Strategic role of operations management – cost leadership, good/service differentiation

Question 1

What is the strategic role of operations?

Answer 1

Operations refer to the business process that involves the transformation of inputs into outputs. The operations function is an intrinsic aspect of the business process and it’s interdependent to all key business functions.

Strategic means affecting all key business; that is, the strategic role of the operations management involves operations managers contributing to the strategic direction or strategic plan of the business

Question 2

How do businesses maximise profit?

Answer 2

revenue or income: Finance and Marketing tend to specifically target this goal
costs or expenses: Operations and HR (along with the other KBF) tend to focus on this.

PROFIT CENTRES - Profit centres are those aspects of the business that directly derive income.

COST CENTRES - are those that do not directly derive income but do incur cost. The operations function is a cost centre in a business.

Aim: gain a competitive advantage by producing a better quality good at a cheaper price.

Timeframe: strategic goals are aligned to the business long-term goals (e.g. 3+ years).

The operation department manages the production of goods and services through transforming inputs into output to achieve the final product. The most important aspect is that the business is able to have cheap production costs but maintain a good standard of quality.

Question 3

What is Cost leadership?

Answer 3

involves aiming to have the lowest costs or to be the most price-competitive in the market. A key aspect to cost leadership is that although trading with the lowest cost, the overall business should still be profitable. This means that operations managers must find ways to minimise costs.

Question 4

What is economies of scale?

Answer 4

refer to cost advantages that can be created because of an increase in scale of business operations, e.g. the more you produce, the cheaper it becomes e.g. bulk buying supplies or investing in machinery

Question 5

What is good service differentiation?

Answer 5

Leads to enhanced or additional features creating unique products to achieve brand loyalty

Tangibility goods - can’t be touched e.g. service

Perishability - can spoil e.g. fresh fruit

Ownership - goods can be owned while services can’t

Time between product and consumption - this time can be considerable for goods e.g. transport. Services consumption is simultaneous

Determination and value - Value can ascertained through costing all inputs and adding a margin. Inputs can easily be determined: cost of labour, materials, transformation plus profit. Value is subjective and depends on what the market it prepared to pay. However, value increase with level of expertise, education, and ability

Question 6

What is product differentiation?

Answer 6

means distinguishing products (goods or services) in some way from its competitors. There are different forms of product differentiation, and product differentiation will be different for goods and for services. including

Varying product feature - Generally goods will come in one basic variety and then in other varieties of increasing complexity or options

Varying product quality - This can be done by making low-quality model that is very affordable and then increasing the quality (which will be reflected in the higher the price) Sometimes higher quality alternative may be sold under a different trade name so buyer sees products differently

Varying augmented features - This refers to add-ons or additional benefits associated with particular good e.g. electronic and motor vehicles a strategic approach assesses. the different options and determines which one can be undertake with cost leadership focus.

Time - Time is a factor that differentiates between service-providers

Qualifications/expectations - If a person has a higher level of expertise then, as a service-provider, they can provide a more specialised service. Highly qualified and experienced service provides can significantly affect the quality of service provided. This will be an important factor for consumers when deciding between service providers

Quality of material/technology - The use of computer-based technologies such as accounting software, CAD and CAM programs, medical technologies and ICTs can significant affect the quality of service provided and is a notable source of differentiation in the services sector. Managers need to assess how emphasis to place on which aspects of the services mix to best meet customer needs while reflecting cost leadership principles