Topic 1: Operations Study Notes

OPERATIONS
Role of Operations Management

strategic role of operations What Is Operations?

management – cost -​ The business processes that involve transformation.

leadership, good/service
-​ Operations management is about transforming inputs into outputs.
differentiation
-​ The goal is to add value so the output is worth more than all of the inputs combined.
Strategic ROle of Operations:

-​ Operations assist the business in achieving its overall goal of profit maximisation.
-​ Cost Leadership (Keeping costs low) + Differentiation ( Increasing revenue) = More profit
COST LEADERSHIP:

Aim: To have the lowest costs or be the more price - competitive in the market.
Explanation: Operations is a cost centre meaning it doesn't directly create income, but it does generate
costs for the business.
Strategy: Keep costs as low as possible
1.​ Businesses can make a larger profit
2.​ Businesses can drop their prices creating a competitive advantage.
How to achieve it: Businesses could:
●​ Invest in technology, research and development
●​ Lower production costs
●​ Use economies of scale
 -​ EOS are cost advantages created when a business increases the scale of its operations.
Good/SERVICE DIFFERENTIATION:

AIm: Distinguishing products from competitors based on factors other than price.
Explanation: Differentiation usually leads to enhanced or additional features. So its creating unique
products to achieve brand loyalty.
Good Differentiation:
-​ Goods can be differentiated by their:
●​ Features
●​ Quality
●​ Augmented features
Service Differentiation:
-​ Services can be differentiated by:
●​ Time taken to deliver service
●​ Experience and qualifications
●​ Quality of materials and technology
Cross - Branding:
-​ Two businesses form an alliance so they can offer extra benefits to consumers.
-​ Eg Uber and Spotify
-​ Passengers could listen to their favourite songs on Spotify in their Uber.

goods and/or services in Standardised Vs Customised GOods:

different industries Standardised Goods:

-​ Goods that are mass produced, usually on an assembly line and are uniform in quality. This means
they’re designed and manufactured to meet the same quality standards.
-​ Example: Electronics, Clothing, Books, Toys.
 Customised Goods:
-​ Goods that are varied according to the needs of consumers.
-​ Example: Glasses, Hearing Aids, Designer bags.
Perishable and Non Perishable:

Perishable Goods:
-​ Goods with a short lifespan. They need to be consumed quickly.
-​ Example: Milk, Fresh Food, Medical Supplies.
Non Perishable Goods:
-​ More durable goods, they last longer and don't spoil.
-​ Example: Phones, clothing, plastic storage and furniture.
Intermediate and Finished Goods:

Intermediate Goods:
-​ Goods that are used as inputs in the production process of another product.
Finished Goods:
-​ Goods that are ready to be sold and consumed/used.

interdependence with What is Interdependence?

other key business -​ The mutual dependence that the four key business functions have on each other.
functions
-​ They have to work as a team to achieve common goals, like profit maximisation.
Marketing:

-​ Operations and marketing must communicate to make sure products are of the correct standards
to satisfy customer needs.
-​ Example: If a product is marketed to be sold by a certain date operations must make this possible.
FInance:
 -​ Finance provides the funds that determine what strategies operations can undertake and what
inputs are able to be used.
Cost:
-​ One of the key goals of operational management is to achieve Cost Leadership.
-​ Minimise the cost of production = Increased Profit Margins
Quality
-​ Instead of aiming for low costs, businesses can strive for quality.
-​ Higher quality products = Sold at higher prices = Higher revenues + profits.
Investment:
-​ Finance investing in new areas such as facilities and technologies can lead to faster processing
speed and less waste in operations.
-​ Investment = More efficiency = More profits
Human Resources:

-​ The relationship between human resources and operations is constantly changing.

New Technologies:
-​ New technologies are changing the way work is done. Therefore, the skills and qualities businesses
are looking for in employees are also changing.
-​ Example: May need to be trained to use new technologies or hired based on their tech
experience.
Outsourcing:
-​ Outsourcing is also changing the nature of operations.
-​ Outsourcing also means that many employees aren't needed anymore, so the HR function must let
them go.
Influences

globalisation, technology, GLobalisation: Effects on operatioNS

quality expectations, -​ The elimination of trade borders between countries, creating more interactions between
cost-based competition,
businesses across the globe, increasing imports and exports.
government policies, legal
-​ Globalisation widens the potential market, leading to:
regulation, environmental
sustainability OPPORTUNITIES:
-​ New Markets:
●​ New markets mean more potential customers and sales.
●​ Production levels need to increase to meet growing demand.
●​ Opportunities for economies of scale and cost savings.
-​ Supply Chain Management
●​ The supply chain: a business’s supply network and the relationship between the business
and its suppliers.
●​ More sources of raw materials and more places to locate factories. (Global sourcing)
●​ Locating factories close to suppliers lowers transport costs.
-​ Production Benefits:
●​ Outsourcing overseas
●​ Flexibility of location
THREATS:
-​ For Global Businesses:
●​ Increased competition from new markets
●​ Operations managers need to work harder to stand out from competition.
-​ For Domestic Businesses:
●​ New global competitors with better cost cutting techniques can overtake their markets.
 ●​ Operations managers need to reduce their costs to stay competitive.
Technology:

