Chapter 1: Role of Operations management Flashcards
Role of operations
What does operations refer to?
The activities of a business that involve transformation of inputs into outputs of goods and services.
(A term that applies to both the manufacturing goods and the provision on services.)
Role of operations
What does operations refer to in manufacturing?
The processes involved in turning inputs such as raw materials, labour, energy and other resources into outputs of finished or intermediate goods.
E.g. Toyota turning steel, glass and other parts into cars (finished goods)
BlueScope turning iron ore and other materials into steel (intermediate goods)
Role of operations
What is an example of operations in manufacturing?
- Toyota turning steel, glass and other parts into cars (finished goods)
- BlueScope turning iron ore and other materials into steel (intermediate goods)
Role of operations
In services, what does operations refer to?
The process involved in combining inputs such as knowledge, skills, expertise, equipment and effort into carrying out the service.
Role of operations
What is an example of operations in services?
An accountant using a computer program to complete a client’s tax return.
Role of operations
What is the concept of value adding?
The creation of extra or added value as inputs are transformed into outputs.
The greater the degree of transformation, the higher the value added.
E.g. The value of a finished car is greater than the sum of its parts – the steel, glass, plastic, engine, etc.
E.g. whole raw chicken, raw drumsticks/breast, packaged Kievs/raw prepared stir fry, full prepared chicken meal.
Operations and the customer focus
What are factors that customers may seek out in products and firms?
Customers seek firms that
1. Waste minimal resources in their production
2. Ensure fair labour practices by compensating workers equitabl
3. Operate at low cost to maximise affordability
4. Integrate environmental awareness and ecologically sustainable practices
5. Reflect changes in the needs of consumers over time
Operations and the customer focus
What is ethical sourcing?
Involves a business choosing suppliers that engage in ethical conduct such as the payment of fair wages and use of environmentally fair practices.
Strategic role of operations management
What does a strategic component refer to?
The long-term broad aims of the business
Strategic role of operations management
What is the strategic role of management in each functional area?
(generally)
To ensure that they are contributing to the strategic direction of the business and the achievement of the business’s strategic goals as identified in the business plan.
(eg. profit maximisation, growth, increased market share)
Strategic role of operations management
What does the strategic role of operations management thus refer to?
How operations affects the other key business functions and how operations contributes to the achievement of the business’s short and long-term goals.
Strategic role of operations management
What are two important strategic role of operations?
1. Cost leadership
-* through which businesses can develop a competitive advantage through cost savings which can be passed onto customers in the form of lower prices.*
2. Good/service differentiation
- which can allow businesses to increase sales revenue by providing more attractive products
Strategic role of operations management
What does cost leadership involve?
The lowest operating costs in an indsutry, enabling a business to be the most price-competitive in the market.
Strategic role of operations management
How does a business achieve cost leadership?
operations managers must find ways to improve efficiency by using the least amount of inputs possible to produce a given level of output.
Strategic role of operations management
What is a way that businesses attempt to achieve cost leadership?
creating economies of scale
What is meant by creating economies of scale?
Creating cost savings or advantages that come with producing on a larger scale, as fixed costs are spread out over more units of output and inputs can be purchased in bulk at discounts.
Strategic role of operations management
What is another key strategic aspect of operations management?
Product differentiation
Strategic role of operations management: Product differentiation
What does product standardisation mean?
Involves the making of products that are homogenous or identical
Strategic role of operations management
What does product differentiation involve?
Distinguishing a good or service in some way from its competitors.
Strategic role of operations management: Product differentiation
What are some sources of product differentiation?
-
varying the actual product features
goods in other varieties with added options
e.g cereal - basic variety; may have dried fruit, nuts added -
varying product quality
affordable, lower quality models and more expensive higher quality model, often sold under a different brand name -
varying any augmented features
add-ons such as car manufacturers making vehicles that can be fitted with optional extras such as roof racks etc.
Strategic role of operations management: Product differentiation
What are some sources of differentiation in services?
- varying the amount of time spent on a service
- varying the level of expertise – service providers with higher levels of expertise can offer a more specialised service
- varying the qualifications and experience of the service provider – more qualified and experienced providers can offer higher quality service
- varying the materials/technology used in service delivery – eg. many service providers in the healthcare industry can offer the latest in medical technologies
How can differentiation be created?
By cross branding or strategic alliances
Strategic role of operations management: Product differentiation
What is meant by cross branding or strategic alliances?
Adding value to products (goods and services) by offering customers added benefits from a cross-branding arrangement.
Products are differentiated, but the differentiation is not from the product itself but rather from an external factor that the business has brought into the mix.
Examples: Woolworthes-Caltex alliance, Coles-Shell alliance.
Cost leadership vs Product differentiation
Contrast the path to profitability for cost leaders with that of business renowned for quality.
Cost Leaders:
Focus on minimizing production costs and operational efficiency.
Achieve profitability by selling at low prices while maintaining high sales volume.
Rely on economies of scale, bulk purchasing, and streamlined supply chains.
Examples: ALDI, Walmart, Ryanair.
Quality-Focused Businesses:
Prioritize premium products/services and strong brand reputation.
Achieve profitability through high price margins rather than high volume.
Invest in innovation, craftsmanship, and superior customer experience.
Examples: Apple, Rolex, Qantas Business Class.
Goods/services in different industries
What are standardised goods?
Goods that are mass produced, usually on an assembly line. They are
* uniform in characteristics,
* meet a predetermined level of quality,
* and are produced with a production focus.
Goods/services in different industries
What are customised goods?
Goods that are tailored/varied according to the needs and wants of customers.
They are produced with a market focus rather than with a production focus.
Goods/services in different industries
What is an example of a standardised good?
milk
Goods/services in different industries
What is an example of a customised good?
