HSC Business Studies - Operations Notes PDF

TOPIC 1: OPERATIONS Students learn to: Examine Contemporary issues: Discuss the balance between cost and quality in operations strategy Examine the impact of globalisation on operations strategy Identify the breadth of government policies that affect operations management Explain why corporate so...

TOPIC 1: OPERATIONS Students learn to: Examine Contemporary issues: Discuss the balance between cost and quality in operations strategy Examine the impact of globalisation on operations strategy Identify the breadth of government policies that affect operations management Explain why corporate social responsibility is a key concern in operations management Investigate aspects of business using hypothetical situations and actual business case studies to: Describe the features of operations management for businesses in a tertiary industry Assess the relationship between operations and the other key business functions in two actual businesses Explain how operations strategy can help a business sustain its competitive advantage Recommend possible operations strategies for one hypothetical business © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 2\ Students learn about: Role of operations management Strategic role of operations management – cost leadership, good/service differentiation The creation of goods and the provision of services by businesses. The transformation of inputs into outputs or products to be sold. This involves: • Planning activities • Purchasing inputs • Managing inventory • Selecting and implementing manufacturing processes • Developing strategies to gain a sustainable competitive advantage Strategic role of operations: Involves gaining a long-term competitive advantage over its competitors, both local and overseas. May also use either a cost leadership of product differentiation strategy. This focuses on: • Products to be created • How to produce products • Capacity or size of operations • Organisation of inputs and equipment in operations • Location of operations • Employees used in operations • Quality Cost leadership operations strategy: A strategy where a business aims to obtain an advantage over its competitors by being the lowest cost manufacturer within its industry. Low cost through operations may be achieved by: • Using less expensive inputs • Maximising efficiency by minimising waste and save time • Maximising productivity producing more outputs from less inputs • Using technology • Producing faster • Having lower quality outputs • Increasing size of operations to reduce the average cost of making each item Involves aiming to have the lowest costs or to be the most price-competitive in the market. Although trading with the lowest cost, the overall business should still be profitable. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 3\ CASE STUDY: Walmart – cost leadership • ‘Every Day Low Prices’ and ‘Save money. Live better’ • These slogans indicate Walmart’s approach to cost that has made it a global example of successful cost leadership. • Walmart has over 100 000 suppliers, negotiating large volumes of supply. In this way, supplier can obtain a guaranteed minimum return and the company can also save money because of economies of scale. • If inventory is not continually moving then the cost is increasing. The movement of stock from the supplier to actual stores is constant up to the point of sale. The company utilises complicates system of cross-docking, where stock from suppliers are distributors without the need to hold it in between. Economies of scale: • Refers to the cost advantages that can be created because of an increase in scale of business operations. • Cost savings come from being able to purchase lower cost per unit of input and efficiencies created from the improved use of technology and machinery. Good/service differentiation: Aims to obtain an advantage over its competitors by having outputs that are different to its competitors, unique or leading-edge technology. This is achieved through having: • Better quality outputs • Quicker supply of outputs • Custom designed outputs and/or more varieties to suit different needs • More features, applications and versatility • New technology incorporated Product differentiation: Refers to distinguishing products (goods or services) in some way from its competitors. There are different forms of product differentiation: Goods: • Varying actual product features • Varying product quality • Varying any augmented features Services: • Varying the amount of time spent on a service • Varying the level of expertise brought to a service • Varying the qualifications and experience of the service provider • Varying the quality of materials/technology in service delivery Cross-branding: Differentiation can be created from cross branding and strategic alliances – adding value to products by offering consumer added benefits from a cross-branding arrangement. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 4\ E.g. Woolworths-Caltex, Coles-Shell alliance. Products here are differentiated but not from the product, but by the external factor that the business has brought into the mix. Goods and/or services in different industries Goods output: • Physical, tangible • Can be reused • More capital intensive (machinery) • Can be stored • Hard to modify once manufactured Standardised goods: Those that are mass produced, usually on an assembly line. Standardised goods are uniform in quality and meet predetermined level of quality. They are generally produced with a production focus. Customised goods: Those that are varied according to the needs of customers. These goods are produced with a market focus rather than a production focus. Perishable goods and operational processes: • High standards of quality, safety and cleanliness in all operating processes • Very short lead times and distribution that is quick and effective • Appropriate and robust packaging and cold storage processes both through production and distribution • Goods which are likely to deteriorate in quality in a short period of time. • E.g. fruit, cooked food • Sold in monopolistic competition Non-perishable goods and operational processes: • More durable than perishable goods and therefore the issues of quality and inventory management arise for the operation • Manage all aspects of quality in the process, from sourcing through to production and distribution • Implement effective inventory management strategies and be highly responsive to market demand in order to not over produced • Are supposed to last for a longer period of time • E.g. Tables, TVs, Phones Intermediate goods: • Goods may be processed more than once, as they can become inputs in further processing • Goods completed through one set of operational processes may then become inputs into further processing • E.g. Steel → Small screws → used to manufacture electronic goods • E.g. Steel & Resources → Car wheel → Car © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 5\ Services in different industries: • Services can also be standardised or customised • E.g. Fast food is a standardised service • E.g. Dental