HSC BUSINESS STUDIES OPERATIONS

ROLE OF OPERATIONS MANAGEMENT

OPERATIONS AND THE CUSTOMER FOCUS

Operations refer to the business process in the production and transformation of goods and services/ involve the process of organising and producing outputs.

The main idea of production is the transformation process, which refers to the conversion of inputs (resources) into outputs (goods and services). Value adding is the creation of extra or added value as inputs are transformed into outputs. It involves the process of adding value through each step of the transformation process in order to produce the desired output.

There are a range of focuses a business can undertake when conducting operations, most of which placing the customer and their needs/desires at the foremost. These include:

- Minimising waste- Reflecting fair value for labour- Operating at a lower cost to maximise profit- Integrating environmental awareness- Reflecting the needs of consumers

- MINIMISING WASTE is also known as lean production and involves removing excess or waste. It involves analysing each stage of the production process, detecting where inefficiencies are and correcting them. There are several sources of waste in business, including the under use of labour, over production, errors and defects requiring remediation or creating lost product, and carrying of excess inventory. Each of these sources of waste adds cost but does not add value. (Added value is the increase in value that a business creates by undertaking the production process). Ways of removing excess can occur through changing processes such as the role of labour

- REFLECTING FAIR VALUE involves compensating and treating workers adequately for the work they conduct. The growth of the fair trade movement is an example of this operations focus in terms of its ideal to integrate notions of a fair price, decent working conditions and local sustainability. Eg. Certain companies pay above market equilibrium price for certain materials needed to produce coffee.

- By LOWERING PRODUCTION/OPERATING COSTS, businesses can maximise the amount of profit a company generates. In highly competitive markets, businesses try to capture a greater market share and a maximisation of profits by lowering costs; which are reflected in

lower prices (costs) to consumers allowing for the maximisation of affordability and reasonability.

- INTEGRATE ENVIRONMENTAL AWARENESS AND A NEED FOR ECOLOGICALLLY SUSTAINABLE PRACTICES: Consumers express that they are increasingly concerned about the state of the environment and want the processes used by business to reflect ecologically sustainable practices. Hence a business may also focus on producing environmentally products as a way of marketing their products.

- Since the needs and tastes of consumers vary over time, a business may be required to REFLECT CHANGES TO THE NEED OF CONSUMERS through creating innovative products.

STRATEGIC ROLE OF OPERATIONS MANAGEMENT – COST LEADERSHIP, GOOD/SERVICE DIFFERENTIATION

Operations refers to the business process in the production and transformation of goods and services/ involves the processes of organising and producing outputs from inputs.

Strategic means ‘affecting all key business areas”

The decisions a business takes in order to complete this role (Producing outputs) has strategic elements. In terms of operations, the strategic role of the operations management involves operations managers contributing to the strategic direction of the business through strategic planning. This in turn affects all key business areas.

This ideal of strategic planning occurs when a business makes decisions with the purpose of achieving a specific goal, which can in turn lead to competitive advantage (affects business in the long term). A business may choose to change the way they produce goods and or services (Decision) for strategic reasons as to lower costs or improve the quality of the product (goal).

Example of a Strategic Decision in regards to Operations:

Changing of pricing strategies (Decisions) to achieve market share and other financial goals

What makes a role strategic is dependent on the level with which it integrates and affects all key business areas.

The strategy a business will adopt depends on a range of factors such as the actions of competitors suppliers and the demands of consumers. These strategic decisions are intended to improve:

- Productivity- Efficiency- Quality of Outputs

Generally, the overarching goal of a business is to maximise profits. This is usually achieved by two important aspects of profit:

- Revenue or income- Costs or expenses

Revenue should be maximised to bring in the greatest possible volume of money. Conversely, costs need to be minimised in order to reduce the overall level of expenses incurred.

Hence in order for a business to maintain profitability, a strategic aspect of operations management is therefore the management of cost since the operations function is a cost centre in a business (Do not directly derive income but do incur cost)

COST LEADERSHIP

There are numerous expenses a business can incur when undertaking operations processes (Input costs, labour costs, Processing costs, Inventory costs (Holding goods in stock), Quality Management costs). Therefore an intrinsic aspect of strategic operations management involves cost leadership.

Cost leadership involves aiming to have the lowest costs or to be the most price-competitive in the market (through finding ways of minimising cost). A key aspect to cost leadership is that although trading with the lowest cost, the overall business should still be profitable.

One aspect of cost leadership (achieving lower costs) arises from a business creating economies of scale. ECONOMIES OF SCALE refer to cost saving advantages gained/created by firms due to a decrease in per unit production costs, leading to increasing returns to scale. These cost savings come from being able to purchase lower cost per unit of input and efficiencies created from the improved use of technology and machinery, decreasing production costs in the long term.

GOODS/SERVICE DIFFERENTATION

A Second key strategy applied by operations managers is that of product differentiation. Products may be classified as either goods or services. The main distinction between a good and a service, is that goods are tangible whilst services are intangible. Generally services only come into being as the result of a need for that service, whilst goods already exist even before a person seeks them.

PRODUCT DIFFERENTIATION

Product differentiation means distinguishing products (goods or services) in some way from its competitors, in order to achieve a greater market share.

GOODS

Goods can be differentiated in a number of ways. Sources of differentiation in goods include:

- Colour variation constitutes product differentiation- Varying the actual product features: 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 a low-quality model that is very

affordable and then increasing the quality (which will be reflected in the higher price).- Varying any augmented features: This refers to add-ons or additional benefits associated

with particular goods

From an operations perspective, a strategic approach assesses the different options and determines which ones can be undertaken with a cost leadership focus.

SERVICES

Services can be differentiated in a number of ways. Sources of differentiation in services include:

- Varying the amount of time spent on a service- Varying the level of expertise brought to a service: If a person has a higher level of expertise

then, as a service-provider, they can provide a more specialised service.- Varying the qualifications and experience of the service provider: Highly qualified and

experienced service providers can significantly affect the quality of service provided.- Varying the quality of materials/technology used in service delivery: The use of computer

based technologies can significantly affect the quality of the service provided and is a notable source of differentiation

Again, from the operations management perspective, a strategic approach to service delivery will require managers to assess how much emphasis to place on which aspects of the services mix to best meet customer needs while reflecting cost leadership principles.

