HSC Operations Management Notes PDF

10.1 HSC topic: Operations TOPIC 1: Role of Operations 1.1 Introduction to Operations Management Business Operations: Activities undertaken by an organisation that involves the transformation of inputs (raw materials and resources) into outputs (finished...

10.1 HSC topic: Operations TOPIC 1: Role of Operations 1.1 Introduction to Operations Management Business Operations: Activities undertaken by an organisation that involves the transformation of inputs (raw materials and resources) into outputs (finished goods or services.) Processes that help transform business inputs into outputs. This includes planning, organising, directing, coordinating and controlling various aspects of production such as procurement, manufacturing, distribution and marketing. Manufacturing (Business Operations): Turning raw materials and resources → outputs of finished goods or products. ○ E.g. vehicle manufacturer turning steel into cars Service Sector (Business Operations): Process undertaken to carry out the service. E.g. Cutting and styling hair by a hairdresser. Operations involves the following activities undertaken in businesses: - Production of goods and services - Production controls and associated quality controls; this includes input management and capacity (volume of output) divisions - Inventory controls - Supply chain management (SCM) - Logistics and distribution - Management decision in making in terms of operational processes The operations functions is an intricate aspect of business processes and overlaps with, and is interdependent to, all of the other business processes and key business functions: 1.1.1 Operations – Inputs and Outputs To transform inputs into outputs or for products to be sold. The creation of extra or added value as inputs are transformed into outputs. Business Inputs can be in the form of: Tangible inputs such as raw materials, land, human resources, capital in the form of facilities and technology Intangible inputs such as ideas and information Business output include: Products (goods and services) made from the processes of transformation (operations). Transformation for a producer of goods Transformation of a producer of services 1.1.2 Operations and the Customer focus In contemporary business practices, there has been a higher focus on customers and customer relationships. However, it is often difficult determining customer needs such as: ○ Creating innovative products at low cost to improve the quality of life. ○ Engaging with firms in processes that: The focus on waste minimisation, ecological sustainability and ethical conduct are increasingly shaping the operations function, this is due to: ○ Rising expectations of consumers: tend to value businesses that are seen to  be doing the “right thing.” ○ Reflects the changing nature of communication of social media like Facebook, Instagram and Twitter that consumers can report the practices of business globally. ○ This also means that stakeholders such as lobby groups and interest groups can hold businesses accountable for the impacts they make on society and the environment (e.g. Shein; plastic packaging) Minimise resources in their production Minimising waste (Lean production) is an operations management approach designed to eliminate waste and material usage (‘lean’ meaning no excess). This is achieved through thorough analysis of each stage of the production to detect where inefficiencies are and correcting them. Waste adds cost but not value (value-adding); if waste is minimised then the production process will be more efficient Examples of sources of waste in the business: ○ Under use of labour ○ Overproduction ○ Errors and defects requiring remediation or creating lost product ○ Under utilisation of machinery ○ Slow lead times and waiting times within the process ○ Carrying excess inventory Reflect fair value for any labour used in processes For businesses to operate fairly and compensate and treat employees appropriately. The growth of the fair trade movement; from consumers advocating for operations processes in production and supply to: ○ Integrate notions of a fair price ○ Decent working conditions ○ Ethical sourcing ○ Local sustainability Ethical Sourcing Refers to the business’s practices of sourcing from suppliers that engage in ethical conduct like the payment of fair wages and the use of eco-friendly practices. Reflect changes in the need for consumers over time: ○ Operations function is continually adapting and changing ○ Examples; improvements in technology meaning that the capability and functionality of not just the products but the people and the way we do things are changing ○ Businesses have used technology in new and innovative ways like Apple, Samsung, Toyota and Google which are ALL examples of successful global businesses and brands that have been able to keep up with changes in consumer markets (and in some cases drives changes in consumer markets) Historically, businesses did not concern themselves with the practices or standards of suppliers (only cost and reliability of supply)  Consumers are making more informed decision relating to: ○ Which businesses they buy from ○ How businesses source their supplies and practices and standards used by the business within a supply chain (such as payment of fair wages and eco friendly practices for suppliers). NGOs have drawn attention to the poor labour practices and damaging environmental impacts of businesses operating in low-cost nations such as Vietnam, Bangladesh and India Numerous global brands have now made it a contractual obligation for suppliers to disclose their labour standards and environmental impacts. Therefore, consumer choice affects corporate practice, which in turn affects supply chain and sourcing decision Example: David Jones’ five-year ethical sourcing strategy including ways to improve the conditions and wellbeing of people working along their supply chain. Ethics in business, animal welfare and environmental sustainability New ethical sourcing strategies have been developed in collaboration with customers, buyers, suppliers and not-for-profit groups. An ongoing process involving annual engagement with stakeholders and formal reporting on the progress of their own objectives and initiatives David Jones has created a Supplier Code of Conduct and as seen from their website to “influence positive outcomes along our supply chain by adopting a collaborative approach that supports continuous improvement. We will be open and honest about the complexity of the challenges that lay ahead.. clear in relation to what we expect of our suppliers…” Operate at low cost to maximise affordability Businesses aim to maximise profitability by generating sales revenue. In highly competitive markets, businesses try to capture market share by lowering costs; this will be reflected in lower prices. Need for customers to buy affordable goods will directly affect the operations function of businesses Example; for a manufacturing enterprise, businesses will continually seek to minimise production costs so that the retail prices for customer are as low as possible Global sourcing and astute supply chain management (SCM); helps businesses operate at low cost from where the product was sourced and transported to the business Access to low cost suppliers can ensure that businesses make the final price to consumers as low as possible. Operations processes adjust to shifting needs Operations function must continually adapt to change; improvements in technology means that the capability and functionality of products are changing the same way people interact with each other. This can be seen through advancements in communications and digital technologies e.g. Apple, Samsung, Toyota and Google have all successfully used technology in an innovative way to keep up with and create changes in the consumer markets. 1.2: Strategic role of Operations Management Strategic: Long-term, broad aims, affecting all KBA’s involving the managers of each function contributing to the strategic direction or strategic plan of the business. “The level which it affects all KBA’s.” 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, by local and overseas use of either a cost leadership or product differentiation strategy. Strategic operations decisions focus on: ○ Products to be created and produced ○ Capacity or size of operations ○ Organisation of inputs and equipment in operations ○ Location and employees used in the operations ○ Quality The overarching goal of the business is to maximise profits through the ○ Revenue or income: Maximised to obtain the highest volume of money conversely– Costs need to be minimised in order to reduce the overall level of expenses incurred. Financial and marketing aspects of a business tends to target the revenue aspect of the business. ○ Costs or expenses: Costs, in the operations and human resources functions of the business and in the business; indirectly generating revenue ○ Profit centres: Aspects of the business that directly derive revenue and profits. ○ Cost centres: Indirectly derive income through particular areas, departments or sections of a business which costs are attributed towards. 1.2.1: Cost Leadership in the Operations Function Cost Leadership Strategy: Where a business aims to achieve a sustainable advantage over its competitors by finding the lowest cost manufacturer and being most price competitive in the market. Operational costs in businesses ○ Input costs  ○ Processing or transformation costs ○ Costs of getting products to markets ○ Costs associated with inventory management and quality management Economies of Scale: Cost advantages gained from companies by increasing their production (output) and lowering their costs of input. This can be done by using technology and machinery to increase efficiency. Cross-docking: Process whereby the stock from suppliers are transferred to distributors without the need for holding in between (and can be directly transferred for shipment to retail outlets) Creating a low cost basis can be achieved by: ○ Using cheaper inputs (perhaps degrading quality and sizing e.g. Caramel Koalas) ○ Maximising efficiency by minimising waste and saving time ○ Maximising productivity producing more outputs from less inputs (businesses cutting down on staff, ATMs and banks) ○ Using technology and machinery ○ Increasing size of operations to reduce the average cost of making each item (economies of scale- e.g. Costco purchasing in bulk and selling for a cheaper price & Coles/ Woolworths offering specials and discounts [even during COVID] ○ Lower cost, higher quality can be achieved by substituting inputs for lower costs but as good of a quality and purchasing in bulk Example: Rationalisation in the Australian dairy industry that has resulted in lower overall costs and economies of scale. Since the milk production has not grown over the past decade, the industry has had to find means to create economies of scale by using existing facilities (like technology) to generate products more efficiently. Balance between Cost and Quality As the standard of materials, labour and other inputs rise, and the precision and speed of facilities and equipment rises, the price of products made by and the expectations of the business will increase. If the costs of inputs are very low then it is likely that the final prices will reflect the lower quality of inputs and processes Operations managers (and those who lead the other business functions) will need to decide what level of quality is sought and hence the level of costs to incur. In  this way, they will need to decide what balance to create between costs and the desired quality. 