hsc-2019-yr-12-business-studies-15-FINAL.pdf

• Strategic role of operations management – cost leadership, goods/service differentiation. The Role of Operations Management Operation refers to the business processes that involves transformation or production. The creation of goods and the provision of services by businesses. The transformation...

• Strategic role of operations management – cost leadership, goods/service differentiation. The Role of Operations Management Operation refers to the business processes that involves transformation or production. 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. Operations - Transformation of inputs into outputs The Strategic Role of Management A strategic decision is one that affects the business in the long term. The strategic goals are to improve: • Productivity. • Efficiency. • Quality of outputs. Therefore, all strategic decisions will focus on lower costs to an industry benchmark through efficiency and producing a good or service that is different to and competitive against rivals in the market. There are 2 types of strategies that are commonly used by businesses to gain and maintain a competitive advantage. These are: • Cost leadership. • Product differentiation. Cost leadership A cost leadership strategy is where a business aims to be the lowest cost manufacturer and most competitive within its industry. The products are the basic, no-frills (Coles label- Home brand) ALDI type with fewer features, perhaps lower quality and using low-cost packaging. Low costs can be achieved through: • Economies of scale in production and distribution. Economies of Scale occur when a business becomes large enough to benefit from its size. Improves negotiation for better supply rates and take advantage of better technologies. • Access to cheaper raw materials – Global sourcing (e.g. Importing from markets in China/South-East Asia where production costs much lower than Australia). • Exclusive access to a large source of low cost inputs. • Distributing the product using dealers who work with lower profit margins. (e.g. Coles and Woolworths attempt to achieve low price with slogans such as ‘everyday low prices.’). The issues that operation mangers need to be aware are: • Competitors can use the same strategy and can achieve even lower costs. • Customers do not perceive the business’s product to be equal to its competitors because competitors offer better technology, features and service. (Cost and quality interaction). • Developments in technology change consumer preferences – Innovation. • Consumers may even feel that these types of ‘throwaway are not environmentally sustainable. • A strong competitor uses aggressive marketing with heavily discounted prices. Case Studies: • IKEA achieves significant economies of scale through flat packs, increased transportation and storage costs due to smaller size. This means competitive advantage can be provided through cheaper sales. • Myer went through cost leadership transformation in 2006 by introducing 8 international distribution centres→ invested in IT which cut costs by 50% by 09. • Jet Star is an established low-cost airline in Australia. However, this low cost requires a quality sacrifice, as in 2010 it was found to have the greatest number of late flights of any domestic Australian airline. Additionally, Tiger Airways is infamous for poor service, which is again an example of sacrificing quality for cost. • Sony and Panasonic invest large amounts of money in research and development, which leads to the creation of innovative products of a greater quality, and as such these products attract a higher price to cover the cost of R&D incurred in their design. Strategies for Product Distribution Other Strategies Include: o Buying in Bulk. o Standardised Products. o High volume and automated production systems. Case Study - Qantas • Staff make up 26% of costs • Fuel 25%. • Maintenance 20%. • Qantas management has targeted $1.5 billion cost reductions by 2015 → through: Economies of scale through bargaining power with fuel, being a member of the Oneworld Alliance→ features 12 of the world's leading airlines and engages in separate bilateral agreements with British Airways, American Airways, and Japan Airways to save costs. • Technology through online booking/check in. • Waste Minimisation → Qantas reduced its waste by 21% in 2011 through recycling, energy efficient materials x in 2010→ Qantas diverted its waste to a Trigeneration waste treatment facility in Sydney → 99.8% of waste is now recycled. Product differentiation Product differentiation means distinguishing goods/services that is different to its competitors. Product differentiation can help a business establish a competitive advantage which leads to profit maximisation. It may be achieved through: • • • • • • • • Better quality than competitors. Faster delivery. Varying time spent on a service. Vary augmented features. Custom designed products. Location of operations. More features and applications = More utility & appeal. Cross-Branding – Adding value to products by offering added benefits from a crossbranding arrangement e.g. Woolworth accumulating points to reduce petrol costs. Product Differentiation: Goods • Varying the actual product features (e.g. Leather seats for motor vehicles). • Varying any augmented features – Refers to any add-ons or additional benefits (e.g. when purchasing an SLR camera, consumers have the options to buy different lenses). • Varying product quality – Low-quality model = very affordable price, Increasing quality = higher price. Product Differentiation: 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 material/technology. A differentiated product can command a higher premium price in the market as customers are attracted to the product and build up brand loyalty. Case Study – Apple • Apple’s IPod: At the time of the iPod’s introduction, most competitors were pursuing a cost-leadership strategy and the prices of mp4 players were falling rapidly as manufacturers incorporated a raft of cost-saving strategies. Apple incorporated attributes such as a cool design and intuitive technology. The strategy was responsible for Apple’s spectacular growth during the early 2000s. Case Study – Aldi • Aldi uses product differentiation, by selling unusual goods such as computers, chairs, gazebos, and other wholesale goods in comparison to other supermarkets who only sells fresh food. Goods and services in different industries Operations processes will vary for goods depending on whether they are standardized or customized goods. Standardized goods are mass produced, uniform in quality and meet a predetermined level of quality. (E.g. A Big Mac will be the same in Sydney as in Paris. Apple products will be the same worldwide despite local pricing.) Customized goods are those that varied to the need of customers, and are produced with a market focus rather than a production focus. (E.g. McDonalds customise their products throughout the world. Norway sells Mclaks (salmon), Chile uses an avocado paste as its sauce, Hong Kong uses rice burgers, Canada has lobster dinners and Germany sells is burgers with beer.) Perishable Goods require high standard of quality, safety and cleanliness, very short lead