*For both goods and services, differentiation can be created from cross branding or strategic alliances. This approach adds value to products (goods and services) by offering consumers added benefits from a cross-branding arrangement, though the differentiation is not the product itself.

GOODS AND/OR SERVICES IN DIFFERENT INDUSTRIES

The management of operations within any business is shaped and differ by the types and ranges of goods and services that are produced.

GOODS IN DIFFERENT INDUSTRIES

Operations decisions vary for goods dependent on whether they are standardised or customised.

STANDARDISED GOODS – goods that are mass produced, usually on an assembly line. They are uniform in quality and are generally produced with a production focus. Eg. Milk, Water

CUSTOMISED GOODS – goods that are varied according to the needs of customers. They are usually produced with a market focus rather than a production focus. Eg. The shift away from CDs to the use of musical downloads such as Itunes.

The layout of operational processes varies dependent on whether goods produced are differentiated. A businesses operational process in the production of goods are strategic as they require a high degree of cross-functional interaction and coordination across the 4 Key business functions

Goods may also be classified as either perishable (Limited life span as they are consumed quickly) or non perishable (More Durable).

Eg. Grocery sector is dominated by perishable goods such as food whilst household and business goods are non-perishable.

Therefore the operational processes will vary between sectors that produce perishable goods and those that produce non-perishable.

PERISHABLE GOODS AND OPERATIONAL PROCESSES

Integrate the following factors:

- High standards of quality, safety and cleanliness in all operating processes- Production and distribution that is as quick and effective as possible- Appropriate & Robust packaging and cold storage processes both through production and

distribution.

NON-PERISHABLE GOODS AND OPERATIONAL PROCESSES

More Durable therefore the issues of quality and inventory management (Holding stock) arise.

Integrate the following factors:

- Manage all aspects of quality in the process (Sourcing to Production/Distribution)- Implement effective inventory management strategies and be highly responsive to market

demand in order not to over produce

NPG found in many different industries. Manufacturing sector (Motor Vehicles, Electrical appliances, clothing, household goods (furniture)). Many of the operational processes are similar regardless of industry.

INTERMEDIATE GOODS

Intermediate goods are goods that have undergone a set of operational processes, and are used as inputs in the production of other goods.

Eg. Manufacturer converts steel into tiny screws which are a finished product for the manufacturer, though are then used in the manufacturing of electronic goods as essential components.

SERVICES IN DIFFERENT INDUSTRIES

Services can be both standardised and customised.

Standardised services are uniform in quality and in practice. An example of which is the fast food industry which aims to standardise the service delivered to customers.

Customised services are those services varied to the needs of the customer and hence specialised. An example of which is a person facing criminal charges will require legal assistance that are highly customised for their particular circumstances.

SELF-SERVICE

Means encouraging the customers to take the initiative to help themselves. Eg. Financial service sector encourage people to make their own transaction online. In this way a business can achieve customisation if a customer requires help.

INTERDEPENDENCE WITH OTHER KEY BUSINESS FUNCTIONS

The 4 KBF’s (Operations, Marketing, Finance & Human Resources) are interdependent which means that each rely on the other to perform effectively.

In specific terms;

Interdependence refers to the mutual dependence that the key functions have on one another in terms of relying on each other to perform effectively. Interdependence occurs when each key business function area is committed to the same business goals as the other areas and work in a coordinated and collaborated/overlapping way to achieve these goals (KBF’s work best).

Each function area depends on each other if it is to perform at a capacity.

Eg. In a situation where insufficient finance in a company exists, the money generated is limited and as a result they aren’t able to cover the marketing costs of the business in terms of advertisements, hence the success of the business is restricted.

INFLUENCES

GLOBALISATION, TECHNOLOGY, QUALITY EXPECTATIONS, COST-BASED COMPETITION, GOVERNMENT POLICIES, LEGAL REGULATION, ENVIRONMENTAL SUSTAINABILITY

Background Info.

To successfully manage the operations function, managers must deal with a range of external influences that impact on operations.

Influences can cause the business to undergo change in which responsiveness to change and continually adjusting to external factors is a constant issue. Influences can also be a threat and opportunity in terms of the operations process.

Influences:

- Globalisation - Legal regulation- Technology - Environmental sustainability- Quality Expectations - Cost-based competition

- Government policies

GLOBALISATION

Globalisation refers to the increasing financial and economic integration between economies around the world, through the removal of trade barriers between nations. Globalisation is characterised by a high degree of transfer of capital, labour, intellectual capital and ideas, financial resources and technology.

Globalisation provides a source of market opportunities, and allowing for the sourcing of cheaper intermediaries (Intermediate goods/production materials) through high degree transfers.

Globalisation acts as a threat to business as businesses that effectively apply cost leadership principles can undercut the market and dominate.

Globalisation is a very significant influence on operations management. As a result of globalisation, large businesses are increasingly orienting their practices towards the global market with a view of meeting the needs of global consumers (seek global brands and tend to seek standardised products). Hence the operations function of a business must be structured around a series of global production facilities, in order to meet the needs of a global market.

The following processes are all features of global businesses that seek to target global markets: product design must meet the needs of global consumers; the choice of location for manufacturing facilities, the quality management, logistics and inventory management processes, are all oriented towards a global market.

SUPPLY CHAIN MANAGEMENT AND THE GLOBAL WEB

A key aspect of operations management is that of supply chain management.

*Globalisation has had a significant effect on the operations function with respect to supply chain management.

The supply chain (logistics network) refers to the range of suppliers a business has and the nature of its relationship with those suppliers. A business needs a very predictable and reliable supply chain that is highly responsive to changes in demand as experienced by the business.

ASPECT OF SUPPLY CHAIN MANAGEMENT

Sourcing – Operations strategy that requires finding the suppliers needed so that production processes can be smooth flowing.