1.2.2: Goods/service Differentiation Goods/service Differentiation Strategy: Obtaining an advantage over the business’s competition by having different outputs to its competitors, unique or leading edge technology. Achieved by having: ○ Better quality and quicker supply of outputs ○ Custom designed outputs and/or more varieties to suit different needs (such as large to niche target markets) ○ More features, applications and versatility ○ New technology incorporated Distinguishing between goods and services Goods (products) Outputs: Already exists before a person seeks them ○ Physical, tangible and can be reused ○ More capital intensive (machinery) ○ Can be stored ○ Hard to modify once manufactured e.g. Ipad Service: A need for a service, without it existing prior to the need ○ Intangible, only used by one customer once ○ More labour intensive ○ Interaction with customers ○ Easier to change and customise Both goods and services are closely linked such as going to a fast-food provider and purchasing two pizzas; good, perishable and should be eaten while fresh. However, this comes with customer service from the person taking the order, the customisation of goods to meet the customer’s specific requirements, the layout of the store and the skill of the chef preparing the ingredients. Product Standardisation and Differentiation Standardisation: Homogenous, identical or mass produced products usually on an assembly line involving the production of items in bulk or high volume with no variety and at a low cost per unit. (directly linked to economies of scale) Product Differentiation: Distinguishing products (goods or services) in some way from its competitors (This will differ for goods and for services) Product Differentiation: Goods At a basic level; colour variation to constitute product differentiation Varying the actual Product features;This may come in one basic variety and then in other varieties of increasing complexity or options A breakfast cereal at its most basic can be processed grain OR be a mix of processed grain cereal with added ingredients like sugar, dried fruits) Varying Product quality; Making a low-quality model that is very affordable and then increasing the quality (reflected in its higher price). A higher quality alternative may be sold, under an alternative trade name so that the market and consumers perceives both products as being produced by different producers Varying any augmented features; Add-ons or additional benefits associated with particular goods Car manufacturers may allow consumers to buy a vehicle with the capacity of a built-in GPS, self parking (autopilot) systems and windscreen wipers. These are not standard features or variations on standard features but rather additional features that can significantly vary a product. From an operations perspective, a strategic approach assess all different options and determines which ones can be best undertaken with a cost leadership focus Product differentiation: Services Varying the amount of time spent on a service; time used as a factor to differentiate between service-providers Varying the level of expertise brought to a service; person with higher level of expertise, as a service provider can provide more specialised services (based on their knowledge to a specific area) Varying the qualifications and experience of the service provider; highly qualified and experienced service providers can affect the quality of service provided (much more broader and general area of knowledge) which will affect customer’s choice when choosing their service provider Varying the quality of materials/technology used in service delivery; Use of computer-based technologies such as accounting software, CAD and CAM programs, medical technologies and ICTs that can affect the quality of service provided and differentiation in the service sector. From an operations perspective, a strategic approach to service delivery will require the manager to assess how much emphasis to place on the types of services that will be best fit for customer needs whilst reflecting the cost leadership principles. Figure 1.6: The IT section of a multinational bank must be highly specialised and differentiated. They have high quality security systems (put in place; flexible and adaptable to IT issues and threats like identity theft, spam and industrial espionage), high expertise, speed and the security are necessary features of the IT security platform. Cross Branding (Strategic alliances) Adding value to products (goods and services) by offering consumer added benefits from a cross-branding arrangement E.g. Woolworths and Caltex alliance and Coles and Shell alliance. Here products are differentiated but not from the product itself but an external factor like a collaboration (cross branding) that the business has brought into the mix. 1.3: Goods and /or services in different Industries 1.3.1: Goods in different Industries Operations decisions will vary depending on whether they are: Goods may be classified as perishable (foods) or non-perishable (household and business goods) Standardised Goods: Uniform mass produced with predetermined level of quality and found on an assembly line. This Involves the production of items of high volume with no variety and at low cost e.g. Dairy Milk Customised Goods: Varied according to the needs of customers (market focus) than a production focus (like standardisation) ○ The layout of the operational process will vary depending on  undifferentiated or differentiated goods. ○ The process selection is highly strategic, requiring a high degree of cross-functional interaction and coordination of all KBA’s ○ E.g. CDs and music streaming services that allow customers to create their own playlists. Intermediate goods undergo a set of operational processes into inputs and used into further processing. Perishable goods and Operations processes Operations processes will integrate the following factors: High standards of quality, safety and cleanliness in all operating processes Very short lead times and distribution; as quick and efficient as possible Appropriate and robust packaging and cold storage processes both through production and distribution. Example: Perishable goods have a short life span, consumed quite quickly, relatively inexpensive and bought on a regular basis; reflecting the characteristics of operational processes Non-perishable goods and Operations processes More durable than perishable goods, larger focus on– quality and inventory management in the operations function. Operations processes will need to integrate the following factors: ○ 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 not to over produce (E.g. Coca Cola; Just-in-Time). Many non-perishable goods produced have similar processes regardless of the industry e.g. motor vehicles, electrical appliances, audio-visual products, clothing footwear. Intermediate goods In the production process, goods may be processed more than once. This means goods completed, having gone through a set of operations processes, to then become inputs into further processing. Example: Manufacturer converts steel into tiny screws (finished goods for that manufacturer) but are then used in the manufacture of electronic goods 1.3.2 Service in different Industries Services can be classified into: Standardised (fast-food industry; aims to standardise the service) Customised (industries that are characterised by professionally educated people like in legal services, medical services and dental surgeries (unless the nature of the request from a client is standard) Example: Most people visiting a medical specialist are highly likely to receive a customised service VS a general practitioner (GP) that may receive a standard service. Cost leadership and standardised products (goods and services) When a product is standardised then costs associated with the production of the product can be minimised (similar to goods) Standardised goods may be mass produced without variation and economies of scale achieved (similar to service delivery). A business can bring a cost leadership to the service by standardising how the service is performed. Example: Fast food industries generally follow highly standardised processes in taking orders and customer services- people are trained to know what to say and how to say it (similar to call centre work and other administrative processes that are routine-based) Self Service Encouraging customers to take the initiative to help themselves. E.g. The financial services sector and the travel industry encourages people to make their own transactions online. In this way, businesses can concentrate on customisation when a person cannot help themselves (customer issue/service). However, the issue with self-service online is drip pricing. Drip pricing: When the final price of the service is much higher than the advertised price due to added charges and costs of the service e.g. with airline ticketing and travel products sold online. Types of Goods and Services within Sectors of the Business Industry Primary: Exploit natural resources and produce raw materials (e.g. Mining, farming) Secondary: Process raw materials and manufacture finished goods (e.g. production of cars, foods and clothes)  Tertiary: Distributor of goods and provides services (e.g. supermarkets, hairdressing, travel agency) Quaternary: Information-based services (e.g. teaching, journalism, banking) Quinary: Decision making; Household services (e.g. carpet cleaning, childcare, restaurants) 1.4: Interdependence with other Key Business Functions Example: Interdependence with other KBAs Colin’s Cafe, a medium sized shopping centre coffee shop; managers of the business decide to focus on and specialise in coffee retailing and coffee making whilst the business hires other businesses to do the accounts, assist with finding skilled employees and the undertake marketing (outsourcing; reaching out the external providers) Interdependence (cross-coordination): Mutual dependence that the key business functions (Human resources, Finance, Marketing, Operations) have on one another to perform effectively Example: A soccer team with highly specialised players; leftwing, fullback and a goalkeeper