times and efficient distribution and packaging. Non-perishable Goods are more durable than perishable goods and processes need to manage all aspects of quality, from sourcing production and distribution to effective inventory managements and being highly responsive to market demand. Operations processes will vary for goods and services depending on whether they are standardized or customized. Manufacturing outputs: • Physical, tangible. • Can be reused. • More capital intensive (machinery). • Can be stored. • Hard to modify once manufactured. (e.g. Cars, Bikes). Services outputs: • Intangible. • Can only be used by customer once. • More labour intensive. • More interaction with customers. • Easier to change and customise. There are some similarities, they both: • Use technology. • Must make predictions. • Deal with customers and suppliers. • Make decisions about capacity (level of inventory). Case Study – Kmart (Retail Industry) • Kmart provides a ‘shopping experience’ and customers have expectations about the service they are purchasing. They expect the products they are purchasing to be in good condition, the surroundings to be clean and pleasant and - most importantly - a high level of customer service. In addition, they expect goods to be available when they want them and to have access to the shops when they want to shop. Case Study – Ford Motor Company (Manufacturing Industry) • There is a good component, the car, and a service component, the after sales aspects of maintenance and warranty. When the business purchases products such as engines or brakes from its suppliers, Ford expects the parts to be manufactured to the specifications it gave to the suppliers. This determines the reliability its customers expect from Ford. Ford customers also expect the car will be well designed and be available when they want it. Interdependence of operations and the business • Specialisation – Where the business is separated into different functions, each of which is highly skilled at its specific task or role. • Interdependence – where the different parts of a business must rely on each other to perform their task or role. There will be a constant flow of information between operations and the other key business functions: marketing, human resources, and finance. Operations → Finance • Operations relies on finance to provide funds/capitals to transform into output e.g. Restaurant using money to purchase raw materials (inputs) and transform into dishes. • Finance relies on operations to make goods and provide services that contribute to sales and therefore profits. Finance also create budgets to provides funds to allocate to key business areas, purchase inputs, equipment, and repairs. • Finance relies on operations to effectively allocate resources to reduce costs and maximize profitability. • The finance manager will create budgets and make funds available to purchase inputs, equipment, repairs. Operations → Marketing • Market research identifies the nature of goods consumers’ desire and marketing strategies encourage purchases and operation must supply a product that consists the features and quality consumers demand as well as reliably distributing this product to the market. Operations → Human Resources • Human resources discuss training and development needs and will ensure that enough employees with the appropriate skills. • Operations identifies the skills needed to produce the goods and services demanded by consumers. • Provide suitable staff based on operations requirements. • Industrial relations. Influences: globalization, technology, quality expectations, cost-based competition, government policies, legal regulation, environmental sustainability. Globalization is a process that is leading to the development of a single world market. Globalization gives consumers the opportunity to purchase products from the business that provides the most value for money. Globalization has created many opportunities for Australian businesses to expand overseas. First, there is the opportunity to reduce costs through establishing a global supply chain. Second, access to a global market to sell the outputs of operations. • Globalization is defined as the integration and interdependence of the economies of different countries, creating a global economy. • Integration refers to the joining together of different economies through trade, technology, deregulation, and global businesses. The reasons for the global web of operations are to drive costs down and exploit the competitive advantage each region has to offer. • Increased global market due to deregulation (lower cost of communication & transport). • Global Labour Market → increased flow of skills allowing companies to hire people from overseas. (E.g. Managing Director of David Jones is recruited by Dubai to launch new shopping centres). • Outsourcing is a practice used by different companies to reduce costs by transferring portions of work to outside suppliers in low cost countries such as China, Bangladesh, and India rather than completing it internally, companies are able to outsource due to globalization and thus achieve competitive advantage. (Strategic role of Cost Leadership) Case Study – Jetstar • Jetstar employing staff based in Singapore and have a maintenance centre based in Singapore. Inputs: Source Cheaper inputs from overseas – HR & Raw Materials and source exclusive inputs. Transformation: Outsource manufacturing. Output: Sell overseas and expand operations. Supply chain management and the global web • Supply Chain - Refers to the range of suppliers a business has and the nature of its relationship with suppliers. • Global Web – Refers to the network of suppliers a business has chosen on the basis of lowest overall cost Different currencies • A depreciation of the Australian dollar (AUD) against the currency of the country inputs are being sourced from will lead to rising costs • Businesses use hedging. This is any strategy used by a business to reduce financial risk. This is to eliminate the risks from the value of currency appreciating and depreciating. • Global businesses use transaction exposure. This is entering into contracts to buy and sell foreign exchange to purchase inputs from businesses in other countries. • Subsidiary - A business that is owned by the global corporation that supplies inputs. Hedging uses subsidiaries so that all transactions are in the same currency. • Special contracts between global businesses called derivatives are used. Trade agreements • A bilateral trade agreement is an agreement between two countries to reduce barriers to trade and promote economic integration. Multilateral trade agreements are between more than two nations. • Regionalism has been occurring very recently. This is the classification of the world’s region based on their geography and economic links. • There have been regions forming economic alliances, e.g. Europe, the North American Free Trade Alliance, or NAFTA, members (Mexico, United States, and Canada) and the South- East Asian nations (including China). • Trading blocs- A group of nations that have formed a trade alliance by signing a multilateral trade agreement. Countries in trading blocs have less restrictions so, businesses trade with