Maximising profits by maximising efficiency and minimising costs
Cost Leadership
involves aiming to have the lowest costs or to be the most price-competitive in the market
consider
input costs
labour costs
processing costs
inventory costs
quality management costs
Good/service differentiation
Tangibility
Customisation
Time between production + consumption
Determination of value
Product Differentiation
distinguishing products (g/s) in some way from its competitors
Goods
Varying product features
Varying product quality
Varying augmented features
Services
Time spent on service
Qualifications / Experience
Quality of materials/ technology
goods and/or services in different industries
Operations decisions will vary for goods depending on whether they are:
Standardised goods: mass produced, uniform in quality, predetermined level of quality, OR
Customised goods: vary according to the needs of consumers
perishable goods - Very short lead times and distribution that is quick and effective
non-perishable goods - Very durable, last a long time
intermediate goods = Processed more than once to produce other goods
goods and/or services in different industries
Services can be standardised or customised
→ e.g. visiting a GP (standardised) vs seeing a specialist (customised)
Self service: encouraging the customers to take initiative to help themselves
→ e.g. ikea furniture, self serve checkouts
Positives → saves costs on labour, therefore business can reduce cost of product
Negatives → longer process, technology issues, customers may not be comfortable
Interdependence
marketing - Marketing designs and markets the products to meet customers’ needs while operations acquires the source and inputs of the product
finance - Finance manages the costs and expenses of the business and summarises transactions that the operations team makes to produce a product
HR - HR deals with the people that the business employs and the issues arising from their unemployment. Operations needs its HR to produce their products
Influences - Globalisation
refers to the removal of barriers of trade between nations
Can be seen as an opportunity (e.g. expanding customer base) or threat (e.g. increased competition)
Supply chain: refers to the range of suppliers a business has and the nature of its relationship with those suppliers
Global web - global network of suppliers of the lowest cost, lowest risk and maximum certainty
Reverse engineering - taking the product of a competitor that has already been released into the market at lower cost
innovations - Occurs when the business creates novel (new) products
Influences - Technology
Technology: the design, construction and/or application of innovative devices, methods and machinery upon operationsprocesses
→ e.g. planning technologies, office technologies, manufacturing technologies
Can be applied to, and integrated with, the range of processes that characteristics the operations function in business
Can be a threat → advances in technology that business does not capitalise on
Can be opportunity → innovate to enhance their operations process
Influences - Quality Expectations
the totality of features and characteristics of goods and services that satisfy the stated or implied needs of consumers
Quality informs all operations processes. The expectations that people have of businesses determine the way that products are designed, created and delivered to customers.
Goods
Quality of design
Fitness for purpose
Durability
Services
Professionalism
Reliability of service provider
Level of customisation
Influences - Cost Based Competition
derived from determining the break even point and then applying strategies to create cost advantages over competitors
Recognises that prices cannot keep increasing, therefore reducing costs is the way to maximise profits
businesses that reduce costs
bulk buy inputs
achieve economies of scale
eliminate waste
produce standardised products for larger markets
produce high volume output
use automated production systems
Influences - Government Policies
Policies affecting business operations:
monetary and fiscal policy; taxation rates; materials handling practices and waste disposal; Work Health and Safety (WH&S) standards; environmental policies such as carbon pricing, employment relations;and research and development grants
Operations managers need to be fully aware of the contemporary government policies and what they comprise in every country they operate in.
Influences - Legal Regulation
includes a range of laws with which a business must comply with
Influences how practices and process in operations are conducted particularly around labour, technology, finance, machinery and energy
Includes
Labour laws
Environmental/health
Licensing laws
Taxation
Trade practices
Migration and rules
Intellectual property
Financial and corporations law
Human rights
Influences - Environmental Sustainability
means that the business should be shaped around practices that consume resources today without compromising access to those resources for future generations
Can be seen in the move by businesses to reduce and minimise waste, recycle water, glass, paper and metals and reduce their carbon footprint
Two main aspects:
The sustainable use of renewable resources
A reduction in the use of non-renewable resources
Influences - Corporate Social Responsibility
extends a business’s objectives from profit to ‘service to society and the community’
Businesses with a positive CSR image have high reputations with shareholders
CSR does reduce profit and may be unpopular with shareholders
Operations and production management are influenced by CSR because they create the business’s environmental footprint through production, transformation and outputs
Influences - CSR
LegalCompliance
Prescribed standards of behaviour that follows the letter of the law
Compliance costs
Ethical Responsibility
Taking it further by following the intention and the ‘spirit’ of the law
More expensive
Demonstrating that it values something more than just earning maximum profit
Influences - CSR
Environmental Sustainability
Operate and utilise resources in a way to sustain for the future
Requires businesses to evaluate the full environmental effects of their operations
Social Responsibility
Enhancing outcomes for all people involved in the business - customers, employees, shareholders, suppliers
Recognising business activities have an impact on society
Transformed Resources
inputs that are changed or converted in the operations process
Materials - basic elements used in the production process, includes raw materials and intermediate goods
Information - the knowledge gained from research, investigation and instruction. can be external (statistics) or internal (reports)
Customers - become transformed resources when their choices, preferences and interests shapes inputs
Transforming Resources
inputs that carry out the transformation process; enable the change and value adding
Human Resources - employees coordinate and combine inputs to produce a good/service
Facilities - the plant (factory or office) and machinery used in the operations process
the influence of volume, variety, variation in demand and visibility
Variety
The mix of products made or services delivered.
