Operations

Question 1

Role of Operations Management (3)

Answer 1

Strategic role of operations management, Goods and/or services in different industries, Interdependence with other key business functions

Question 2

(Role of Op.Man.) Strategic role of operations management

Answer 2

Strategic-> ‘affecting all key business operations’

Overarching goal of profit maximization

Cost leadership- lowest costs in the market, the most price competitive
	• Input
	• Labour
	• Processing
	• Inventory
	• Quality management

Economies of scale- Increase of scale in business operations- efficiency e.g. lower cost per unit, improved use of machinery

Goods/service differentiation

Question 3

(Role of Op.Man.) Goods and/or services in different industries

Answer 3

Standardised Goods
Mass produced on an assembly line
Uniform/predetermined quality

Customised Goods
Varied according to needs of customers
Market focus rather than production focus

Perishable goods
• High standards of quality, safety ,cleanliness
• Short lead times/distribution
• Robust packaging and cold storage

Non-perishable goods
• Inventory management strategies
• Quality management

Intermediate goods
Manufactured goods that become parts of other goods
E.g. screw is made- screw becomes part of electronic production

Services- standardised and customised as well
Dentist, doctor is customised
GP may be standardised

Cost leadership
Standardised=reduced costs=economies of scale
Self service
Drip pricing is an issue

Question 4

(Role of Op.Man.) Interdependence with other key business functions

Answer 4

Operations/Marketing/Finance/Human Resources

Question 5

Influences (8)

Answer 5

Globalisation, technology, quality expectations, cost-based competition, government policy, legal regulation, environmental sustainability, CSR

Question 6

(Inf.) Globalisation

Answer 6

Globalisation- the removal of barriers of trade between nations

Provides a source of market opportunities

Supply Chain- range of suppliers a business has and their relationship with those suppliers

• Global web- network of suppliers a business has chosen on the basis of lowest overall cost, lowest risk and maximum certainty in quality and timing of supplies.

Question 7

(Inf.) Technology

Answer 7

Technology- the design, construction and/or application of innovative devices, methods and machinery upon operations processes

• Administrative- assists with organisation, planning, decision making and are in control of operational processes
• Processing- used in manufacturing, logistics and distribution, quality management, all aspects of inventory management, supply chain management and sourcing

Question 8

(Inf.) Quality Expectations

Answer 8

• Quality- reference to how well designed, made and functional goods are, and the degree of competence with which services are organised and delivered

Question 9

(Inf.) Cost-based competition

Answer 9

• Cost-based competition- derived from determining breakeven point then applying strategies to create cost advantages over competitors
• Mass customisation enables cost-based competition even when products are differentiated rather than standardised
• Focus on reducing costs to a minimum while maintaining profit margins
• Costs may be divided into those that are fixed or variable
• Fixed costs do not change regardless of the business activity level
• Variable costs vary according to the business activity level (production level)

Question 10

(Inf.) Government Policy

Answer 10

• Political decisions affect business rules and regulations, which directly affect the management of various key business functions.
• Policies such as taxation rates, required materials handling practices, Work Health and Safety (WH&S) standards, training and rules, public health policies, environmental policies, employment relations, trade and industry policies all impact on business operations

Question 11

(Inf.) legal regulation

Answer 11

The range of laws that a business must comply with is collectively termed ‘compliance’

• Work Health and Safety (WHS):Safe and healthy working conditions require that employees be given appropriate safety training, use of protective equipment, and work with machines that abide by noise, pollution and safety standards
• Training & Development: in the use and application of technology and in the appropriate methods required to work effectively
• Fair Work & Anti-Discrimination Laws: requiring employees to be treated with dignity and respect.
• Environmental Protection:use of minimising pollution, eliminating and safely disposing of any toxic residues.
• Apply Rules Related to Public Health:including any fair trading rules which influence product safety standards and fitness for purpose of products.

Question 12

(Inf.) environmental sustainability

Answer 12

• Environmental Sustainability- business operations should be shaped around practices that consume resources without compromising access to resources for future generations

• This can be seen in the move by businesses to minimise waste; recycle water, glass, paper and metals, and reduce their carbon footprint
• The carbon footprint refers to the amount of carbon produced and entering the environment from operations processes

Question 13

(Inf.) CSR

Answer 13

• Corporate social responsibility refers to open and accountable business actions based on respect for people, community/society and the broader environment. Involves businesses doing more than just complying with the laws and regulations