countries in the same bloc. By using large-scale operations model businesses can share costs and reduce the expense of developing, producing and distributing products to the global market. Global consumers • Globalization enables higher incomes and many parts of the world have a rapidly growing middle class who wish to buy goods and services that improve their quality of life. • Products will have to be differentiated in some aspect to suit the different culture of the local market. • Market research is needed to inspect the language, religion, and ethics. Cultures • It is advisable for global businesses use local experts that can help prevent issues caused by cultural clashes and communication problems. Technology Technology is the knowledge of how things are done. If businesses do not respond to progresses in technology could result in failure. (E.g. Nokia – Failure to respond to changes, unable to compete with Apple and Samsung). Adopting the new technologies, such as the extensive use of robots in car manufacturing, may not make a business more competitive if the technology is widely adopted but it prevents the loss of competitiveness. (E.g. Qantas – Purchased A380 to allow the business to transport customers at lower cost). • Technologies such as smart phones and the internet are drivers of globalization, enabling service-based businesses to penetrate global markets with the international distribution of information. • Strategies to acquire technology include a joint venture or strategic alliance with another business or simply purchasing businesses that have the desired technology. • Technology can result in the development of new methods of production or new equipment that helps businesses perform functions more quickly and often at a lower cost. Inputs – Source advanced machinery to be used in the production process. Transformation – Output – produce higher quantity and better-quality outputs. When making decisions about technology, factors need to consider: • The speed of change taking place. • The technology that competitors use. • The finances available for a change. • How long it will take to introduce. Robotics Robotics refers to the development of robots, which are programmable machines that have sensors that can detect changes in their environment. Use of robotics increases productivity and reduces costs. Benefits of Robots: • Don’t need breaks. • Are more precise. • Have no emotions. • Need to be paid. CAD & CAM • • Computer-aided design (CAD) is computer technology that allows architects, engineers, and designers to create and edit and modify three dimensional designs using a computer. The designs can be created based on the specifications or special conditions set by each client’s requirements. • The blueprints can be sent around the world and viewed with ease. • It allows designs to be looked at from various angles and provides a more effective visual presentation. Computer-aided manufacture (CAM) Computer technology that directly links the design process to the manufacturing process using computers. • This process provides electronic links for exchanging data, which results in time being saved and fewer mistakes being made. • With CAM software, the computer can be set to control large sections of production with greater efficiency, fewer errors and fewer staff. → This is improved from the past where manual machines are engineered depending on the design the producer wanted. Quality Expectations Quality expectations are an important influence on most operations functions. Quality, could best be defined as meeting, or exceeding, a customer’s expectations. Service: • Customer will have expectations regarding the: • Professionalism of the service provider – Cleanliness/layout of facilities. • Reliability – How efficient is the service provider. • Level of Customisation - Quality of input → Standardized or customized different price points provide different level of service, more expensive = more customized (E.g. Toni and Guy VS Just Cuts, LV VS Target). Goods: • Customers will have certain expectations regarding the: • Durability – How long the product lasts given a reasonable amount of use. • Reliability – How long the product functions without needing maintenance or repairs. • Fit for purpose – How well the product does all the things advertising claims. • Operations must be organized to maximize quality and customer satisfaction. Inputs – Source better quality raw materials. Transformation – Output – Higher quality outputs. Cost based competition Cost-based competition is a low-cost strategy concerned with driving down the costs of warehousing and transportation, and spreading overhead costs. → Best possible value of money by reducing costs of: Warehousing and transportation. • A business can gain a price advantage over its competitors by using operational strategies that lower costs. In this way the business can reduce its prices lower than its rivals. Cost advantages can be obtained by: • Outsourcing. • Using cheaper inputs. • Lowering quality of products. • • Reducing warehousing costs using distribution centres which substantially reduces overhead costs (Rent, staff, fixtures, electricity) Overhead costs are the ongoing costs of a business such as rent on premises, electricity, and wages. Cost-based competition is a strategy to reduce costs whist still maintaining quality → best value for the money, it will attract more customers and therefore achieving the competitive advantage. Case Study • Kmart is now opening 24 hours to spread its overhead costs over higher inventory turnover. • Woolworths’ managers re-engineered its warehouses and transportation logistics to reduce costs by billions of dollars and as a result were able to offer a shopping experience that induced many Coles’ customers to switch to Woolworths. Government policies Government policies can be an important influence on the operations function in a business. Government policies impacting on the operations function include regulation, subsidies and grants, and taxes and tariffs that encourage or discourage aspects of operations or ways the operation functions are conducted. • There has been a gradual reduction in ‘protection’ of Australian businesses forcing them to be more efficient in their operations and reduce costs. • Competition Policy – Monetary and non-monetary incentives for businesses to encourage businesses to become more efficient. • It’s a government policy to encourage businesses to adopt ‘green’ and environmentally friendly operating methods. • • Input – Government provides subsidies for use of recyclable material and therefore businesses will source recyclable materials (E.g. Solar panels of renewable energy). • Transformation – Reducing reliance on non-renewable energy (E.g. Carbon tax). • Output – Distribution of products (E.g. Aldi uses biodegradable plastic bag). Local Zoning and Lock out laws (E.g. Pubs and bars are not to operate at certain times). Legal regulation Legal regulations are the laws that regulate the way things can be done. Legal regulations are so important because of the potentially dangerous aspects associated with the use of equipment. • The aim of government regulation of business is to promote safety and fair business