Year 12 2019 Examination Study Notes
Business Studies
Half-Yearly Paper (3 hours):
Topic 1:
Operations
Role of Operations Management
Operations refers to the business processes involving transformation or production ® inputs into outputs.
Businesses try to minimize production costs so retail prices are as low as possible.
Effective operations management adds value to businesses through increasing productivity, lowering costs
improving quality strategic competitive advantage through lower costs & differentiated goods
Strategic Role of Operations Management
(i) Cost leadership
- Aiming to have lowest cost or be most cost competitive in market
- Operations managers must also minimize costs so business remains profitable
- Should create economies of scale producing increased quantities decreases fixed cost per unit
(ii) Product Differentiation
- Offering goods or services distinguished from those of competitors
- Differentiation sources in goods:
● Product features ● Product quality
● Varying augmented features (add-ons or additional benefits e.g. option for built in GPS in a car)
Differentiation sources in services:
● Amount of time
● Qualifications or experience of service provider
● Quality of materials/technology used in service delivery
Goods and Services in Different Industries
Standardised goods = mass produced, usually on an assembly line. They are uniform in quality & generally
produced with a production focus.
Customised goods = vary according to customer needs & produced with a market focus.
Services can be both standardised & customized (e.g. fast food standardized whereas accounting services
are customized)
Goods can also be classified as perishable and non-perishable:
Perishable Goods Non-Perishable Goods
● High standards of safety, ● More durable than perishables
quality & cleanliness in all ● Includes household and
operating processes business goods
● Very short distribution ● Requires effective inventory
● Appropriate, sturdy packaging management
& cold storage
Interdependence with Other Key Business Functions
● Marketing
- Research nature of goods consumers want
- Marketing strategies to encourage purchases
● Human resources
- Provide suitable staff & organize training based on requirements of operations
Year 12 2019 Examination Study Notes
- Uses leadership style + rewards to ensure quality work is done by employees in operations
● Finance
- Budgets & makes funds available for inputs, equipment, repairs/ maintenance. - Minimizes
production costs to maximize profit margins
Influences On Operations
Globalisation, Technology, Quality Expectations, Cost-based Competition, Government Policies, Legal
Regulation & Environmental Sustainability
(i) Globalisation - Refers to the removal of trade barriers between nations.
- Characterized by increased integration of national economies & high flow of
money, labor, ideas, financial resources.
- Large businesses selling to global markets and meeting needs of global
customers
- Businesses establishing global supply chain to reduce costs:
● Global web = network of supplier’s business has chosen on basis of
lowest cost, lowest risk and maximum certainty in quality & timing of
supplies.
(ii) Technology - New technologies in production and operations has allowed for
less energy, less waste and faster production
- Robotics allow for greater precision in sophisticated production
processes and also easy standardization of products
● Includes CAD & CAM
(iii) Quality - How well designed, made and functional goods are and the
Expectations degree of competence in which services are organized and
delivered.
- Goods:
● quality of design
● fitness for purpose
● durability
- Services:
● professionalism of service provider
● reliability of service provider
● level of customization
(iv) Cost-based - Derived from determining breakeven point then applying
Competition strategies to create cost advantages over competitors.
- Base cost of a product involves fixed and variable costs
- Ways to cut costs include purchasing bulk inputs or updating
technology
(v) Government - Since policies can inform law making and lead to business
Policies opportunities, operations mangers need be aware of current
government policies and what they comprise
● Includes required materials handling practices, OHS
standards, public health polices, environmental policies
MC: Australia food standard code.
(vi) Legal - Compliance costs = expenses associated with meeting
Regulation requirements of legal regulation
- Federal and state law ensures:
● Safe operations (e.g. WHS in machinery use)
● Consumer protection (product minimum safety/quality
standards)
● Minimal environmental impact
- Unions also play a key role in promoting safety in workplace
operations as well as industrial awards
(vii) Environmental - Practices that allow resources to be used today without
Sustainability compromising future access
- Significantly impacted by climate change awareness and the need
to integrate long-term sustainable view of resource management.