For large global businesses the integration of the range of suppliers creates a network called the GLOBAL WEB. Global web refers to the 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. In supply chain management, the global web strategy is one which the business aims to minimise cost across the range of its suppliers. Thus, a business may opt for a location that places it in approximate proximity to the suppliers.

IMITATION, INNOVATION AND THE SUPPLY CHAIN

There are two alternative approaches to the supply chain (Involve different aspects), depending on whether a business is an imitator or an innovator.

A business that imitates will tend to create products similar to those that already exist, but will aim to do so at a lower cost. This is achieved through the process of Reverse Engineering. Reverse engineering is a process that involves a business taking the product of a competitor that has already been released into the market, and taking it apart to see how it is made. From this the imitating business then tries to make their own version of the product from the component parts, but does so using different materials (cheaper materials) and at a lower cost.

A business that innovates creates novel (new) products, and in doing so leads the market. Innovations may improve an existing product or it may lead to an easier way of life through the creation of products that solve a problem in a way not previously done.

Innovation affects operations processes by differentiating products and therefore making them new in the market. This means the supply chain will need to be shaped around the need for innovation, that doesn’t provide similar supplies to other competitors within the same market.

TECHNOLOGY

Plays a very important role in the application of the operations function of business.

Defined as: The design, construction and/or application of innovative devices, methods and machinery upon operations processes.

Eg. Wide range of technologies both personal and household (Mobile phones, security cameras) enabling people to communicate more easily and enable improved processes in the operations function of a business.

Technologies can be both applied to, and integrated with, the range of processes that characterise the operations function in business. At an administrative level, technologies assist with organisation, planning and decision making and are in control of operational processes. At a processing level, technologies are used in manufacturing, logistics (ensuring the right items are in the right place at the right time) & distribution, quality management, all aspects of inventory management, supply chain management and sourcing.

QUALITY EXPECTATIONS

One of the key goals of the operations function of a business is quality. Quality refers to how well designed, made, functional the goods are and their degree of competence with which services are organised and delivered.

The expectations of quality is a significant influence on the operations function of a business. Within the operations function, quality informs all operations processes. The expectations that people have

of businesses determine the way that products are designed, created and delivered to customers, hence the operations function must follow levels of excellence.

QUALITY EXPECTATIONS (Goods)

- Design (Developed concept, taking into account customer needs and expectations)- Fitness for purpose (Product functions the way it is designed to do)- Durability (Reliable/long lasting)

QUALITY EXPECTATIONS (Services)

- Professionalism of the service provider- Reliability of the service provider- Levels of customisation (Fulfilling customer needs)

COST-BASED COMPETITION

Significant influence on operations management arises from the actions of competitors and the way competitors price their product. In highly competitive markets, cost-based competition can shape the operations function in competing businesses.

Cost-based competition – Derived from determining breakeven point and applying strategies to create cost advantages over competitors (reducing costs maximise profits).

COST BASED COMPETITION AND OPERATIONS MANAGEMENT

Feature of OPM when businesses bring a cost leadership approach to the operations function (Focus on reducing costs to a minimum whilst maintaining profit margins).

Businesses apply cost leadership to reduce Fixed costs (Don’t change regardless of the business activity level), & Variable costs (Vary according to business activity level-production level).

Businesses may also apply cost leadership approach in terms of:

- Achieve economies of scale- Bulk buy inputs- Eliminate waste- Produce high volume output

GOVERNMENT POLICIES AND THEIR EFFECT ON OPERATIONS

All businesses operate in a political-legal environment; hence Government political decisions can have a significant impact on the operations function, which in turn directly affect the management of various key business functions.

One example of this influence can be seen as result of the implementation of Carbon pricing, which has meant an increase in the cost of production as an incentive for decreasing the release of carbon emissions and other pollutants in the atmosphere. (Additional cost passed on the consumer where possible)

Other policies that influence the operations function include:

WHS legislation, public health legislation, environmental policies, employment relations legislation

These policies can inform law-making and also lead to business opportunities, therefore operations managers need to be fully aware of the contemporary government policies and what they comprise.

LEGAL REGULATION

A very significant external factor that affects operations is that of laws and regulations, which a business must abide by. The range of laws with which a business needs to comply with is referred to as ‘compliance’.

The expenses associated with meeting these standards or ‘complying with these laws and regulations’ are referred to as compliance costs.

Relevant laws with which a business needs to comply with, in regards to conducting the operations function include:

- Occupational Health and Safety – In the use of machinery and in interacting with the business environment. Adequate training, protective equipment and other safety standards are required

- Training and development – In the use and application of technology and in methods used to work efficiently

- Fair Work and discrimination laws- Environmental Protection – In minimising pollution, eliminating and safely disposing toxins- Apply rules about Public Health –Safety standards and fitness for purpose of regulations

ENVIRONMENTAL SUSTAINABILITY

Environmental sustainability means that business operations should be shaped around practices that consume resources today without compromising (limiting) access to those resources for future generations.

The two aspects to Environmental sustainability are the sustainable use of renewable resources and the reduction in non-renewable resources.

As a result of the need to integrate a long-term sustainable view of resource management, in conjunction with increasing climate change awareness, many businesses act to lower their ‘carbon footprint’ (Amount of carbon released as part of the production process)

CORPORATE SOCIAL RESPONSIBILITY- The difference between legal compliance and ethical responsibility- Environmental sustainability and social responsibility

Corporate Social Responsibility is an important influence on business and integrates financial, social and environmental goals. It refers to open and accountable business actions based on respect for

people, community/society and the broader environment. It involves businesses doing more than just complying with the laws and regulations, but going above and beyond expectations.

This means that the driver of corporate decision making is not simply profitability, but rather something that reflects a range of community concerns and societal expectations.

- Legal compliance refers to businesses abiding by the word of the law, whereas ethical responsibility refers to businesses meeting all of their legal obligations and taking it further by encompassing a much broader integration of social, community and environmental concerns.

LEGAL COMPLIANCE

Complying with legislation costs a business money (compliance costs). In demonstrating ethical responsibility, a business is demonstrating that it values something more than just earning maximum profits because it is allocating money over and above what it costs to comply with the law.

