The strategic role of operations
1.The strategic role of operations
Operations= the business processes that involve transformation or production or converting inputs (raw
materials) into outputs(finished products)
● Operations is all the transformation and value-adding
Strategic= long-term, encompassing and affecting all key business areas
The main business goals= maximising profits either by
● Reducing costs/expenses(how? What are the downsides/ barriers)
● Increase sales/revenue (how? What are the downsides/ barriers)
If you chose the strategy of:
● Cost/leadership- aim to reduce costs
● Product differentiation- aim to increase sales
When the quality inputs are is higher = charge higher prices to make the product
Cost leadership= aim to have lowest cost or to be most price-competitive whilst still being profitable
● Lower quality and using low-cost packaging
● Economics of scale- Economies of scale occur when a business produces or distributes
larger quantities, which lowers the cost per unit because fixed costs are spread and bulk
buying makes materials and delivery cheaper- access to cheaper raw materials or by using
technology
● Standardisation- lowering cost per unit allows the business to sell products at a lower price
Standardisation
Standardisation= producing goods or services that are homogeneous or identical
● Standardisation of goods- allows mass production with high volume, no variety- lower cost
per unit (economies of scale as fixed costs remain constant)
● Makes large amounts of the same product
● Standardiation of services- consistency in quality (set expectations)
● Like fast food franchises
Cost per unit- how much it costs to make just one product.
Product differentiation
Product differentiation= distinguishing goods or services in some way from those offered by competitors
Goods can be differentiated by:
● Varying the actual features of the good
● Varying product quality
Services are differentiated by:
● Varying the amount of time spent on a service
● Varying the level of expertise brought to a service
● Developing self-service options
● Flexibility
● Convenience
● Varying the quality of materials or technology used In the delivery of the service
Discuss how snap laundromats use of technology as a means of differentiation may impact its
business outcomes (4 marks)
Interdependence of KGF's with operations
Operations link to:
Finance:
● what is the cost of inputs? Which supplier to source inputs from?
● How do we make production more cost-efficient(reduce costs)
● How do we price out outputs
Marketing
● How much output do we produce? When do we need to produce it by?
● What does our target market demand in terms of product features
● How we do differentiate from competitors
HR
● What skills do we need to produce
● What training do we need to develop those skills
● Can we outsource production or other parts of the business
2nd week
Profit centres and cost centres
Profit centres:
● Are parts of the business that directly make money- the bring profit and revenue
● EXAMPLE: sales, marketing ,pricing, product development, franchise
Cost centres
● Cost centres are the parts of the business that spends money to keep things running
EXAMPLE: operations(running machinery, maintaining production), HR
● Businesses can have both profit centres and cost centres
Thus a key strategic role of operations management is managing cost efficiently
Cross- branding
● When 2 or more brands work together to create a product or service that combine their
reputation and names.
● The purpose is to attract more people, increase sales and benefit from the other brands
popularity
G n S in different industries
● How a business manages its operation differs based on whatever it produces goods or services
as well as the industry it exists in
● Goods and services differ in tangibility, machinery use, and staff needs, but both types of
businesses plan, use technology, and manage customers and suppliers.
Goods in difference industries
Standardised goods
● Mass- produced ( e.g bottles drinks, smartphones), consistent designs
● Made on assembly lines
● Production-focused
Customed goods
● Made to customers specs ( e.g tailoured suits,custom furniture)
● Require flexible operation layouts
Market-focused, varies output
Goods in different industries
Perishable goods (e.g fresh food,dairy) require ( products that go spoilt if not sold in a certain amount
of time)
● High hygiene, safety and cleanliness
● Very short lead times
● Fast, efficient distribution
● Protective packaging and cold- chain storage
Non-perishable goods (e.g cars, appliances, clothing, furniture) require:
● Quality control
● Smart inventory management
● Responsiveness to demand to avoid overstock/waste
Intermediate goods
● Intermediate goods are materials or components made by one business that are used by
another business to make their final products.
● Example - steel screws are made by one company but used by another company to make
electronics
● Each production stage adds value
● One business finished product= another's raw materials
Standardised service:
● Same experience every time, regardless of location or staff
● Example: fast-food chains ( eg. Mcdonalds )
Customised service:
● Tailored to individuals
● Example: accountants, dentists, doctors, lawyers
All- thought there are exception some services combine both:
● Hotels( room cleaning, amenities vs specific rooms, dietary requests
● Gyms(equipment, scheduled class vs PT)
Influences on operations
1. Influences on operations
Globalisation:
● Globalisation is the growing connection between countries through trade, investment,
technology, and labour, making them more interdependent.