however, despite their individual skills, a side will usually win if all players contribute the game and work together; passing, communicating and playing for the same victory. Similarly, independence occurs when each key business function area is committed to the same business goals as the other key areas and they each work in a coordinated and collaborative way to achieve these goals 1.4.1: Tasks within the Key Business Functions In most businesses, closely related tasks are grouped like: Sales and marketing  Finance and administration Operations and research and development (R&D) Consequently, the range of functions is generally reduced to four main business functions. Example: Information Technologies (IT): Small department within a business that affects each KBA as technology is pervasive through a business enterprise. Operations: Computer-based technology in planning, processing, scheduling, inventory management, quality management and all other aspects and activities Marketing: IT software to assess market trends, design products, design communications, create visual stimulus Finance: To record transactions and summarise trading into reports that can then be assessed and mathematical modelling to predict and evaluate. Operations Activities undertaken by an organisation that involves the transformation of goods and services that applies to both the manufacturing and services sector. In manufacturing, operations refers to the processes involved in turning raw materials and resources into outputs of finished goods or products. Marketing Meeting the needs and wants of consumers through provision of products (Both goods and services) at prices that the the market is prepared to pay Consider all aspects of buying and selling including the psychological processes that people go through when thinking about purchases, why people buy, to pricing, product development, promotion and distribution Marketers attempt to maximise the earning capacity of their business through sales Interdependence of Marketing and Operations Marketing: Design of products and their subsequent sales to meet the needs of  consumers Market research guides new product development (research) by designing a product that is competitive in the marketplace to better meet the needs of customers > competing products. Operations: Involves the acquisition or sourcing of products for resale or the sourcing of inputs for production. Thus, the requirement of product design (marketing requirement) affects the operations functions. Finance Recording and summarising financial transactions into a series or reports to be interpreted. This includes: Reports: income statements (“revenue” or “profit and loss statements”), which determine the amount of money the business has earned after its expenses have been paid that is useful to managers and other stakeholders Balance Sheets and budgets: reports crucial information to decision makers within and outside of the business Interdependence of Finance and operations: Marketing objective of profitability: Requires a business to maximise sales (revenue) and minimise costs (expenses). Operations function is responsible for producing goods/or services, if the costs of production can be minimised then profit margins can be increased. Similarly, if operations processes focus on quality then the resulting products can be sold at higher prices and generate higher revenues Example: To invest in facilities and buy technology; high financial costs that can lead to faster processing speeds with less waste. Employees must be paid, raw materials and component parts must be purchased, bills for rent and electricity must be paid. The money from the sale of products or services must be collected and records must be kept. Human Resources Deals with the business’ employees and the issues arising from their employment. This includes employment resourcing: ○ Acquiring, developing, maintaining and motivating of staff ○ Processes involved when staff member leave the business– separation Interdependence of Human Resources and operations: Successful businesses recognise that they rely on the quality of their employees to achieve their goals of profit maximisation, growth and increased market share. People are the business’s most valuable resource, so it is important to take care to recruit and maintain the best people; selection, training and rewards to help provide better products and services in the marketplace and to achieve the business’s competitive advantage. However, with new changes such as technologies enabling faster processing speeds and work efficiency in the operations function. A direct effect on human resources as the nature of the work, skills and qualities required of the human resources. Outsourcing is also changing the nature of operations and onto human resources  as the communication between human resources can be more complicated and there is an increasing reliance on technology. Specialisation Specialisation is another reason in which there will be independence between KBA’s and a constant flow of information; Operations, Marketing, Finance and Human resources. Specialisation: Business separated into different functions, each highly skilled at a specific task or role Interdependence: Different parts of a business rely on each other to perform a task or role Production: Businesses that create goods and services Operations management: Activities needed to transform inputs (raw materials, component parts, labour etc) into outputs of goods and services (+ adding value to inputs like service) TOPIC 2: Influences on Operations Management 2.1 Introduction to Operations Management Influence on Operations Each business is influenced by its dynamic external environment (threats & opportunities). Businesses will need to continually respond to these change by adjusting to external factors The operations manager will need to monitor and anticipate changes in: - Global business environment - Technology: product innovation and new ways of producing - Competitors - Government laws, regulations and policies - New pressures from society and stakeholders to limit the negative impact on the environment from business operations 2.2.1: Globalisation 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 Removal of barriers of trade between nation Opportunities for Australian businesses to expand overseas and source inputs from overseas Gives consumers the opportunity to purchase products from businesses beyond Australia’s borders therefore, Australian businesses must be more competitive and therefore operations must be more efficient Multinational corporations with a global web of operations New risks such as the changing value of Australia’s currency and new competitors Connections globally with investors & shareholders However, globalisation can act as a threat to businesses as businesses that effectively apply cost leadership principles can undercut the market and dominate. Globalisation and Operations Management Large businesses are increasingly orienting their practices onwards the global market, with a view to meeting the needs of global consumers (seeking global brands and standardised products) This significantly affects the operations function, which is then structured around a series of global production facilities. Features of global businesses that seek to target global markets: ○ Product design, which must need to needs of global consumers ○ Choice of location for manufacturing facilities ○ Management of quality and logistics ○ Inventory management processes. Using manufacturing plants for the production of goods means that a business can achieve economies of scale advantages. E.g. businesses like Apple, which has  product designed in the US, but manufactured in China for a global market Production of services on a global scale within sectors include: ○ Financial services ○ Travel and tourism services ○ Software development ○ Telecommunications Figure 2.3: The hybrid global–local structure (‘glocal’ structure) Case Study: AON- global insurer Niche provider of insurance, human resources and outsourcing for businesses Global business operating in 120 nations and employees over 72000 personnel Increased growth after sponsorship of the Manchester United Football Club- strong business partner Consistency of protocols, higher internal standards and focus on quantity making AON’s operation reliable Supply chain management (SCM) and the global web Once a business is global, then managing the supply chain becomes an important function of the operations manager: Supply Chain: Range of suppliers and the relationship a business has with them. A business needs a predictable and reliable supply chain that is highly responsive to changes in demand as experienced by the business, sourcing is an essential aspect of SCM, an operations strategy that requires finding the suppliers needed for production processes to flow smoothly. For a global business, the integration of a range of suppliers creates a global web Global Web: Network of suppliers a business has chosen on the basis of lowest  overall cost and risk and maximum certainty for quality and timing of supplies. Thus, a business will opt for a location with appropriate close proximity to its suppliers. Two alternative approaches to the Supply Chain (depends if a business is an imitator or an innovator): Reverse engineering: Process involving a business taking a product of a competitor (already released in the market) and making it into their own version of the product from the component parts (using different materials at lower cost) E.g. Aldi selling products similar to coles/woolworths (with products of similar branding) but selling for a cheaper price Innovation:When a business creates (novel) new products and in doing so leads the market eg. Apple Iphones Case Study: Zara- globalisation and its impact on operations Over 2200 retail stores globally in 94 markets Manufactures their own clothes and sources and brands clothes produced by other productions > than 65% clothes produced in Europe or Morocco through Spanish production and distribution Clothes are distributed globally within 48 hours- no need for local warehouses in the 94 markets where it retails Centralised control of production: Manages 1200 different suppliers Zara competitors: H&M and GAP Changes production cycle by designing over 1000 new garments per month than seasonally- made responsive to market trends that interact with customers globally Therefore, it uses its global proximity to its markets and well-designed logistics to ensure that customers feel valued. 