-​ The use and application of innovative devices, systems, and machinery in the operations process.
-​ There are 2 main types of technologies that can be applied to operations processes:
ADMINISTRATIVE:
-​ These technologies revolve around organising, planning and decision making. They’re responsible
for controlling all operations processes.
-​ Planning technologies like sequencing and scheduling tools.
-​ Office technologies - Those you find in any office
-​ Software - word processing, graphic and publishing programs.
PROCESS:
-​ Used to carry out functions like manufacturing, logistics and quality management
-​ Machines - Found in manufacturing plants
-​ Robotics - Used in highly complex processes
-​ Computer Technology
Technology: Effects on Operations

Cost Savings:
-​ Processes can run more efficiently, safely and without error, which creates cost savings.
-​ Decrease Production costs → Increase Efficiency = Cost Leadership
Competitive Advantage:
-​ Product quality can be improved as there's less human error and businesses can develop new
products which leads to differentiation.
Quality Expectations

-​ Quality refers to the degree of excellence of a product.

 -​ Quality impacts the entire production process, including the way that products are designed,
manufactured and delivered.
Quality Expectations - Goods

Quality of Design:
-​ How well a product idea has been developed and executed.
-​ Includes how innovative the product is and the quality of materials used.
Fitness for Purpose:
-​ How well the product does the job it was intended to, and how easy it is to use.
Durability:
-​ How long goods last.
-​ How easily goods can be repaired and maintained.
Quality Expectations - Service

Professionalism:
-​ The manner that staff engage with customers and the physical environment.
Reliability:
-​ The overall competence and efficiency of the service provider.
Level of Customisation:
-​ How the service is tailored to meet individual customer needs.
COst - based Competition

-​ When competitors try to create cost advantages over each other.

-​ Businesses try to reduce costs rather than increase revenue to maximise profits.
-​ The aim is to achieve cost leadership by reducing fixed and variable costs.
Sourcing Supplies:
-​ Sourcing from lower quality inputs
-​ Sourcing from lower cost nations
 -​ Bulk Buying inputs
Production:
-​ Economies of scale (EOS)
●​ Better use of machinery and boosted efficiency.
-​ Standardised Products
●​ Less inputs, and simpler and faster production
-​ Automated Production
●​ Streamlined processes can speed up production
-​ Lean Production
●​ Aims to minimise waste and costs
Output:
-​ EOS: High volume of output reduces production costs
-​ This spreads fixed costs across a large number of outputs.
GOvernment Policies:

-​ Long - term plans of action that apply to businesses.

-​ In some cases these policies become legally binding.
-​ Examples:
●​ Taxation rates
●​ Environmental policies
●​ Public health policies
●​ Work health and safety standards ( The WH + S regulation is enforceable by law)
-​ Policies are a set of goals that the government aims to achieve for society.
Effects on Operations:

-​ Government Policies create the rules and regulations that businesses have to follow. This can lead
to:
 -​ These policies change with time, following changes in government or social awareness.
BUSINESS OPPORTUNITIES:
-​ Tax rates fall → More production with less tax → Higher revenues
-​ New WH + S standards or environmental policies → Businesses respond with innovative solutions →
More efficient production and Higher product quality.
Legal Regulations:

-​ Legislation that is enforceable by law.

Compliance:
-​ When businesses follow and abide by legal regulations
Compliance Costs:
-​ The expenses involved with compliance
Compliance Department:
-​ Responsible for ensuring that the business obeys relevant laws.
EFFECTS ON OPERATIONS:

-​ Legal regulations shape the practices and procedures the operations function must follow.

Example Regulations Effect on Operations

Work Health and Safety Act Ensure workers are subject to a safe working
environment with minimal risks.

Training and Development Employees operating machinery and technology

need to be trained to do so safely and effectively.

Environmental protection laws Operation processes are undertaken without

damaging the environment.
Australian Consumer Law (ACL) Products need to be fit for purpose so operations
needs to implement quality management
processes.

Environmental Sustainability:

-​ The protection of natural resources for future generations.