Compliance falls in a number of areas for business:

*Labour Law compliance (Minimum wages,award wages)*Environmental and Public health compliance (Regulations stopping dumping)*Business licensing rules *Taxation (Any levies, duties or taxes imposed on profits)*Trade practices and fair market dealings (Address issues of market power)*Human Rights (Rules restricting Discrimination)

Sometimes Businesses may seek to avoid compliance/compliance costs by using outsourcing as a business strategy. Outsourcing refers to the contracting out of particular key business functions to an outside specialist in order to undertake one or more key business functions.

Outsourcing done both onshore and offshore

Onshore outsourcing involves the use of domestic businesses as the outsourcing provider

Offshore outsourcing involves taking the activities to a provider in another country, to therefore take advantage of regulatory differences between nations (Cheap labour). (Raises ethical issues concerning business behaviour)

ETHICAL RESPONSIBILITY

Involves business going beyond the law and taking into account broader social, community and environmental concerns.

Ethical business enterprises recognise that variation in laws between nations can undermine social and ethical responsibility. Therefore, they may seek independent sources, such as the ILO and lobby groups, to create ways of applying ethical standards across the operations function.

- ENVIRONMENTAL SUSTAINABILITY AND SOCIAL RESPONSIBILITY

Environmental sustainability and social responsibility are features of an ethical approach to operations management.

Economic development must be accomplished sustainably – using methods of production that conserve the Earths resources for future generations.

Consequently, businesses are being asked to take increasing responsibility for the protection of the environment. The principle of ecological sustainability requires businesses to evaluate the full environmental effects of their operations.

Corporate social responsibility refers to a business’s management of the social, environmental, political and human consequences of its actions and going ‘above and beyond’ making a profit and obeying the law. A socially responsible business tries to achieve two goals

1) Expanding the business2) Providing for the greater good of society

Social responsibility (Customers eventually find out which businesses are acting socially responsibly and reward them by purchasing more of their products)

Short term- Costs money Long turn- Turns out to be to the company’s own interests.

INPUTS

The common direct inputs are labour, energy, raw materials, machinery & technology (capital equipment).

- Labour : Requires human effort- both mental and physical. Jobs in the field of business operations include those in the areas of sourcing and supply chain, technical support and maintenance for machinery, inventory management and control, quality processes. Production, logistics, distribution. Clearly labour is crucial to all aspects of operations.

- Energy : in the form of electricity or fuels- which can be converted into heat, movement, light, sound or other forms of energy, in an essential input to the business. Energy is required to bring inputs to the business, to transform them and to distribute them to consumer markets.

- Raw materials : The basic components of manufactured goods e.g. wood, unprocessed agricultural products, minerals, water and so on.

- Machinery & Technology : Machinery is used to process raw materials, as well as design and finish products. Capital-labour substitution means that the machinery and technology displace people by doing the work they do.

INPUT CLASSIFACTION

Transformed resources (what we change) are those inputs that are changed or converted in the operations process. The transport resources are:

- Materials + intermediate goods- Information (internal + external)- Customers (needs, feedback)

Transforming resources (how we change things). Transforming resources are those inputs that carry out the transformation process. .E.g. human resources (skills and knowledge), plant (equipment, technology)

MATERIALS:

Materials are the basic elements used in the production process and consist of two types:raw materials and intermediate goods. Raw materials are the essential substances in their unprocessed state and usually come from mines, forests, oceans. Intermediate goods are goods manufactured and used in further manufacturing or processing.

INFORMATION:

Information is the knowledge gained from research, investigation and instruction, which results in an increase in understanding. Information acts as a transformed resource when it is used to inform how inputs are used, where they are drawn from, and which suppliers and supplies are available.Information can come from 2 sources:

External InformationThis is information that comes from market reports, statistics from industry observers and industry bodies, official government statistics from ABS, media reports, academic papers and commentary, management journals, and comparative studies. It is useful to integrate relevant information into operation processes.

Internal InformationInternal information comes from within the business and is gathered from internal sources such as financial reports, quality reports and internal key performance indicators (KPI’s) such as lead times, inventory turnover rates and production data. Internal info acts as a transformed resource when it informs processes and creates process improvements.

Customers are generally thought of as being relevant to outputs. However, customers become transformed resources when their choices shape inputs. A consumer orientation takes the preferences and interests of consumers as the starting point to production process.

Customer relationship management (CRM) refers to the systems that businesses use to maintain customer contact. CRM software can be used to improve customer service, increased competitiveness, and identify changes in consumer tastes.

o TECHNOLOGY, TASK DESIGN AND PROCESS LAYOUT

TECHNOLOGY

Technology is the application of science or knowledge that allows people to perform established tasks in new and better ways

Specifically, Business Technology involves the use of machinery and systems enabling businesses to undertake the transformation process more effectively and efficiently

Can be purchased or leased Advantage of leasing equipment is that it is cheaper, and allows money to be sourced for

other purposes

Costs that accompany technology – Set-up and siting, cabling and the loss of workers who may be displaced due to the acquisition of technology

OFFICE TECHNOLOGY

Administrative technologies include a range of computer and communications devices. A number of advancements have occurred in terms of office technology, most notably with regards to ‘telecommuting’.

Telecommuting – Refers to travelling to work electronically ie. Working from home and emailing work into the office

MANUFACTURING TECHNOLOGY

Key manufacturing technologies are robotics, computer-aided design (CAD) and computer-aided manufacturing (CAM).

*Used to speed up processes and enable further utilisation of raw materials

- Robotics are used in businesses where a programmable machine capable of doing several tasks is required in conjunction with high quality and minimum waste.

Allow for high precision work for longer periods of time than human labour, in conditions that are dangerous. However, robots are expensive and hence unaffordable for most small to medium scale manufacturers.

Computer-aided design (CAD): Computerised design tool that creates product possibilities (generates 3D diagrams, that can viewed from multiple angles) from a series of input parameters/data. It can design the sequence of steps needed to create the desired product (meet customer needs) in the shortest possible lead time.

Computer-aided manufacturing (CAM): Software that controls manufacturing processes. Links design process to allow the instantaneous manufacturing of designs.It can be used to calculate how much input resource is required and stores historic purchasing records.