conduct. Many of the regulatory requirements exist at a local, state, and federal level. • It is the legal responsibility of the operations manager to be aware of the all laws relevant to the operations function and ensure that the business complies with them. (E.g. National Minimum Wage and WH&S). Impact of legislation Area of regulation Legislation Legal obligations and implications Workplace safety • Occupational Health and Safety Act 1991 (Cth) Employers must make sure that employees are provided with a good working environment. Hazardous material • Occupational Health and Safety Act 1991 (Cth). • Dangerous Goods (Road and Rail Transport) Act 2008 (NSW). Training, warning signs and safety precautions to prevent injury. Safe measures to transport hazardous and dangerous goods. Environmental protection Federal Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act). Operations must ensure hazardous waste, fuels and chemicals do not enter the environment. Environmental sustainability Environmental sustainability is concerned with air, water, waste and environmentally sustainable products and operations practices. • Ecological sustainability refers to the development and use of methods of production that allow resources to be used by producers today without limiting the ability of future generations to satisfy their needs and wants. (e.g. Renewable energy, recycling). • Increased awareness in contemporary society (E.g. Adidas created shoes from ocean waste – turned plastic pollution to high performance products). • Aims to reduce carbon footprint, waste, and pollution in the operation process (E.g. Aldi uses biodegradable plastic bags/Woolworth encourages customers to bring own reusable bags). • Consumers need to be aware of the cost and disposal of excessive packaging. • Society will have a positive attitude towards businesses that are environmentally friendly and good corporate citizens. • Increased cost for business, positive social impact = increased sales (e.g. Toyota Prius, ethanol E10 Fuel, recyclable packaging, and eco-friendly fluorescent bulbs). Carbon footprint= refers to the amount of carbon produced and entering the environment from operation processes → (E.g. Reduce 160 million tonnes/year by 2020 Qantas → environmentally sensitive aircrafts Boeing 787 and Airbus A380, Trigeneration wastage recycling facility in Sydney in 2010 + fuel conservation). Case Studies: • Orica Limited is a large Australian-based global business employing some 15 000 people. Its main products relate to mining and infrastructure equipment. They aim to meet the needs of customers and the community in a sustainable manner for the benefits of future generations. The Orica environmental sustainability strategy is based on the following key objectives: • Carbon neutral - no net generation of greenhouse gases to the atmosphere. • Water neutral - no net consumption of potable water. • Zero waste - no net generation of waste to landfill and innovative ways to prevent, reduce, reuse, and recycle by-product streams. • Environmentally friendly operations, products and services that have no unintended consequences to the environment and the community.’ The business has already reduced greenhouse gases by 51% in 2010 and this exceeded their target by 35%. • Adidas – Creating shoes with plastic waste collected from the ocean • WorldStrides – An educational tour company in North QLD that provides tour activities that assists environmental conservation including calculations of carbon footprint from tours and plant trees accordingly to offset impact. Corporate Social Responsibility (CSR) Corporate social responsibility refers the relationship between business and the broad society and the way this relationship is perceived and managed. • CSR is how success and profitability is determined by how well it considers the interests of employees, consumers, and the community. • Ensures that business activities benefit the society (e.g. reducing pollution, resource management that promotes sustainability, and economic sensitivity to local communities). • There’s usually a cost associated with CSR however, business receive benefits in the form of enhanced reputation (Goodwill) and consumer acceptance. (e.g. supporting disadvantaged groups - Qantas Reconciliation Action Plan→ focuses on employing Indigenous Australians). • This is an extension of the triple bottom line. (financial, social, and environmental evaluation). • Other social responsibilities are: • Human rights. • • • Corruption. Labour standards. Social Responsibility. Case Study – Tom’s Shoes • Blake Mycoskie created TOMS Shoes, a company that would match every pair of shoes purchased with a new pair of shoes for a child in need. Since 2006 Tom’s footwear has given over 60 million pair of shoes to children in need. • TOMS Eyewear helped restore sight to over 400,000 people in need. By providing prescription glasses, medical treatment and/or sight-saving surgery with each purchase of eyewear. As well as supporting sustainable community-based eye care programs, the creation of professional jobs (often for young women) and helps provide basic eye care training to local health volunteers and teachers. • TOMS Bag was founded to help provide training for skilled birth attendants and distribute birth kits containing items that help a woman safely deliver her baby. As of 2016, TOMS have supported safe birth services for over 25,000 mothers. The difference between legal compliance and ethical responsibility Ethical Responsibility refers to the business decisions that is not only legally correct but also morally correct. Many businesses publish a code of conduct. This code will cover issues such as: o Supporting charities and local community organisations o Consulting the community prior to implementing a significant change to the business o Promoting human and civil rights both in Australia and overseas. • o o o o • For operations, Ethical responsibility will be concerned with: Minimising harm to the environment Reducing waste, recycling, and reusing Producing value-for-money, quality products Improved customer service. Legal Compliance refers minimum requirements set out by the laws will impact the operations strategies used. (Prescribed standard of behaviour) For example: • Operations cannot release more than a legal maximum amount of pollution • Products must meet minimum standards for quality and safety for consumers • Products created by Operations must perform as they are promoted to • Employees must have a safe working environment (e.g. no dangerous machinery, or unsafe procedures). Legal compliance refers to the legal responsibility business and individuals must obey the law. Legal responsibility is the BARE MINIMUM whilst Ethical responsibility is what businesses do EXTRA to increase goodwill. (e.g. ANZ Bank’s mentoring scheme to encourage young indigenous people into the workforce) Case Studies The Body Shop • Staff are given 2 days paid leave to develop community projects • Low staff turnover suggests high level of employee satisfaction • Sponsoring local community projects Coca Cola • demonstrates corporate social responsibility in regard to environmental sustainability through its extensive water recycling program, which