surgery, medical services (those that are different for everyone) is customised Cost leadership and standardised products (goods and services) • Standardised products costs can be minimised • Standardised goods can be mass produced without variation and economies of scale can be achieved This is also true for service delivery • A business can bring cost leadership to the service by standardising how the service is performed • This can be seen in the fast food industry o Customers are subject to highly standardised processes in terms of order taking and customer service • This is also evident in call centres and other administrative processes Self Service: • To encourage customers to take the initiative to help themselves • Some industries seek to encourage self-service • Financial sector and travel industry encourage people to make their own transactions online • An issue with self-service online is drip pricing o Means that a business advertises one price but in the process of a customer purchasing the service numbers additional charges and costs are added o As a result, the final price can be much higher than the price advertised. o Drip pricing is an issue in airline ticketing and travel products sold online. Interdependence with other key business functions Specialisation – where the business is separated into different functions, each of which is highly skilled at its specific task or role. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 6\ Interdependence – where the different parts of a business must rely on each other to perform their task or role. As a result of specialisation, there will be interdependence between the key business functions and a constant flow of information between operations, marketing, finance and human resources. E.g. The activities of the IT department affect each key area of business as technology is used in every business function. Operations uses computer- based technology in planning and processing, scheduling, inventory management, quality management and all other aspects and activities. Marketing uses IT software to assess market trends, design products, design communications, create visual stimulus and so forth. Finance uses technology to record transactions and summarise trading into reports that can then be assessed. Finance also uses mathematical modelling to predict and evaluate. The workers within this trade are the Human Resources. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 7\ Influences Globalisation, Technology, Quality expectations, cost-based competition, government policies, legal regulations, environmental sustainability Ability to monitor the external environment and ensure that the business has the capacity to adapt to these changes and ensure the sustainability of the business. Globalisation • Refers to the removal of trade barriers between nations. • It is characterised by an increasing integration between national economies and a high degree of transfer of capital, labour, intellectual capital and ideas, financial resources and technology. • Gives the business the provision to use cheaper inputs and/or more cost-effective production processes • Globalisation provides a source of market opportunities both from other nations and to other nations • It can act as a threat to a business if businesses apply cost leadership and undercut the market to dominate Globalisation in operations management • Large businesses orient their practices towards the global market with a view to meet the needs of global customers • Use of manufacturing plants for the production of goods means that a business can achieve economies of scale Supply chain management (SCM) and the global web • Supply chain refers to the range of suppliers a business has and the nature of its relationship with those suppliers • A business needs a predictable and reliable supply chain that is highly responsive to changes in demand experienced by the business (flexible) • Sourcing is also an essential aspect of the supply chain that requires finding suppliers needed so production processes can flow smoothly • Global web refers to the network of suppliers a business has, chosen on the basis of lowest overall cost, lowest risk and maximum certainty in quality and timing of supplies. • In SCM, global web strategy is one which aims to minimise cost across the range of its suppliers o Businesses will opt for locations that are in appropriate proximity to the suppliers Case Study: Fuji Xerox and Globalisation Fuji Xerox, a producer of office technology, had to shape and re-shape its operations in response to globalisation. • • • In 2005 Xerox realised that in order to take advantage of market opportunities the company needed to restructure and situate closer to its global suppliers, as its headquarters were in the US. Initial expansion to smooth the procurement chain was into Malaysia and Singapore. This was used as a basis for further expansion into North Asia: Korea, Hong Kong and China. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 8\ • • Moving procurement offices into South East Asia incurred immediate costs, however long-term savings and efficiencies resulted as staff within the region could speak the relevant language to the source markets. Procurement teams were also closer to those who make management decisions in the supplying companies. Technology May be defined as the design, construction and/or application of innovative devices, methods and machinery upon operation processes • New technology can mean that a business can often make its production process more efficient • Taking advantage of new technology can provide a competitive advantage but this can be expensive for a business • Technology gives a business access to new production processes and new product lines, but can mean that existing products are outdated Technology in operations management • It can be applied to and integrated with a range of processes that characterise the operations function in business. • In administration, technology assists organisations in planning, decision making and are in control of operational processes o E.g. Materials Requirement Planning (MRP), Gantt Charts, Critical Path Analysis (CPA) Case study: Adidas using technology • Historically, the focus of manufacturing in Adidas was standardisation – creating a limited range of identical products to minimise costs and maximise profits. • Customers nowadays are keen to have products that reflect their particular needs and wants • In the early 2000s, Adidas realised the importance of customisation, generating over $18.4bn through the sales of sporting goods – where half of this comes from the sale of 200 million sport shoes. • Adidas was launched in 2003 to customise shoes for consumers – now extending to a range of sporting products. • By 2006, the supply chain was full automated and with the help of e-commerce, the customisation option generates a significant and growing proportion of total revenue Quality expectations Quality expectations of consumers influence a business because if the product or service is not considered good enough, especially compared to the way it is marketed, it can lead to disappointment and consumers taking their business elsewhere. • A business also expects certain quality standards from its suppliers • If inputs are not satisfactory then the overall quality of the product/service may be affected • Similarly, the quality of the input is too high to suit the needs of the business then the price of the product is increased to maintain profit margins • Both situations result in a business potentially losing their customers. