Role of operations management
Strategic role of operations management
• Aim to achieve a strategic competitive advantage
Cost Leadership Aiming to have the lowest costs or be most cost effective in market
• Trading w/ lowest costs, the business must be profitable, and minimise
costs
• Be the most competitive in the market
Can be achieved by:
- Using cheap material
- Not wasting time/ raw materials
- Using technology for automation
- Economies of scale
• Refers to cost advantages that may be created due to increase in
scale of operations, lower cost per unit when bought/ produced in
bulk = reduce cost of production
- Lean production
Good/service Product differentiation is distinguishing products in some way from competition
differentiation This can be done by:
- Better quality
- Faster delivery
- Custom design products
- More features/ uses
- Use of new tech
- Higher reliability
Goods: Services:
• Tangible • Intangible
• Heavily rely on equipment/ • Heavily rely on human resources
machinery (bulk) • Easy to modify
• Hard to modify • Human interaction
• Less interaction
This can be done in goods by varying features or quality.
- Low quality model, very affordable vs high quality, high cost
This can be done in services by varying time spent or level of expertise.
- Cheap, quick chop shop vs expensive, long good cut from Diamondcutz
- Varying quality of materials/ tech: Tinkercad vs Solidworks
Cross branding; strategic partnership where resources are combined to make
something together
Goods and/or services in different industries
Goods Services
Operation choices vary depending on if goods are Either standardised or customised
standardised/ customised
• Standardised = mass produced
(assembly line/ same quality)
• Varied according to customer needs
Perishable: high quality standards, clean & safe,
short lead times for distribution w/ correct
packaging
Non-Perishable: more durable, issues from
quality often from operations function
Intermediate goods: sometimes processed 1+
times, e.g. steel to screws
Example: McDonalds changing as industry evolved
Initial opening food Burgers, fries, chicken, others
Menu change Modified to minimise costs, as
reasons low demand items like chicken
were removed leaving fries,
burgers drinks
Operation changes Changed over time with newer
over time machinery, freezing meat to
save money, using SoftServe to
cut costs
- Economies of scale
• Refers to cost advantages that may be created due to increase in scale of operations,
lower cost per unit when bought/ produced in bulk
Interdependence with other key business functions
Influences
Globalisation W/ internet, airplane access = globalisation has become
much easier
• Opportunities to export/ source gs/s, and expand and
to have a greater audience
• AUD depreciates export cheap, import expensive
• Businesses need to know risks of currency
fluctuations, increased global comp
Technology (easiest Using tech can help lower costs due to higher efficiency/
influence) productivity
• CAD: engineer digitalising sketches
• CAM (Computer aided manufacturing): manufacture
CAD in 3D Printing rather than building it
Pros:
1) ↓ Cost of production
Cons:
1) Very costly to acquire
2) Upskilling required to use technology, ↑ costs training
or jobs lost
Quality expectations Consumers expect adequate quality, must meet expectations
by making products:
• Reliable
• Durable
• Working well
Cost-based Aim to be a cost leader by offering lower prices, achieve this
competition by:
• Outsourcing
• Using cheap inputs
• Updating technology
• Economies of scale
• Manufacturing overseas
Government policies Trade policies:
- Free trade agreements (FTA) allowing to trade w/
countries w/ lower or no tariff way, hence lower cost of
goods.
Protection policies:
- Australia reduced protection for local biz by allowing
international biz into Aus
- Protecting local businesses, gov support w/ grants,
lower interest, debt on providing technical support:
Helps for these businesses to be competitive
Fiscal policy:
- Gov sets company tax rate for biz to pay, biz need to
consider this $ when decisions
Monetary policy:
- Gov influences by ↑/↓ the interest rate, influencing biz
costs
Hence, if interest rates lower, it will benefit the biz
operation because cost of borrowing is cheaper,
encourages biz to spend more & expand.
Legal regulation Businesses must adhere to the:
• Work Health & Safety (WHS, 2011)
• Competition & Consumer Act (2010)
• Fair Work Act & Omudsman (2009)
• Environmental Protection (EPA)
Each of these laws impact operations in ways like:
- Operations cannot exceed a amount of pollution
- Production must meet minimum quality/ safety
- Must function
- Safe working space
Environmental Allowed to use resources without limiting future generation’s
sustainability ability to = influences businesses to be environmentally
sustainable in operations
- Low wastage
- Minimal environmental damage
- Producing environmental products
Corporate social responsibility
To ensure a business is completing both environmental and social responsibility
(Corporate social responsibility, CSR), this improves their reputation
Case study application
Legal compliance Comply w/ laws Apple claiming they are
- E.g. ensuring cigarettes are not trying to change all
on display and behind the products to renewable,
counter or recyclable materials
Ethical Making decisions which not only by 2030.
