Learn Tos Flashcards
Discuss balance between cost and quality in operations strategy
- The aim of any business is to produce products of high quality at the lowest possible
cost. This allows revenues / profits to be maximised. - Relationship exists between cost & quality: As cost goes up, quality should too (and vice
versa). - Business needs to weigh up many variables, including the positioning of its product and
customer expectations when deciding whether cost or quality has priority (or a mixture
of both). - Outsourcing may be of benefit. External (possibly OS) suppliers can be accessed for their
expertise, and possibly lower cost due to specialisation. - Business could implement QC and QA methods to ensure quality not sacrificed.
Examine the impact of globalisation on operations strategy
- Globalisation refers to the breaking down of barriers between countries, so that
economies are more closely linked. - Globalisation has had a significant impact on many areas of operations strategy,
including:- Performance objectives: Globalisation has had a significant impact on operations
costs, where a global market can be accessed which improves economies of scale. - New product design & development: Globalisation has opened businesses up to a
world of opportunity and ideas – innovation and invention are boosted. - Supply chain management: Globalisation provides access to suppliers from around
the world. Businesses can source inputs from cheaper sources, best practice suppliers
etc. Can make operations more complex, though. - Outsourcing: Global sourcing allows significant cost savings through accessing
cheaper inputs from low-wage countries, TNCs etc. Best practice expertise through
specialisation, too. Care needs to be taken with quality, though. - Technology: Globalisation brings the world’s best technology and methods within
closer reach of businesses. Best practice techniques can be adopted. - Inventory management: Globalisation can complicate this, especially when a business
is using foreign-sourced inputs (eg. transportation delays/costs etc) - Quality management: Positives include access to specialists, where quality should be
better (and possibly at a lower cost). Negatives include possible communication
difficulties, regulatory differences etc that may compromise quality levels. ISO9000
standards are internationally recognised – should be adopted / sought.
- Performance objectives: Globalisation has had a significant impact on operations
Identify the breadth of government policies that affect operations management
Government policies act to regulate many aspects of business operations. Examples of policies include:
- Carbon tax
- Equal Employment Opportunity (EEO)
- Anti-discrimination
- Occupational Health & Safety (OH&S)
- Environmental Protection
- Taxation
- Employment relations (eg. Fair Work Act 2009)
Explain why corporate social responsibility is a key concern in operations management
CSR involves a business being a good corporate citizen, including being respectful of employees, society and the environment. In the process of operations, CSR is a key concern for a number of reasons.
- An example might be outsourcing of production to cheap labour countries. This makes
sense from an operations perspective, as it saves on costs and allows higher profit
margins, greater competitiveness etc. In terms of CSR, though, it may not be seen as
ethical to take advantage of people and regulatory differences in this way.
- There can be a difference between acting legally and acting ethically. In the pursuit of
profit, businesses might be tempted to cut corners in terms of their behaviour.
Describe the features of Operations management for businesses in a tertiary industry
Tertiary industry refers to services, such as legal services, hospitality, hairdressing etc.
- The operations function involves transformation of inputs into outputs.
- Inputs include knowledge, skills and experience.
- Outputs are the services provided for customers.
- Customisation is a significant difference between production of goods and services. It is
more common for a service to be customised to the customer’s needs.
- This element of customisation often means profit margins are higher for services, as
each service may be slightly different. Legal advice is one of the best examples.
Assess the relationship between Operations and the other key business functions in two
actual businesses
There is much interdependence between Operations and the other KBFs (Marketing,
Finance and Human Resources). In assessing this importance, two case studies are
useful.
- The Operations function at QANTAS provides a service to travelling customers. This
includes bookings, flights, maintenance etc. The operations function at Billabong
produces a wide range of surf wear and related clothing & accessories.
- Marketing at QANTAS relies on the operations function in many ways. QANTAS has an
impressive operational history, being world renowned for safety, reliability and service.
Marketing capitalises on this. Billabong’s marketing relies heavily on the quality of the
operations function, too. Billabong has a reputation for quality products, and marketing
positions the product accordingly with fairly high prices, sponsorship of prestigious
events including the Billabong Pro surfing competition and so on.