TASK DESIGN

Refers to classifying job activities so that employees can successfully perform and complete the task. (Essential aspect of Transformations processes)

Each individual task is analysed and broken down into separate steps and allocated to machines and employees with the appropriate skills and knowledge. Task design allows ongoing adjustments in each activity to ensure continuous improvement in productivity.

Involves job analysis an can be done after a skills audit has been conducted.

SKILLS AUDIT

Formal process used to determine the present level of skilling and any skill shortfalls that need to be made up either through recruitment/training.

PLANT LAYOUT

Plant (Office/Factory) layout involves planning the arrangement of workspace to streamline the transformation process and ensure effectiveness. The method adopted by managers is dependent on the type of manufacturing operations conducted by the business in accordance with the level of production. The alternative layout options are:

- Process layout- Product layout- Fixed position layout

PROCESS LAYOUT (Functional layout)

Refers to the arrangement of machines such that the machines and equipment are grouped together according to the function they perform (Group similar processes together) in producing the good or providing the service.

E.g. This type of layout is typical of hospitals, , where areas are dedicated to particular types of medical care, such as maternity wards and intensive care units.

{Process layout for intermittent Production}

PROCESS PRODUCTION (Deals with high-variety/low-volume production)

Each product has a different sequence of production and the production is intermittent (moves from one department to another). The necessary machinery is therefore arranged according to this sequence.

{PRODUCT LAYOUT for mass production}

Product production is characterised by the manufacturing of a high volume of constant quality goods. An assembly line is the most common layout for this type of production, and this type of layout is referred to as product layout where the equipment arrangement relates to the sequence of tasks performed in manufacturing a product. (Product moves from station to station)

FIXED POSITION LAYOUT

Refers to an operational arrangement in which employees and equipment come to the product (Product remains in one location due to its bulk)

OFFICE LAYOUT

Modern office layout uses a workstation arrangement (Desk areas required by office workers). Tailored to meet the needs of the business, and office needs to allow for smooth workflow, in accordance with complying with WHS legislation.

MONITORING, CONTROL AND IMPROVEMENT

All operations (transformational) processes should be subject to control and monitored for their effectiveness. Monitoring and control lead to improvements when there is a focus on quality and standards.

MONITORING

- Process of measuring actual performance against planned performance (crucial)

Involves measuring all aspects of operations, from supply chain/use of inputs, to transformation processes/outputs, against KPIs (Key Performance Indicators).

KPI’s (Predetermined variables) that are measured so appropriate controls to operations can be made. Include:

- Lead times- Defect rates- IT and Maintenance costs

Monitoring of KPIs allows businesses to assess performance against targeted levels through collecting information about the performance of operations process, and further see if resources have been allocated properly and are being used efficiently.

CONTROL

Occurs when KPIs are assessed against predetermined targets (whereby business performance is closely measured & regularly scrutinised indicating issues) and corrective action is taken if there is a discrepancy between performance and goals.

Control requires operations managers to take corrective action, in terms of making changes to the transformation process (Redesigning facilities layout/Adjusting level of technology) in order to correct the problem.

IMPROVEMENT

- Refers to systematic reduction of inefficiencies and wastage, poor work processes and the elimination of any bottlenecks.

- Bottlenecks (Stage in a process that causes the entire process to slow down or stop)

Improvement is sought in the following areas:

- Time, Minimising bottlenecks and the assessment of wait times- Process flows, Smoothness of transition between process

- Quality, Measurement of product standards and Quality- Cost, Review of expenses (fixed and variable)- Efficiency, Reduction of waste/Greater output

Continuous improvement involves ongoing commitment to achieving perfection.

OUTPUTS

Outputs refer to the result of business efforts – the good or service delivered to the customer

A business may produce a range of different types of outputs; Eg. Mitsubishi separates its vehicle manufacturing operations from its customer service operations.

Obvious type of output is the good or service produced.

There however exist more subtle outputs including

- Customer service- Warranties

CUSTOMER SERVICE

Refers to how well a business meets and exceeds the expectations of customers (in terms of the final product delivered to the customer). The better the customer service, the greater the market share and ability to grow twice as fast as competitors. Intangible output that requires extensive contact with customers.

Features:

- handling customer returns, - answering questions - following up customer enquiries.

WARRANTIES

- A warranty is 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.

If warranty claims occur, a business can identify issues that exist in the production process and use this information to improve transformation processes.

OPERATIONS STRATEGIES

Operations strategy refers to the decisions which affect the long-term capabilities of the operations function. The aim of operations strategy is to manage and use the resources of the business to achieve and maintain competitive advantages in the marketplace. (In turn)

OVERVIEW

- Performance objectives - Quality management- New product or service design and development - Overcoming resistance to change- Supply chain management -Global factors- Outsourcing- Technology- Inventory Management

PERFORMANCE OBJECTIVES – QUALITY, SPEED, DEPENDABILITY, FLEXIBILITY, CUSTOMISATION, COST

Performance objectives are goals that relate to particular aspects of the transformation process.

(Goals are set in order to become more efficient, productive and profitable)

They establish standards which can be used to evaluate the performance of operations

The following are the performance objectives:

QUALITY

- Quality refers to how well designed, made, functional the goods are and their degree of competence with which services are organised and delivered. (Crucial aspect that distinguishes products in the market)

Quality is often determined by consumer expectations, which are used to inform the production standards applied by the business. Quality performance objectives include:

- Quality of design- Quality of conformance- Quality of service

QUALITY OF DESIGN

Refers to how well a good is made or a service is delivered. Design determines the inputs and how the transformation process will be arranged, and the production performed. A high quality design will be typically:

• Functional- Does what it is claimed to do.

• Durable- Long lasting.

• Aesthetically pleasing- Looks good.

As a performance objective, a business needs to decide the quality of product it will deliver to the market.

High quality – Reflected high price – Loses customers

QUALITY OF CONFORMANCE

Quality of conformance is a measure of how consistently products meet/conform with the standard of a prescribed design with certain specifications (conditions).