-​ People are now more aware of issues like global warming and climate change.
-​ Operations processes need to be shaped around protecting the planet and developing a long
term sustainability plan.
-​ Businesses need to reduce their carbon footprint.
Effects on Operations:

Minimising CO2:
-​ Minimising the use of non renewable resources.
-​ Sustainable use of renewable resources
●​ Decrease coal and oil and increase wind and solar energy
●​ Example: A business could install solar panels on its factory to power its machinery saving
costs long term.
-​ Reduce and minimise waste
●​ Recycling glass, paper and metals
●​ Adopting lean production techniques
●​ Improved Efficiency
●​ Reduced costs
-​ Smart inventory control
 ●​ If too much inventory remains unsold, it'll eventually become obsolete and end up as
waste.
Positives and NEgatives:

Positives:
-​ Appeals to new customers
-​ Reputation - ↑ prices and marketing
-​ Point of differentiation
Negatives:
-​ In the short term, it increases costs
-​ Changing supply chain
-​ Impact quality or efficiency
-​ Copycat business

corporate social Corporate social responsibility ( CSR ):

responsibility -​ Open and accountable business practices that show concern for social, environmental and
– the difference between
economic issues.
legal compliance and
-​ CSR is a behaviour that goes beyond the bounds of legal requirements.
ethical responsibility
– environmental TRIPLE BOTTOM LINE
sustainability and social -​ Businesses should value the kind of impact they make on people and the planet.
responsibility -​ Although profitability is the overall goal, CSR recognises this can be achieved ethically.
Legal Compliance Vs Ethical Responsibility:

LEGAL COMPLIANCE:
-​ All businesses must follow laws. If they don't, they face penalties like fines.
-​ Involves meeting all mandatory expectations set out in law to avoid penalties such as fines.
ETHICAL RESPONSIBILITY:
 -​ Businesses are legally compliant and show a commitment to the ‘spirit of the law’
-​ Involves practices which go beyond simply meeting legal requirements.
Environmental and Social Concerns:

Environmental Sustainability:
Aim: To ensure business development isn't at the expense of the environment.
Actions:
-​ Ethically sourcing materials
-​ Responsible outsourcing
-​ Adopt policies on conservation, recycling and sustainable production.
-​ Reduce their carbon footprint.
Example: Sourcing more renewable and recyclable materials like biodegradable or reusable bags in
supermarkets.

Social Responsibility:
Aim: Contribute to the greater good of society.
-​ Businesses are expected to show more concern for the societies in which they operate.
-​ Social Initiatives
-​ Maximising their profits
Actions:
-​ Ethical Production: Observe human rights with the working conditions of the employees.
-​ Product quality: Observe quality standards and ensure products meet safety requirements.
Operations Processes

inputs What are Inputs?

– transformed resources -​ Labour e.g. human resources

(materials, information,
-​ Energy e.g. electricity
customers)
-​ Materials e.g. wood, cotton
– transforming resources
(human resources, -​ Machinery and technology e.g. robots, assembly lines
facilities) Transformed Resources

-​ Inputs that are changed during the production process.

-​ Materials, Information, Customers
MATERIALS:
-​ Raw materials that are unprocessed
-​ Intermediate goods that are semi finished and will be manufactured further.
-​ Wood and Grains - Flour - Bread
INFORMATION:
-​ Information defines how each input is used and where its sourced from.
-​ Eg. Market Research or Customer preference.
CUSTOMERS:
-​ Customer choices define a business’s goods and services through customer orientation.
-​ Eg. Products: Customer - exercise machine - lose weight and become fitter.
-​ Eg. Services: Customer - Visit to hairdresser - New hair colour or length
Transforming Resources:

-​ Inputs that perform the transformation process.

HUMAN RESOURCES:
-​ Employees that design, create and deliver products.
 -​ Responsible for combining other resources to create goods and services.
-​ Should be motivated and skilled - makes transformation efficient and effective.
-​ Fewer accidents and absences
-​ Less waste
-​ Faster completion times
-​ Higher volume production
FACILITIES:
-​ Plants and machinery used to carry out the transformation process.
-​ Technology e.g. robots
-​ Equipment, e.g. forklift or wheelbarrow

transformation processes What are The 4 V’S?

– the influence of volume, -​ The 4 V’s are factors that shape operations processes.
variety, variation in
-​ These are driven by customer demand
demand and visibility
-​ Volume
(customer contact)
– sequencing and -​ Variety
scheduling -​ Variation in Demand
– Gantt charts, critical -​ Visibility
path analysis Volume
– technology, task design
-​ How much should we make?
and process layout
-​ Consumer Demand: Main driver of volume
– monitoring, control and
improvement -​ Inputs: Supply of raw materials + labour
-​ Size of manufacturing plants
-​ Amount of technology or information available
Example:
Low Volume:
-​ 5 star restaurant
-​ High quality inputs and smaller customer base.
High Volume:
-​ Fast food company
-​ Cheaper inputs and large customer base.
Effects on Production:
-​ Operations need to have volume flexibility, i.e how quickly the production process can adapt to
changes in demand.
-​ Slow response to falling demand - overproduction - high inventory costs and wastage.
-​ Slow response to rising demand - underproduction - lost sales and profit
-​ If this is balanced right, businesses can shorten lead times.
VAriety:

-​ What range of products should we make/offer?