- Finance provides the money to all other functions. Operations at QANTAS is
exceptionally expensive, with massive capital, maintenance, fuel and other costs.
Operations relies on money to cover these costs, purchase and maintain aircraft and
related infrastructure (departure lounges, airport machinery etc). Operations at
Billabong is also expensive, as products are made in many locations (including Australia
and Asia) and extensive finance is required for this.
- HR: Staff at QANTAS cover a very wide range of duties, from baggage handlers to check
in staff to pilots. HR liaises with operations to determine current and future staffing
needs. Billabong employs staff in production in a variety of locations. Operational plans
(short and long term) require communication with HR, so staffing needs can be met.
- Overall, extensive relationships and interdependence exist between Operations and
other KBFs.
Explain how operations strategy can help a business sustain a competitive advantage
A competitive advantage is an edge that one business has over its competitors. This edge can be established through operations strategy. For example:
- Supply chain management: Global sourcing would allow a business to obtain a cost
advantage in operations (eg. material inputs). Being a cost leader would allow it to
maintain competitiveness in price.
- Technology: Using the latest technology in operations could have productivity
benefits and long-term cost savings. Each would provide an advantage to the
business in competitiveness.
- Inventory management: Inventory is expensive. Use of JIT would reduce costs,
thereby allowing the business to pass on savings in the form of lower prices.
- Quality management: Implementing QC and QA procedures (eg. ISO9000) would
ensure an edge in the quality of outputs. This edge may help the business stay ahead
of competitors.
Recommend possible operations strategies for one hypothetical business
Effective supply chain management is a valuable operations strategy for many reasons. Rationalising suppliers or using global sourcing both bring cost advantages which improve competitiveness and profitability.
- Outsourcing is recommended as an operations strategy. Allowing the business to focus
more on core activities, this also should bring cost savings and possible improvements in
quality providing suppliers meet approved standards.
- The use of technology in operations provides many benefits. Where leading edge
technology is employed, a business would enjoy significant productivity gains, together
with probable improvements in quality, efficiency, reliability and customer service.
- Quality management techniques are highly recommended in operations. The quality of a
business’s product is a key method of differentiation, especially where competition is
high and price competition is fierce. The Six Sigma approach where faults in operations
processes are identified and eliminated is advisable.
- A variety of performance objectives in operations management are central to success.
The flexibility of the operations process in adjusting to changes in the market, combined
with the speed at which this change can be managed, is critical to the achievement of
operational goals.
- The design of new goods or services must be driven by customer needs and wants. If
satisfying the customer is central to all operations processes, the business stands the
best chance of achieving its set goals for market share, profitability etc.
Explain why goods and/or services are central to both marketing & operations
Goods and services are both referred to as the products of businesses. Goods are
tangible, whereas services are not.
- Operations refers to the process of production. This involves transformation of
resources/materials into goods and services. Obviously, the products of the operations
process (goods & services) are the reason for its existence.
- Marketing is the system of interacting activities designed to plan, price, promote and
distribute products to present and potential customers. In this case, the end product
(whether a good or a service) is central to marketing, as its role is to maximise profits
through sales of products.
Explain why ethical behaviour and government regulation are important in marketing
Ethics is defined as the application of moral standards to business behaviour.
- Ethical criticisms of marketing have been raised in areas like truth, accuracy & good
taste, products that may damage health, engaging in fair competition, and sugging.
- Government regulation (such as the Competition and Consumer Act 2010 (Cwlth)) are
designed to prevent behaviours like deceptive and misleading advertising, price
discrimination, implied conditions and problems regarding warranties.
- Ethical standards and government regulations are important due to the enormous
presence and influence that marketing has. A recent issue of concern has been the
marketing of junk food to children via social media sites, bypassing regulations in the
process. Clearly, this is not illegal, but with issues such as childhood obesity in the
community, it clearly is an ethical concern.
Assess why a mix of promotional strategies are important in marketing
Promotion is defined as methods used to inform, remind and persuade a target market
about the business’s products.
- A mix of promotional strategies involves a variety of methods to get and keep the
customer’s attention.
- Methods of promotion include advertising, personal selling, relationship marketing,
sales promotions, publicity and public relations.