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 9\ The International Standards Organisation (ISO) defines quality as the ‘totality of features and characteristics of products (goods) and services that bears its ability to satisfy states or implied needs’. Quality in operations management • Quality informs all operation processes – where the expectation that people have of businesses determine the way that products are designed, created and delivered to customers. • This implies that operation processes follow particular standards and prescribed minimum levels of operations Case study: Tiffany & Co. – Quality and expectations Global high-quality jeweller Tiffany & Co. has been operating since 1837, where it’s reputation is based on its high-quality standards. • The company is known for its high-quality diamonds it sources and its blend of contemporary designs • Its reputation is enhanced through films and songs • The business offers a replacement, repair or refund at no cost if the product fails to meet the expected quality • It sources from partnerships (E.g. De Beers diamonds, the world’s highest quality diamond merchant) and internal processes that emphasis quality Cost-base competition Derived from determining breakeven point – the level at which the firm matches total costs and total revenue – and applying these strategies to create cost advantages over competitors. • Cost base competition recognises that prices cannot keep increasing; therefore, reducing costs is a way to maximise profits when revenues are fixed. • Mass customisation enables cost-based competition even when products are differentiated Cost based competition in operations management • When businesses bring a cost leadership approach to the operations function – they focus on reducing costs to a minimum while maintaining profit margins • Fixed costs are those that do not change regardless of the business activity level © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 10\ • Variable costs are those that vary according to the business activity level Government policies Businesses operate in a political-legal environment, where political decisions affect the business rules and regulation, in turn affecting the management in the business functions. • Government policies change overtime and are a notable source of change and a significant influence on business operations • E.g. Carbon pricing – used for putting a price on carbon • In regard to supermarkets and banks in Australia, mergers and takeovers are looked at closely, in case they monopolise competition Government policies in operations management • Policies such as taxation rates, required material handling practices, Work Health and Safety Legislation (2017), training and rules, public health policies, environmental policies, employment relations, trade and industry policies etc. all impact on business operations. • Operations managers need to be aware of government policies • Government policies can create changes that benefit the business – but these are available to other businesses to take advantage of as well • Rules and regulations also provide a level playing field for all businesses © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 11\ Legal regulations • Laws and regulations are a very significant external factor that affects the operations of a business • Compliance Costs are the expenses associated with the requirements to meet legal regulations Legal regulations in operations management • Operations management has particular laws that influence how practices and processes are conducted • Relevant laws include: o Work Health and Safety Regulation (2017) ▪ Reinforcing safety in the use of machinery and interacting in the business environment ▪ Safe and healthy working conditions require employees to be given appropriate safety training, use of protective equipment ▪ Abiding by noise, pollution and safety standards when using machines o Training development ▪ The use and application of technology and in appropriate methods required to work effectively o Fair work and anti-discrimination laws ▪ Requiring employees to be treated safety with dignity and respect o Environmental protection ▪ In the use of minimising pollution, eliminating and safely disposing of any toxic residues o Apply rules related to public health ▪ Any fair-trading rules which influence product safety standards and fitness for purpose of products • Examples of laws: o Racial Discrimination Act 1975 (Cwlth) o Sex Discrimination Act 1984 (Cwlth) o Workers Compensation Act 1987 (NSW) o Disability Discrimination Act 1992 (Cwlth) o Age Discrimination Act 2004 (Cwlth) o Anti-Discrimination Act 1977 (NSW) o o Work Health and Safety (WHS) Act 2012 (Cwlth) Environment Protection and Biodiversity Conservation Act (1999) (Cwlth) Superannuation Guarantee Act 1992 (Cwlth) o Taxation Act 1953 (Cwlth) Corporations Act 2001 (Cwlth) o Fair Work Act 2009 (Cwlth) o Environmental sustainability Business operations should be shaped around practices that consume resources today without compromising access to those resources for future generations. • In order to attract and keep customers, businesses must be seen to be having practices that lead to environmental sustainability as well as showing a responsibility to the society in which they operate © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 12\ Environmental sustainability in operations management • Significantly affected by the rise in climate change awareness and the need to integrate a long-term sustainable view of resource management into business planning and practice. • This is seen in business trying to reduce and minimise waste, recycle and reduce their carbon footprint, referring to the amount of carbon produced and entering the environment from operations processes • It falls upon the operations department of each business to ensure that its production processes do not endanger the physical environment • This may be expensive for the business but ignoring this responsibility will have the possible repercussions of fines, legal action, loss of investors, negative media coverage and a loss of customers Corporate social responsibility Corporate social responsibility (CSR) is a phenomenon that affects all key areas of a business – referring to open and accountable business actions based on respect for people, community/society and the broader environment. • Formerly called the ‘triple bottom line’ • Involves business doing more than just complying with the laws and regulations • Places value on financial returns as well as social responsibility and environmental sustainability. • The driver of corporate decision making is not just profitability but rather something that more broadly reflects a range of community concerns and social expectations Case Study: Westpac The Westpac group has been seen as the most socially responsible bank in Australia. • The only Australian company to be named the Ethisphere Institute’s list of World’s most ethical companies during 2008-13 • Recognised as a global leader for banks in the Dow Jones Sustainability Index in 2002-13 • Was one of only four companies to be listed in the Carbon Discloser Project Global 500 Climate Performance Leadership Index 2013 • Workplace Gender Equality Agency (WGEA) Employer of Choice for Women. 