- This can be seen in businesses efforts to reduce and minimize
waste recycle water, glass, paper metals & reduce their carbon
footprint.
MC: Reducing energy use by GHG (net zero by 2050), Water use by rain
tanks
Corporate Social Responsibility
Refers to open and accountable business actions based on respect for people, community & the broader
environment → more than following the law
Triple bottom line is crucial to CSR = business try to achieve all three aspects:
● profit
● social justice
● environmental protection
(i) The Difference Between Legal Compliance & Ethical Responsibility
- Legal requirements require businesses to follow the letter of the law (prescribed behaviour standards) e.g.
labour law compliances, human rights
- Ethical responsibility sees businesses meeting all of their legal obligations and taking it further by following
the intention and ‘spirit’ of the law. Disclosing all info to stakeholders to make informed decisions on business.
- Variation in laws between countries can make it hard to know what is ethical. Businesses may choose to
follow ethical standards from ILO (international labour organisation).
(ii) Environmental Sustainability & Social Responsibility
Environmental sustainability
- Requires business to evaluate full environmental effects of their operations
- Growing expectation that products should be “clean, green, safe” so businesses have been
- Businesses expected to adopt greenhouse reduction measures & develop long-term sustainability
strategies such as Carbon Zero.
Social responsibility
- Management of social environmental & human consequence of its actions.
- Improving quality of life for the community.
- Customers may stop buying if they discover a business exploits its customers, however they will reward SR
businesses by purchasing more
Year 12 2019 Examination Study Notes
Operations Processes
Inputs
Four common direct inputs: labour, energy, raw materials, raw machinery & technology
Two types of inputs:
(i) Transformed Resources (ii) Transforming Resources
● Materials ● Human resources
Basic elements used in the production process, Effectiveness of HR determines how successful
consisting of raw materials and intermediate transformation & VA occurs.
goods.
● Facilities
● Information Refers to plant (factory/office) and machinery
Knowledge gained from research, investigation used in operations process.
and instruction, which result in increased
understanding.
● external ( ABS, media reports) or
internal (financial reports,
production data)
● Customers
Their choices shape inputs.
Transformation Processes
(i) 4Vs Influences (Volume, Variety, Variation in Demand, Visibility)
● Volume
- Amount of good or service to be product
- Volume flexibility = how fast transformation process can adjust to increases or decreases in demand.
- Responsiveness to required changes in volume is essential to effectively managing lead times (time taken
for order to be fulfilled)
● Variety
- Number of different models/variations a product or service offers
- Greater the variation made, the more the operations processes need to allow for variation
● low variety will allow business to produce high-volume of a standardized product for cost)
● Variation in Demand
- How much of the product is needed → increased demand requires more inputs from supplier, increased HR,
machinery & energy consumption
● Visibility (customer contact)
- Degree to which customers can witness the operations process
● Low visibility = manufacturing
● High visibility = service-based
(ii) Sequencing & Scheduling – Gantt Charts & Critical Path Analysis
⎯
Gantt chart bar chart that shows both the scheduled and completed work over a period of time. It is often used in
planning and tracking a project.
Critical Path Analysis (CPA) ⎯ flow diagram showing the interrelationship of tasks as all tasks must be completed for
the project to be finished, the critical path is the longest path taken to complete the whole project.
*ALWAYS CHOOSE THE LONGEST ROUTE
(iii) Technology, Task design & Process Layout
Technology
- Many products designed and assembled using CAD and CAM
- Technology allows businesses to relocate dangerous or repetitive tasks away from employees
- This has enabled more efficient production, although technology is expensive it is usually more cost effective long
term.
Task design
● Breaking down a large task into smaller, manageable activities
● Employees therefore able to perform and complete the task successfully.
● Involves job analysis & can be done after conduction of a skills audit.