Example:
High Variety: Small clothing boutique
Low Variety: Clothing factory
Effects on Production:
-​ The more variety, the more that operations have to adopt.
-​ More inputs - Wider range of materials
-​ Larger range of transformation processes - More facilities
-​ If a clothing company wants to sell shoes they need to:
●​ Source new materials e.g. leather and glue
●​ Expand their plant to allow for more product volume
●​ Bring in machinery designed for shoe making
VAriation in demand:

-​ How much variation in demand will there be and how can we respond to changes in demand?
Example:
-​ High Variation: Air conditioning manufacturer
-​ Low Variation: Cafe
Effects on Production:
-​ To manage variation effectively, businesses need to be able to anticipate changes in demand.
-​ High demand for toys during Christmas - High production during Christmas
-​ Low Demand for sweaters during summer - Low production during summer
-​ It can be hard to respond if:
●​ Suppliers - cannot supply on time
●​ Labour - inflexible, unskilled or unavailable
●​ Energy - Not enough available
●​ Machinery - Can't adjust to increases in capacity
Visibility:

-​ How much consumer contact should we have and how should this influence the operations
process? -
Example: High Visibility: Hairdresser
-​ Low visibility: Production of office supplies
Effects on Production:
-​ Marketing: Consumer needs and wants shape the products that businesses create.
-​ Operations: The business decides how much customer input there should be.
-​ Therefore, operations managers and marketing should work together to shape which goods and
services the business offers.
What are sequencing and Scheduling?
Sequencing: The order of activities in the operations process
Scheduling: The time taken to complete activities in the operations process
Example:
1.​ Ordering Materials - 2 months
2.​ Preparation and packaging - 1 month
3.​ Delivery - 1 week
4.​ Sales - Before Feb 14
Aims:
-​ Provides a sense of direction and organisation to make sure everything runs smoothly.
-​ Allow adjustments to be made when there are hold ups, so that completion time is not affected.
GANTT CHARTS:

-​ Gantt charts outline each step in the operations process, the order in which they'll be done, and
the time needed for each step.
-​ Best used when the operations process includes a number of steps that need to be completed to
produce an output, i.e simple tasks and some complicated projects.

Advantages:
 -​ Simple to use
-​ Provides operations managers with a quick overview of their schedule
-​ Encourages managers to plan ahead
-​ Makes it easier to monitor actual progress against plans
Disadvantages:
-​ Not suitable for complex projects.
Critical Path Analysis:

-​ Critical Path Analysis (CPA) outlines the activities that need to be done, how long each activity
takes, and the best order in which to complete them.
-​ The minimum length of time needed to complete all activities in a project.

Advantages: CPA shows:

-​ How each activity is interrelated
-​ Which activities can be done at the same time
-​ Which activities are most important in terms of overall time
Disadvantages:
-​ Not suitable for complex projects
 -​ If time estimates are incorrect, there will be major delays.
Technology:

-​ Business technology uses machinery and systems to:

●​ Perform the transformation process more efficiently and effectively
●​ Increase labour productivity
MANUFACTURING:

-​ Manufacturing technologies are used in manufacturing.

Robotics:
-​ Specialised machines programmed to carry out complex processes.
CAD:
-​ Computer Aided Design: Computerised design tool that uses inputs to generate product ideas.
CAM:
-​ Computer Aided Manufacturing: Software that controls the production process.

SERVICE BASED/OFFICE:

-​ Allows employees to complete more tasks in less time

-​ Allow some people to telecommute (work from home)
-​ Telephones, Internet, Printers

ADVANTAGES OF TECHNOLOGY:

-​ Provides access to higher quality inputs (materials, customers, information)

-​ Makes transformation more efficient, which reduces costs
-​ Reduce waste - full utilisation of materials
DisADVANTAGES OF TECHNOLOGY:

-​ Need to be leased if they are expensive

 -​ Requires retraining and redundancy costs
-​ Brings financial costs
-​ Time consuming
-​ Reduces employee morale
Task Design:

-​ Task design involves classifying job activities in ways that make it easier for employees to
successfully complete their tasks.
Explanation:
-​ Breaks a larger task down into a series of jobs in order to match the right employee to a specific
job.
Example: Restaurant
-​ Skills audit to assess if there are any skills that require recruiting or training employees.
Process layout:

-​ Designing a workplace to boost productivity and ensure processes run smoothly.

-​ Process, Product, Fixed Position, Office
-​ Depends on:
●​ Type of product (good or service)
●​ Machinery required
●​ Volume to be produced
PROCESS:
-​ Machines and equipment are arranged according to the function (process) they perform.
-​ Used when a product is highly varied and being produced in low volumes.
-​ Example: Hospital
PRODUCT:
 -​ Machines and equipment are arranged according to the sequence of operations/ the order in
which a product is made.
-​ Used when a product is standardised and being produced in very large volumes.
-​ Example: Car Manufacturer
FIXED POSITION:
-​ Employees and equipment are brought to the task or products.
-​ Used when the product cannot be moved around due to size, shape, weight ect.
OFFICE:
-​ Employees are provided with equipment at different workstations.
-​ Allows employees to work efficiently.
Monitoring, control & Improvement