42% of leadership positions are occupied by women. • Placed in the world’s most sustainable corporations list in the 2013 Global 100 Most sustainable Corporations in the World. Westpac states that its sustainability objectives from 2013-17 are to: • Increase participation of mature employees to over 20.5 per cent • Increase the percentage of women in senior management roles to 50 per cent by 2017 • Achieve a score of 42/49 on the Wellbeing Westpac Group Average Workability Index by 2014 and further increase this to 44/49 by 2017 • Increase recycling rates in Sydney head offices from 62 per cent to 75 per cent by 2017 © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 13\ The difference between legal compliance and ethical responsibility Legal Compliance falls in a number of areas for business. This includes: • Labour law compliance o Minimum wages, award wages, working hours, breaks, pay for various forms of leave, other on-costs associated with labour, workers compensation and work health and safety laws • Environmental and public health compliance: o Regulations stopping dumping, pollution (air, land and water), requiring certain standards of operating and disposing of waste • Business licensing rules: o Requiring particular levels of training or certification and those placing conditions on operations o Restricted working hours, zoning restrictions and content and disclosure restrictions • Taxation: o Includes any levies and duties as well as taxes imposed on profits o Superannuation can be considered a form of taxation that is invested for retirement purposes o Taxation can be applied in such a way as to encourage particular practices or penalise particular activities • Trade Practices and fair market dealings: o Address issues of market power, misleading and unfair conduct, price collusion, monopoly behaviour, market concentration (competition) and product safety • Migrations and rules around the use of offshore skilled labour: o Aim to ensure minimum standards are applied to labour brought in from other nations • Intellectual property: o Addresses issues related to moral rights such as copyright, patents, trademarks, designs and other original ideas and artistic works • Financial and accounting regulations and corporations law: o Aims to standardise methods and rules around financial records and reports, as well as ensuring that company directors follow particular rules as fiduciaries o Fiduciary is a person in a position of financial trust with respect to others’ money • Corporations law (Anti-trust law): o Imposes duties on directors and others who work in responsible positions within corporations • Human Rights: o Restricting discrimination on the grounds of disability, culture, sexual preference, gender, age or any other distinguishing feature A business can aim to reduce compliance costs by structuring their business operations so that different aspects are conducted by outside parties. • Outsourcing involves use of outside specialists to undertake one or more key business functions o Onshore: involves the use of domestic businesses as the outsourcing provider o Offshore: involves taking the activities to a provider in another country. This takes advantage of regulatory differences between nations • Therefore, compliance requirements are different between the nations chosen and allow the business to take advantage of significant cost savings. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 14\ Ethical Responsibility involves businesses going beyond the law and taking into account broader social, community and environmental concerns. • When laws differ between nations, it is hard to know how to be ethical in given business situations. • Businesses may then guide their decision making after consulting with special interest groups or following guidelines set down by international bodies. • E.g. in manufacturing operations, there are significant international differences in standards of labour in terms of wages, health and safety, training etc. • Business may follow international labour standards that come from the International Labour Organisation (ILO) The ILO holds annual conventions to raise matters of importance to workplaces and the rights of employees: • Working women and maternity protection • The provision of safe working conditions Environmental sustainability and social responsibility Economic development must be accomplished sustainably – using methods of production that conserve the world’s resources for future generations. • Nearly all businesses today recognise their role in environmental sustainability, ensuring that resources are used appropriately so that they are available to future generations • A business that fails to be seen to do the right thing by the environment will lose customers • Environmental awareness has created new business opportunities for some entrepreneurs and let other business gain a competitive advantage • The social conscience of responsible business owners has led them to adopt policies of conservation, recycling and restoration. The community increasingly expects businesses to: • Adopt greenhouse abatement (reduction) measures • Encourage the development of long-term sustainable strategies A socially responsible business tries to achieve two goals simultaneously: • Expanding the business • Providing for the greater good of society Social responsibility is good for a business – customers find out which businesses are acting responsibly and which are not. Customers can potentially stop buying a business’s product if they learn that the business is exploiting employees etc. E.g. Westpac, Adidas, Apple and David Jones have strict environmental standards and will impose sustainability and CSR requirements on suppliers and outsourced partners. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 15\ Operations processes Inputs Inputs are used in the transformation process – generally there are four common direct inputs: • Labour o Human effort (mental and physical) is a necessary input for operations processes o Jobs in business operations include those in sourcing and supply chain, technical support and maintenance for machinery, inventory management and control, quality processes, production, logistics and distribution. • Energy o In the form of electricity or fuels, which can be converted into heat, movement, light, sound or other forms of energy o Required to bring inputs to the business, to transform them and to distribute them to consumer markets o Value adding is proportional to the amount of energy expended o E.g. the manufacture of a high value-added product such as a motor vehicle requires large amounts of energy. • Raw materials o Basic components of manufactured goods are wood, unprocessed agricultural products, natural resources in the form of minerals and fossil fuels, water etc. o Sourced through the supply chain and businesses will determine the volume of raw materials required against the level of demand for their finished goods. • Machinery and technology (capital equipment) o Necessary to enable transformation processes o Machinery is used to process raw materials, as well as to design and make products. o Machinery integrated with technologies can perform complex tasks quickly o Capital – Labour substitution means that the machinery and technology displace people by replacing their work ▪ This causes labour redundancy o In reality, as machinery is used, some labour is lost but there is a period of retraining that takes place as people acquire new skills relevant to use with new technologies © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 16\ Transformed resources (materials, information, customers) Transformed resources are those inputs that are changed or converted in the operations process – transformed by the operations processes. Materials • The basic element used in the production process and consist of two types: o Raw materials ▪ The essential substances in their unprocessed state and usually comes from mines, forests, oceans or recycled waste o Intermediate goods ▪ Goods manufactured and used in further manufacturing or processing • There is a range of materials that are already transformed but still become inputs into operations processes. • E.g. Information • The knowledge gained from research, investigation and instruction, which results in an increase in understanding. • Value of information lies mainly in its ability to influence behaviour or decision making • Information acts as a transformed resource when it is used to inform how inputs are used, where they are drawn from, which suppliers and supplies are available etc. • External information o Comes from market reports, statistics from industry observers and industry bodies, official government statistics from the ABS, media reports etc. o Generally independent source for operations managers to use o E.g. Information on the use of distribution centres will act as an input for inventory management • Internal information o Comes from within the business and is gathered from internal sources such as financial reports, quality reports and internal key performance indicators (KPIs) ▪ KPIs are specific criteria used to measure the efficiency and effectiveness of the business’s performance © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 17\ Customers • Generally thought of as being relevant to outputs, not inputs • Customers become transformed resources when their choices shape inputs • Consumer orientation is essential to a business as it takes the preferences and interests of consumers as the starting point to production processes. • Customers act as an input and their desires and preferences act as a transformed resource • Business can implement a Customer relationship management (CRM), which refers to the systems that businesses use to maintain customer contact. o This can be used to improve customer service, increase competitiveness and identify changes in customer tastes o This approach improves services, cuts production costs and the customer feedback makes the operations process more directly responsive to customer desires. Transforming resources (human resources, facilities) Other collection of inputs to any operations processes are transforming resources which are those inputs that carry out the transformation process. • They enable the change and value adding to occur • Energy and information can also be classified under this category Human resources • The effectiveness with which human resources carry out their work duties and responsibilities can determine the success with which transformation and value adding occurs • Employees who coordinate and combine other resources such as machinery and technology, raw materials and finance to produce goods and services • Human resource policies and practices should be aiming at attracting, retaining and motivating staff to ensure they are able to meet customers’ supply needs. • This can improve the performance of the operations processes • STRATEGIES o Strategy of improving employee skills through training and development may be used o Setting performance objectives for individual staff members to improve their efficiency will help the business objectives o Adhering to occupational health and safety standards and ensuring staff motivation remains high © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 18\ Facilities Refers to the plant and machinery used in the operations processes. Businesses need to decide: • Whether required facilities should be located in one or two large sites or divided among numerous smaller sites • What impacts zoning and other restrictions will have upon facilities, size and location • Special conditions, such as energy and water requirements • The most efficient plant design • The optimum plant and process layout – the arrangement of machinery, equipment and people within the facility Facilities determine the nature of the operations environment and will be highly conducive to productive operations. Transformation processes Transformation is the conversion of inputs (resources) into outputs (goods or services). E.g. Sony takes plastic, metal, glass and electronic parts to transform, through a design, manufacturing and assembly into numerous electronic products. Transformation implies physical changes but also includes conversion of resources into services. NOTE: Transformation process differs between manufacturing businesses and service business. Value-adding Transformation processes are also directly involved with value adding • The addition of cost in transforming the inputs into a process, which will turn them into outputs, adds value. • E.g. Value of apple pies is greater than the cost of the inputs used to create those pies (flour, wheat, sugar and heat) • As inputs are added and processed into final goods for consumption, value is added. • It is much harder to see how value is added in services sector where value adding occurs through knowledge, skills and expertise The influence of volume, variety, variation in-demand and visibility (customer contact) Volume Refers to how much of a product is made. Volume flexibility refers to how quickly the transformation process can adjust to increases or decreases in demand. Lead Times is the time it takes for an order to be fulfilled from the moment it is made. IF business cannot adjust quickly to market demand, they can overproduce, which may lead to wastage and increased inventory costs. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 19\ Case Study: Rebel Sport Prior to every cricket season, Rebel Sports purchase an initial level of stock in order to meet the known spike in demand that occurs before the first game. When there is an early-season spike in demand, customers have experienced a situation where Rebel Sport, with its more limited range (due to not specialising in cricket equipment), cannot easily cope with the variation in demand and also the variety of equipment required by a full range of customers. Gantt charts and critical path analysis can assist with planning for variation in demand. The operations processes of each of these sporting retailers must be able to: • • • anticipate how much to order from suppliers estimate the relevant lead times and assess the costs incurred if people switch between the businesses on the basis of shortfall Variety The mix of products made, or services delivered through the transformations process, is sometimes called mix flexibility. Mix flexibility is known by consumers as product range or variety of choice. The influence is that the greater the variety made, the more the operations process needs to allow for variation. Variation in-demand Can impact significantly on transformation resources • Increase in demand will require increased inputs from suppliers, increased human resources, increased energy use and increased use of machinery and technology. • Increased demand may be hard to meet when: o Suppliers cannot supply quickly enough o Labour is not flexible enough, skilled or available o The adopted machinery cannot adjust to increased capacity quickly, either because it is not designed to or because it breaks down. o Increased energy and power are not able to be readily sourced • Decrease demand will also require operational flexibility as staff may need to have their hours reduced, production may need to slow to avoid inventory build-up and suppliers may put on pressure due to contractual agreements. Predicting demand is useful so adjustments can be anticipated and a business can act accordingly. E.g. Christmas can be a time for high toy sales. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 20\ Visibility Customer contact or ‘feedback’ can directly affect transformation processes. Customers and their preferences can shape what businesses make. • Customer contact may be direct or indirect. • Direct contact takes the form of customer feedback given through surveys, interviews, warranty claims, letters, etc. • Indirect feedback comes through a review of sales data that also gives an indication of customer preferences and market share data Visibility in the online space is different to visibility in the physical world. In the physical world businesses have a site and people can see and interact with the premises and staff. In the online world it is harder to be found and seen. In this context, understanding how to maximise visibility and customer contact is crucial. Sequencing and scheduling – Gantt charts, critical path analysis Sequencing and Scheduling are important aspects that assist with structuring and ordering the transformation processes. 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. Gantt Charts Outlines the activities that need to be performed, the order in which activity is expected to take • Used for any process that has several steps and involves a number of different activities that need to be performed • Can be used for scheduling simple routine tasks such as building a dam • Can be used to schedule the work activities of one employee or a team of employees © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 21\ E.g. • Advantages include: o o Forces a manger to plan the steps needed to complete a task and to specify the time required for each task Makes it easy to monitor actual progress against planned activities © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 22\ Critical Path Analysis (CPA) Refers to the scheduling method or technique that shows what tasks need to be done, how long they take and what order is necessary to complete those tasks. • It is the shortest length of time it takes to complete ALL tasks necessary to complete the process or project. • Can show how some tasks can be performed simultaneously • Advantages include: o This type of analysis allows managers to see what needs to be done and allows timing of tasks to be considered. o Business will be able to see what order activities need to be done o Will also be able to see which tasks can be done at the same time • Scheduling gives direction and organisation to operations process and provides overall coordination and enables a means of control E.g. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 23\ Technology, task design and process layout Technology Generally, technology is the application of science or knowledge that enables people to do new things or perform established tasks in new and better ways Specifically, business technology involves the use of machinery and systems that enables businesses to undertake the transformation process more effectively and efficiently. • Businesses feel the need to purchase up-to-date technology in order to compete effectively • In manufacturing, technology can reduce time on processes and allow fuller utilisation of raw materials • This is essentially more cost effective • In services sector, office and communication technology have enabled new markets to be accessed and allow for small to medium businesses to trade globally • Capital cost of technology is relatively high so businesses should decide whether to purchase technology or to lease it. • Leasing is more common as it is cheaper and tax deductible • Additional costs for set up, cabling etc. can be caused by implementing technology Office technology Common office technology includes: - Computers (mainframe, personal, laptop) Keyboard CD ROM, USB, other data storage devices Modem Mobile telephones Paging services and answering machines Personal organiser or Personal Digital Assistant (PDA) Combined printer, photocopier, scanner, facsimile machine Development of these technologies have allowed for increased efficiency and enabled office workers to telecommute and work from home. Manufacturing technology Manufacturing technologies include: • Robotics o Applies to highly specialised forms of technology capable of complex tasks o Used in engineering, research and assembly lines o Can shape transformation processes so that they are very high quality, of a consistent standard, efficient and minimal waste. o Allows a degree of precision and accuracy generally unmatched by human labour o Robot works can do work without complaints or demands for wage rises in conditions o They are high cost items that are mostly unaffordable for small and medium scale manufacturers © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 24\ • Computer Aided Design (CAD) o Computerised design tool that allows businesses to create product possibilities from a series of input parameters o Computerised graphical design tool that generates 3D diagrams from of input data o Assists the designer and end user to visualise what will be produced o Useful as material usage can be calculated o Costing can be quantified o CAD programs can be linked to printers so that paper copies can be made and distributed to the client for assessment o Easy