2.2.1: Technology Design, construction and/or application of innovative devices, methods and machinery upon operation processes Technologies (Personal/Household): Smartphones, laptops, gaming consoles, security devices) Equipment and knowledge that is available to help businesses perform certain functions or make products more efficiently and often lower cost. Technologies used in the business: ○ Computer Aided Design (CAD): A computerised design tool that allows businesses to create, develop, modify and analyse design (3D software) to create product possibilities from a series of input parameters ○ Computer Aided Manufacturing (CAM): Software that controls manufacturing processes; handling of machine tools used in the manufacturing of models. Enables people to communicate more easily and enable improved business processes as technology as a range of devices and enabling processes and applications. Technologies can be applied to and integrated with, the range of processes that characterise the operations function in business. Technologies used in the administration of operations: ○ Planning Technologies: Materials requirement planning (MRP), Gantt charts, Critical Path Analysis (CPA) etc ○ Office Technologies: Computers, scanners, tax machines and phones ○ Software: Graphics packages, word processing, spreadsheet and graph programs, multimedia and publishing programs Technology in the Range of Operations ○ Large machines in manufacturing plants (e.g. assembly line production) ○ Robotics in highly sophisticated production processes requiring great precision ○ Computer aided design (CAD), Computer aided manufacturer (CAM) and computer integrated manufacturing (CIM) technologies to assist in the creation, modification, analysis and optimisation of a design ○ Rapid manufacturing (RM) to increase flexibility of production and tooling technologies for a higher quality product. Case Study: Zazzle– using technology to boost operations An online customisable clothing and accessories stores that has implemented technology to boost its operations in: Providing customisable options in the online store that can be made within 24 hours Adaptive databases to access the contents of a customer’s shopping cart and suggest for further purchases Secure payment systems Computer softwares involved in the creation of designs and customisations Distribution involved further investment in technology involving a number of licences with companies and trademarked brands like Disney, Sesame Street and Harry Potter Zazzle’s products for customisation: bags, t-shirts, shoes and luggage tags 2.2.3: Quality Expectations Quality:Totality of features and characteristics of products (goods) and services that bears its ability to satisfy stated or implied needs. [International Standards Organisation (ISO) definition] Quality: Specific reference to how well designed, made and functional goods are, and the overall degree of competence with which services are organised and delivered.  A business that is customer focused to provide goods and services that will satisfy the desire of its customers ○ Customers expect a certain level of quality for the price they pay ○ Expectations include reliability, durability, fitness for purpose, quality of design, professionalism of the service provider and level of customisation The quality standards should be for products (goods and services) and a consumer’s personal level of satisfaction with their experience will indicate whether the quality has met with expectations or not. Case Study: Tiffany & Co Company’s reputation based on high-quality standards (high-quality diamonds, blend of conservatively contemporary designs) Enhanced through popular films and songs such as in the 1961 opening scene of Breakfast at Tiffany’s Will replace, repair and refund at no cost each time- reliable Sourcing partnerships and internal processes Quality Expectations and Operations Management Operations processes must follow particular standards or prescribed minimum levels of excellence. Quality expectations are that people have of businesses which determine the way products are designed, created and delivered to customers. 2.2.4: Cost-based Competition Price advantage over its competitors by using operational strategies that lower cost whilst maintaining profit margins. Cost-based competition: Determining break-even point (level at which the firm’s total revenue is equal to its total costs) and applying strategies to create cost advantages over competitors. This may force a business to seek its own cost advantages by: ○ Outsourcing ○ Updating technology ○ Using cheaper inputs ○ Lowering quality ○ Relocating operations to a cheaper region of the world The efficiency of a business can be determined from assessing the cost structures in businesses. Mass customisation enables cost-based competition even when products are differentiated rather than standardised. Cost-based competition and Operations management Focusing on reducing costs to a minimum while maintaining profit margins. In applying a cost leadership approach to operations management, cost can be analysed and divided into fixed and varied costs ○ Fixed costs: Costs that are not dependent on the level of operating activity in a business; whether the business increases, decreases or maintains production, these costs are unchanged e.g. building leases costs and insurance costs. ○ Variable costs: Vary in direct relationship to the levels of operating activity or production such as labour costs and costs of energy. Case Study: Kmart, Target and Big W- cost based competition 3 main department stores in Australia: Kmart, Target & Big W  When prices for the consumer are low, then the supply chain and procurement strategies applied within the operations functions are efficient Draws inventory from low-cost nations overseas like China, India and Vietnam The large volume of turnover generated by each of the businesses to enable economies of scale in the supply chain Reducing costs can be done by: Ways for businesses to compete on cost priorities– reducing costs & improving productivity by: Ensuring stable production processes with limited interruptions Ensuring that all resources are used up to their optimum advantage Constantly looking for opportunities to streamline production processes Updating facilities and equipment with new, more efficient technologies Providing training and development to improve skills and capabilities of employees 2.2.5: Government Policies Government policies such as taxation rates, required handling practices, Work health and safety (WHS) standards, industry training requirement, OH&S standards, public health policies, environmental policies, industry policies and employment relations has influenced the business operations All businesses operate in a political-legal environment (Political decisions affect the business rules and regulation- this in turns affects the management of KBA functions) Government policies can change due to a new government in charge or change in social expectations. Trade policies to promote trade relationships with other nations; a gradual reduction in ‘protection’ of Australian businesses forces businesses be more efficient in their operations and reduce costs In addition, other policies include focusing on limiting the impacts on the environment from the business operations E.g. carbon pricing (putting a price on carbon) Since policies can inform law-making and lead to business opportunities, operations managers need to be fully aware of the contemporary government policies and what they compromise. Case Study: BizFACT Commonwealth government had a policy of allowing small businesses to claim a tax reduction for asset purchases of under $20000 Businesses typically would be allowed to ‘expend’ their assets through depreciation, allowing businesses to reduce the value of asset to react its true worth after use This means a business can reduce tax through claiming non-cash expenses like depreciation lasting for 5-10 years. The NEW instant asset write-off policy allows small businesses to claim up to $20000 of assets as an expense INSTEAD of having to slowly depreciate its value over the years This means that businesses are able to effectively invest in computers, vans and office furnitures but get an immediate tax benefit The tax benefit arises because expenses are matched against business income and therefore reduce profitability and lower the amount of tax payable. 2.2.6: Legal Regulations Laws make clear the standards of society as businesses are expected to comply with the standards of behaviour imposed by the legal regulations. This influences a business’s practices and procedures with the risk of penalty hence, compliance costs, expenses associated with meeting the requirements of legal regulations. The operations function involves transformation and value adding including the use of any or all of labour, technology, finance, machinery and energy. Laws that affect Operations of Australian businesses include: ○ Environmental protection: Minimising pollution, eliminating and safely disposing any toxic residues ○ Apply rules related to public health: Fair trading rules which influence product safety standards and fitness for purpose of products ○ Fair Work and Anti-discrimination: Requiring employees to be treated with dignity and respect ○ Training and Development: Use and application of technology in the appropriate methods required to work effectively ○ Work Health and Safety (WHS): Use of machinery and in interacting with the business environment; safe and healthy working conditions including the appropriate and safe training of employees, use of protective equipment, and work with machines that abide by noise, pollution and safety standards Laws that impact the operations strategies used, for example: To not release more than a legal maximum amount of pollution for consumers Products must meet minimum standards for quality and safety Products created by operations must perform as they are promoted to Employees must have a safe working environment (no dangerous machinery or unsafe procedures) Case Study: Red Bull Australian Consumer Law prohibits businesses from making false or misleading representations about: ○ Quality, value or grade of good/services ○ Performance characteristics ○ Accessories and benefits and uses of good/services Benjamin Careathersfiled a class-action lawsuit against Red Bull in 2013, alleging that the company’s claims that the energy drink increased performance, concentration and misleading reaction speed The company was ordered to pay $13 million in a settlement which would be put towards a fund that would reimburse individuals who had purchased a can of Red Bull over the prior 10 years. Individuals could also opt to get 2 free Red Bull products in Ireu of the cash, BevNET opened. 