● Lowering barriers means making it easier for countries to communicate, trade, and do business
with each other.
● Outsourcing- using foreign companies for production/services to save costs
Opportunity = access to new markets overseas , which gives them the chance to sell to customers in
many countries- which can increase sales, brand recognition and profits because the business reaches a
larger audience
Threats= more competition, other business from overseas might sell similar products at cheaper prices(
using low-cost strategies)
Globalisation impacts on operations
● Because of globalisation businesses plan to run their operations to appeal all the people around
the world not just one country
Global consumers want
● Recognisable global brands- products that are known everywhere( Nike)
● Standardised products – the same product and quality no matter what country its sold it
Operations are organised across multiple countries
Key global operations processes
To serve global markets businesses focus on:
● Designing products- to appeal customers worldwide
● Choosing the right locations- decides which countries to produce or manufacture in, businesses
often shift manufacturing to different countries where it's cheaper or more efficient to produce
● Consistent quality management- ensures products meet the same quality standards in every
country no matter what
● Logistics and inventory- plan how to store, transport and move products between countries
● to move goods ( or intermediate goods) around efficiently and safely
Economies of scale in global production
● Producing In large volumes lowers cost per unit because fixed costs (I.e machinery, rent)
● This means each item carries a smaller share of those expenses, lowering the overall cost per
unit
Global services and operations
Globalisation also affects services
● Finance- banks help people and businesses in different countries
● Travel and tourism- airlines and hotels serve international customers
● Software developments- companies sell software worldwide or hire workers from other
countries
● Telecommunications- phone and internet services connect people across countries
Role of technology in operations
● Technology helps businesses to run operations more efficiently it includes devices, methods and
machinery used in business processes
● These tools facilitate communication and support better business work
2 main ways technology is used in OPS
● Administrative: helps plan, organise and control operations
Example: software to track inventory, systems to schedule staff, programs for budgeting or monitoring
production
● Processing: used directly in making, moving, and managing goods and services – when the
technology actually does part of the work
Example: machines making products, robots moving items in a warehouse
How globalisation and technology influence the operations of MDS and Apple:
Mcdonalds
1. globalisation
Global reach
● 43,00 restaurants in 100+ countries
● Can transfer capital, labour, and knowledge globally
Standardisation of processes
● Before had 600+ different financial systems around the world- each restaurant were using their
own sperate financial systems
● Now they use the one McDonalds way- all countries follow the same system for finances and
reporting
● Improves efficiency, consistency, and accuracy
Resilience and growth
● Global markets boost sales and brand recognition
● 2024 systemwide sales: over US$130 billion
Improved communication & technology
● Globalisation allows faster sharing of information
● Helps management monitor and control operations globally
2. technology
Efficiency & customer experience
● Delivery apps (MenuLog, DoorDash, Uber Eats) - online orders, fast delivery
● Ready On Arrival (geofencing) - detects when a customer is near the restaurant after placing an
order on the app
Data & AI
● Google Cloud – collects real time data from restaurants ro monitor operations
● AI & machine learning - improve performance
● eProduction system -
●
● predicts demand, suggests cooking times
Other tech
● Mobile ordering app
● Digital menu boards & notifications
● Dynamic Yield → suggestive selling
● RGM Boss → staff scheduling & inventory
Food safety & quality
● Monitors suppliers → prevents issues, ensures consistency
Cost vs benefit
● Only adopt tech if benefits outweigh costs (e.g., robotics not yet introduced)
APPLE
Globalisation
Opportunities:
● Apple buys parts for its products from suppliers in different countries like Foxconn in China-
cheaper
● Reduces production costs, as they make it cheaper in large quantities- economies of scale
● Working with global suppliers also gives Apple access to expert knowledge and skills because
those suppliers make products for many other big tech companies.
Threats:
● Apple depends a lot on suppliers in China to make its products
● It's there a delay or have problems with quality, the operations can be affect
● (e.g., iPhone 8 delayed due to OLED screens from Samsung, COVID factory shutdowns).
Technology / Innovation
● Opportunities: Apple can compete globally by releasing innovative products on time, helping
them differentiate in the fast-changing smartphone market.
● Threats: If technology fails or is delayed, it can harm operations and reputation (e.g., iPhone X
face recognition problems, defective hardware/software causing warranty costs).