has significantly reduced water wastage at the company’s production facilities in Australia and around the world. Woolworth • In response to the $50 million cost of lost trolleys every year, Woolworths launched a tracking system for its lost trolleys, which also has the environmental benefits of removing abandoned trolleys from waterways and bushland • Environmental Sustainability and Social Responsibility Environmental sustainability is the ability to maintain the qualities that are valued in the physical environment. Generally concerned with energy efficiency and climate change, water, and waste management. • By pursuing environmentally sustainable goals a business will be contributing to a better quality of life for society. • Waste Management is a broad term that refers to the collection, transport, processing, and recycling of waste materials. The focus of waste management strategies is the reduction of landfill waste. (E.g. BMW AG design their cars to ensure that as much as possible of the car can be built from recycled materials and as much as possible of the car can be recycled. More than 80% of a modern BMW can be recycled.). • Negative Externalities. • Businesses have an Australian SAM Sustainability Index. This measure determines the performance of Australian companies in terms of their environmental sustainability and social responsibility. (How an Australian business is ranked in this index will generally tell you how good they are at promoting sustainable practices and being socially responsible). • A good public image will encourage long-term profitability. Social responsibility is the way business practices impact, in a positive way, on the society in which the business operates. Socially responsible business practices are expensive to implement in the short-term (e.g. renewable energy thorough solar panels) but there will be long term advantages. (E.g. Billabong voluntarily measures its carbon emissions using the National Greenhouse and Energy Reporting Act 2007 and adopts energy efficient practices by using LED systems which use less power in retail outlets). Operations Processes Operations processes are the activities involved in the transformation of inputs into outputs. This may also be referred to as the production system or operations system. Transformation – Refers to the conversion of inputs (resources) into outputs (goods and services) (e.g. Sony takes plastic, metal, glass, and electronic parts and transform them through design, manufacturing and assembly into numerous electronic products). • Each activity adds value so that the output has a greater value than the cost of inputs. • When assessing the performance of the operations functions the manager determines how effectively the business makes and assembles raw materials and components into finished goods and services, distributes to wholesalers, retailers, and customers, and provides after-sales customer service. • A manufacturer using machinery, robots, and computers to transforms inputs into outputs (tangible products). • A service organisation uses labour-tensive methods to transforms inputs into outputs (intangible products). • Some approaches are: • “Top down” approach- the operations business function interprets and aims to play its role in achieving the business objectives. Systems management approach- focuses on integrating operations with the other key functions to create sustainable competitive advantage. Inputs • The inputs in an operation system are the: • Physical raw materials. • Skills/knowledge. • Creativity or knowledge to produce skills or products. • Intangible inputs- time and money. • The Outputs are the inputs converted into goods and services. • Inputs can be classified as: • Materials- raw materials, parts and components, power and energy supplies. • People- labour, managers, engineers. • Physical- factory and office buildings, land, office equipment. Transformed Resources (Materials, information, and customer) • Transformed resources are the inputs that are changed or converted into something else as component or a finished good or service. • Businesses use a combination of transformed resources (materials, information and customer). (E.g. Qantas uses fuel, information, and customers.) Information is gained, and customers are taken to their destination. The types of transformed resources are: • Materials are the basic components, parts, and supplies (gas & electricity) used up in operations. (Raw Materials and intermediate goods). • Physically – Manufacturing. • Location – Transportation. • Ownership – Retail selling or wholesaling. • • • • Storage – Warehousing or keeping it store on business premises. • Supplies are different to raw ingredients. • All materials can be considered current assets that are constantly flowing in and out of the business and not kept for longer than 12 months. Information is stored in files, in computer programs and in databases. This information is used to make plans, execute operations, and keep controls over materials inputs. (E.g. about how to produce, technical knowledge). • Information comes from the analysis of the performance of the operations system. Examples of information include the work schedules such as critical path analysis diagrams, architectural designs, customer orders, engineering plans and quality analysis reports. • Information- Refers to the knowledge gained from research, investigation, and instruction, which result in an increase in understanding. Can be internal or external (E.g. Qantas discontinued services to Ballina Airport and replaced it with Jetstar since it was no longer seen as a business segment of the transport market). • Property – Accountants managing numbers. • Possessions – Market research conducted by an organisation or employees. • Storage – Databases and libraries. • Location – Telecommunication hubs. Customers become transformed resources when their choices shape inputs. Consumer’s orientation provides a starting point to production process. They can be transformed: • Physically – Hairdressers or personal trainers. • Storage – Hotels and hostels. • Location – Airlines and trains. • Physiological state – Surgery in a hospital or gym. • Phycological state – Entertainment (e.g. Music, reading a book, movies). Customers: • Feel value has been added to their lives after seeing films or going to holidays. Customer relationship management (CRM) refers to the systems that businesses use to maintain customer contacts. Transforming resources (Human resources, facilities) • These are the resources that remain in the business and are applied to the inputs to change them to add value. (Resources that do the transforming) They are the resources that assist in the value adding. Human Resources • People are the greatest asset to any business. • This is because the skill, knowledge, capabilities, and labour of people is applied to materials to convert them into goods and services. • The human resources function to provide the business with suitably qualified, skilled, and experienced employees. • More ‘qualified’, hard-working and disciplined the employees are the easier it is to determine the success with which transformation (E.g. Qantas baggage handlers, specialised