Process layout
- Arranging machinery according to what they do → product moves from department to department
- Allows for more flexibility & customization of the product
(iv) Monitoring, Control and Improvement
Year 12 2019 Examination Study Notes
Monitoring
- Arranged around need to measure KPI's such as lead times, defect rates, inventory turnover
Control
- Assessing KPIs (key performance indicators) against predetermined targets and taking corrective action if
required.
Improvement
- Refers to the reduction of any inefficiencies and wastage, poor work processes and the elimination of any
bottlenecks
● *bottleneck = aspect of operations that delays
- Improvement usually sought in quality, speed, dependability, flexibility, cost improvements.
Outputs
(i) Customer Service
- Refers to how well the business can meet expectations of customers.
- Operations management is responsible for the provision & quality of the product, if customers are disappointed
in these things they will go elsewhere.
(ii) Warranties
- Legally, all products must come with a guarantee it will serve its advertised purpose .
- Many businesses when selling a product over a certain value will offer written warranty valid for a period of
time.
- Number of warranty claims will indicate whether transformation process requires adjustment
Operations Strategies
Performance Objectives (i) Quality
- Often determined by consumer expectations which are inform production
standards.
- Objectives include: quality of design, quality of conformance, quality of service.
(ii) Speed
- Time taken for production and other operations processes to respond to market
demand. It aims to satisfy customer demands as soon as possible.
- Speed goals include: reduced wait times, shorter lead times, faster processing
times.
(iii) Dependability
- How long products are useful before they fail → measured by warranty claims
- Consistency of service standards and reliability → measured by number of
complaints
(iv) Flexibility
- Refers to how quickly operations processes can adjust to changes in the market.
- Flexibility best achieved by increasing the capacity of production or for services,
increasing the number of service providers.
(v) Customization
- Refers to creation of individualized products to meet specific customer needs.
- Production of many goods now based on mass customization (process allowing
standard, mass-produced items to be customized e.g. cars)
(vi) Cost
- Minimization of expenses so operations processes ae conducted as cheap as
possible.
- Can lower costs by acquiring new technologies, use inputs better and minimize
wastage, reducing supplier/inventory/distribution costs
New Product or Service - Two different approaches that determine product design and
Design & Development development:
● Consumer preference
● Changes and innovations in technology
- Important factors in new product design and development include:
● Supply chain management
● Capacity management
● Cost
● Quality
- A service can be:
● Explicit- the application of time, expertise, skill and effort ●
Implicit- the feeling of being looked after.
Supply Chain (i) Logistics
Management - Focuses on moving inputs, resources and outputs through supply
chain as fast as possible. Involves:
● Distribution and modes of transportation
● Storage, warehousing & distribution centers
● Materials handling & packaging
(ii) E- Commerce
- Enables businesses to source through online links to suppliers
through business-to-business processes and also enables
customers direct access to products through business-to-
consumer processes
(iii) Global Sourcing
- Business seeks to find most cost-efficient location for
manufacturing a product
- Expansion of supply chains over national boundaries
Year 12 2019 Examination Study Notes
Outsourcing (i) Advantages and Disadvantages
● Advantages
- Business able to focus on core processes
- Access to expert, high quality services
- Less capital expenditure and increased cost effectiveness (e.g.
training costs)
- Flexibility to change third party vendors
● Disadvantages
- Less managerial control
- Difficulty in achieving and maintaining quality standards
- Security and confidentiality issues (e.g. if outsourcing payroll or
HR)
Technology
(i) Leading Edge
- Technology that is most advanced or innovative at any point in time
- Helps businesses create products quicker & to higher standard,
with less waste and more efficiency.
(ii) Established
- Technology that has already been developed and is used without
question.