- Using a mix of these strategies is important for a number of reasons, including:
- Different customers respond to different methods of promotion. For example,
people on low incomes or restricted budgets may always look for sales
promotions to save money, whereas customers with more to spend may look for
endorsements from opinion leaders through advertising.
- The positioning of the product will have an influence on the promotion strategy
that is most appropriate. For example, a prestige product would be advertised
differently to a cheaper product and in different places (eg. Lifestyle magazines
vs. the local newspaper). Also, relationship marketing and personal selling are
likely to be important for prestige buyers.
- Using a mix of these techniques guarantees exposure for the business to a wider
range of potential customers than if a single method was used.
- Some methods of advertising are losing effectiveness. For example, digital
recording and podcasting are slowly making TV ads less relevant, as some
consumers can easily fast forward through them or avoid them altogether. A mix
of promotional strategies is therefore vital.
- Using a mix of promotional strategies makes it more likely that sales targets will
be met, therefore allowing achievement of other goals like profit and market
share.
Evaluate the marketing strategies for a good or service
Jamberoo Action Park (JAP) is a water based theme park in Jamberoo NSW. Management uses a variety of marketing strategies in order to attract customers and keep them coming back. For example:
- JAP segments the market and has a product that appeals to various segments, based on demographic &
psychographic elements. This is a valuable technique as people seek this form of entertainment for
various reasons, including their age & circumstances (eg. teenagers, families) and their personalities
(including thrill seekers and those seeking relaxation). JAP caters for them all.
- JAP seeks to differentiate itself from competitors by using the theme “Where you control the action”.
Customers have control over the level of thrill they receive (eg. speed) in some of the attractions, which is
valuable because it is unique in the market.
- JAP seeks to introduce new rides at regular intervals, thus keeping the product fresh. This has value
because it keeps customers returning to sample what’s new, as well as to enjoy the rides with which they
are familiar. The product is also unique at this stage, with no other water theme park in NSW (though Wet
& Wild is coming to Sydney).
- JAP provides a diverse pricing structure, including discounts for the aged and school groups, together
with family prices etc. This is a valuable marketing tool as it makes the park more affordable for groups
which might otherwise find it too expensive.
- JAP promotes itself in a variety of ways. This is valuable as it targets a wide range of customers who are
exposed to a wide range of media. Examples include social media sites, emails to schools and groups, as
well as TV and billboard ads.
- People, Processes and Physical evidence: JAP prides itself on the quality of its staff, the way they perform
their tasks and the appearance and functionality of the Park’s attractions. These strategies have value
because they provide customers with an experience likely to prompt repeat business as well as facilitate
positive word-of-mouth promotion.
Analyse a marketing plan for a business
Jamberoo Action Park (JAP) is a water-based theme park in Jamberoo, NSW. The situational analysis contains the market analysis, product analysis, competitor analysis & SWOT analysis. In JAPs case:
- Market: Consumer spending down post GFC ; some lack of job security
- Product: Many new rides, some becoming outdated
- Competitor: No current competition (except for other entertainment sources like movies etc). Wet & Wild
to open in Sydney in next 12-24 months.
- SWOT: Strengths include ride quality, staff and tranquil location ; Weaknesses include vulnerability to
weather and location (out of the way) ; Opportunities include tourist market ; Threats include Wet & Wild.
- Market research is undertaken to determine customer’s views on rides, together with use of focus groups
to help decide future direction.
- Marketing objectives use the SMART technique. They include profitability and growth.
- Target markets for JAP include teenagers and families.
- Marketing strategies include the medium and long term introduction of rides, improvements to Park
amenities (like toilets, change rooms and food facilities) and improvements to transport options for
customers coming to the Park.
- Implementation is where plans are put into action. Changes being made include revising the menus at
food outlets.
- Monitoring & controlling involves observation of customer behaviour, gate receipts and recording &
analysing of postcodes to determine customer origins. Changes are made if targets are not being met.
- Most steps of the marketing plan are interdependent. For example, the type of rides that JAP plans to
introduce will be influenced by economic conditions, competitor behaviour and results of market research
- The situational analysis will influence the setting of goals, the levels of growth planned for the business,
how quickly plans are put into action and so on.