pilots, cleaners). Facilities • These are the buildings, land, equipment, and technology the business used in operations. They are non-current assets. Facilities house the operations, storing equipment and the materials. (e.g. Qantas terminal buildings, aircrafts, computers, maintenance facilities). Transformation Processes The transformation processes are those activities that determine how value will be added. These processes can add value in four ways: • Physical altering of the physical inputs or the changes that happen to people. • • Production method using a combination of labour, equipment & technology. Type of production method: Job, Batch, Flow. • Transportation of goods or services, e.g. having them delivered to a more convenient location. • Protection and safety from the environment; for example, protecting assets. • Inspection by giving customers a better understanding of the good or service. Influences – Volume, Variety, Variation, and Visibility There are four dimensions of operations, referred to as the 4Vs, (Volume, Variety, Visibility, Variation). The influence that is most important depends on the type of production. • Production methods: • Job- suits those products and service that require customer requests. It is a highly flexible system but with low output. E.g. designer homes and cars. Costs per unit are high. • Batch- products are made in batches or groups. E.g. bakery. Suits businesses that have variations. • Flow- involves a continuous flow of inputs and outputs. It is often associated with assembly lines. Products have little variation. E.g. Fuel refineries. Costs per unit are low. Volume Volume is the most effective way to ensure low costs is to make a large amount of the same thing (creating economies of scale to lower unit cost.). • Volume is the actual number of products or services produced by the operation. • Mass Market → High volume of products, use of conveyer belts. • Niche Market → Low volume of products due to customisation, might use separate work stations. • Determines right amount to produce by monitoring sales. • A business using mass production will produce a high volume with a high degree of process repetition. (e.g. McDonalds producing fast food on a high volume in a uniform production line). • A business with customization and low production will allow for lots of stoppages and adjustments. (e.g. A five-star restaurant will product at a low volume). • When volume is the largest factor, there will be lots of capital facilities and technology, but less labour. Assembly lines using convey or belts will be common and organized. Case Study – Domino’s Pizza • Standard procedures increase efficiency + tasks are repeated + Specialised equipment ensures efficiency in the production process. Every task has been carefully analysed to ensure it is carried out in the most cost-effective way. Highly specialised equipment such as continuous operation ovens has been developed. The high cost of this specialised equipment is spread with output so, the greater the volume, the lower the cost of each unit. Variety Variety (also known as Mix Visibility) refers to the number of different models and variations offered in the products or services – range of goods and services. • A business producing a high- volume product with low variety will be capital intensive. (e.g. Low variety= car factory with small variations. High variety= financial advice.). • Mix Visibility – Refers to the mix of products made, or services delivered through the information process. Case Study – Doltone House • Doltone House caters different events including weddings, business conferences, birthdays etc. Therefore, variation is required in entertainment, food, services, and music. Variation in demand Variation in demand refers to the amount of a product customer desires. • Variation can change according to time of day, season, holidays, and time of year. (E.g. Lodge at Thredbo → winter is peak season and there is high demand whereas summer is off-peak season and there is a decrease in demand, as demand increases changes need to be made to the transformation process such as hiring more staff). • When there are steady levels with no variation, there will be high volume and capital costs. (E.g. Low variation= bread and milk. High variation = ice cream factory). • A there is an increase in demand will require increased inputs from suppliers, increase HR, and increase use of technology. • All businesses will try to forecast demand so that adjustments could be anticipated. Case Study – Qantas • Qantas experiences peak periods during school holidays and special events such as the London 2012 Olympic Games or the World Cup however, Qantas struggles with unpredictable events such as the June 2011 Christchurch Earthquakes, Thailand Floods, or the Japanese Tsunami which all resulted in sharp falls in sales. Visibility (Customer Contact) Visibility refers to the nature and amount of customer contact. • Operations will also be influenced by the degree to which customers can see the operations in action (Direct or Indirect). (e.g. Subway has a high level of visibility whilst a supplement company that produces a muscle gaining pill would have very low visibility and therefore may need to adopt marketing strategies that compensate for the lack of visibility). • The greater the visibility, the more customers are willing to wait → More engaged in a process. • Direct Contact – Customer feedback through surveys, interviews, warranty claims, letters, and blogs. • Indirect Contact – Review of sales data that gives an indication of customer preferences and market share data through observation of people’s decision-making processes and customer reviews. • Service-based businesses will have a high level of visibility. Speed of operations will also be important as customers usually have a much lower tolerance for waiting. (e.g. High visibility= restaurant. Low visibility= beef producer). • Online – Operates more like a factory, less customer contact, business can centralise its operation in low-cost areas and the operation process is rather standardised VS Store – Provides a ‘shopping experience’ with customer service, high visibility operations are often associated with high costs and high costs in training. (e.g. Athlete’s foot Vs www.shoes.com). Case Study – Coles • Coles have rearranged their staffing rosters to have bakers operating during peak shopping periods to reinforce the idea of products being made fresh. Scheduling and Sequencing Sequencing refers to the ORDER in which operational activities occur whilst Scheduling refers to the length of TIME and WHEN will the activities occur. (Consider as form of task analysis). • Scheduling and sequencing tools are used to identify all steps in the operations process and organise them into the most efficient order to complete. It will need information like. • • • • • What activities are used. When activities will occur. Which activities are related. What resources will be used. Length of time to complete an activity. • Task analysis- The breakdown of exactly how the manufacture of a good or activities to provide a service is to be accomplished. Task analysis are done to investigate how long it takes for each activity to provide a good or