2.2.7: Environmental Sustainability Environmental sustainability refers to the businesses operations shaped around practices that consume resources today without compromising access of use for future generations Natural environment must be protected from resource depletion and pollution External stakeholders and government environmental protection laws require operations managers to ensure that the operations strategies use resources sustainably as much as possible Refers to the business's operations that allows for resources to be used by the business without compromising the ability of future generations. Main aspects to environmental sustainability (ecological sustainability) Sustainable use of renewable resources Reduction in the use of non-renewable assets Applying the precautionary principle, where environmental impacts are uncertain,  where a business undertakes actions that are most likely to cause least environmental impact. Environmental sustainability and operations management Operations management function is significantly affected by the rise in climate change awareness and the need to integrate a long-term sustainable view of resources management into business planning and practice. Businesses will try to reduce and minimise waste; recycle water, glass, paper and metals and reduce their carbon footprint. Carbon footprint: Amount of carbon produced and entering the environment from operations processes Case Study: Ferguson Plarre Bakehouse At Ferguson Plarre Bakehouse (In their main baking facility): Uses rainwater toilet flushing High efficiency air conditioning and climate change to reduce temperature bleed between baking areas All hot water from the cake and pie production is preheated using energy recovered from their fridge monitor. 2.3: Corporate Social Responsibility (CSR) Corporate Social Responsibility (Triple Bottom Line) : Refers to the open and accountable business actions based on: Respect for people Community/society Broader environment It involves businesses doing > than just complying with laws and regulations (e.g. fundraisers to give back to the wider community) Corporate social responsibility and operations management The driver of corporate decision making is not purely based on profitability but rather what broadly reflects a range of community concerns and social expectations. This relates to operations management as it requires business to understand where and how inputs are sourced so that it only draws from suppliers that adhere to appropriate standards. It also requires a business to shape its processes in a way that minimises environmental damage and waste in addition through managers ensuring recruitment practices from a diverse range of employees and inclusive of people from all backgrounds. CSR is recognised more in developed than developing nations  Developing nations: survival and basic necessities over personal interests and additional purchases in more developed nations Many businesses have a Code of Conduct to guide their social and ethical behaviour 2.3.1: Difference between legal compliance and ethical responsibility All businesses should comply with all applicable laws and regulations. Penalties for breach of business laws act as a deterrent and can assist businesses to understand their obligations. However, businesses that go beyond adhering the minimum requirements set out under law, demonstrate a commitment to ethical responsibility. Legal Compliance: Ensuring that the business’s operations processes and strategies follow the letter of the law– prescribed standards of behaviour for the business. Ethical Responsibility: Making operational decisions that are not only legally compliant but morally acceptable to society In demonstrating ethical responsibility, a business is demonstrating that it values something more than just earning maximum profits as it is allocating money over and beyond what it costs to comply with the law (compliance costs). Triple Bottom Line (People, Planet, Profit) In short, another way for business to deal with CSR Triple Bottom Line: Refers to the financial profitability, social and environmental impact of the business. Increasing the value of transparency and accountability to fulfil public expectations (influenced by society and people) for organisations to take responsibility beyond the traditional domain of financial performance (profit). Otherwise this may to loss of customers and publicity Example: Customer transparency for the business that by placing cardboard into recycling bins that it will be recycled and reused. However, if another business is caught lying that cardboards being placed in the recycling bin are ending up in landfilled and shipped and sold to other countries, this may spark controversy. Reporting its business for having Triple Bottom Line (TBL) is an accepted approach for organisations like Nine, CocaCola to demonstrate that they have implemented strategies for their businesses to obtain sustainable growth. It focuses on decision-making and reporting specifically to an organisations’ economic, environmental and social performance. TBL can be seen as an internal management tool and external reporting framework Case Study: Starbucks Legal compliance and business operations Compliance typically falls under areas of the business such as: Labour law compliance ○ Minimum wages, award wages, working hours , breaks, pay for various forms of leave, other on-costs associated with labour, workers compensation and WHS laws Environmental and public health compliance  ○ Regulations stopping dumping, pollution (air, land and water), requiring certain standards of operating and waste disposal Business licensing rules ○ Particular levels of training or certification and those placing conditions on operations such as restricted working hours, zoning restrictions and content and disclosure restrictions Taxation ○ Levies and duties as well as taxes imposed on profits. ○ Superannuation can be considered a form of taxation that is invested for retirement purposes. ○ Taxation can be applied in a way that encourages particular practices or penalise particular activities Trade practices and fair market dealings ○ Addresses the issue of market power, misleading and unfair conduct, price collusion, monopoly behaviour, market concentration (competition) and product safety Migration and the rules around the use of offshore skilled labour ○ Aims to ensure minimum standards are applied to labour brought in from other nations Intellectual property ○ Moral rights such as copyright, patents, trademarks, designs and other original ideas and artistic works Financial and accounting regulations and corporations law ○ Aims to standardise methods and rules around financial records and reports and ensuring that company directors follow particular rules as fiduciaries ○ Fiduciary: A person in a position of financial trust with respect to others’ money Corporations law (‘Antitrust’ law) ○ Imposes duties on directors and others who work in responsible positions within corporations Human rights ○ Rules restricting discrimination on the grounds of disability, culture, sexual preference, gender, age or any other distinguishing feature. Outsourcing, compliance and business behaviour One way that businesses aim to reduce compliance costs is by structuring their business operations so that different aspects are conducted by outside parties: Outsourcing: Involves the use of outside specialists to undertake 1 or more key business functions (onshore or offshore) Onshore outsourcing: Involves the use of domestic businesses as the outsourcing provider Offshore outsourcing: Takes advantage of regulatory differences between nations and the activities to a provider in another country. This means that the compliance requirements are different between the nations chosen and allow the business to take advantage of significant cost savings. Lower taxation rates, lower standards of labour, weaker environmental and  intellectual property regulations that all enable businesses to reduce their compliance costs. However, the use of offshore outsourcing raises ethical issues concerning a business’s behaviour. For example, if a business should operate in nations with loose WHS laws when the costs saved can place employee welfare at risk or if a business should outsource its operations to a third party to take responsibility for compliance FIG 2.8 In some developing countries, sweatshop conditions exist, in which women and children work long hours in extreme heat for very low wages and with virtually no safety precautions. There is increasing pressure to ensure employees who work for low wages in many developing countries are not exploited by unscrupulous businesses. FIG 2.9 The way outsourcing is used by a business to reduce costs of compliance. Note: the use of service level agreements (SLAs) can be an ethical way to ensure the outsourcing provider adheres to high standards of conduct. Ethical Responsibility When laws and regulations differ between nations, it can be hard to know how to be ethical in given business situations therefore by consulting with special interest groups or following guidelines set by international bodies, a business can be ethically responsible In manufacturing operations, there can be significant international differences in standards for labour in terms of wages, health and safety, training etc. A business may choose to follow international labour standards that come from the International Labour Organisation (ILO) The ILO holds annual conventions, International Labour Conference that raises matters of importance to workplaces and the rights of employees such as: ○ Working women and maternity protection ○ Provision of safe working conditions The workplace issues that are raised are put into a report. If 2/3rds of the nations in the ILO agree to the report’s recommendations, it becomes an International Labour  Standard. Nations are expected to pass laws consistent with the International Labour Standards 2.3.2: Environmental Sustainability and Social Responsibility Economic development of a business must be accomplished sustainably– using methods of production that conserve the Earth’s resources for future generations. Environmental sustainability: Balance between a business’s economic and environmental concerns. Specifically, the social conscience of responsible business owners to implement policies of conservation, recycling and restoration to protect the environment. Principle of ecological sustainability requires businesses to evaluate the full environmental effects of their operations Growing consumer expectation that products should be ‘clear, green and safe’ is changing management practices in Australian businesses that may coincide with stakeholder expectations. In response to concerns about climate change, the community increasingly expects businesses to: ○ Adopt greenhouse abatement (reduction) measures ○ Encourage the development of long-term sustainable strategies. Social Responsibility: Businesses that behaves in a socially responsible manner to improve quality of life for internal and external stakeholders A socially responsible business tries to achieve two goals simultaneously: ○ Expanding the business ○ Providing for the greater good of society It recognises that business activities have an impact on society and to carefully consider its actions. ○ Customers can