operations strategies Flashcards
Performance objectives
Goals that relate to specific areas of the transformation process. They are targets that operations managers are aiming to reach.
Each objective is allocated a specific target, based on the metrics used to assess the objective. Businesses then use these targets to assess their performance.
If the business didn’t hit the target, it needs to make changes. Doing so will lead to the outcomes of efficiency, productivity and profitability
QSDFCC
Quality, speed, dependability, flexibility, customisation and cost
Quality
Purpose:
- Exceed customer expectations
- Offer “value-for-money”
- Boost sales revenue
How to achieve it:
Adopt quality management processes throughout the transformation process
Goods
Higher quality design:
- Requires advanced inputs and detailed quality management processes
- Allows the business to charge higher prices
Higher conformance:
- Products accurately meet the design specifications
- Production processes are effective
Services
- Meeting the client’s needs
- Being reliable and efficient
- Pleasant interactions between customer and service provider
Speed
How quickly/how well production can adapt to rising or falling demand.
Businesses operate in dynamic environments where demand and output are constantly changing.
The purpose is to fulfil customer demands as quickly as possible
It can be achieved by changing input levels and processing times.
Eliminate production bottlenecks and create open communication → Reduce lead, production and delivery times → Avoid under-or overproduction
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 to ensure products meet customer expectations consistently
- Use research and development to access high-tech quality management procedures and equipment
Non perishable goods: dependable if they’re extremely durable
Perishable goods: dependable if their quality is consistent
Flexibility
How well the business can adapt capacity or volume to all changes in the market
The purpose is to improve processing times (better chance of adapting quickly when the time comes)
How to achieve it:
Increase 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 customers need or wants
The purpose is 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
The purpose is to achieve cost leadership
Lowers costs can lower prices for customers → Wider market share and competitive advantage
How to achieve it: reduce post-production costs
Hire cheaper distributors or manage quality during production → less warranty costs
Product development
Businesses develop new products because consumers have ever-changing needs and wants, so products have a limited lifespan
Through product development, businesses can:
- 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 requires new inputs. Businesses must consider whether their existing suppliers can respond to the needs of the new product
Capacity management: Businesses need to have the facilities to produce a new product at the right volume + continue to produce existing products
Quality management: Ensure new products meet the business’s existing quality standards and customer expectations
Cost: The costs (time, money, efforts) shouldn’t outweigh the benefits of designing a new product
Developing services
How they are developed
In response to customer preferences: Most of the elements in service delivery requires 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
Supply chains: a sequence of processes that enables businesses to coordinate supplies throughout operations to meet customer needs
i.e. make products available to customers
Organising inputs (suppliers) → Manufacturing products (manufacturers) → Delivering to customers (distributors)
Procurement (sourcing)
Finding and buying the inputs that a business needs from suppliers
Global sourcing: Due to globalisation, businesses now have a wider variety of suppliers to choose from
Advantages
- Inputs are usually cheaper
- More suppliers to choose from
Disadvantages
- Economic costs
- Time and logistical costs
- Legal and ethical issues
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
It includes handling and packaging as well as storage and transport of goods. Involves products moving from one part of the supply chain to another.
Key considerations: products need to be available at the right time, at the right place and in the right quantity
Inventory: managing inventory, insuring it and keep it safe from theft
Warehousing: using large facilities to store and distribute goods
Distribution centres: strategic short term story before distribution to retail outlets
E-commerce
Buying and selling products using the internet
This can be broken down into:
E-procurement: Using the internet to purchase stock (allows suppliers to use online systems to directly manage a business’s stocks, which can be done automatically)
Selling products to consumers: Using the internet for ordering (ordering goods from the business’s website) and logistics (packaging goods based on online orders)
Advantages:
- Networks: helps establish networks of suppliers
- Data: makes collecting and storing data easier
- Access: provides access to more information
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
When businesses use external providers to perform business activities
Usually, businesses outsource to companies that specialise in certain activities. Therefore, 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 (length of the contract and level of service needed)?
Advantages and disadvantages of outsourcing
Advantages:
Cost and efficiency
Simplification
Process capability
Accountability
Accessibility
Disadvantages:
Payback periods
Miscommunication
Loss of control
Organisational change Losing business knowledge
Technology
Business technology: The use of machinery and systems to perform the transformation processes more efficiently, effectively and productively
Strategy: an action businesses take to achieve goals
Using technology is a strategy for achieving efficiency, effectiveness and productivity
Business technology leads to cost leadership (improved operations processes) and product differentiation (improved product offerings) which creates a competitive advantages and boosts profits
Leading edge technology
The most innovative or advanced technology that is currently available
It is risky because the technology is new and therefore not as mainstream
Purpose
- Improve the efficiency of the production processes (product can be manufactured and delivered to the market faster and at a lower cost)
- Reduces error and waste in production (reduced cost)
- Helps create high quality and leading edge products (gives businesses a competitive advantage)
Established technology
is technology that’s already been developed, 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 (or stock)
The raw materials, works-in-progress + finished goods that a business has on hand
Businesses needs to weight advantages and disadvantages and determine the appropriate amount of stock to keep at hand at all times
Advantages of holding stock
- Businesses can immediately satisfy customer demand
- Offering a range of products prevents businesses from losing sales
- Reduces lead times because the product is already complete and ready to go
- Stock is a current asset that can easily be turned into cash, improving cash flow
- Remaining stock can be used as a promotional tool e.g. via reduced prices or ‘clearance sales’
Disadvantages of holding stock:
- Storage costs (requires places like warehouses for storage - storage costs like insurance, rent, theft)
- Resource use (uses up business’s other resources, like labour and energy)
- Obsolescence (risk that inventory won’t 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