DIFFERENCE BETWEEN LEGAL COMPLIANCE AND ETHICAL RESPONSIBILITY

Compliance:
Labour laws (wages, working hours), Environmental & Public Health, Business Licensing Rules, Taxation, Trade Practices and Fair Market Dealings, Migration & Rules on the Use of Offshore Skilled Labour, Intellectual Property, Financial & Accounting Regulations, Corporations Law, Human Rights, Outsourcing- onshore, offshore

Responsibility:
going beyond the law and taking into account broader social, community and environmental concerns
International labour organisation standard (not compulsory)

Question 14

Operations Processes (3)

Answer 14

Inputs, transformation processes, outputs

Question 15

(Op. Proc.) Inputs

Answer 15

• Labour
• Energy
• Raw Materials
• Technology and Machinery

TRANSFORMED RESOURCES- changed/converted
Raw materials, intermediate goods, information, customers

TRANSFORMING RESOURCES- They create the transforming process
Human resources, facilities

Question 16

(Op. Proc.) transformation processes [1/4]

Answer 16

Influence of Volume, Variety, Variation in Demand and Visibility

The Influence of Volume
• Volume refers to how much product is made
• Volume flexibility is how quickly the transformation process can adjust to increases or decreases in demand.
• Lead times is the time it takes for a product order to be made and is influenced greatly by the businesses responsiveness to changes in demand
• If businesses cannot quickly adjust to changes in market demand
• Over produce à lead to wastage and increased inventory costs.
• Under produce à loss in sales as customers may go to competing businesses

The Influence of Variety
• The mix of products made, or services delivered through the transformations process, is sometimes called mix flexibility
• Mix flexibility à is the range of products or services delivered through the transformation process
• Influences transformation processes as the greater the variety; the more the operations process needs to allow for variation
• Can be difficult to achieve and a large plant may be required.

The Influence of Variation in Demand
• An increase in demand will require increased inputs from suppliers, increased human resources, increased energy use and increased use of machinery and technology.
• Increased demand may be hard to meet if:
• Suppliers cannot supply quickly enough
• Labour is not flexible enough, skilled or available
• Machinery cannot adjust to increased capacity quickly – from design or break down
• Increased energy and power cannot be readily sourced
• Results of Decreases in Demand:
• Operational flexibility
• Staff may have hours reduced
• Production may slow to avoid inventory build up
• Suppliers may put on pressure due to contractual agreements
• Predicting Demand à Businesses try to forecast demand so that adjustments are anticipated
• Christmas has higher demand
• Seasonal Factors – e.g. air conditioners may be in higher demand during summer

The Influence of Visibility
• Visibility à the nature and amount of customer contact
• Customers and their preferences influences businesses products
• Direct Customer Contact/Feedback;
• Surveys
• Interviews
• Warranty claims
• Letters
• Blogs
• Verbal Contact
• Indirect Customer Contact/Feedback:
• Review of sales data that indicates customer preferences and market share data
• Observation of peoples’ decision-making processes and through consumer reviews
• Customer contact is essential for profit maximization and shapes the transformation processes

Question 17

(Op. Proc.) transformation processes [2/4]

Answer 17

sequencing and scheduling

• Sequencing refers to the order in which activities in the operations process occur.
• Scheduling refers to the length of time activities take within the operations process.

GANTT CHARTS

Gantt charts outline the activities that need to be performed, the order in which they should be performed and how long each activity is expected to take.

CRITICAL PATH ANALYSIS

A scheduling method that shows what tasks need to be done, how long they take and what order is necessary to complete those tasks

• The critical path is theshortestlength of time it takes to complete all tasks necessary to complete the process or project.

Question 18

(Op. Proc.) transformation processes [3/4]

Answer 18

technology, task design and process layout

Technology
• Technology is the application of science or knowledge that enables people to do new things or perform established tasks in new and better ways
Business technology involves the use of machinery and systems that enable businesses to undertake the transformation process more effectively and efficiently

Task Design
• Task Design à classifying job activities in ways that make it easy for an employee to successfully perform and complete the task
• It breaks down work into a series of jobs in which each contributes to the final goal
Skills audit- process used to determine level of employee skill

• Process Layout à arrangement of machines so that the machines and equipment are grouped together by the function they perform e.g. hospitals,
• Product Layout à where the equipment arrangement relates to the sequence of tasks performed in manufacturing a product, used for mass production, ‘assembly line’
• Fixed Position Layout à operational arrangement in which employees and equipment come to the product e.g. worksites

Question 19

(Op. Proc.) transformation processes

[4/4]

Answer 19

Monitoring, Control, Improvement

Monitoring: (process of measuring actual performance against planned performance)
Monitoring is arranged around the needs to measure key performance indicators (KPIs)

Control: (occurs when KPIs are assessed and corrective action is taken if required)
• Compares what was intended to happen with what actually occurred