- The target market identified will be one determinant of the marketing strategies chosen. The type and
frequency of advertising, the level of pricing, the nature of planned changes to rides and the ways used to
monitor the success of plans will all be influenced by the target market and its characteristics.
Explain how globalisation has affected marketing management
The management of marketing is influenced in many ways by globalisation. In terms of marketing, globalisation involves the ability to produce and sell products in many locations. Issues of marketing management that can be affected include:
- Product: Globalisation can expand the market for a product exponentially, thereby requiring increased
production, decisions regarding standardised vs customised goods and so on. Global branding becomes an
option, too, as does access to new technology.
- Price: Globalisation may introduce the need for customised / market customised pricing, depending on
where the product is sold (which may also affect its
positioning).
- Promotion: Global branding allows for global promotion, where one ad can be used in many markets with
minimal or no modifications.
- Place/distribution: Globalisation and advances in communications (eg. Internet) and transportation (eg. Jet
aircraft & container shipping) have meant that consumers anywhere in the world can become customers
with few if any intermediaries. E-Marketing is most useful here.
Explain potential conflicts between short term and long term financial objectives
Financial objectives include profitability, growth, efficiency, liquidity and solvency. Potential conflicts exist between short and long term objectives. For example:
- Growth is a long term goal that most businesses seek. In order to grow, a business may have to go into debt, which would impact on liquidity (ability to meet debts in the short term) and solvency (ability to meet financial obligations in the long term). Clearly, having a short term objective of a strong liquidity position and a long term objective of growth may conflict.
- If a business has the objective of being profitable in the long term, it may be forced to invest heavily in
projects that won’t provide benefit for some time, even causing a loss to be made in the short term.
Clearly, this would mean that short term profitability may have to be sacrificed, and a short term objective of
a strong liquidity position may not be achievable.
Analyse the influence of government and the global market on financial management
Government and the global market each have significant influence on financial management.
Government influences it in the following ways:
- ASIC: The Australian Securities & Investment Commission administers and enforces the Corporations Act.
This involves many things, including protecting consumers in the areas of investment, life & general
insurance, superannuation and banking in Australia. For businesses, this means their behaviour is
monitored from legal and ethical viewpoints and harsh penalties apply for breaches.
- Company taxation: Australian companies pay tax on profits at a rate of 30%. This affects company
dividend payments (as the dividend is paid after tax) and also may influence accounting practices
(attempting to minimise profits shown, thereby reducing the tax paid).
There are a number of global market influences, all of which are uncontrollable, although
in some cases, businesses can put measures in place to protect themselves. These
include:
- Economic outlook: The economic cycle of booms and busts affects all businesses. In times of growth
where the outlook is positive, demand rises, production and sales rise and the potential for profit grows.
In times of downturn where the outlook is negative, the reverse happens. Businesses need to budget for
these changes, perhaps including the retaining of profits from boom times as a reserve.
- Availability of funds: This ties in closely with economic outlook, as shown recently in the GFC where
lenders became more cautious. The availability of money for projects and expansion, as well as the
interest rate that applies, will have significant impacts on business investment.
- Interest rates: Australian interest rates are typically higher than those abroad, so businesses are often
tempted to look overseas for credit. However, exchange rate changes can affect repayments, so care
needs to be taken.
Identify the limitations of financial reporting
- Normalised earnings
- Capitalising expenses
- Valuing assets
- Timing issues
- Debt repayments
- Notes to the financial statements (fine print)
Compare the risks involved in domestic and global financial transactions
There are risks in all financial transactions, both domestic and global. Due to issues like distance as well as different languages and legal systems, global financial transactions usually involve greater risk.
- Risk of non-payment by debtors is common to both domestic and global businesses. However, if issues over
payment arise domestically, the local legal system can provide ways to forcibly recover money owed. This is
not necessarily the case globally, which is why global businesses often need to cover themselves by
seeking payment in advance, obtaining a letter of credit or drawing up a bill of exchange.
- Domestic financial transactions use the same currency ($A), thereby eliminating any risk of exchange rate
fluctuation. Global transactions are subject to this risk, and methods of hedging (such as establishing
offshore subsidiaries or insisting transactions be in a mutually agreed foreign currency) or the use of
derivatives (like forward exchange contracts) is needed if the global business is to protect itself.