Why is it Important?:

IMPROVEMENT:
Improving:
-​ Product quality
-​ Lead time
-​ Process flow
-​ TIme taken to complete tasks
-​ Amount of waste created
Outcome:
-​ Reduced production costs
-​ Improved products
Strategic Goals:
-​ Cost Leadership
-​ Product differentiation
 Monitoring:

-​ Operations managers should measure how the business is going and see if they are achieving their
goals.
-​ This involves monitoring all parts of the operation process.
-​ Key Performance Indicators (KPIs) are used to measure the efficiency and effectiveness of the
business’s performance.
ConTRol:

-​ Comparing KPI’s against plans or targets, and identifying areas that need corrective action.
-​ Operations managers should:
●​ Set challenging but achievable performance targets that focus on optimising productivity.
●​ Control the transformation process and supervise their employees.
-​ Allows managers to provide constructive performance reviews and indicate specific issues to
employees.
-​ Shows them where and how they can improve.
Improvement:

-​ Making changes to the transformation process to reduce inefficiencies.

-​ Eg, waste, ineffective processes and bottlenecks.
-​ Operations managers should focus on Kaizen (seeking continuous improvement) and improve on:
●​ Quality: Establish quality standards and adopt quality management processes.
●​ Process flows: Improve transitions between steps
●​ Costs: Identify unnecessary fixed and variable costs
●​ Speed: Eliminate bottlenecks and reduce lead time + wait times.
●​ Efficiency: Reduce waste and create more outputs from every input.

outputs -​ The output is the end result of the transformation processes, i.e, the finished product.
– customer service -​ Output has to be responsive to consumer demand.
– warranties -​ The desired output is what shapes the rest of the production process.
Customer Service:

-​ Meeting and exceeding customer expectations in all areas of business operations.

-​ Businesses need to use the input of customers' needs and wants.
Purpose:
-​ Ensure customers feel valued
-​ Creates long term relationships
-​ Helps the business maintain a good reputation in situations where the customer is dissatisfied.
Aims:
Operations managers should:
-​ Respond to complaints with a solution in a timely and courteous manner.
-​ Review and reshape their processes and output.
Warranties:

-​ A promise made by a business to fix any defects in the goods and services they offer.
-​ Businesses have a legal obligation to protect consumers with warranties.
Purpose:
-​ Warranties can be a great tool for monitoring the effectiveness of operations processes.
-​ Monitoring the reasons behind each warranty claim can indicate issues in the operations process.
Aims:
Warranties cost time, money and resources, so operations should:
-​ Implement effective quality management processes
-​ Aim to reduce the number of warranty claims to zero.
Operations Strategies

performance objectives -​ Goals that relate to specific areas of the transformation process.
– quality, speed, Quality
dependability, flexibility,
Goods:
customisation, cost
-​ Higher quality design:
●​ Requires advanced inputs and detailed quality management processes.
●​ Allows the business to charge higher prices.
-​ Higher conformance means:
●​ Products accurately meet the design specifications.
●​ Production processes are effective.
Services:
-​ Meeting the clients needs
-​ Being reliable and efficient
-​ Pleasant interactions between customer and service provider.
Purpose:
-​ Exceed customer expectations
-​ Offer ‘value-for-money’
-​ Boost sales revenue
How to achieve it:
-​ Adopt quality management processes throughout the transformation process.
Speed

-​ How quickly/well production can adapt to rising or falling demand.

Purpose:
-​ To fulfil customer demands as quickly as possible.
How to achieve it:
-​ Change input levels and processing times.
-​ Eliminate production bottlenecks + create open communication → Reduce lead, production and
delivery times → Avoid under or over production.
Dependability

-​ How consistent, reliable and long lasting products are.

Purpose:
-​ To reduce warranty claims (goods) and customer complaints (services).
-​ To gain a positive business reputation and long lasting relationships with customers.
How to achieve it:
-​ Use quality management processes.
-​ Use research and development to access high tech quality management procedures and
equipment.
Flexibility

-​ How well the business can adapt capacity or volume to all changes in the market.
Purpose:
-​ To improve processing times.
How to achieve it:
-​ Increased demand for:
●​ New products → Change inputs and processes.
●​ Existing products → Increase the volume and variety of outputs by increasing capacity.
-​ Goods:
●​ Use technology
●​ Increase number of employees
-​ Services:
 ●​ Hire more service providers
●​ Increase their skill levels
●​ Use more technology
CUSTOMISATION

-​ Creating tailored products to meet specific customer needs or wants.