Eg. A cheap plastic toy is of very low-quality design but if it meets the low-quality design specifications, it would have a high standard of conformance, indicating a certain quality of process.

QUALITY OF SERVICE

Refers to:

- How reliable the service is- How well the service meets the specific needs of the client - How timely (Suitable) or responsive the service delivery is

SPEED

Refers to the time it takes for the production and the operations processes to respond to changes in market demand.

• Speed aims to satisfy consumer needs as quickly as possible. Therefore goals of speed include reducing waiting times, shorter lead times and faster processing times.

• Speed can be improved by new technology, better skilled workers or redesigning a more effective plant layout.

• Risk of increasing the speed of operations- quality may suffer.

DEPENDABILITY

Dependability, as a performance objective, refers to how consistent and reliable a business’s products are.

Regarding goods, Dependability refers to how long the products are useful before they fail (Durable). One measure of dependability is measured by warranty claims.

In terms of services, Dependability refers to consistency of service standards and reliability. A measure for service dependability is the number of complaints received.

FLEXIBILITY

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

Changes in market demand causes a pressure on capacity, thus a business needs to meet the increase in demand and thereby avoid a stock-out (Business runs out of stock).

For goods, flexibility can be achieved through:

- Investment in new technology that increases the capacity of production.- Changing the product design to create a broader variety and hence enable the business to

meet a broader range of consumer desiresFor services, flexibility can be achieved through:

- Increasing the number of service providers- Increasing the provider’s skill level- Improving the level of technology used when providing the service

CUSTOMISATION

- Refers to creation of individualised products to meet the specific needs of the customers.- Gives customers more options by varying the product such as size or colour. - Customised products can usually command a higher price than standardised products.

COST

- As a performance objective refers to the minimisation of expenses so that operations processes are conducted as cheaply as possible.

Over time, businesses seek to become more efficient and thus allocate cost better.

Ways of reducing (Operational) costs:

- Acquisition of new technologies- Use inputs better- Minimise wastage

Moreover, a business will also seek to reduce supplier costs, manage inventory (reduce cost), maximise flexibility and find distribution methods that are cost effective.

NEW PRODUCT OR SERVICE DESIGN AND DEVELOPMENT

*New Products must be developed for a business to maintain a competitive advantage (Innovation)

*New Product design is a lengthy and expensive process, in which few products make it to final production from those that are initially developed. As such many businesses do not have the finance, knowledge or time for this.

*However a business may imitate and therefore use the Reverse Engineering process as a means of avoiding expenses & risk of product development

*The new product development process is as follows:

- Concept development (Ideas are discussed and assessed)

- Cost benefit analysis (Economic analysis to determine if product is worth pursuing)

- Production design (Engineers design the product & work through technical difficulties)

- Product testing (Feedback from testing and market research)

SUPPLY CHAIN MANAGEMENT- LOGISTICS, E-COMMERCE, GLOBAL SOURCING ***

Supply Chain Management involves the management and flow of supplies (Raw materials, Information & Finance) throughout the inputs; transformation processes (Value adding) and outputs to best meet the needs of customers.

- Encompasses the coordination of all businesses directly linked to the supply of goods and services, so that inputs and outputs are delivered in the quickest, most dependable and cost effective manner

Three key aspects to SCM:

- Sourcing (including Global Sourcing)- E-commerce (Including E-procurement)- Logistics

SOURCING

SOURCING, in the context of SCM, involves the purchasing of inputs for the transformations process

4 recent trends in sourcing

- Supplier rationalisation (Assessing the no. of suppliers to reduce to the least amount)- Backwards Vertical Integration ( Form of vertical integration that involves the purchase of

suppliers)- Cost minimisation ( The use of Offshore suppliers, to take advantage of regulatory

differences)- Flexible/Responsive Supply Chain Processes

GLOBAL SOURCING

- Refers to Businesses purchasing supplies or services without being constrained by location, thereby sourcing from wherever the suppliers are that best meet the sourcing requirements

Global sourcing carries particular benefits in conjunction with numerous challenges.

ADVANTAGES

- Takes advantage of regulatory differences that exist between nations (Low-cost labour) allowing for reductions in production costs

- Gain of expertise from various sources - Access to new technologies/resources used to generate greater efficiency

DISADVANTAGES

- Possible relocation of aspects of operations, in conjunction with increased costs of logistics, storage and distribution

- Managing different regulatory differences that exist between nations (Affect one’s ethical and social manner)

- Increasing complexity of overall operations when sourcing from diverse locations. One of these complexities is financial and the other is contractual. Financial concerns arise from the risk associated with exchange rate fluctuations. Contractual concerns arise from language and cultural variations, and regulatory differences

E-COMMERCE

- Involves the buying and selling of goods and services via the internet

Advantages: Greater availability of information, easier and cheaper access to global markets Disadvantages: Privacy/security issues & increased risk of purchasing faulty materials

- Enables businesses to source through online links to suppliers through business-to-business (B2B) processes and also enables customers direct access to products through business-to-consumer (B2C) processes

B2B refers to direct access from one business (supplier) to another (buyer), allowing the supplier to assess the needs of the business and meet them in a timely manner.

Example: Intel selling microprocessors to Dell

B2C refers to the selling of goods and services to consumers over the internet, with payment usually by credit card

Example: Agoda.com – Sells accommodation to travellers on behalf of hotels.

LOGISTICS ***

- Refers to the physical distribution and transportation of products. It involves the integration of transportation, inventory, storage, warehousing & distribution centres, and materials handling & packaging

- The use of warehouses and distribution centres is crucial to the successful management and movement of inventories

Distribution: Refers to the ways of getting the goods or services to the customer

The type of product and the cost of transportation will determine the mode of transportation AND distribution selected

STORAGE involves finding a secure place to hold stock until it is required, whilst the type of storage (Aim to preserve product) (Short and long term) is dependent on the type of good. E.g. Cold storage used for perishable goods, and assist to increase the shelf-life of the product

WAREHOUSING is defined as the use of facilities for the storage of inventories, protection and, later, distribution of stock.