- Interest rates may be a risk factor in both types of transactions, and the movement of interest rates can
provide benefits or costs to all businesses. However, for the global business (which is more likely to obtain
finance offshore due to the typically lower rates overseas), an additional factor is exchange rate movements
which may affect repayment amounts.
Calculate key financial ratios
- Current ratio = CA/CL. Shows liquidity. (Expressed as ratio eg. 2:1)
- Gearing ratio (aka solvency ratio or debt to equity ratio) = TL/OE. Expressed as %
Profitability ratios: - Gross Profit ratio = GP/Sales
- Net Profit ration = NP / Sales
- Return on Owner’s Equity = NP / OE (All expressed as %)
Efficiency ratios: - Expense ratio = Total Exp / Sales. (Expressed as %)
- Accounts Receivable Turnover ratio = Sales / AC receivable. (Expressed in days)
Assess business performance using comparative ratio analysis
- Current Ratio: Falling ratio means XYZ’s liquidity position is worsening (from having $2 in CA for every $1
in CL in 2011 to having $1.50 in CA for every $1 in CL in 2012), although business still in good position.
Note that each of these results shows a stronger liquidity position than the industry average of 1:1. - Gearing ratio: This shows the solvency position of XYZ is improving (the business owed $1.50 in total
liabilities for every $1 in Owners’ Equity in 2011, which has been reduced to $1.20 in 2012), however, the
business is still in danger of insolvency. Note that the industry average also suggests XYZ could further
reduce debt levels. - GPR: In 2011, Gross profit was 50c in every sales dollar. This fell in 2012 to 45c, which suggests XYZ could
look to reduce COGS or that sales have fallen. However, XYZ’s position in strong compared to the
industry average of 35c per sales $. - NPR: Though some improvement is shown (from NP of 17c per sales $ in 2011 to 19c in 2012), a
comparison with industry average shows XYZ is under-performing. XYZ should look to minimise
expenses. - Return on OE: When compared to industry average, XYZ is doing well (a return of between 14-15c per $ of
OE in 2012-2011 compares favourably to industry average of 10c). However, as rate has fallen slightly,
business might be well advised to check expense levels, COGS etc to ensure NP doesn’t fall further. - Expense ratio: Compared to industry average, XYZ’s expenses are way too high. In the best case (2012),
50c of every sales $ is being taken up by expenses, compared to the industry average of 38c. The
improvement from 2011 (55c) is noted, and the business should continue to pursue reducing expenses. - AC Receivable turnover ratio: Again, an improvement is noted (from 40 days in 2011 to 37 days in 2012),
however this is well above policy of 30 days, suggesting that the business is not particularly efficient at
collecting debts. This is also shown by the industry average, which is considerably lower. XYZ needs to
collect debts more efficiently, perhaps by providing early payment discounts and investigating frequent
late payers for viability
Recommend strategies to improve financial performance
- The profitability of the business may be improved in a number of ways:
- Cost controls are important. Minimising costs/expenses is recommended, together with the use of
budgets, benchmarks and comparison with previous periods. This allows the business to maximise
profits. - Gross profit can be improved by reducing COGS. Rationalising suppliers is recommended, as having
fewer of them raises the volume they supply, taking advantage of bulk buying (though care needs to be
taken regarding reliability). - Net profit can be improved using the above means (if GP rises, NP usually does too), as well as reducing
expenses wherever possible. Eliminating waste is recommended, such as finding better utility deals
(phone etc), ensuring staff are productively employed, seeking better interest rates on loans etc.
- Cost controls are important. Minimising costs/expenses is recommended, together with the use of
- The efficiency of the business can be improved in a number of ways. Eliminating waste in expenses is
recommended (as above), together with offering early payment discounts and eliminating habitual late-
payers in accounts receivable. All of these will allow a business to have more working capital available
and be in a stronger liquidity position. - A business can improve cash flow and liquidity through a variety of means. Other than those discussed
above, the use of overdraft is recommended as it allows a business to get through times of poor cash
inflow easily and cheaply. Liquidity is boosted through leasing and sale & lease back of assets, as upfront
cost are avoided and the proceeds of any sale can be used productively in the pursuit of profit.