react and stop buying a business’s product if they learn that the business is exploiting employees, accepting bribes or polluting the environment. ○ However, customers will reward socially responsible businesses by purchasing more of their products. ○ Socially responsible business behaviour costs money in the short-term but may become the business’s own interest in the long-term. Case Study: Ethical Sourcing– clothing manufacture  TOPIC 3: Processes of Operations 3.1 Introduction of Operations Processes Operations Processes: Activities directly involved with the transformation. The processes may be broadly classified according to their role in transformation: Inputs into transformation processes Actual processes of transformation Outputs of the transformation process Production: involves the bringing a no. of inputs together such as finance, equipment, management, technology, materials and people to create the finished goods or services through a series of operations processes 3.2: Inputs Inputs: Resources used in the transformation (production) process. Four common direct inputs used by most businesses include: Labour/ information (skills, efforts and knowledge of employees) Energy (electricity and fuel) Machinery and technology (capital equipment; factory, land, office) Physical raw materials and components (to make a good) Labour Human effort (mental and physical) necessary input into operations processes crucial to all aspects of business operations Jobs in the field of business operations include areas of sourcing and supply chain, technical support and maintenance for machinery, inventory management etc Energy  In the form of electricity or fuels which can be converted into heat, movement, light, sound or other forms of energy is an essential input intro transformation. Energy is required to bring inputs to the business to transform and distribute to consumer markets. Value adding is directly proportional to the amount of energy. For example, the manufacturer of a high value added product such as a motor vehicle requires large amounts of energy Raw Materials Basic components of manufactured goods e.g. wood, unprocessed agricultural products, natural resources in the form of minerals, fossil fuels, water etc. Raw materials are 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 Machinery is used to process raw materials and to design and make products. Machinery integrated with technologies can perform complex tasks at a rapid pace. Capital-labour substitution: Machinery and technology displacing people’s work This makes work less redundant. When machinery and technology are used in the business, some labour may be lost but there is then a period of retaining that take place as people acquire new skills relevant to use with new technologies. 3.2.2: Input Classification Inputs can be classified as: ○ Transformed resources: Resources that are changed or converted in the operations process ○ Transforming resources: Resources that carry out the transformation process 3.2.3: Transformed resources (transformed inputs) Transformed resources: Inputs that are changed or converted into the operations processes like a component that can be used as an input by another business or a finished good or service Transformed resources are considered resources that give the operations process its purpose or goal e.g. steel used for car manufactures The transformed resources are:  ○ Materials (raw ingredients, components, parts and supplies) ○ Information (about how to produce, technical knowledge and analysing performance) ○ Customers (becoming satisfied and having an improved quality of life) Materials Materials are the basic elements used in the production process that consist of raw materials and intermediate goods Raw materials: Essential substances in their unprocessed (natural or raw) state and usually come from mines, forests, oceans or recycled waste. Intermediate goods: Goods manufactured and used in further manufacturing or processing. In a service-based business, items such as stationary, computers, furniture and tools-of-trade are outputs of other businesses that become essential inputs to the delivery of services. Information Information: Knowledge gained from research, investigation and instruction which results in an increase in understanding. The 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. Information can come from two sources: External information: Comes from market reports, statistics from industry observers and industry bodies, official government statistics from the Australian Bureau of Statistics (ABS), media reports etc This is an independent source for operations managers to use to integrate relevant information into the operations process for e.g. information on the use of distribution centres as an input for inventory management. Similarly, information on new technologies can influence which machinery and technology is purchased and how it is applied to the operations function. Internal Information: Comes from within the business and is gathered from internal sources such as financial reports, quality reports and internal key performance indicators (KPIs) such as lead times, inventory turnover rates and production data. Key Performance Indicators (KPIs): Specific criteria used to measure the efficiency and effectiveness of the business’s performance. A further source of internal information arises from customer feedback such as the analysis of warranty data or scanning social media threads. Internal information acts as a transformed resource when it informs processes and creates process improvements. Customers Customers become transformed resources when their preferences and interests of consumers shape inputs (customer orientation). Customer relationship management (CRM): Systems that businesses use to maintain customer contact. CRM software can be used to improve customer service, increase competitiveness and identify changes in consumer tastes. The information can be retrieved and entered by employees from different functions within the business such as marketing and finance as well as operations. This approach improves services (now provided directly to customers), cuts production costs and the customer feedback makes the operations process more directly responsive to customer desires 3.2.4: Transforming resources (transforming inputs) Transforming resource: Inputs that carry out the transformation process that enable change and value adding to occur. Two main transforming resources are: ○ Human resources ○ Facilities Human Resources Staff who are well qualified, hard working and disciplined can bring great 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 occurs. This is because it is employees who coordinate and combine other resources such as machinery and technology, raw materials and finance to produce goods and services. If a main business objective of a manufacturing company is to be ‘most efficient and reliable supplier,’ its human resource policies and practices should be aimed at: ○ Attrainting, retaining and motivating staff to ensure they are able to meet their customers’ supply needs ○ Reliable workforce that can do the job when required ○ Improving employee skills through training and development may be used ○ Setting performance objectives for individual staff members to improve their efficiency to help achieve its objectives ○ Adhering to work health and safety standards and ensuring staff motivation remains high ○ Well-designed human resource management policies and practices can improve the performance of the operations processes ○ Well-considered job design, targeted and appropriate training, flexible work practices and open communication will assist in maximising operational efficiency, business performance and the capacity of the business to achieve the objectives. Facilities  Once a business has determined the type of operations process to use, it will need to undertake a complex set of design-planning decisions involving the production facilities. Facilities: Refers to the plant (factory or office) and machinery used in the operations processes. Major decisions include the design layout of the facilities, no. of facilities to be used, their location and capacity. In particular, the business needs to decide: ○ Whether the required facilities should be located in 1 or 2 large sites or divided among numerous smaller sites ○ What impact zoning and other restrictions will have upon the facilities’ size and location ○ Special conditions such as energy and water requirements ○ Most efficient plant design ○ Optimum plant and process layout – arrangement of machinery, equipment and people within the facility Facilities are like plants and machinery are used to determine the nature of the operations environment. Modern facilities integrate modern technologies are well lit, well designed and labour friendly and will be highly conductive to productive operations. 3.3: Transformation Processes Transformation: Conversion of inputs (resources) into outputs (goods and services) that differs from manufacturer and service businesses: ○ Manufacturer: transforms inputs into tangible products (goods that can be touched), tends to be highly automated or mechanised using machinery, robots and computers to transform inputs into outputs. ○ Service organisation: transforms inputs into intangible products (services that can't be touched but have effects that can be felt) ○ Rely on interaction with the customer and their processes tend to be more labour-intensive, staff is crucial to the operations. Service providers apply time, skill, experience in assisting consumers to improve their quality of life 3.3.1: Transformation Processes & Value Adding Transformation processes are directly involved with value adding. The addition of cost in transforming the inputs into a process, which will turn them into outputs, adds value It is easier to see how value is added in a manufacturing situation e.g. cost of inputs used to create the pies like energy to bake the mix, wheat However, it is much harder to see how value is added in the service sector where value adding occurs through knowledge, skills and expertise. The relationship between operations processes and financial goals are evident by how costs are spent and value is added. This means the products made can be sold for a price that both generates profit and covers costs Physical alterations of the physical inputs: ○ Production method using a combination of labour, equipment and technology ○ Type of production method: Job, Batch, Flow ○ Changes that happen to people when they receive a service ○ Transportation of goods or services ○ Manipulating and changing information to produce a service Type of production method: Job, Batch Flow Job Production (Individual, unique): When a business creates one individual product at a time from start to finish before moving onto another. This is usually ‘one-offs’ or very high-end products