service. • There are two main tools: Gantt Chart and Critical Path Analysis. Case Study – Qantas • Qantas uses Sabre Air Flight Suite Systems (a complex scheduling software) which automates its flight scheduling which ensures that there is adequate time for cleaning, catering, and engineering support before arrival and take off. Gantt charts Gantt Chart is a type of bar chart that shows both the scheduled and complete work over a period of time, often used in planning and tracking projects. Gantt Charts record number of activities as a bar on a chart showing start to finish but will not show the relationship between each of the tasks. Advantages: • Dates can be set for the completion of tasks. • Schedules simple tasks (e.g. completing an assignment or building a dam). • It allows the business to compare the actual progress to the original expected progress. • Visual representation of the job & efficiently communicates the progress to employees. Disadvantages: o Complex jobs are more difficult to illustrate on a Gantt Chart. o Does not show the relationship between each task. o Technique can only be used for simple jobs/activities. Critical path analysis A critical path analysis (CPA) is an appropriate scheduling tool for use in an operation that involves a series of repeated tasks. • • • Appropriate for complex tasks i.e. housing project. It is a flow diagram that shows the interrelationship of tasks. The critical path time period is the longest path taken to complete the whole project. Each number indicates how many weeks it takes to complete each stage/task. Technology, task design and process layout Technology Technology refers to the application of science or knowledge that enables people to do new things or perform established tasks in better ways. • A key input into the operations process. Types of technologies: • • • • • • • Computer-aided design CAD. Computer-aided manufacturing CAM. Information processing technology IT. Automated guided vehicles AGV • Networked information technology such as WAN. The internet. Robotics refers to the design and construction of machines that automate a task. Flexible manufacturing systems FMS. • Process Technology – Machines and devices used to transform inputs into outputs. • Product Technology – The innovation or product that the business produces. Technology can give the business more flexibility as it: • Allows the business to respond to changes in the market more easily, e.g. changing volumes and variations. • Allows the business to apply software modelling programs (e.g. CAD & CAM, the internet and wireless communication to the process.) which speeds up the operations process. • Flexible manufacturing systems- integrated approach to using technology (e.g. Telstra has a competitive advantage (product differentiation) through the better technology and network coverage it offers to its customers). • Communicate and capture data using internet and computers. • Competitive advantage can be achieved when firms keep updated with the latest technology. Advantages • • • • Cost efficient Increase efficiency Reduces chances of error Less time Disadvantages • • • Limited customisation Reduces variety of jobs Can be costly to implement Case Study – Coca Cola • Operations process at Coca-Cola’s canning line at their Northmead factory. Process technology is used to unload and wash the empty cans, fill, and seal the cans, quality check and load the cans into boxes before the boxes are stacked. The central computer, with the aid of programmable logic centres on each of the processing machines, instructs the operation of the process. People are there to supervise and maintain the machines. This technology adopted by Coca Cola is a form of robotics. Task Design Task design involves classifying job activities that makes it easy for an employee to successfully perform and complete the task. (How the task is completed). • Each individual task is analysed and broken down into separate steps and allocated to machines and employees with the appropriate skills, knowledge, and capabilities. (e.g. McDonalds designed every task – standardised process which ensures efficiency). • Allocating the transformed and transforming resources. • Task design allows ongoing analysis and adjustments in each activity to ensure continuous improvement in productivity. Steps involved in the task design process: Task Design → Job Description → Person specification → Recruitment → Selection • Skills Audit – Is a formal process used to determine the present level of skills and any skill shortfalls that need to be made up either through recruitment or training. Process Layout • Plant Layout refers to the arrangement of all machinery, equipment, and staff within the facility. (Either an office or factory). • Facilities layout planning- The physical layout of the business’s factory or office. • Make the operations as effective as possible. • Process layout is where all the machinery is arranged by what they do; that is, the functions used to make the good or provide the service. The product/service moves from department to department depending on what transformation is needed. Layout needs to follow task design. (e.g. In hospitals, areas are dedicated to particular types of medical care, such as maternity wards and intensive care units). • Overall layout needs to improve efficiency. • Product layout – Equipment arranged according to the sequence of tasks performed in manufacturing a product. Product layouts are used for assembly line manufacturing of large volumes of goods with few variations. (e.g. Assembly of motor vehicle or production of televisions). • Product Production (Mass Production) – Characterised by the manufacturing of high volume of constant quality goods. Fixed position layout: Where a product remains in one location due to its weight and employees and equipment come to the product. (e.g. Large-scale projects such as the construction of buildings, aircraft). Monitoring, Control, and Improvement • Monitoring – Refers to the process of measuring actual performance against planned performance. • Monitoring: collecting information about the performance of operations process. These include: • Quality. • Speed. • Dependability. • Flexibility. • Customisation. • Costs. • Data needs to be collected about: • Operation costs. • Waste from operations. • Defects. • Speed of manufacturing. • The purpose of monitoring and control is to ensure the operations process runs efficiently and effectively, producing the goods and services it was designed to do. • Control- A function that aims at keeping the business’s actual performance as close as possible to what was planned by making adjustments to the operation process (Planned performance VS Actual performance and implement controls to improve the production process). • • Improvement- Refers to the systematic reduction of inefficiencies and wastages, poor work processes and the elimination of any bottlenecks. • • Control occurs when Key Performance Indicators (KPIs) are assessed against predetermined targets and corrective action is taken if required. It is the function that suggests that adjustments and readjustment may need to be made to day-to-day activities in the short term and even the entire