to customise a series of options that meets consumer needs o Normal drafting processes would cost a lot more and take longer • Computer Aided Manufacturing (CAM) o Software used to allow the manufacturing process to become computer controlled o CAD can be linked to CAM software to allow the instantaneous manufacturing of designs that are accepted by clients o CAM can be used broadly to calculate how much of each input resource would be required o CAM can store historic purchasing records to assist with present purchasing decisions Task Design Involves classifying job activities in ways that make it easy for an employee to successfully perform and complete the task • Overlaps the employment relations functions of job analysis, job description and person specification • Task design is breaking down the work into a series of jobs in which each contributes to the final goal. • There is typically a separation between manufacturing and administrative operations and it is necessary to group skills and competencies because this helps when obtaining staff Task design → Job Description → Person Specification → Recruitment → Selection Skills Audit A formal process used to determine the present level of skilling and any skill shortfalls that need to be made up either through recruitment or thorough training. Staff may not have the requisite skills. Workplace layout The physical layout of a workplace will depend on the type of manufacturing operations or services performed by the business. This will strongly shape the operations process. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 25\ Process layout The arrangement of machines such that the machines and equipment are grouped together by the function (or process) they perform. Typical process layout is sometimes called functional layout. This is typical of hospitals, where areas are dedicated to particular types of medical care, such as maternity wards and intensive care units Intermittent production: Process production deals with high-variety, low-volume production. Each product has a different sequence of production and the production is intermittent, moving from one department to another. This can also be applied to businesses in the creation of work cells or work teams. Product layout Characterised by the manufacturing of a high volume of constant quality goods. An assembly line is the most common layout for this type of production because it aims to achieve the best possible combination of personnel and machine use – ‘assembly line balancing’. - This is referred to as product layout where the equipment arrangement relates to the sequence of tasks performed in manufacturing a product Arranged to match the sequence of operations, and work flows from station to station Emphasis is placed on sequencing the flow from one work cell to another Fixed position layout Project production deals with layout requirements for large-scale, bulky activities such as the construction of bridges, ships, aircraft or buildings. It is efficient to bring materials to the site with project production. Fixed position layout is where a product remains in one location due to its weight or bulk. Office layout Aims to enable work to be performed efficiently (minimal unnecessary disruption and time wastage) in a safe office environment. It is typically in discrete work stations. It is tailored to meet the needs of the business. Manufacturing business offices is often informal and overlooks the production floor. Services offices, consumers need to feel welcome and a sense of professionalism needs to be maintained. © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 26\ Monitoring, control and improvement Monitoring The process of measuring actual performance against planned performance. • Involves the measuring of all aspects of operations, from supply-chain management and the use of inputs, through to transformation processes and outputs • Arranged around the needs to measure key performance indicators (KPIs) o These are predetermined variables that are measures so that appropriate controls to operations processes can be made • Typical KPIs include: o Lead times / wait times / idle times o Inventory turnover rates / stock-out rates o Defect rates, repair rates and warranty claims o Process flow rates o Capacity and volume rates / capacity utilisation rates o IT and maintenance costs o Direct and indirect cost analysis • This gives operation managers a change to measure the business’s performance and assess this against target levels. Control Occurs when KPIs are assessed against predetermined targets and corrective action is taken if required • Controlling compares what was intended to happen to what has actually occurred • Changes and improvements can be made if there is a discrepancy between performance and goals • Strict controls should be exercised over transformation process by setting challenging but reasonable performance targets • Requires operations managers to take corrective action, where the manager makes changes in the process in order to correct the problem. Improvement Refers to systematic reduction of inefficiencies and wastage, poor work processes and the elimination of any bottlenecks. Bottleneck: An aspect of the transformation process that slows down the overall processing speed or creates an impediment leading to a backlog of incompletely processed products. It is typically sought in the following areas: • Time o Through the minimisation of bottlenecks, an assessment of the necessity in all transformations processes and wait times • Process flows o Smoothness of transitions between transforming processes • Quality © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 27\ • • o Pursuit of quality goals, measurement of product standards and quality and an assessment of returns and warranty claims o Assessment of per unit costs of production, a review of expenses (fixed and variable) and an assessment of per unit costs of delivery Cost Efficiency o Reduction of waste and the creation of greater output per unit input Continuous improvement: An ongoing commitment to achieving perfection – Although this will never be reached, the striving towards this is important to business culture. Process becomes one of setting higher standards in the pursuit of improvement. Outputs The result of a business’s efforts – the final good or service that is delivered or provided to the consumer. The operations manager must be able to link transformation processes to the activities performed by other areas of the business. The combination of customer service and warranties imply that the inputs and transformation processes are subject to scrutiny as the outputs will be assessed by consumers Customer service Refers to how well a business meets and exceeds the expectations of customers in all aspects of its operations. • When a customer expresses dissatisfaction with a product, (defective, not meeting quality expectations, finds wait times / lead times too long etc.) then the operations processes needs review • Customer service can: o Charge an average of 10% more for the same goods and services o Grow twice as fast as their competitors o