Costs associated with warehousing include:

- The premises- stacking and moving the stock- carrying excess stock or redundant stock if not sold- losses from theft or reasons not accounted for- stock subject to damage (e.g. water damage) if not correctly stored.

Despite the costs associated with warehousing, it can be very useful as a storage point for durable items that may need to be transported with little notice

Distribution centres are strategically located so as to minimise the time it take to supply stock to retail outlets. Demand driven and hence set up to distribute goods with a shorter storage time.

A final aspect of logistics concerns materials handling and packaging. Materials handling is an important aspect of the movement and storage of goods, and therefore particular standards and methods of operating need to be applied

OUTSOURCING – ADVANTAGES AND DISADVANTAGES

Involves the use of external providers to perform business activities. (Contracting out of particular functions of the business to outside specialists rather than complete it internally, in order to reduce costs)

The term ‘outsourcing’ is often called Business Process Outsourcing (BPO), that captures a range of outsourced business processes, including:

- Operations such as manufacturing- Human resources including training and development- Finance & Accounting outsourcing (FAO), ie.preparation of financial reports- Knowledge process outsourcing (KPO),i.e. Outsourcing of managerial work- Legal process outsourcing (LPO), i.e. Legal support

A business deciding whether to outsource should consider several factors with regards to whether the use of outsourcing is viable, and can involve the use of different options.

1. Creation of Shared Services Centres (Creation of an in-house centre that performs work for multiple subsidiaries)

2. Use of ‘fee-for-service’ arrangement (It allows the business to test the outsourcing market prior to making a change.)

3. Joint Ventures (The business engages an outsourcing services provider but the provider is also free to outsource to other businesses in the same industry)

4. Use of a ‘build-operate-transfer’ approach (This involves offshore outsourcing and involves contracting with external organisations)

Outsourcing can be highly beneficial for businesses, but it also can present a number of significant challenges or issues.

ADVANTAGES

- SIMPLIFICATION: Due to a reduction in the no. of activities performed within the business- CAPACITY TO FOCUS ON CORE BUSINESS: Outsourcing the supporting processes gives the

organization more time to strengthen their core business process.- EFFICIENCY AND COST SAVINGS: Access to cheaper, skilled labour/skills/resources in

offshore locations and their ability to exploit regulatory differences all lead to cost savings for business.

- INCREASED PROCESS CAPABILITY: Comes from access to improved technology and highly skilled labour. This means products are produced and delivered with improved levels of service

- Increased accountability: through the use of service level agreements (SLAs), which contractually bind the vendor to pre-determined targets on KPIsStrategic benefits:

- Using outsourcing to get around trade barriers- The use of a vendor that outsources for others within the same industry can bring the

benefit of expertise gained from outsourcing to competitors.

DISADVANTAGES

The challenges and issues facing businesses that use outsourcing include:

- Payback periods and costs: refers to how long it takes to repay the cost of organising outsourcing and make the required organisational changes.

- Communication & Language: Refers to issues that exist between the business and the outsourcing vendor. Outsourcing often occurs across two or more regions, hence there can be cultural differences, language differences and differences in the way business issues and problems are managed. This can lead to a misalignment/miscommunication between the business and the outsourcing vendor.

- Loss of control of standards and information security: when a business opts to outsource, it can feel a loss of control over standards and also over how information is used. Recent issues have occurred where a Chinese manufacturer of toys for the Mattel brand (a leading United States of America toy brand) did not adhere to the design specifications outlined in the Service Level Agreement (SLA) and used too much lead in toys

- Organisational change and redesign: outsourcing may be accompanied by a high level of business change and organisational redesign. There may be downsizing, causing the loss of domestic employment.

- Loss of corporate memory and vulnerability: Business is dependent on other businesses and hence key knowledge of processes and solutions may be lost with the transfer of business processes to outside parties. Solution: Some businesses create ‘shadow teams’ that retain corporate knowledge and processing capability.

Therefore, although outsourcing is one of a business’ strategy, the use of outsourcing needs to be carefully assessed as it can present significant challenges and problems if not well managed.

o TECHNOLOGY – LEADING EDGE, ESTABLISHED

Technology is defined as the design and innovative devices used upon the operations process. The use of technology can be an operations strategy particularly if it enables the business to gain a competitive advantage.

Technology in the operations function may be classified according to whether it applies to and improves inputs, transformations processes and outputs; or whether it makes the managerial and administrative functions smoother.

Technology can be divided into two main categories:

LEADING EDGE

- Is the technology that is the most advanced/innovative at any point in time - Created by innovative processes and innovative thinking

Can help businesses to:- Create products more quickly and to higher standards- Reduce waste- Operate more effectively

Example: Nanotechnology, that allows for the manipulation of molecules and atoms at a ‘nanoscale’. This technology is expected to affect all parts of human life, including energy, food, healthcare, computers and consumer products.

ESTABLISHED

- Is the Technology that has been developed and widely accepted/used, whereby the cost, performance and the servicing of the technology is readily available

- Established technologies help to establish basic standards for productivity and speed.

In the operations function, established technologies include:- Robotics for complex and detailed manufacturing

- CAD, CAM & Computer-Integrated Manufacturing (CIM) for integrating transformations processes

- Software such as Microsoft project that allows managers to plan and schedule operations.

Both forms of technology give businesses efficiencies, productive gains & a capacity to improve operations processes.

o INVENTORY MANAGEMENT- ADVANTAGES AND DISADVANTAGES OF HOLDING STOCK, LIFO (LAST–IN-FIRST-OUT), FIFO (FIRST-IN-FIRST-OUT), JIT (JUST-IN-TIME)

Inventory or stock refers to the amount of raw materials, work-in-progress and finished goods that a business has on hand at any particular point in time.