Variation in demand
Refers to the changes in demand for a g/s for businesses.
High variation → demand goes up and down (seasonal)
Low variation → more constant and little change (consistent)
Visibility (customer contact)
How much say customers have in the production of their products.
high visibility - restaurant
low visibility - online uni course
Volume
how much of a product is made
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
Outlines the activities, the order and the time of each activity
Used for any process that has several steps and involves different activities
Advantages
Force managers to plan and specify the time required
make it easier to monitor actual progress against planned activities
Critical Path Analysis
a sequencingmethod or technique 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 the LONGEST PATH taken to complete the whole project
Processes - Technology
Enable business to undertake the transformation process effectively and efficiently
Used in the manufacturing sector to speed up the operations process and in the service sector to increase trade and communication
Plant layout: the arrangement of equipment, machinery and staff within a facility
Impacts the efficiency of operations
Must consider physical space, technology, location of stock, legislation and other stages of production
Process Layout
The arrangement of machines which are grouped together by the function (or process they perform)
High-variety, low volume production, moves from one department to another
→ e.g. hospital → all machinery and services related to pregnancy are in the Maternity Ward
Product Layout
Where the equipment arrangement relates to the sequence of tasks being performed in manufacturing a product
Deals with work stations which are arranged to match a series of operations, work flows from station to station
→ e.g. the assembly of motor vehicles
Other Layouts
Fixed position layout - Where a product remains in one location due to its weight or bulk → e.g. ice cream machines at Messina (related to product layout)
Office layout - Organised around discrete workstations and provide spaces to take breaks from the work environment
monitoring, control and improvement
Monitoring - The process of measuring actual performance against planned performance
Controlling - Occurs when KPIs are assessed against predetermined targets and corrective action is taken if required, includes prevention, feed forward and feedback
Improvement - Refers to the systematic reduction of inefficiencies and wastage, poor work processes and the elimination of any aspect of the transformation process that slows down the overall processing speed
Outputs - Customer Service
Customers may express dissatisfaction if a product is: defective, not meeting quality standards, wait times/lead times are too long or makes a warranty claim → operations processes would need a review
Includes
Handling customer returns promptly
Answering questions and providing information
Frequent and meaningful communication
Anticipating customer needs
Following up customer enquiries and complaints
Customer service is
an aspect of relationship marketing
can enable a business to charge higher prices and lessen the need to reduce costs
Outputs - Warranties
Warranty: an assurance that a business stands by the quality claims of the products they make and provide to the market
Australian law must ensure consumer guarantees → e.g. acceptable quality, safe, lasting, look acceptable, function properly
Retailers and manufacturers must comply with the warranty and may need to provide a replacement product if a consumer is not satisfied
Consumers are more likely to buy from a business if there is a quality guarantee and the security that they can get their money back if the goods are not up to standard
Performance Objectives
goals that relate to particular aspects of the transformation processes which are set to make businesses more efficient, productive and profitable.
includes:
Quality
Speed
Dependability
Flexibility
Customisation
Cost
Quality
Determined by consumer expectations, which are used to inform the production standards applied by the business.
Quality of design
Quality of conformance
Quality of service
Speed
Refers to the time it takes for the production and operations process to respond to changes in market demand
Goals for speed: reduced wait times, shorter lead times, faster processing times
To achieve: reduction in procedural and technical bottlenecks and smooth internal communication, ability to change supply chain to quickly respond
Dependability
Refers to how consistent and reliable a business’s products are, how long the products are useful before they fail
Measured by: warranty claims, consistency of standards, number of complaints received, how durable a product is
Flexibility
Refers to how quickly the operations process can adjust to changes in the market
The faster the processing time, the greater the likelihood that processes can be adjusted quickly to take on greater capacity of production
Achieved by updating products, increasing capacity, tech
Customisation
Refers to the creation of individualised products to meet specific needs of the customers
Much cheaper to standardise, however more likely to be successful if you add an element of customisation
Mass customisation: standard mass produced item is personally modified to meet customer requirements
→ e.g. standard car customised through paint colour
Cost
Refers to the minimisation of expenses such that operations processes are conducted as cheaply as possible
New Product or Service Design and Development
Goods
Two approaches:
Preferences and desires of customers via market research
Arises from changes in technology that enable new products
Factors to consider: quality, SCM, value, capacity management, utility, cost
Services
customised so the customer is the starting point in design or standardised
Must consider:
Explicit service: tangible aspect such as time, expertise, skill
Implicit service: physiological aspect e.g feeling of being looked after
Services using goods
Sometimes in the delivery of services, goods may be required