Influences on operations
Cost based competition
● Cost-based competition is derived from determining break-even point and applying strategies to
create cost advantages over competitors
● A feature of operations management when businesses bring a cost leadership approach to the
operations function- focusing on reducing costs to a minimum while maintaining profit margins
Government policies and legal regulation
● Changes in the government and social expectations leads to changes in government polices and
legal regulations
● Government policies often impact on business. Through policies affecting taxation rates and
required materials handling practices. Laws and regulation heavily influence the operations
function of a business
an lead to business opportunities
● Can be a minefield if not adhered to appropriately
● The range of laws with which a business must comply are termed ‘compliance’. These include
WHS, Fair Work & Anti -laws and laws concerning the public health.
Environmental sustainability
● Means that the business operations should be shaped around practices that consume resources
today without compromising access to those resources for future generations
● Focuses on using renewable resources, reducing the use of nonrenewable resources and waste
minimization
Corporate social responsibility
● Corporate social responsibility refers to open and accountable business actions based on respect
for people, community/society and the broader environment
● Some businesses go beyond meeting the legal requirements - they demonstrate a commitment
to ethical responsibility. However other businesses can avoid legal compliance through
outsourcing some of their operations processes to other countries
● This may damage a bussineses reputation if practices are exposed as being unethical
Why is corporate social responsibility important
● Improved brand perception: CSR can have a positive impact on the perception of an
organisation's brand, as well as the organisation's overall reputation
● Boosted moral for employees: CSR help boost employee morale as employees gain a greater
sense of purpose in their work. Research suggests that companies that invest in their CSR
offering are far more likely to attract and retain employees, and their employees are also likely
to be productive in work
● Improved customer loyalty: Customers value CSR and companies that invest in it will likely
have higher customer retention and loyalty
● Greater competitive advantage: Companies that are socially responsible are more likely to
obtain a competitive advantage in the marketplace due to superior brand recognition and the
ability to attract and retain the best staff.
● Ethical responsibility
● Ethics is more than merely complying with the law.
● Ethical behaviour involves making decisions that are not only legally correct but morally
correct
● To show commitment to ethical behaviour businesses will develop, implement and publish a
code of conduct which could include:
○ Supporting charities and local communities
○ Promoting human and civil rights in Australia
○ Consultation with community prior to significant change in a business
Operations process
1. Operations process
How the operations process improves a business
Inputs
● Resources used in the transformation process
● Labour- human effort, physical
Transformed resources
Those inputs that are changed or converted in the operations process
● Materials- the basic elements used in the production process, consisting of raw materials( milk,
metal) and intermediate goods( goods that have been partly processed and used to make other
products)
● Information: knowledge gained from research, investigation and instruction
● Customers: their desires/preferences in starting point to production process
● Their wants and preferences influence what is produced and how its produced
● Customer relationship management (CMR)- CMR systems are technologies or software used by
businesses to manage and maintain customer contact and relationship
● Help track customer purchases, feedback and preferences
Transforming resources
● Those inputs that carry out the transformation process.
● Human resources: coordinate and combine other resources to produce goods and
services
● Facilities: the buildings, machinery, technology and equipments used in the operations
process
● Includes plants (factories or offices)
The influence of volume,variety,variation in demand and
visibility- the 4 v's
Volume: How much of a product is made
● Lead time
● High volume= producing a large quantity of the same product( e.g coca cola bottles)
○ Needs highly automated equipment and standardised processess
○ Usually lower cost her unit
Variety:
● Mix flexibility: businesses ability to produce a variety of different products other than services
using the same operations process( a bakery- can switch from making cakes to muffins
depending on consumer demand)
Variation in demand: Increased customer demand affects operations as:
○ Happens when customers want more of one product than another
● Suppliers cannot deliver quickly enough
● Labor is not flexible, most staff may not have the skill to produce extra products quickly
● Machinery cannot adjust to increased requirements
● Increased energy and power requirements not accessible(more electricity, water or gas)
Visibility( customer contact):
○ How much customer influences or interacts with the operations process
○ Their preferences and feedback shape what the business produces
● Direct- the business gets info straight from the customer
○ surveys, interview , warranty
● Indirect- gets info without talking to customers directly
○ market share data
Sequencing and scheduling
● Sequencing-is the order in which activities in the operations process occur
● Ensures everything happens in the right order
● Correct sequencing order for an operation is
● Scheduling- planning and keeping track of time
● Makes sure each step of production starts and finishes at the right time
Gantt charts (bar charts)
● A type of 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.
