Operations Strategies

Question 1

List the six key performance objectives

Answer 1

Quality

Speed

Dependability

Flexibility

Customisation

Cost

Question 2

Describe the performance objectives of quality + McDonald’s example

Answer 2

Businesses aim to provide a product that customers want and which meets their expectations surrounding performance, durability and aesthetics

Good quality prevents additional costs of product recalls and warranty repairs

McDonald’s inputs are regularly checked for freshness and levels of bacteria, as well as to ensure food hygiene

Question 3

Describe the performance objectives of speed + McDonald’s example

Answer 3

Relates to productivity, and attempting to reduce a business’s lead time
It can be increased with the use of technology

Too much emphasis on speed can cause bottlenecks and reduced quality

All of McDonald’s critical points of operation are focused on speed - an independent study found that McDonald’s US reduced their drive-thru time by 20 seconds to 253 in 2020

Question 4

Describe the performance objectives of dependability

Answer 4

The reliability of a product will affect how long it works to consumer standards

Strong dependability will establish a good business reputation

Question 5

Describe the performance objectives of flexibility

Answer 5

The ability of operations to switch quickly to a new model of a good to meet market changes

It also applies to how quickly operations can change its volumes of production

Flexibility will often be dependant on funds & productive capacity

Question 6

Describe the performance objectives of customisation + McDonald’s example

Answer 6

How quickly a product can be modified to produce a unique good or service

Customisation may be challenging if a business does not have the appropriate technology

Businesses focussed on this objective will need close contact with customers

McDonald’s introduced a Create Your Taste Menu in 2015, but this massively impacted its speed objectives, so it was withdrawn two years later

Question 7

Describe the performance objectives of cost + McDonald’s example

Answer 7

Concerned with keeping costs low to improve profits

Cost-leadership aims to gain competitive advantage by being the lowest-cost manufacturer in an industry

Can be measured with Average Cost (total cost/number of units)

Wage costs have been reduced by the roll-out of self-service kiosks around the globe and other technological advancements

Question 8

What are the four stages of the new product creation?

Answer 8

Concept Development - many ideas are discussed and assessed

Cost-Benefit Analysis - economic analysis determines if the product is worth pursuing based on estimated sales and costs

Production Design - engineers design the product, work through technical difficulties and create features that meet predicted consumer demand

Product Testing - feedback from testing & market research may indicate further changes to the design are needed

Question 9

What are logistics?

Answer 9

Involves the transport, storage and handling of physical raw inputs and the distribution of physical outputs to markets

The goal of logistics is to achieve an efficient flow of material through the supply chain

Components of logistics include inventory management & transportation

Question 10

How does McDona;d’s utilise logistics?

Answer 10

McDonald’s has established arrangements with independently owned and operated distribution centres to ensure reliable supply to its restaurants

McDonald’s makes its beef patties from 100% Australian beef

Question 11

What is vertical integration?

Answer 11

When a business decides to vertically integrate, it buys out the business that it sources its inputs from, allowing it to build a more secure supply chain

Question 12

Advantages of outsourcing?

Answer 12

Lower Costs

Access to Specialist Knowledge & Expertise

More Efficient Methods

Better Access to Relevant Equipment

Question 13

Disadvantages of outsourcing + McDonald’s example

Answer 13

Breakdowns in the outsourced business impact operations

Loss of control over quality, reliability and costs

Lower lead time and market responses

Laying off of employees = bad CSR

In 2014, Shanghai Husi Food was found to be using contaminated and expired meat and chicken products, leaving McDonald’s short on beef and chicken for three weeks in china and a 7% decline in sales in the region

Question 14

What are the three goals of using technology in operations?

Answer 14

Save time and money

Introduce new products or services

Give businesses better control over operations, particularly quality

Question 15

Leading Edge Technology - McDonald’s example

Answer 15

Leading Edge - new technology that can establish a competitive advantage

In 2019, McDonald’s spent more than AU$420 million on its acquisition of decision-logic technology company Dynamic Yield

This new technology has enabled the company to better personalise the electronic menu boards depending on factors such as weather

Question 16

What are the three types of inventory management?

Answer 16

LIFO
‘Last In, First Out’ - stock purchased most recently is sold first
LIFO is used for goods that have no use-by date, such as machinery parts

FIFO
‘First In, First Out’ - the first stock that has been purchased is the oldest, and is sold first
FIFO is appropriate for perishable goods such as food and drink
FIO results in closing stock having a higher value and reduces the COGS, increasing profit

JIT
‘Just In Time’ - little stock is held, and is only brought in by suppliers as required
This system requires suppliers to have excellent inventory management and delivery systems
Advantages of JIT include reduced costs for storage and increased liquidity of working capital

Question 17

Which type of inventory management does McDonald’s utilise?

Answer 17

FIFO

Question 18

What is quality control + McDonald’s example?

Answer 18

Involves checking transformed and transforming resources at all stages of production

Concerned with benchmarking - measuring performance against established standards

Quality control can take three different stages:
Feed Forward: careful planning before production begins
Concurrent: controls are used during work in progress
Feedback: checking the final product after production or delivery

McDonald’s checks the quality of raw materials for freshness and levels of bacteria

Question 19

What is quality assurance + McDonald’s example?

Answer 19

Involves establishing and using a set of procedures and processes that will prevent product defects from occurring

There is more emphasis on the contribution to quality from the whole operations system

Quality can be guaranteed by gaining certification from groups such as the International Organisation for Standardisation

To ensure the consistency and integrity of McDonald’s food, the company implements a strict set of food safety procedures at every stage of the food preparation process based on the Hazard Analysis Critical Control Point approach to quality management

Question 20

What is Total Quality Management?

Answer 20

TQM (Kaizen) relies on continuous improvement in all aspects of the business

Rather than correcting mistakes, controls are put in place to ensure that poor-quality goods never reach the consumer

Quality circles and benchmarking against the ‘world’s best practice’ are key to TQM

Improvements in quality can be measured using key performance indicators

Question 21

What are the factors that create resistance to change?

Answer 21

Purchasing New Equipment
Management needs to be aware of technological change and its application to the business
Reluctance to upgrade technology can lead to obsolescence and business decline

Redundancy Payments
An employee redundancy occurs when an employee is no longer required because their job no longer exists/has been replaced by technology
Employees are entitled to redundancy payments based on their wage, making redundancy payments a significant cost of implementing change

Retraining
When changes are made to the business, staff must be retrained so that they are productive and can work efficiently
Without adequate training, the benefits of new technology or processes can’t be realised

Reorganising Plant Layout
Significant changes will occur if a business moves from a process to a product layout, or from homogenous to customised production
The costs of reorganising can be large, as movements can require halting production

Inertia
Change can create uncertainty and risk
It may be resisted by employees, who fear job loss and disruption to their environment, or by owners and managers who fear for the financial future of the business

Question 22

What is the relationship between economies of scale and global expansion?

Answer 22

Involves reducing production costs by increasing in size

Through global expansion, a business can achieve economies of scale by having larger manufacturing facilities, moving closer to inputs and servicing a larger market

Diseconomies of scale can occur in very large, geographically dispersed businesses which can slow communication and decision making

Question 23

How does research & development contribute to the operations process + McDonald’s example

Answer 23

Benefits of R&D include extending the product life cycle, improvements in quality, decreased costs and the motivation of employees

Disadvantages of R&D include that it can send a business away from its prime function, as well as consuming valuable financial resources with little short-term return

McDonald’s has R&D centres in each major market, and in 2018, a new $250 million headquarters was opened in Chicago