Purpose:
-​ To satisfy customers by using their specific desires as inputs in the transformation process.
-​ Businesses can then charge higher prices whilst increasing customer satisfaction.
How to achieve it:
-​ Use a differentiation strategy
-​ Mass production: Standardise products.
-​ Mass customisation: Allow customers to choose certain features.
Cost

-​ Minimising expenses so that operations processes are carried out in a cost effective and efficient
manner.
Purpose:
-​ To achieve cost leadership
-​ Lower costs can lower prices for customers → Wider market share and competitive advantage.
How to achieve it:
-​ Make better use of technology to get the most out of inputs.
-​ Source inputs from lower cost suppliers
-​ Reduce post - production costs

new product or service Why Develop new products?

design and development -​ Maintain customer satisfaction

 -​ Achieve a greater market share for long term growth
-​ Gain a competitive advantage and keep their business relevant
Developing Goods:

How they are developed:

-​ In response to consumer preferences: Undertaking lots of market research to learn what
consumers desire.
-​ From advances in technology: New and improved technology can create more functional,
appealing and better quality products.
Key Considerations:
-​ Supply Chain Management: New products require new inputs. Businesses must consider whether
their existing suppliers can respond to the needs of the new product.
-​ Quality Management: Ensure new products meet the business’s existing quality standards and
customer expectations.
-​ Capacity Management: Businesses need to have the facilities to produce a new product at the
right volume and continue to produce existing products.
-​ Cost: The costs shouldn't outweigh the benefits of designing a new product.
Developing services:

How they are developed:

-​ In response to consumer preferences: Most of the elements in service delivery require customer
input.
-​ From advances in technology.
Key Considerations:
Explicit Service:
-​ The tangible part of the service delivery.
-​ The time, skill and effort of the service provider.
 Implicit Service:
-​ The service experience.
-​ How does the service make the customer feel?
Goods:
-​ Which goods are needed?
-​ How much will they cost?
-​ How will they add value to the service?

supply chain WhAT Are Supply Chains?

management -​ A sequence of processes that enables businesses to coordinate supplies throughout operations to
– logistics, e-commerce,
meet customer needs.
global sourcing
-​ Organising inputs → Manufacturing products → Delivering to customers
Procurement

-​ Finding and buying the inputs that a business needs from suppliers.
-​ Global Sourcing: Sourcing inputs from overseas.
-​ Due to globalisation, businesses now have a wider variety of suppliers to choose from.
Advantages:
-​ Inputs are usually cheaper, especially from low cost regions
-​ More suppliers to choose from, so businesses can access better quality resources, new
technologies and expertise.
Disadvantages:
-​ Economic costs, e.g exchange rate fluctuations and taxes.
-​ Time and logistical costs to get supplies from one country to another.
-​ Legal and ethical issues, which might turn customers away.
Key Considerations:
 -​ Volume of inputs: Businesses need to balance consumer demand with input volume.
-​ Suppliers: Businesses need suppliers who:
●​ Are flexible and reliable
●​ Respond quickly to changes in demand
●​ Deliver on time and keep costs as low as possible.
-​ Quality: Quality of inputs need to match the quality of the business’s products.
Logistics

-​ The organisation and implementation of a plan.

-​ Handling and packaging → Storage and transport of goods
Key Considerations:
-​ Products need to be available at the right time, at the right place and in the right quantity.
-​ Inventory: Managing inventory, ensuring it and keeping it safe from theft.
-​ Warehousing: Using large facilities to store and distribute goods.
-​ Distribution centres: Strategic short term storage before distribution to retail outlets
E-Commerce

-​ Buying and selling products using the internet.

Selling products to consumers:
-​ Using the internet for ordering and logistics.
-​ E.g ordering goods from the business’s website
-​ E.g packaging goods based on online orders.
E- Procurement:
-​ Using the internet to purchase stock.
-​ Allows suppliers to use online systems to directly manage a business’s stock
Advantages:
-​ Networks: Helps establish networks of suppliers
 -​ Data: Makes collecting and storing data easier
-​ Access: Provides access to more information → More markers + more flexibility → Saves time,
money and effort in the supply chain.
Managing supply chains effectively

Advantages:
-​ Speed: Faster transactions → Faster access to revenue
-​ Revenue: Satisfying customer demand more quickly → Boost revenue
-​ Inventory: Reduced inventory → Save on costs of storage, insurance and obsolescence.

outsourcing – advantages What is Outsourcing?

and disadvantages -​ When businesses use external providers to perform business activities.
-​ Usually, businesses outsource to companies that specialise in certain activities.
-​ Tasks can be completed at a lower cost + with better efficiency.
FActors

Cost: Will outsourcing be cheaper and more efficient?