Distribution of payments should be used to allow the matching of high outflow and inflow periods, and
factoring may be considered (though recommended as a last resort, rather than a common policy). - Control of current assets is important in business. A combination of cash and marketable securities is
recommended, as it allows a business to meet its short term obligations without having excess cash as an
unproductive asset. Controlling receivables can be done by offering early payment discounts, sending
accounts out on time and checking credit ratings of potential customers, all of which allows a business to
improve cash flow and have its assets working towards the achievement of financial goals. - Control of current liabilities is also critical. Payables can be controlled through paying on time (or taking
advantage of any early payment discounts, interest free periods etc). This is recommended as it allows
the business to make the most of its liquid assets while working towards achievement of business goals.
Inventories are a substantial cost to businesses, and the use of JIT is recommended wherever possible as
it provides huge savings in terms of storage (although a reliable and efficient supply chain is essential).
Examine ethical financial reporting practices
Businesses are required to keep track of their finances for taxation and other legal
reasons. This is especially important for public companies. Ethical issues often arise. Financial reporting practices which encourage and provide for ethical behaviour include:
- Audited accounts: There is the potential for financial statements generated by a business to be misleading
or contain inaccurate information. In order to address this, independent auditing is required. This is where
an independent, external check is carried out of the records and accounting procedures of the business.
- It is an ethical and legal requirement that records of financial transactions must be kept by businesses for a
minimum period of 5 years. This is required so that it is more difficult to hide inaccuracies (or deliberately
misleading or inaccurate figures), and so any future audit can trace the business’s financial history.
Records must be kept for all transactions.
- Since the introduction of the Goods & Services Tax (GST) in 2000, businesses have had a legal and
ethical requirement to report all transactions involving GST. One of the prime reasons for the GST’s
introduction was to help reduce/eliminate cash dealings where taxation was avoided. It is both illegal and
unethical for businesses not to charge & collect GST on relevant goods and services.
Discuss the influence of government on the process of determining employment contracts
The government has a significant amount of influence over employment contracts. Examples of these influences include:
- Legislation: The Federal Government enacted the Fair Work Act 2009 (FWA) which governs all Australian
employment contracts, using Fair Work Australia as its national tribunal.
- Awards: These are agreements on pay and conditions set / endorsed by FWA
- Minimum wage rates: Currently $15.96 per hour, this rate is set to protect full time adult workers from
being underpaid by employers.
- Minimum employment standards: FWAct provides for 10 NES (National Employment Standards) which all
contracts must meet. This provides a ‘safety net’ for workers.
- Fair Work Australia must endorse all enterprise agreements (those made collectively between a group of
employees and the employer), ensuring the 10 NES are met (or that the ‘BOOT’ is successfully applied).
This is important so that workers cannot be exploited. This applies to single, multi-enterprise and
Greenfields agreements.
- Though not strictly a government influence, the right to pursue common law action does involve
precedent, set through past court cases and industrial tribunal decisions. In this way, it could be argued
that some government influence is exerted here, though indirectly.
Explain how businesses exhibit corporate social responsibility in the management of HR
CSR refers to businesses having open and accountable practices, based on respect for people, society and the environment. Businesses have many opportunities to exhibit CSR in their HR management. Examples
include:
- Acquisition: Recruitment and selection must be based on set criteria, where the best/most suitable person is chosen for a position. Hiring policies and criteria must be public and transparent.
- Development: T&D opportunities must be available to all employees, not just a select few.
- Maintenance: This is arguably where CSR is most needed. The work-life balance and respect for individuals are two themes here. Many options are available, including:
- Allowing for individual needs through family friendly and flexible working arrangements.
- Offering equitable and open rewards where availability is based on performance.
- Fostering teamwork and empowerment, so employees feel included and capable.
- Creating challenging and meaningful work so employees grow and are satisfied.
- Ensure staff collaboration in any planned changes to the work environment.
- Separation: Any redundancies must be genuine, and unfair dismissal cases avoided through openness and honesty.
- Privacy: Employers are in a position where they often have access to personal & private information about employees. They have the obligation & responsibility to ensure this right is upheld.