operations process in the long term. Improving operations is a key strategic goal. There can be improvements in the following areas: • Quality- by getting it right the first time and having defect-free products and errorfree services. • Speed- by increasing speed of production and delivery of services. • Dependability- by being on time with a reliable operations system, and employees. • Flexibility- through having processes that are able to change. • Cost improvements- by being efficient and productive to offer more value. Monitoring, Control, and Improvement • Monitoring – Refers to the process of measuring actual performance against planned performance. • Monitoring: collecting information about the performance of operations process. These include: • quality • speed • dependability • flexibility • customisation • costs • Data needs to be collected about: • Operation costs • Waste from operations • Defects • Speed of manufacturing • The purpose of monitoring and control is to ensure the operations process runs efficiently and effectively, producing the goods and services it was designed to do. • Control- A function that aims at keeping the business’s actual performance as close as possible to what was planned by making adjustments to the operation process (Planned performance VS Actual performance and implement controls to improve the production process) • • Control occurs when Key Performance Indicators (KPIs) are assessed against predetermined targets and corrective action is taken if required Improvement- Refers to the systematic reduction of inefficiencies and wastages, poor work processes and the elimination of any bottlenecks. • • It is the function that suggests that adjustments and readjustment may need to be made to day-to-day activities in the short term and even the entire operations process in the long term. Improving operations is a key strategic goal. There can be improvements in the following areas: • Quality- by getting it right the first time and having defect-free products and errorfree services • Speed- by increasing speed of production and delivery of services • Dependability- by being on time with a reliable operations system, and employees • Flexibility- through having processes that are able to change • Cost improvements- by being efficient and productive to offer more value Outputs • Outputs are the final products or services that a business offers to customers. They may be the final services or educated people (education). • E.g. In banking the outputs are home loans and investments. Outputs in education are socially responsible and employable young adults. Customer service • Customer service refers to how well a business meets and exceeds the expectations of customers in all aspects of its operations. • Customer service is a service provided to customers before, during and after a purchase. Customer service is an intangible output that requires extensive contact with customers. • If a customer expresses dissatisfaction with a product on account of being defective, not meeting quality expectations, finds wait times/lead times too long or returns the product or makes a warranty claim, the operations processes need review. • Good customer service will increase consumer satisfaction. • Customer service features include: handling customer returns, answering questions and following up customer enquiries. Three Main Methods of delivering customer service: • By telephone or internet (e.g. telemarketing, surveys, opinion polls, web chat, emails). • In person. • Via written communication. Warranties → Written guarantee. • A warranty is an assurance that a business stands by the quality claims of the products they make and provide to the market. • It is a good way to assess the effectiveness of operations processes. • An assessment of warranty claims can help a business to adjust transformations processes so that they become more effective. • Under Australian law, all goods must: have a level of quality, be suitable for the job, match the promotion and be free from defects. Businesses must comply with the Fair-Trading Act 1987 (NSW), Competition and Consumer Act 2010 (Cth). Operation strategy Operations strategy include: • The activities involved in the production of a goods and supply of services. • Specific decisions about what and how the business produces goods and supplies services. • The influences on operations strategies must be considered by operations managers. Performance objectives Performance objectives are the key areas of focus for Operations and therefore part of a business’s competitive strategy. Quality, speed, dependability, flexibility, customisation, and cost are the main performance objectives. • QUALITY – Having the highest quality goods and services. Good quality prevents costs by product recalls and repairs. Dimensions to quality are: • Performance- does it do what’s claimed. • Durability- does it last? • Aesthetics- does it look good? • Serviceability- is it convenient to repair. • If high quality levels can be maintained, will lead to reduced costs and increased customer satisfaction. → Achieved through low defect rates and efficient waste management. Quality of Conformance is the focus on how well the product meets the standard of a prescribed design with certain specifications. Case Study: • Crumpler sources the highest quality inputs and ensures high quality production processes to maximise the quality and dependability of its bags. • SPEED – Refers to the time it takes for the production and the operations processes to respond to changes in market demand. This relates to productivity. • Productivity is output divided by input and is sometimes measured in output per unit of time. • CAD and CAM can increase the speed without compromising quality. • A risk of increasing the speed of operations is that quality may suffer. Case Study: • Both Jetstar and Virgin Blue have strict policies when passenger check-in ceases, insisting that all passengers on domestic flights are checked in at least 30mins before departure. This is an attempt to achieve speed and dependability. • DEPENADBILITY – Refers to how consistent and reliable a business’s products are. Measured by warranty claims. • Highly durable product is a dependable product and perishable products can also be dependable if they are consistent and predictable standard. • There is also dependability in delivery or supply – how well can the business always fill orders and distribute to markets. • Dependability, flexibility, and reliability can be achieved through meeting schedules and deadlines. This will minimise disruption to the supply chain and help meet customer expectations. Case Study: • Crumpler bags come with the “Til Death Do Us Part warranty”, which means that dependability is key otherwise the business would be issuing too many replacement bags to remain profitable. • FLEXIBILITY – Refers to how quickly operations processes can adjust to changes in the market. (e.g. Changes in market demand can cause pressure on capacity). • Being more flexible than competitors and being able to make changes to operations. • Businesses need to match the increase in demand and avoid a stock-out where the business runs out of inventory. • examples of flexibility: new