● A visual timeline to plan and track task in a project or production process
Critical path analysis
● CPA is a scheduling methos that shows what tasks need to be done, how long they will take and
what order is necessary to complete all tasks
● The shortest length of time to complete all task
● Since all necessary tasks must be complete, in practical term,the critical path will be the
longest path through a process
Customer service:
● How well a business meets and exceeds the expectations of customers in all aspects of its
operations
3 ways a business benefit from good customer services
● Can charge an average of 10% more for the same good and services- customers are willing to
pay more due to trust
● Can grow twice as fast as their competitors
● Can increase their market shares and profit
Warranties
● A promise made by a business that they will correct any defects in the goods they produce or
services they deliver
● Effectiveness of operations processes can be evaluated by measuring the number of warranty
claims
Transformation processes
Transformation processes
Transformation process & value adding
● When a business combines inputs( like materials, information or customers needs) to
create a product or service it adds value
● The transformation process (manufacturing or service creation) is directly involved in
adding value
How value is added in a business:
● Physical change- changing the product itself or improving a person through a service
● Transportation- moving goods/services where they are needed/ or customers want it
● Protection and safety- keeping the product safe and reliable
● Information- helping customers understand the product and how to use it
Transformation processes: volume flexibility
● Volume flexibility refers to how quickly a business can adjust to change in demand
→helps the business manage lead times so the product is made and delivered on time.
● Larger volumes = economies of scale
● A reduction in market demand → may overproduce causing wastage and increased
inventory costs. Whereas an increase in market demand → lost sales as customers may
look elsewhere due to the business not being able to meet all the demand
Transformation processes: The influence of variety
● Variety Is the different types of products or services a business produces
● High variety- operations need to allow for variations in production or service delivery
● Low or no variety- Standardised production is used(mass production)
● Can be achieved on a small scale by making small variations- the business only produces
a small quantity to create variety
Transformation processes: The influence of variety
Effect
What happens when demand increases: Higher demand means the business needs
● More inputs from suppliers
● More HR(staff)
● More energy and machinery use
Problems that can occur
● Suppliers cannot delever quickly enough
● staff may not be skilled ,flexible or available
● Machines may not handle the extra capacity or could break down
● Extra energy or power may be hard to get
what happens when demand decreases : lower demand also needs flexibility
● Staff hours may need to be reduced
● Production may need to slow down to avoid excess inventory buildup
● Suppliers may pressure the business because of contracts
Types of demand and how they affect operations
● Constant demand= easy to manage- production stays steady
● Seasonal demand= predictable- can plan ahead ( e.g more ice cream in summer)
● Unpredictable demand= hard to manage- machines may sit idle which makes it harder to
quickly react to increase in demand, hard to order materials in bulk
● Businesses must maintain a good relationship with suppliers to new materials can
quickly be acquired
Transformation processes: The influence of visibility
● Visibility is how much customers can see and interact with the operations process
● High visibility= customers are directly involved observing the service
Implications for operations of highly visible operations processes
● Quality of labour becomes very important- employees must be well trained, skilled and
adaptable to customer needs
● Impact on business- good visibility thought customer service- build trust, transparency
and strong customer relationships can lead to higher sales and profits
ncrease in Demand Decrease in Demand
An increase in demand will A decrease in demand will also require flexibility as staff
require increased inputs from may need to have their hours reduced, production may
suppliers, ,and use of machiner need to slow to avoid inventory to build up and suppliers
and [Link] occur may put on pressure due to contractual agreements
due to:
● Suppliers cannot supply
quickly enough
● Labour is not flexible
enough,skilled or available
● The adopted machinery
cannot adjust to increased
capacity quickly
Transformation processes: Technology
● Business technology is machines, equipments and systems that help a business carry out
the transformation process more effectively and efficiently
● It helps employes work faster and more productively
Technology in different sectors:
● Manufacturing sector: Technology can be used to speed up (shorten) processes and
enable fuller utilisation of raw materials. This makes the operations processes more cost
effective.
● Services sector: office and communications technology have enabled whole markets to
open up and allow for a small to medium business to trade globally.
Technology - Computer Aided Manufacturing (CAM)
● Software used to allow the manufacturing process to become computer controlled
● The CAD software can be linked to the CAM software to allow the instant manufacturing
of designs that are accepted by clients.
● CAM can also be used more broadly to calculate how much of each input resource
would be required.