Improvement(systematic reduction of inefficiencies and wastage, poor work processes and the elimination of any bottlenecks)
• A bottleneck is an element that slows down the overall processing speed or creates an impediment leading to a backlog of incompletely processed product
• Improvement is done in these areas:
• Time
• Process Flows
• Quality
• Cost
• Efficiency
• Continuous Improvement
• An ongoing commitment to achieving perfection.
• The process becomes one of setting higher and higher standards in the continual pursuit of improvement

Question 20

(Op. Proc.) Outputs

[1/2]

Answer 20

Customer Service

• Customer serviceàhow well a business meets and exceeds the expectations of customers in their operations aspects

Question 21

(Op. Proc.) Outputs

[2/2]

Answer 21

Warranties

• Warranty à a promise made by a business that they will correct any defects in the goods that they produce or in the services that they deliver

Question 22

Operations Strategies (9)

Answer 22

performance objectives, new product or service design and development, supply chain management, outsourcing, technology, inventory management, quality management, overcoming resistance to change, global factors

Question 23

(Op. Strat.) Performance objectives (6)

Answer 23

Quality
• Quality is determined by consumer expectations, which are used to inform the production standards applied by the business
Quality of design
Quality of Conformance-• Quality of conformance is the focus on how well the product meets the standard of a prescribed design with certain specifications (does not have to require high-quality inputs)
Quality of Service- reliability, meets needs of client, responsive

Speed
• Speed refers to the time it takes for the production and the operations processes to respond to changes in market demand

Dependability
• Dependability refers to how consistent and reliable a business’s products are
One measure of dependability is measured by warranty claims.

Flexibility
• Flexibility refers to how quickly operations processes can adjust to changes in the market.

Customisation
• Customisation refers to individualised products to meet the specific needs of the customers

Cost
• Cost to the minimisation of expenses so that operations processes are conducted as cheaply as possible

Question 24

(Op. Strat.) new product or service design and development

Answer 24

Product design/development
different approaches
• 1stà arises from a consumer approach to product development. The preferences and desires of consumers, as identified by market research, determine which products are designed and developed.
• 2ndà arises from changes and innovations in technology that enable new, appealing products to be made because they use advanced technologies, giving products greater functionality

Service design/development
• Services differ from goods in as they are intangible and are also ‘consumed’
• Explicit Serviceà the tangible aspect of the service being provided such as the application of time, expertise, skill and effort
• Implicit Serviceà based on a feeling and is therefore intangible. Involves the psychological wellbeing, the feeling of being looked after, that comes with the provision of the service.

Question 25

(Op. Strat.) supply chain management (3)

Answer 25

LOGISTICS, DISTRIBUTION, E-COMMERCE, GLOBAL SOURCING

Supply chain management involves integrating and managing the flow of supplies throughout the inputs, transformation processes (throughput and value adding) and outputs in order to best meet the needs of customers

Logistics
• Logistics is a term broadly referring to distribution but includes transportation (including transportation modes),the use of storage, warehousing and distribution centres, materials handling and packaging.

Distribution
Transportation and Distribution
Storage, Warehousing and Distribution Centres
Materials Handling and Packaging

E-commerce
• E-commerce involves the buying and selling of goods and services via the internet

Global Sourcing
• Global sourcing refers to businesses purchasing supplies or services without being constrained by location.
• In the supply chain management activity, global sourcing means buying or sourcing from wherever the suppliers are that best meet the sourcing requirements.
Benefits include cost and expertise advantages, and access to new technologies and resources.

Question 26

(Op. Strat.) Outsourcing

Answer 26

Advantages
• Simplification
• Efficiency and cost savings
• Increased process capability
• Increased accountability
• Access to skills lacking within the business
Capacity to focus on core business or key competencies

Disadvantages
• Payback periods and cost
• Communication and language
• Loss of control of standards and information security
• Hierarchies
• Organisational change and redesign
• Loss of corporate memory and vulnerability
• Information technology

Question 27

(Op. Strat.) Technology (2)

Answer 27

Leading Edge

• Leading edge technology à most advanced or innovative technology at any point in time.

Established
• Established technology has been developed and widely used, and is simply accepted

• In the operations function, established technologies include:
• Barcoding and point-of-sale (POS) data for inventory management
• Robotics for complex and detailed manufacturing
• Computer-aided design (CAD), computer-aided manufacturing (CAM) and computer-integrated manufacturing (CIM) for integrating transformations processes
• Information processing technologies and information technologies (IT) for administration, logistics, input modelling, demand analysis and distribution
• Flexible manufacturing systems (FMS) for transformations processes

Question 28

(Op. Strat.) Inventory management

Answer 28

LIFO, FIFO, JIT

Question 29

(Op. Strat.) Quality management

Answer 29

Control
• Quality Control involves the use of inspections at various points in the production process to check for problems and defects

Assurance
• Quality Assurance à use of a system to ensure that set standards are achieved in production.