like Rolls Royce Batch Production (Groups, bundles): As the demand for products increase, a business may consider switching from job production → batch production. This involves creating a product from start to finish, but with multiple products created at a time. A business that makes a large batch of the same product from start to finish. Example, Bakers Delight makes a large amount of dough before splitting into individual pieces; baked at the same time before they are removed from the oven and cut into sliced loaves. This is an example of batch production as multiple products pass through the same stage at the same time Flow Production (Continuous): Used when a business has a large number of products on sale and needs a steady stream of new production coming through. This type of production results in a lower cost per product to be paid and enables a high level of organisation as well as specialist knowledge in each individual area of the process (E.g. Coca Cola & McDonalds) 3.3.2: Influence of Volume, variety, variation in demand & customer contact The 4 V's will influence the type of production: - Job: Producing individual unique outputs - Batch: Producing in groups or bundles - Flow: Continuous production As well as influencing the combination of labour and/or equipment used in production. Influence of volume Volume: Refers to how much of a product is made Volume flexibility: How quickly the transformation process can adjust to increase or decrease in demand. The responsiveness to the required changes in volume is essential to effectively managing lead times Lead time: Time taken for an order to be fulfilled from the moment it is made indicating its responsiveness to changes in the volume. If businesses cannot adjust to changes in market demand, they can over produce which may lead to wastage and increased inventory costs alternatively, if back orders cannot be quickly fulfilled, it can lead to lost sales. Case Study: Strong Retail Competitors in Australia – Zara, Uniqlo & H&M Influence of variety Mix Flexibility: The mix of products made, or services delivered through the transformation process and known to consumers as product range or variety choice Influence of variety on the transformation process: Greater the variety is made, the more the operations process needs to allow for variation. Case Study: Whitegoods – Mix flexibility Influence of variation in demand Variation in Demand: Variation in demand over time therefore operations need to be flexible to increase or decrease output An increase in demand will require increased inputs from suppliers, human resource, energy use, machinery and technology However, increased demand may be hard to meet if: ○ Suppliers cannot supply quickly enough ○ Labour is not flexible enough, skilled or available ○ The adopted machinery cannot adjust to increased capability quickly, either because it is not designed to or because it breaks down ○ Increased energy and power are not able to be readily sourced  A decrease in demand will also require operational flexibility as staff hours may be reduced, slower production to avoid inventory build up and suppliers may put on pressure due to contractual agreements Predicting demand ○ All businesses will try to forecast demand so that adjustments can be anticipated and a business can act accordingly ○ Annually, some variations are predictable e.g. seasonal factors like air conditioners being sold in late spring and in anticipation of summer than sold in mid-winter Influence of visibility (customer contact) Customer contact or ‘feedback’ can directly affect transformation processes because customers and their preferences can shape what businesses make. Types of customer contact: ○ Direct contact: Customer feedback through surveys, interviews, warranty claims, letters, wikis, blogs and verbal contact ○ Indirect contact: Customer feedback through a review of sales data that gives an indication of customer preferences and market share data through an observation of peoples’ decision-making process and through consumer reviews. Because businesses seek to maximise sales, customer contact is essential in the business’s transformation process. 3.3.3: 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 Scheduling tools used to identify and organise all steps in the operations process: ○ Gantt chart ○ Critical path analysis (CPA) Gantt charts Gantt chart: Type of bar chart that shows both the schedules and completed work over a period of time for planning and tracking a project. The Gantt chart outlines:  ○ Activities needed to be performed (Time plan) ○ Order (priority) which they are needed to be performed ○ Estimated time take for each activity Advantages include: ○ Forces a manager 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 Critical Path Analysis (CPA) Critical Path Analysis: 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 (during the transformation stage) The shortest length of time is to complete all tasks necessary (aka the longest pathway) to complete the process or project in practical terms. The shortest path is not (1) + (2) + (5) + (2) + (1) + (1) = 12 days, it does not even allow time for the making of the components which takes 15 days Therefore enables a manager to see what needs to be done, timing of tasks considered and order of activities to be done and which tasks can be done at the same time. Scheduling gives direction and organisation to operations processes, provides overall coordination and enables a means of control 3.3.4: Technology Technology: Application of science or knowledge that enables people to do new things or perform established tasks in new and innovative ways E.g. a pair of scissors classified as a low-technology (lo-tech) that allows for more efficient cutting of materials. Specifically, business technology involves the use of machinery and systems (hi-tech) that enable businesses to undertake the transformation process more effectively and efficiently. In the manufacturing sector, technology can be used to speed up (shorten) processes and enable fuller utilisation of raw materials. This makes the operations processes more cost effective In the services sector, smart devices, office and communications technology have enabled whole markets to open up and allow for small-medium businesses to trade globally The capital cost of technology is relatively high therefore the business can consider purchasing the equipment or leasing it ○ Leasing is more common since it is cheaper (less payments are tax deductible) which allows for money to be spent elsewhere in the business ○ Additional costs that accompany technology include set-up and sitting, cabling and loss of workers who may be displaced due to the acquisition of technology. ○ For workers not displaced, there is the cost of training or retraining, continual upgrading of skills and time lost in adapting new work techniques Office technology Business technology items found in the commonplace today include: ○ Computer (maintenance, personal or laptop) ○ CD, ROM, USB and other data storage devices ○ Modern (Communication devices to networks; email and internet access) Development of technologies have created an opportunity for people to work more efficiently to complete a greater range of tasks at a shorter time and enabled office workers to telecommute work at home. Telecommute: To ‘commute’ or travel to work, electronically. This means that home or another location becomes the worksite and the work is delivered via email or the internet. Many businesses are switching to ‘virtual office’ and ‘paperless trading’ and changes in office structures. Case Study: Technology – the virtual office Manufacturing technology Key manufacturing technologies: ○ Robotics ○ Computer-aided design (CAD) ○ Computer-aided manufacturing (CAM) Robotics: Used in engineering and specialised areas of research and as well as assembly lines where a programmable machine is capable of doing several different tasks. Robots can shape transformation processes so that they are consistently high quality, efficient and minimise waste that allows for degree of precision and accuracy. In addition, robots work without complaint or demand for wage rises in conditions that would be repetitive, boring and often dangerous for employees; however, they are very high-cost items that are unaffordable for most small and medium-scale manufacturers. Computer-aided design (CAD): Computerised design tool that allows businesses to create product possibilities from a series of input parameters used by a range of business sizes and type ○ Generates 3D designs (viewed from multiple angles) from a set of given input data (parameters) that assists both the designer and the end user to visualise what will be produced, useful to the transformation process. ○ It can design the sequence that would need to be taken to create the desired product in the shortest possible lead time using the least amount of material therefore, the cost of the project can be quantified. ○ CAD programs are linked to printers so ‘hard’ or paper, copies can be made and distributed to the client for assessment. ○ Normal drafting process would cost more, take longer & be less accurate therefore CAD software makes it easy to customise a series of options that meet the client’s needs Computer aided manufacturing (CAM): Software that controls manufacturing processes. The CAD software can be linked to the CAM software to allow the instantaneous manufacturing of designs that are accepted by clients. ○ CAM can also be used to broadly calculate the amount of input resource and costs required and store historic purchasing records to assist with present purchasing decisions. Case Study: Technology in production and services Case Study: Printing surfboard components 3.3.5: Task Design Task design: Involves classifying job activities in ways that make it easy for an employee to successfully perform and complete a task. This begins with the question of, “What needs to be done?” This involves breaking down the work into a series of jobs in which each contributes to the final goal. Task design overlaps the employment relations functions of job analysis, job description and person specification. It is necessary to group skills and competencies because this helps when obtaining staff. A prospective employee will be screened against their skills and competencies to ensure a match for e.g. an intelligent and skilled barista has no experience in electrical installations and is unlikely to be a proficient electrician. Electing the right candidate for the task or job is the final part of the process that starts with the task design and ends with selection: Job analysis is undergone to determine who does what in the business and why to analyse whether the business can improve its productivity Skills audit Skills audit: Formal process used to determine the present level of skilling and any skill shortfalls that need to be made up