● CAD software allows to design exactly to customer specification
Technology effects
Capital cost -Technology is expensive to buy, so businesses must decide
● Purchase: fully own it
● Lease: pay a regular fee, often cheaper and tax deductible
Additional costs:
● Set-up costs- installing new equipments, cabling,software
● Workforce impacts- some employees may lose jobs if technology replaces them
● For workers not displace, there is the cost of training or retraining, continual upgrading
of skills and time lost in adapting to new work techniques
Benefits of improved technology
● Improvement in efficiency - technology can reduce costs of production while improving
the level of output.
● Businesses can use technology to improve the quality of production
● Improved accuracy - the transformation process becomes more accurate,resulting in
higher quality products and lower costs because of a fewer mistakes.
● Interdependence: Marketing can also use technology to help sell the product -
customers are often attracted to “high tech” “state of art” products that contain the
most technologically advanced components that are made with the most advanced
machinery.
Costs of improved technology
Finance issues -
● Technology can be expensive, and the business may not be able to afford it at the time
● Funds may need to be used elsewhere in the business
● Transformation processes: Task design is organising job activities so employees can
perform them successfully
● It breaks down work into a series of tasks, each contributing to the businesses final goals
Attracting the right candidate for the task or job is the final part of a process
● Task design → job description → person specification → recruitment → selection
skills audit
● Is a formal check of the current skills of employees in a business
● It indentifies skill gaps or shortfalls that need to be addressed
Purpose
● Ensure all tasks in the transformation process can be completed efficiently
● Skill gap can be filled by:
○ Recruitment- hiring new employees with the required skills
○ Training- upskilling current employees
A skills audit is a formal process used to determine the present level of skilling and any skill
shortfalls that need to be made up either through recruitment or through training in order to
ensure that all tasks can be completed.
Workplace layout- is how the physical space, equipment and workstations are
organisaed in a business
● The layout efficiency, workflow and productivity
● The best layout depends on the type of manufacturing or service operations
Example:
● Assembly line layout- for high-volume, standarsied production
● Process layout- groups similar equipment together for varied production
● Office layout- open plan or cubicles depending on task performed
Effect
● Task analysis examines how well employees are performing their tasks
● Simplidies productivity by breaking down work into clear steps
● Measures productivity- can see which employees or processes are efficient
● Allows ongoing adjustments to imp producitivty and efficiency
● Poor task design- wasted resources, especially labor because tasks take longer or are inefficient
● Transformation processes: Process layout
● the process layout groups machines and equipment. by the function or process they perform
● This means similar tasks are located together
● Efficient workflow for specialised tasks
● Flexibility- different products or services can be handled easily
● Better supervision- workers with similar skills are grouped together
● Functional layout- means that equipment,workers and taskts are grouped together bases on the
function they perform
●
●
Product production follows an assembly line because it aims to achieve the best
possible combination of personnel and machine use.
An operations manager needs to consider the best layout to ensure:
● Enough space for the projected volume of production
● Effective use of production equipment
● Appropriate technology
● Adequate location of stock and warehousing requirements
● Links between processes or stages of production
● A work environment for employees that is of suffiecnt quality for the task
● Conformity with legal regulations concerning sites and building constraints
● Conformity with occupational health and safety standards relevant to the industry.
There are a number of different ways to organise the physical layout of a [Link] layout
options are the:
● Process layout
● Product layout
● Fixed position layout
Product layout
● Arranges equipment based on the sequence of tasks performed in manufacturing a
product.
● Work stations are arranged to match the sequence of operations, and work flows from
station to station. Examples of this process are the assembly of motor vehicles.
Fixed position layout
● A fixed position layout is where a product remains in one location due to its weight or
bulk
● Project production deals with layout requirements.
Transformation processes: Monitoring, control and improvement
Monitoring and control- Monitoring is when a business checks how its operations are performing
compares to what was planned:
● Lead times- how long it takes to produce or deliver
● Defer/repair rates- how many products came out faulty or damaged
● Costs- how much money it takes to run the operations process
● Inventory turnover- how fast a business sells or uses its stock
● Capacity and volume rated- maximum output a business can produce with its current resources
These are called KEY PERFORMANCE INDICATORS (KPI'S)- they help managers see if everything is on
track
Control- once the KPI's are measures, they are compared to the set goals or targets. If something Is not
performing as expected, managers take corrective action, EXAMPLE: fixing production delays or reducing
waste
Improvement- making the operations process better and more efficient over time- reduction of
inefficiencies and wastage, poor work processes and the elimination of any bottlenecks( aspect of the
transformation process that slows down the speed of the process, leading to a
backlog)