Location: Which location and which company will we outsource to?
Contract: How will we manage the outsourcing contract?
Advantages

Cost and Efficiency:

-​ Employees have the skills to complete tasks faster an to a higher degree of quality → Efficiency
-​ Cheaper labour and less stringent laws → Cost savings
-​ Fewer employees required → Cost savings (e.g on superannuation and training)
Simplification:
-​ Outsourcing reduces the variety of activities that businesses need to perform → Businesses can
focus more on core activities → Improved in house performance.
Process Capability:
-​ How well operations can meet production targets.
-​ Outsourcing provides better access to new technologies + efficient labour
-​ Businesses can produce and deliver products to customers with better efficiency and service.
-​ Improved process capability
Accountability:
-​ When businesses outsource, they usually create very detailed contacts to ensure outsourcing
partners reach important KPIs
-​ Creates an incentive to meet KPIs
Accessibility:
-​ Outsourcing provides access to a greater level of skills, resources and knowledge so resources
arent spent on training employees.
Disadvantages

Payback Period:
-​ The amount of time it takes to repay outsourcing costs.
Communication:
-​ Outsourcing contract: If the outsourcing contract isn't clear, there might be communication issues.
-​ Language: Language barriers or differences in management styles.
-​ Technology: Requires lots of technology for communicating with services partners.
Losing Control:
-​ Operations managers might have less control over product quality + how business information is
used.
Organisational Change:
-​ Redundancy costs: Outsourcing certain activities means businesses need less employees.
-​ Lower motivation: remaining employees may lose motivation.
 -​ Employee relationships: Outsourced employees sometimes have to work closely with in house
employees.
-​ Tension and low productivity if these relationships are not managed well
Losing Business Knowledge:
-​ The business might rely on outsourcing too much, and forget how to perform certain activities.

technology – leading Disadvantages

edge, established Business Technology:

-​ The use of machinery and systems to perform the transformation processes more efficiently,
effectively and productively.
-​ Cost leadership: Production costs are lower over the long term.
-​ Improved operations processes.
-​ Product differentiation: Businesses can create higher quality products to differentiate themselves.
-​ Improved product offerings
-​ Creates a competitive advantage + boosts profits
Leading Edge Technology

-​ The most innovative or advanced technology that is currently available.

Purpose:
-​ Improves the efficiency of production processes
-​ Reduces error and waste in production
-​ Helps create high quality and leading edge products
Established Technology

-​ Technology that's already been developed and is widely used and accepted.
Purpose:
 -​ The technology has been around for long enough that businesses have had time to integrate it
into their operations.
-​ Businesses who don't adopt established technology will struggle to compete.
-​ Improves speed and productivity in management and admin processes.

inventory management – WHat is Inventory?

advantages and -​ The raw materials, works in progress + finished goods that a business has on hand.
disadvantages of holding
Advantages of holding stock:
stock,
-​ Lead Times → Alternatives ( offering a range of products prevents businesses from losing sales) and
LIFO (last-in-first-out),
FIFO (first-in-first-out), Promotion (Remaining stock can be used as a promotional tool e.g via reduced prices or
JIT (just-in-time) clearance sales) → Demand (Businesses can immediately satisfy customer demand) → Assets
(stock is a current asset that can easily be turned into cash, improving cash flow.
Disadvantages of holding stock:
-​ Storage costs: Requires places like warehouses for storage → Storage costs like insurance, rent,
theft.
-​ Resource use: Uses up the businesses’s other resources, like labour and energy.
-​ Obsolescence: Risk that inventory wont be sold and will end up as waste.
Inventory Valuation Methods:

Strategies for when a business will receive or produce its stock, and when they sell it.
FIFO - FIRST IN FIRST OUT:
-​ The oldest products are sold first.
Impact on value:
-​ Due to inflation, the cost and value of stock rises over time.
-​ Stock bought is cheaper
-​ Cost of goods sold is lower on financial statements
 -​ Gross profit is higher
LIFO - LAST IN FIRST OUT:
-​ The newest products are sold first.
Used for:
-​ Non perishables, because date of production doesn't matter.
-​ Homogenous goods
-​ Innovative tech products
Impact on Value:
-​ Stock bought is more expensive
-​ Cost of goods sold is higher on financial statements
-​ Gross profit is lower
-​ Due to inflation, the cost and value of stock rises over time
-​ The value of unsold stock is lower because the old stock remaining is worth less.
JIT - JUST IN TIME:
-​ Materials are ordered to arrive only when they are in demand
Used for: Lean productions
Implications: Businesses need to:
-​ Have a clear idea of the demand for their products
-​ Have flexible production and reliable suppliers
-​ Order frequently and in lower volumes
Disadvantages:
-​ Delivery costs: Can’t achieve economies of scale
-​ Labour: Harder to cater to sudden boosts in demand
Advantages:
-​ Labour: Easier to evaluate and count stock
 -​ Space: Less space is required for storage.

quality management Why is Quality Important?