Depending on the strategy businesses use, the value of unsold stock and cost of goods sold as recorded in books will vary
FIFO (First-In-First-Out)
FIFO (First-In-First-Out): The oldest products are sold first (products that were produced first)
Used for
Used for perishables, because if the oldest products aren’t sold first they will expire and end up as waste
Used for products that become obsolete quickly, such as trending clothing
Impact on value
Due to inflation, the cost and value of stock rises over time
Cost of goods sold is lower on financial statements as stock bought is cheaper and gross profit is higher
The value of unsold stock is higher because the new stock remaining is worth more
LIFO (Last-In-First-Out)
The newest products are sold first (products that were produced last)
Used for
Non-perishables, because date of production doesn’t matter
Homogenous goods
Innovative tech products
Impact on value
Due to inflation, the cost and value of stock rises over time
Stock bought is more expensive → Cost of goods sold is higher on financial statements → Gross profit is lower
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 production (less waste and more efficiency)
Implications
Businesses need to:
Have a clear idea of the demand for their products
Have flexible productions and reliable suppliers
Order frequently and in lower volumes
Advantages
Labour: easier to evaluate and count stock
Space: less space is required for storage
Cost savings: on e.g. storage or waste
Importance of Quality
Quality is a fundamental expectation of consumers
There are basic quality expectations for every product
Meeting or exceeding expectation will improve the business’s image and increase sales and profits
Businesses manage quality through a range of processes such as consistency, durability, safe and fit for purpose
Quality management strategies are: quality control, quality assurance and quality improvement
Quality control
Reactive (only detects faults, doesn’t prevent them) quality strategy where employees inspect products of various stages of production to find and correct defects
Steps
Set quality standards for products → Test quality of random samples → Fix problems or remove poor quality products before they reach customers
Businesses should thoroughly assess inputs from suppliers, incomplete products at various stages of production, sample of complete products
Quality assurance
Proactive quality systems that ensures quality standards are always achieved, preventing quality issues in the first place
Saves money, time and energy
Steps
Design product to be fit for purpose
Design the manufacturing process to produce defect free products
Comply with international standards (ISO 9000 series)
Quality improvement
Two aspects of quality improvement: continuous improvement and total quality management (TQM)
The purpose is to ensure products are consistent and of an acceptable quality. This leads to:
- Reduced production errors and waste (reduced costs)
- Strong, positive business reputation (increased sales)
Continuous improvement: An ongoing commitment to making processes more efficient and effective + producing better quality products
It is achieved by every employee being responsible for suggesting improvements
The purpose is to give the business a competitive advantage
Total quality management (TQM): managing the entire business to ensure customer receive high quality goods and services (creating a culture of quality)
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)
Importance of adapting to change
Businesses need to adapt in order to remain competitive and survive long term
Even though change can appear as a threat, it should been seen as an opportunity to improve and succeed
Two things are always changing:
- customer needs and wants (alter product offerings to accommodate demand)
- technologies and processes (incorporate new technologies and processes to remain competitive
Factors that create resistance to change
Financial factors and psychological factors
Financial factors
Aspects related to changing operations that costs the business money
Key factors for employees further up the hierarchy, such as owners and managers
Financial factors: new equipment
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
Financial factors: redundancy
When employees are no longer needed because of structural change to the business + their skills are no longer relevant
Explanation
Businesses need to compensate employees who have lost their jobs with a redundancy payment
- Given to employee who have been made redundant
- Amount is based on factors like an employee’s length of employment or current pay level
Financial factors: retraining
Retraining employees to use new technologies, or training employees for new roles
Explanation
If the business wants to incorporate new equipment or technology, or create new roles, managers will need employees to fulfil skills gaps
Financial factors: 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 resistance to change
Affects all employees because people are general risk averse
Psychological factors: inertia
The psychological resistance to change
Why it happens
- Fear of the new (new technologies may seem intimidating, and learning new skills may be daunting)
- Fear of being replaced (fear that changes are putting an employee’s job at risk, or limiting their career opportunities)
- Stability (some employees 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 why it is necessary)
- Bring in change agents, internal or external (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 in Operations
The opportunities and strategies available to operations managers on a global scale
Enables businesses to compete in the highly competitive and vast global market
The four global factors are:
- Global sourcing
- Economies of scale
- Scanning and learning
- Research and development
Global factors: Global sourcing
Sourcing and outsourcing operations or resources across geopolitical boundaries (between countries)
How global businesses benefit
Sourcing from a global market allows global businesses to make the best sourcing decisions about:
- Cost
- Efficiency
- Technical ability
- Operational hours
Leads to lower costs and access to more resources
Challenges
- Relocation may increase cost of logistics and distribution
- Regulatory difference e.g. labour and environmental laws
- Complicated financial transactions due to exchange rate fluctuations
Global factors: Economies of scale
Cost advantages created when a business increases the scale of its operations
How global businesses benefit
More units of output ‘spreads’ out fixed or overhead costs → Lowers cost per unit of production → Profitability increases
Global businesses are larger, so they can invest in more technologies and machinery
Standardised marketing: advertisements and products are the same everywhere → no extra modification costs
Global factors: Scanning and learning
Scanning the global environment and learning from competitors
Scanning: Investigating what’s happening in the global market
Sources
- Reading management journals
- Attending conferences
- Gaining knowledge from industry experts and business associations
- Observing and questions managers and employees from other backgrounds (provides insight and flexibility)
Learning: choosing which sources to learn from, and what information to apply to practice
How global businesses benefit
Operations managers can learn from the best of the best and implement these practices in their own businesses
Global factors: 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)
R&D is often expensive, so the government may offer tax incentives and grants to help businesses invest