responsibility legally compliant but also morally - “Everything apple
acceptable, helpful to community is going carbon
- Not using sweatshops neutral”
- Not selling cigarettes at all
Environmental Benefitting environment. E.g. Some of this is
sustainability - Not wasting resources contested as ethical;
- Minimising environmental concerns surround
damage apple suppliers:
- Producing products that are Foxcon: 235K workers in
environmentally friendly the one complex,
Example from Woolies, Coles, Maccas attracts more workers w/
- All bags at coles/ woollies are workers close to
not plastic, paper or reusable assembly line
ones - 12 hr days ($2/hr
- Maccas uses paper straws & 60hr weeks) w/
Social When a biz behaves in moral/ ethical two 1 hr lunch
responsibility manner, improving quality of life of breaks
internal & external shareholders
the difference between legal compliance and ethical responsibility
Operations processes
Inputs
Transformed resources - Materials: raw materials, components, supplies
going into process
- Information: any knowledge or data needed for
process e.g. how to use machinery and which
machinery to use
- Customers: aim to produce gs&s that meet the
needs of customers through feedback
Transforming resources - Human resources: employees that may apply
knowledge, skills and effort
- Facilities: machinery and buildings used
Transformation processes
Influence of the 4Vs Volume
The amount being produced
Variety
The different products being offered e.g. maccas different
burgers
Variation in demand
Increases or decreases in customer demand for a product e.g.
Christmas trees will be more commonly sold in november
Visibility to customers
The amount of interaction employees have w/ customers e.g.
service provider will have a higher visibility to customers
Sequencing and Sequencing, order in which tasks are complete: Gannt chart
scheduling - Task, time, order
Scheduling, time it takes to complete an entire project Critical
Path analysis
- ‘Critical path’ number of days it will take to complete a
whole project, thus the critical path is the longest
path
e.g. 10.5 days longest,
any delay in critical path
delays whole project
Technology, task Technology must be chosen properly to improve operations
design and process efficiency
layout - CAD
- CAM
Task design is tasks that need to be completed in
manufacturing gs and ss
- Can be done by employees and / or machinery
- Tasks must be made for each stage of manufacturing =
high efficiency
Process layout is way a factory/ office/ café lays out tasks
- E.g. where workstations are placed together, each one
has adequate input supply, to ensure minimal lead
time (pauses)
Monitoring, control Monitoring
and improvement Collecting of info about how effective the operations process is,
could be info on product quality, speed of production, cost/
unit
Control
Using info collected to compare the way they are operating to
planned operation
e.g. aim:60 burger/hr but only make 40 as it didn’t go to plan
they must change operations…
Improvement
Looking at process and determining what could be changed to
improve efficiency
Outputs
Customer Interacting w/ customers to increase satisfaction, high level of
service customer service can result in comp advantage, like:
- Answering qs
- Providing after sale service
- Following up complaints
Warranties Under aussie law, biz must ensure what they sell:
- Meet quality level described
- Suitable for purpose
- Free from defects/ faults
- Match description in promotion
To reassure customers, biz will offer warranties to fix any defects
withing a period of time e.g. 12 months
Operations strategies
Performance Quality – having highest quality gs and ss
objectives
Speed – having faster production of gs and delivery services
(NOT PROFITABILITY)
Dependability – being reliable in providing gs and services
Flexibility – biz being able to change operations when
needed
Customisation – offering customised products to meet
needs
Cost – producing products at lowest cost
New product or Only suitable for biz in post maturity or maturity stage
service design and
development All products have a life cycle, usually struggle in maturity
phase due to greater competition. Thus, biz need to
constantly do new things to stay comp
Supply chain Activities involved in getting a product from supplier to
management customer, need to efficiently manage supply chain to
reduce ‘lead time’ – time it takes for item to get from biz to
customer
• Logistics –the storage / distribution of products
• Ecommerce – selling products online (no physical
store)
• Global sourcing – where products are shipped from
and where raw materials are from to save costs
Pros: some countries are seen to have good quality items
e.g. brazil has good quality
Cons: global shipping delays/ tariff
Outsourcing When a biz transfers some of work to external biz, there are
advantages and disadvantages
Advantages
• Access to expert knowledge
• Better IT, tech and equipment
• Lower costs
• Improved speed and quality outputs
• More efficient processes
Disadvantages
• Quality control, no managing processing
• Possibility of competition learning confidential info
• Slower lead time = loss of local jobs if using a
overseas biz
Assessment advice: When recommending expanding.
Outsourcing overseas and discuss pros and cons
Technology Leading Edge
Brand new that’s not commonly used e.g. 5 axis 3d printer
- Could have higher development costs, high
maintenance costs
- Time consuming in development of leading-edge tech
Established
Already used by many biz
99% confirmed, no biz report asking for new technology
technology – leading edge, established
inventory management – advantages and disadvantages of holding stock, LIFO
(last-in-first-out), FIFO (first-in-first-out), JIT (just-in-time)
quality management
control
assurance
improvement
overcoming resistance to change – financial costs, purchasing new equipment,
redundancy payments, retraining, reorganising plant layout, inertia
global factors – global sourcing, economies of scale, scanning and learning, research
and development