– control -​ Quality is a fundamental expectation of consumers

– assurance
-​ Meeting or exceeding expectations will improve the business’s image and increase sales and
– improvement
profits.
Quality Control

-​ Reactive quality strategy where employees inspect products at various stages of production to
find and correct defects.
-​ Set quality standards for products → Test quality of random samples → Fix problems or remove
poor quality products before they reach customers.
Quality Assurance

-​ Proactive quality system that ensure quality standards are always achieved, preventing quality
issues in the first place.
-​ Design product to be fit for purpose
-​ Design the manufacturing process to produce defect free products
-​ Comply with international standards
Quality Improvement

Continuous Improvement:
-​ An ongoing commitment to making processes more efficient and effective and producing better
quality products.
-​ How it is achieved: Every employee is responsible for suggesting improvements
-​ Purpose: Gives the business a competitive advantage
Total Quality Management:
-​ Managing the entire business to ensure customers receive high quality goods and services.
 How it is achieved:
-​ Benchmarking: Comparing actual product quality to standards
-​ Empowering employees: Ensuring they feel comfortable to suggest improvements
-​ Being customer-focused: Quality products are those that satisfy customer expectations
-​ Continuous improvement: Ongoing commitment to improvement by all employees.
Purpose: Ensures products are consistent and of an acceptable quality.
-​ Reduced production errors and waste → Reduced costs
-​ Strong, positive business reputation → Increased sales

overcoming resistance to Importance of Adapting to Change

change – financial costs, -​ Businesses need to adapt in order to remain competitive and survive long term.
purchasing new
-​ Alter product offerings to accommodate demand
equipment, redundancy
-​ Incorporate new technologies and processes to remain competitive
payments, retraining,
reorganising plant layout, Financial Factors

inertia New Equipment

-​ Change is about improving processes, which often requires new equipment.

-​ Managers might consider leasing equipment to save on costs.
Explanation: Buying new equipment creates future cost savings. This is because it:
-​ Improves processing flexibility, efficiency and lead times.
-​ Reduces wastage
-​ Reduces equipment failure
Redundancies

-​ When employees are no longer needed because of structural change to the business and their
skills are no longer relevant.
Explanation: Businesses need to compensate employees who have lost their jobs with a redundancy
payment.
-​ Given to employees who have been made redundant
-​ Amount is based on factors like an employee’s length of employment or current pay level
Retraining

-​ Retraining employees to use new technologies, or training employees for new roles.
Explanation: If the business wants to incorporate new equipment and technology, or create new roles,
managers will need employees to fulfil skills gaps.
Reorganising plant layout

-​ Reorganising the business’s production layout when new technology or systems are adopted.
Explanation:
-​ Reduced productivity and higher costs because production needs to be stopped until
restructuring is complete.
-​ Structural costs e.g. Transporting + installing + testing of new equipment + machinery +
technology.
Psychological Factors

Inertia

-​ The psychological resistance to change.

Why it happens:
-​ Fear of being replaced: Fear that changes are putting an employee’s job at risk, or limiting their
career opportunities
-​ E.g. Fear of robotics replacing humans
-​ Fear of the new: New technologies may seem intimidating, and learning new skills may be
daunting.
 -​ Stability: Some employees simply like the way things are.
Change Management Strategies

-​ Businesses need strategies to overcome resistance, and manage change in a way that allows it to
be accepted by everyone in the business.
-​ Evaluate sources of change thoroughly, to avoid creating even more resistance and losing
productivity.
-​ Be proactive by anticipating and adapting to change accordingly → more control over changes
-​ Implement change gradually to give employees time to adjust → Less chance of resistance
-​ Include employees in the process of the change by communicating with them and being
transparent about why it is necessary.
-​ Bring in change agents, people who positively facilitate the change process by providing tips and
tools.
-​ Create a culture of continuous improvement, where employees are familiar with change.

global factors – global What are global factors?

sourcing, economies of -​ The opportunities and strategies available to operations managers on a global scale.
scale, scanning and
-​ Enables businesses to compete in a highly competitive and vast global market.
learning, research and
Global Sourcing
development
-​ Sourcing and outsourcing operations or resources across geopolitical boundaries.
-​ Example: Apple sources from about 40 different countries
How global businesses benefit:
-​ Sourcing from a global market allows global businesses to make the best sourcing decisions about
cost, efficiency, technical ability and operational hours.
-​ Lower costs and access to more resources.
Challenges:
-​ Relocation may increase cost of logistics and distribution
-​ Regulatory differences e.g. labour and environmental laws
-​ Complicated financial transactions due to exchange rate fluctuations
Economies of Scale

-​ EOS: Cost advantages created when a business increases the scale of its operations.
How global businesses benefit:
-​ Global businesses are larger, so they can invest in more technologies and machinery → Boosts
efficiency and cost savings
-​ Standardised marketing: advertisements and products are the same everywhere → No extra
modification costs.
Scanning and Learning

-​ Investigating what’s happening in the global environment and using this information to improve
operations.
Sources:
-​ Reading management journals
-​ Attending conferences
-​ Gaining knowledge from industry experts and business associations
-​ Observing and questioning employees and managers from other backgrounds.
How global businesses benefit:
-​ Operations managers can learn from the best of the best and implement these practices in their
own businesses.
Research and Development

-​ Developing a marketable product through research, prototyping and testing.

How global businesses benefit:
-​ Ensures new products actually meet current preferences
-​ Helps develop innovative products and leading edge technologies → Improves innovation and
quality → Competitive advantage.