: • • • • • Access specialised knowledge, expertise Efficient methods Lower costs – contracted business achieve better economies scale which can be passed on Increased speed, quality outputs Saving in labour – staff management & expenses born by other businesses Disadvantages: • • • • Loss control over quality, reliability, costs Slower lead times, responses changes in market Breakdowns contracted business affect entire operations Payback periods & cost Technology – leading edge, established Leading edge: technology most advanced/ innovative at any point in time • Op man distinguish operations using best available technologies → create products more quickly, higher standards, less waste, operate more effectively Established technology: developed and widely used, simply accepted without question • • • Computers Functionally sound, help establish basic standards for productivity, speed CAD, CAM, CIM, robotics Give business efficiencies, productivity gains, capacity improve operations processes Inventory management – advantages/ disadvantages holding stock, LIFO, FIFO, JIT Inventory – amount raw materials, work-in-progress, finished goods business has on hand any point time Advantages/ disadvantages holding stock Advantages: • • • • Ability meet customer demand, maintain business Lead time between order – dispatch reduced Stock is asset, reflecting balance sheet Older stock sold reduced prices, improving cash flow Disadvantages: • • • Expensive hold stock – storage charges, spoilage, insurance, theft, handling expenses Capital invested stock = negative impact cash flow Stock become obsolete Last-in-first-out • • • Method pricing inventory assumes last goods purchased = first goods sold Stock purchased more recently sold first Appropriate goods no use-by date First-in-first-out • • • Assumes oldest stock sold first Appropriate perishable stock Supermarkets use method stocking shelves Just-in-time • • • • • Aims hold little stock as possible Exact amount stock delivered from suppliers as required → improves liquidity, cash flow as minimises amount capital tied up inventory Suppliers = reliable & excellent inventory management systems in place system to work Advantages: reduced storage, stock security costs; liquidity increases; risk obsolescence reduced; risk spoilage reduced Provides flexibility respond market fluctuations Quality management (control, assurance, improvement) Refers those processes that business undertakes to ensure consistency, reliability, safety, fitness of purpose’ Control • • • Use inspections various points in production process check for problems, defects Aims ensure finished outputs reach consumer with required level quality → checking transformed, transforming resources all stages production process Three main points inspection: • • • • Problems: • • • • Raw materials, inputs received prior to entering production Transformation taking place Products finished, prior dispatch to customers Inspection process not add value Inspection costly = materials, labour, time, employee morale, customer goodwill, lost sales Sometimes done too late production process → defective, non-acceptable goods Programmed inspections carried out key stages Qantas’ service (on a continuing basis) to ensure process meeting specified standards → if not, management intervenes & corrective action taken bring process back within standard Assurance • • • • • Use system to ensure set standards achieved in production Principles: ‘fit for purpose’, ‘right first time’ Series QA standards developed in response globalisation + international emphasis on quality → universally applied standards ISO 9000 = widely used international standard (International Organisation for Standardisation) Minimum level satisfactory quality at all stages of process continually monitored at Qantas by actual measurement & comparison against pre-determined standards Improvement • • Two aspects: continuous improvement, total quality management Continuous = ongoing commitment to improving business goods/services → all staff encouraged demonstrate initiative, suggest areas improvement can be made • • Total Quality Management = managing total business to deliver quality to customers • • Focus improvement likely help business obtain/maintain competitive advantage Assumes quality responsibility everyone in business → known ‘kaizen’ Improvements quality measured KPIs: • • • • Percentage defects per 100 units Number warranty claims Percentage repeat customers Repair costs • All staff invited participate suggestions/ ideas → Qantas customers +suppliers also Overcoming resistance to change (financial costs, purchasing new equipment, redundancy payments, retraining, reorganising plant layout, inertia) Financial costs • • • • • Inability finance change → argument against implementing change Purchasing new equipment: • Considered capital cost • Significant market advantages from capital investment → improved processing flexibility, processing speeds, shorter lead times Redundancy payouts Retraining Reorganising plant layout Inertia • • • Describes psychological resistance to change Unwillingness of key decision makers (managers/owners) embrace proposed changes Change inherent business world → organisations best manage, respond internal/external influences more successful long-term Managing change effectively • Change models i.e. Kurt Lewin’s unfreeze/change/refreeze model • • • Unfreeze: breaks down forces supporting existing system, prepares business change Change: new procedures/ behaviours must be communicated + implemented Refreeze: requires manager offers positive reinforcement to make sure change lasts Global factors (global sourcing, economies of scale, scanning and learning, research and development) Global sourcing • • • • • Business purchasing inputs regardless location → business source inputs from lower cost locations → economies of scale Global business: locate finance headquarters developed country, source inputs from around world, produce country lowest labour costs, export global market Best decision based cost, efficiency, productivity, technical ability, ability operate over more hours of day Benefits: cost advantages, access new technologies, advantages expertise, labour specialisation Employed cabin staff other countries where wages lower (Asia) Economies of scale • Cost advantages business can exploit by expanding scale production • Effect: reduce average unit cost production • Clear production advantages → producing high volumes • For economies of scale that Qantas decided have maintenance of new A380 carried out Asia → Asian labour rates lower, work carried out ISO standards Scanning & learning • • • • Scanning international/ global environment & learning best practice around world = benefits! Major source learning = other staff worked overseas + in other businesses Qantas stay abreast, fully informed global developments and continually test their application to current operations Management must find, absorb, learn from and test increasing volume data/information for potential input to or changes in operations processes Research & development • • Way gaining/ maintaining competitive advantage Expensive, offers many advantages: • • • • • • Extending product cycle Opening new markets internationally Providing reputation as innovator Improving quality Reducing costs Increasing profits STUDY HARD!