Improvement
Continuous Improvement
• Continuous improvement may be a monumental breakthrough achieved through innovation all at once or it may be incremental and gradual over time

Total Quality Management
• Total quality management à focus on managing total business to deliver quality to customers

Question 30

(Op. Strat.) Overcoming resistance to change

Answer 30

financial costs, purchasing new equipment, redundancy payments, retraining, reorganising plant layout, inertia

Financial Costs
• Main financial costs associated with change include:
• Cost of purchasing new equipment
• Cost of redundancies
• Costs of retraining employees
• Costs associated with structural reorganisation of the business, including changes to plant and equipment layouts

Purchasing New Equipment
• The purchase of equipment such as machinery and technology is considered a capital cost. Such costs are usually quite high and the cost can be recouped through use and through depreciation.
• Although the purchase of new equipment can be high, there can be very significant market advantages from making the capital investment. In so doing, a business may find some key operational goals are better achieved, such as:
• Improved processing flexibility
• Improved processing speeds and shorter lead times
• More consistency in production
• Higher overall quality of processing
• Reduced wastage and losses from equipment failure.
Redundancy Payments
• Redundancy payout is the money that is given to employees when they are forced out of work because their job skills are no longer relevant.
• Redundancy payouts are quite high because the value of the payout depends on:
• The length of employment the employee has had with the business
• The level of pay the employee is on prior to being made redundant
• The amount of unused leave that the employee has accrued
• Any outstanding wages
• Redundancy costs can be very substantial because the cumulative effect of the payments that must be made can be high. This is especially the case when many employees are made redundant. This typically occurs when capital, in the form of machinery and technology, replaces labour in what is called ‘capital-labour substitution’.
Retraining
• Cost arises from change that causes a reorganisation of the business’s internal hierarchy or from the acquisition of technology
• Job roles may change requiring employees to acquire different work skills. This can be achieved through training.
• Also, the purchase of new technology often requires training or retraining on new software
• Retraining may be performed on the job or off the job
Reorganising Plant Layout
• Major changes such as the complete re-engineering of systems often require extensive reorganisation of the layout within the facility. There can be high costs associated with reorganising the plant.
• Costs of Reorganising:
• Transporting, placing and bringing power to the new plant
• Transferring from the old machinery to the new machinery
• Testing new equipment, machinery and technology
• Losses of productivity from staff orientating themselves with new work processes and arrangements
Inertia
• Inertia à describes a psychological resistance to change.
• A feeling of uncertainty or fear of the unknown, when change is imminent or pressing, can lead people to resist.
• How much resistance would be felt by people who feel like their job prospects may be threatened, who fear loss of career opportunities or who find new technology and equipment intimidating.
• Although inertia is not a financial resistance to change, when people do not change or adapt then the business can feel financial effects of that resistance
Strategies to Overcome Resistance to Change
• Identifying the reasons for resistance to change are important because the resistance needs to be carefully managed if businesses are to successfully adapt to circumstances and situations that change.
• Even though change is continuous, sometimes there is major change that acts like a discontinuity
• Successful managers anticipate and adjust to changing circumstances rather than being passively swept along or being caught unprepared. Such people areproactive— they initiate change rather than simply react to events, rather thanreactive— those who wait for a change to occur and then respond to it.
• To be constructive, changes must:
• Occur at a pace at which they can be absorbed by, and integrated into, the business
• Be evaluated thoroughly to assess their overall impact. Poorly managed changes normally result in employee resistance, tension and lost productivity.
• Be introduced into a workplace culture that supports employee participation.
Change Management Strategies
• Identify the source(s) of change and assess whether there is a need to accommodate change through adjustments to business processes
• Generally sources of change are external and the business is responding to the threat that change can pose
• Lower the resistance to change through communicating with employees about the need for change and getting widespread support for the change.
• If staffs are included in the process of creating a culture of change and setting goals, they will generally be more supportive.
• Adapting to change through overcoming the financial and psychological resistance can help businesses to create sustainable competitive advantage even when faced with what appear to be threats.

Question 31

(Op. Proc.) transformation processes (summary)

Answer 31

Volume
Variety
Variation in demand
Visibility

Sequencing and Scheduling

 - Gantt charts
 - Critical path analysis

Technology
Task Design
Process Layout

Monitoring
Control
Improvement