either through recruitment or training. This means the business can conduct a skills audit to recruit new staff or train current staff who may not have the requisite skills. Workplace Layout The method adopted by managers will depend on the type of manufacturing operations or services performed by the business. The way in which machinery and technology is oriented in the operations plant will strongly shape the operations process and what is being made and what volume of production is required. Considerations for the Operations Manager before a facility is laid out: ○ Enough space to meet volume requirements (small business- home to large business- renting out a factory) ○ Technology requirements ○ Warehousing (Just-in-time; Coca Cola) ○ Processes or stages linked (Asking “how”) ○ Conformity with legal requirements  ○ Process layout Ways for machinery to be laid out: Process layout (functional layout): Arrangement of machines so that the machines and equipment are grouped together by the function (or process) they perform. E.g. areas dedicated to types of medical care such as maternity wards and intensive care units ○ Process production: deals with high variety, low-volume production. In this process each product has a different sequence of production and is intermittent, moving from one department to another. ○ The necessary machinery is arranged according to the sequence and lends itself to ‘job lots’-- manufacturers of parts in small quantities (many small to medium-sized manufacturers employ this process). In service businesses, such as banks or insurance companies, process layout is used to accommodate customers with differing needs. ○ A feature of this approach is often used by businesses is the cellular or team-based work arrangements used to create combinations of machinery and equipment to produce a single or range of similar products. Product layout: Equipment arrangement relates to the sequencing of tasks performed in manufacturing a product ○ Product production (mass production): Manufacturing of a high volume of constant quality goods e.g. using an assembly line to achieve the best combination of personnel and machine use. ○ Work stations are arranged to match the sequence of operation, workflow and times set for each task with the required skills and tools e.g. assembly of motor vehicles or production of TV sets. ○ Emphasis is placed on sequencing the flow from 1 work cell to another Fixed position layout: An operational arrangement in which employees and equipment come to the product (remains in 1 location due to its weight or bulk) ○ Project production: Deals with layout requirements for large-scale, built activities such as the construction of bridges, ships, aircrafts or buildings. ○ It is more efficient to bring materials to the site, workers and equipment come to 1 work area. Office Layout Workstations: Desk areas required by office workers, usually fitted with access to a computer monitor, keyboard, telephone, mouse and mouse pad, storage and close access to a printer and scanner This enables work to be performed efficiently (with minimal unnecessary disruption and time wastage) in a safe office environment, typically applied to a service-based business.  In a manufacturing business, the office layout is often informal or even overlock the factory floor so managers can supervise from their desk. In a doctor’s surgery, privacy is a concern for patients so the layout of the surgery is arranged to reflect this. An office needs to be designed in a way that allows for a smooth workflow; provide a space (lunch and games room) that enables employees to take a break from the work environment if needed. Case Study: Open offices – the latest trend in office design 3.3.6: Monitoring, Control & Improvement All operational processes should be monitored for their effectiveness The main transformational processes should be subjected to control– effective monitoring and control lead to improvements when there is a focus on quality and standards Monitoring: Measuring actual performance against planned performance This involves measuring all aspects of operations, from supply chain management and the use of inputs through to transformation processes and outputs and is arranged around the needs to measure the key performance indicators (KPIs) Monitoring of KPIs gives operations managers a chance to measure how the business is operating (predetermined variables) and assess performance against targeted levels of performance. ○ Lead time: Time taken from when the order was made and to finish ○ Wait time: Unproductive work; waiting for the next step to further processing an order (e.g. a work item like a document) ○ Idle times: Time paid by an employee or machinery (asset that is available for use but is unproductive due to either being controlled or uncontrolled by management ○ Inventory turnover rates: How fast stock is being sold  ○ Stock-out rates: Out of stock ○ Process flow rates: Flow units; money, produce, processes measured by time and the activities that occur in the transformation processes over a period of time ○ Capacity and volume rates/ capacity utilisation rates:Actual outputs over optimal input Control: Occurs when KPIs are assessed against predetermined targets and corrective action is taken if required Control requires operations managers to take corrective action, discrepancies between performance and goals, changes and improvements made to exercise strict controls over the transformation process The transformation process may include redesigning the facilities layout or adjusting the level of technology in order to correct the problem, usually framed around quality Improvement: Systematic reduction of inefficiencies and wastage, poor work processes and the elimination of any bottlenecks Analysing the operations process and determining what can be changed to improve quality, speed, dependability, flexibility, customisation and cost. A 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. Continuous improvement: Involves an ongoing commitment to achieving perfection, important to the business culture to zero defects. 3.4: Outputs Outputs: End result of the business efforts – goods or service that is provided or delivered to the customer.  Purpose of the operations function is to produce outputs that have a value to customers and are greater than the cost of inputs. ○ Issues of quality, efficiency and flexibility must be balanced against the resources and strategic plan of the business. Products are a combination of goods and services and outputs may be inputs used by other businesses or final products to be distributed to consumers Many businesses carry both service and manufacturing operations such as Macada Australia separates its vehicle manufacturing operation from its customer service operation, both crucial to the business’s overall success. Implied inputs and transformation processes (assessed by consumers): ○ Customer service ○ Warranties 3.4.1: Customer service Customer service: Refers to how well a business meets and exceeds the expectations of customers in all aspects of its operations. Customer focus increasingly shapes operations processes; inputs – transformation processes and outputs aimed at meeting customer expectations. If a customer is dissatisfied by the product– being defective, not meeting qualities expectations, finds wait times/lead times too long or returns the product to make a warranty claim, then the operations processes needs to be reviewed Businesses need to talk and listen to customers, no longer merely explaining the refund policy or providing a complaints department but an attitude adopted by all departments and employees within the business. Recent market research shows that businesses that provide superior customer service can: ○ Charge an average of 10 per cent more for the same goods and services ○ Grow twice as fast as their competitors ○ Increase their market share and profits. ○ Long-term customer relationship, consumer satisfaction → competitive advantage, consumers value their free time hence convenience is key 3.4.2: Warranties Warranty: Promise made by a business that they will correct any defects in the goods they produce or services they deliver. Way to measure the effectiveness of operations processes through the no. of warranty claims made against goods. Therefore for the business to trace the source of error in manufacturing and rectify it Although a small proportion of warranty claims are fake, the no. of claims made against a business on a particular product line or product range will give an indication of problems in the processing. For example, Takata airbags sold in Australia recalled tens of thousands of cars for replacement of fault bags, however the rectification costs money. Under Australian law all businesses must ensure that the goods they sell: ○ Have a level of quality that is comparable to the price and product description ○ Are suitable for the purpose or job they will be used for ○ Match the product description in any advertising or promotion ○ Are free from defects or faults.  TOPIC 4: Operations Strategies 4.1 Introduction to Operations Strategies 4.2 Performance objectives Performance objectives: Goals that relate to particular aspects of the transformation processes aimed at making the business more efficient, productive and profitable The operations strategies seek to achieve 1 or more of the performance objectives, allocated to particular key performance indicators (KPIs): ○ Quality ○ Speed ○ Dependability ○ Flexibility ○ Customisation ○ Cost 4.2.1: Quality Quality: Determined by consumer expectations which are used to inform the production standards applied by the business Quality performance objectives include: ○ Quality of design ○ Quality of conformance ○ Quality of service Quality of design: How well a product or service is made or delivered. Design begins prior to the creation of a product that determines the input and how the transformation processes will be arranged and performed in relation to the production of the good or service. Well-designed and produced goods such as high-grade materials used in manufacturing, care and presentation, robust and durability that will normally attract a high price of a good.  As a performance objective, a business needs to decide the quality of product it will deliver to the market. Higher-quality inputs add cost that will be reflected in a higher price that consumers may not want to pay. Quality of conformance: Focus on how well the product meets the standard or a prescribed design with certain specifications (what it was designed to do) Measure of how consistently products achieve compliance (conformance with) the desired specifications regardless of the standard of the specifications E.g. Shirt from Calvin Klein faded after 10 washes, does not live up to its quality of performance Whereas a cheap plastic toy, low quality design meets the standards of low-quality