Increase their market share and profits • The attitude that should be adopted by all departments and employees within the business • Exceeding the expectations of the customer to develop long-term customer relationships Warranties The business’ promises to correct any defects in their products or in the services they deliver • A good way to measure effectiveness of operations process by NUMBER of warranty claims • Made against goods that have defects arising from an issue in transformation • Operations managers need to trace the source of the fault in manufacturing and rectify it • Warranty claim lead the business to improve transformation processes © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 28\ Operations strategies Performance objectives – quality, speed, dependability, flexibility, customisation, cost New product or service design and development Quality Quality of design • Arises from an understanding of consumers and their preferences • Design determines the inputs, and how the transformation process will be arranged and will perform in relation production of goods and services • Well designed and produced goods and services will normally attract a higher price • High quality inputs add cost, and this will reflect a higher price that consumers might not want to pay Quality of conformance • The focus on how well the product meets the standard of a prescribed design with certain specifications • These do not have to require high quality inputs • A measure of how consistently products achieve compliance the desired specifications regardless of the standard of the specifications • E.g. Mercedes Benz combines high quality design with high standards of conformance Quality of service • How reliable the service is? • How well the service meets the specific needs of the client • How timely or responsive the service delivery is Speed Refers to the time it takes for the production and the operations processes to respond to changes in market demand. • Requires that changes in input levels and processing times can be made in response to demand • Aims to satisfy customer demands as quickly as possible. This include: o Reduced wait times o Shorter lead times o Faster processing times • Requires a reduction in procedural and technical bottlenecks and smooth internal communications • Can occur when internal processes that ensure smooth operations are not followed © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 29\ Dependability Also known as reliability, it refers to how consistent and reliable a business’s products are. • How long the products are useful for before they fail • Measured by warranty claims • Highly durable product is a dependable product • Perishable products are also dependable if they are of consistent and predictable standard • In terms of services, dependability refers to consistency of service standards and reliability • A measure of this is the number of complaints received – the fewer the complaints, the more reliable the service. Flexibility Refers to how quickly operations processes can adjust to changes in the market E.g. changes in market demand cause a pressure on capacity • It is important to note that time and flexibility are related o The faster the processing time, the greater the likelihood that processes can be adjusted quickly • Best achieved by increasing the capacity of production o Using plant and machinery more effectively • Changing the product design to create a broader variety • With services, flexibility can be achieved through increasing the number of service providers, increasing the provider’s skill level and through improving the level of technology used when providing the service. Customisation Refers to creation of individualised products to meet the specific needs of the customers • Services are generally customised, although aspects of services can be standardised as seen in the fast-food sector • Customer-orientated business implies that the business will push operations processes towards customisation • Variations in product features such as colour, size and functionality offer a level of differentiation between products • The production of many of today’s goods and services are based on the principle of mass customisation o Allows a standard, mass-produced item such as cars or computers, to be personally modified to specific customer requirements • Cost of customisation is higher than the cost of mass producing standardised products • Only businesses with a product that can be easily adapted tend to customise unless the business model is one to customise all products © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 30\ Cost Refers to the minimisation of expenses such that operations processes are conducted as cheaply as possible. • The costs incurred determine the price • Over time, businesses seek to become more efficient and thus allocate costs better. • New technologies can help a business lower costs, use inputs better and minimise wage • Businesses will seek to reduce supplier costs, manage inventory to reduce cost and maximise flexibility, and find distribution methods that are most cost and time effective Performance objectives will be allocated to targets or goals, and are measured against the achievement of those targets. This is expressed as KPIs, Key Performance Indicators. • Not all performance objectives can be fully realised all the time, a business will have targets for each of them and will allocate resources to achieve these objectives New product or service design and development Important strategy for the operations processes of business in the creation or design and development of new products. This enables a business to grow and to attain a competitive advantage. Product design and development • Arises from a consumer approach to product development o Preferences and desires of consumers, through market research, determine which products are designed and developed • Changes and innovations in technology that enable new, appealing products to be made o Use advanced technologies o Gives products greater functionality • Considerations include o Quality o Supply chain management o Capacity management o Cost • This must be taken into account throughout the process • Supply chain management is important as a new product will draw from suppliers and may extend the range of supplies sought, the timing or the volume of supplies • Quality is considered because the customer will demand particular quality and certain attributes and features. • Any new product will have impact on capacity and may increase the use or range of present resources, or require an investment in new technology and machinery © The School For Excellence 2019 HSC Business Studies – A+ Student Generated Materials Page 31\ • Cost must be considered as it arises from the additional of value through processing – determined from the amount of inputs, time and energy used in processing. • Product utility is the usefulness and value that a product has from the customer’s point of view Service design and development Explicit service: The tangible aspect of the service being provided such as the application of time, ex