● e.g. IT for administration, robotics for complex manufacturing,
barcoding & point-of-sale (POS) data for inventory
management
Inventory Management (i) Advantages & Disadvantages of Holding Stock
Advantages Disadvantages
● Ensures customers served ● Capital intensive = dead
quickly & dependability of cash
delivery ● Holding costs (storage,
● Bulk purchases = cheaper insurance)
● Older stock can be sold at ● Risk of stockpiled goods
reduced price → passing use by date
encourages cash flow
● Ensures sufficient back up
stock
(ii) LIFO, FIFO, JIT
● LIFO ⎯ Last in First out
- Stock purchased most recently is sold first (used for goods with
no use-by-date e.g. canned goods, machinery parts)
● FIFO ⎯ First in First out
- Oldest stock sold first (ideal for perishables)
● JIT ⎯ Just in Time
- Holding as minimal stock as possible and only bring in stock from
suppliers as required
● increases liquidity of working capital as less cash tied up in
inventory
● reduced costs of storing and securing stock
Quality Management Quality management refers to processes a business undertakes to ensure
consistency, reliability, safety and fit for purpose of a product.
(i) Control
- Reduces problems and defects through inspection at various
points during production
- Pre-determined quality targets are set for all products to meet
- May require that labor be trained to apply these standards
throughout working process
(ii) Assurance
- Involves use of a system to ensure set standards are achieved in
production.
- Measurements are taken and assessed against standards.
- Aspects important to QA include:
● Fit for purpose
● Achieving right the first time (so re-working isn’t required)
(iii) Improvement
- Focuses on two aspects:
● Continuous improvement ⎯ businesses ongoing commitment
to improving its goods/services
● Total quality management (TQM) ⎯ managing the total
business to deliver quality to customers; requires
benchmarking, employee empowerment, a focus on the
customer and continuous improvement.
Overcoming Resistance to Financial costs
Change
Main financial costs associated with change include purchasing
new equipment, redundancy payments, retraining & reorganizing
plant layout:
Year 12 2019 Examination Study Notes
(i)Purchasing New Equipment
- Purchase of equipment expensive however cost can be
recovered through use (adds value in transformation processes) and
depreciation. - Can achieve
● Improved processing speeds & shorter lead times
● More consistency in production
● Higher overall quality of products
● Reduced waste and losses from equipment failure
(ii) Redundancy Payments
- Money given to employees when they are forced out of work due to
their job skills no longer being relevant. Payment depends on:
● Duration working for the company
● Level of pay they were on
● Amount of unused leave
(iii) Retraining
- May occur when job roles change requiring employees to acquire
different work skills.
- Purchase of technology may also involve training or retraining on
new software.
(iv) Reorganizing Plant Layout
- Requires extensive reorganisation of the layout within the facility;
high costs can occur when reorganizing.
Psychological resistance to change - inertia
- Internal stakeholders such as owners, managers and employees can
become too comfortable in a stable environment → major reason for
resisting change
- Strategies to overcome resistance include retraining programs,
work teams & a flatter management structure.
Global Factors (i) Global Sourcing
- Sourcing goods and services from across national boundaries
- Often to access cheap skilled labour, cheap materials, tax breaks
and low trade tariffs.
- Global web = strategy where business sources inputs, labour and
finance from the cheapest countries and distributing them to any
nation that demands them.
(ii) Economies of Scale
- Refers to cost advantages that can be gained by producing on a
larger scale. It becomes a global factor when businesses sell to
global markets
(iii) Scanning and Learning
- Scanning the global environment and learning the best practices
- May come from management journals, conferences, industry and
business associations
(iv) Research and Development
- Helps businesses create leading edge technology & innovative
products and processes
- Global businesses often have extensive R&D facilities in many
countries
- Investment in R&D is investing in competitive advantage
Types of Industries:
Primary: Extracts natural resources — farming, mining.
Secondary: Manufactures goods from raw materials — car production, construction.
Tertiary: Provides services —dog walking, retail.
Quaternary: Knowledge-based and tech services — IT, research.
Quinary: High-level leadership and decision-making — government executives, hospital directors.