Inventory Management is a key operations strategy and refers to the processes that identify the quantity of materials to be ordered and the timing of the delivery of those materials

STOCK

- Product either in partial or full transformation, which has yet to be sold- All businesses will carry some stock, though the issue of importance is exactly how much to

carry

ADVANTAGES OF HOLDING STOCK

- Consumer demand can be met when there is stock available. This may prevent the consumer from seeking to buy from an alternative business (Respond quickly to changes in demand)

- If a particular product line runs out, an alternative can be offered thereby generating income rather than a loss in sales

- Reduces lead times between order and delivery- Stocks can be distributed to distribution centres, which then rapidly transport the products

to places as indicated by the demand- Older stock can be sold at reduced prices and thereby encourage cash flow and also attract

sales of other products

DISADVANTAGES OF HOLDING STOCK

Despite the many advantages of holding stock, there are also disadvantages that come with carrying stock. These include:

- The costs associated with holding stock (Storage charges, spoilage, insurance, theft and handling expenses)

- The invested capital, labour and energy cannot be used elsewhere as it has been used to create the stock

- The cost of obsolescence (Uselessness), which can occur if stock remains unsold

INVENTORY VALUATION METHODS

- Inventory Valuation: allows a company to calculate the cost of goods sold and the cost of ending inventory

LIFO (LAST-IN-FIRST-OUT)

Method of pricing inventory that assumes that the last goods purchased are also the first goods sold and therefore the cost of each unit sold is the last cost recorded. The simplified application of LIFO would cost each unit sold at the last cost recorded.

Gross Profit = Total sales – Total cost of sales

ADVANTAGE OF USING LIFO

- Prices used to calculate the cost of sales & Gross profit are more recent and therefore closely reflect their economic value

- However it may overstate cost and understate gross profit. Moreover, it may undervalue stocks on hand at the end of the period

FIFO (FIRST-IN-FIRST-OUT)

Method of pricing inventory assumes that the first goods purchased are also the first goods sold and therefore the cost of each unit sold is the first recorded.

This method is especially used for perishable products that have a ‘use-by’ or ‘best before’ date.

Under a FIFO approach, stock costs may be understated and profits overstated. Moreover, stocks at the end of the period may be overvalued

Gross Profit = Total sales – Total cost of sales

JUST-IN-TIME (JIT)

One means of managing stock is to apply a JIT approach, which aims to overcome the problem of end-of-period stock valuation.

Just-in-time (JIT) is an inventory management approach which ensures that the exact amount of material inputs will arrive only as they are needed in the operation process. The aim is to hold as little stock as possible.

Advantages:

- Reduced Storage and insurance costs- Shrinkage costs and losses due to obsolescence are minimised

However a JIT approach requires a very flexible operations function that has a high ability to respond quickly to changes in market demand, as well as reliable supplier deliveries.

o QUALITY MANAGEMENT *- CONTROL- ASSURANCE- IMPROVEMENT

Quality management refers to those processes that a business undertakes to ensure consistency, reliability, safety and fitness of purpose of product.

There are three approaches to Quality Management: Quality control, Quality assurance and Quality Improvement

QUALITY CONTROL- Inspection, measurement and intervention

- Involve the use of inspections at various points in the production process to check for problems and defects as compared to quality standards set by the business

- Performance is thereby measured in relation to set standards or benchmarks.- Any failure to meet the set standards throughout the production process would need to be

assessed and hence appropriate action would be taken to correct any issue that has caused quality standards to fall below expectation

QUALITY ASSURANCE-APPLICATION OF INTERNATIONAL QUALITY STANDARDS SUCH AS THE ISO9000 SERIES

Quality assurance involves the use of a system that works towards achieving industry wide set standards. This is done through taking a series of measurements and assessing them against pre-determined quality standards.

A widely used international standard is the ISO 9000 series of quality certifications. ‘ISO’ stands for International Organization for Standardization. ISO standards are voluntary but many businesses comply with their requirements to enhance their domestic and international competitiveness.

QUALITY IMPROVEMENT

Focuses on two aspects: Continuous improvement and Total Quality Management

CONTINUOUS IMPROVEMENT

- Ongoing commitment to improving a business’s goods or services. Improvement may be a monumental breakthrough achieved through innovation all at once or it may be incremental and gradual over time.

- Innovation, employee involvement and quality are closely aligned and indicate quality working processes reflecting continuous improvement

- As a strategic aspect of operations management, a focus on improvement is likely to help a business to obtain and maintain a competitive advantage

TOTAL QUALITY MANAGEMENT

The Total Quality Management concept focuses on managing the total business to deliver quality to customers. It is an ongoing, business-wide commitment to excellence that is applied to every aspect of the business’s operation that aims to create a defect free production process and maintain a customer based focus. (Originally Developed by W. Edwards Deming in which he believed that it could help businesses increase market share (Better Quality & Lower Priced Products))

To achieve TQM objectives requires four elements: benchmarking, employee empowerment, a focus on the customer and continuous improvement.

1) Benchmarking - structured management tool that involves comparison of management process internally and externally for further organizational improvement

2) Employee empowerment- Allowing employees to come up with solutions to issues. Eg. Quality circles (group of workers that meet to solve problems in relation to equity)

3) Continuous Improvement-company evaluates production process to improve efficiency

4) Customer focus- All employees considering what customers what and the best way to achieve

o OVERCOMING RESISTANCE TO CHANGE – FINANCIAL COSTS, PURCHASING NEW EQUIPMENT, REDUNDANCY PAYMENTS, RETRAINING, REORGANISING PLANT LAYOUT, INERTIA *

An influence on operations strategy arises from the need to manage and be responsive to change. All businesses are subject to change from the external environment.

Resistance to change can be a major obstacle to the realisation of operation goals.

Resistance to change arises from two principal sources within a business:

• Financial

• Psychological/emotional.

FINANCIAL COSTS AND RESISTANCE TO CHANGE

One major cause of a resistance to change from managers and business owners is that of financial costs.

The main financial costs associated with change include:

- 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 (recovered) through use (which adds value in transformation processes). Despite this, new equipment in particular technologies can result in long term reductions in cost & higher overall quality of processing.

- REDUNDANCY PAYMENTS: Redundancy is defined as a loss of work arising from job skills that are no longer required or relevant to the workplace. A significant cost associated with redundancies is the redundancy payout which is the money given to employees when forced out of work since their job skills are no longer relevant.Redundancy costs can be very substantial as it depends on:o The length of employment the employee has had, as under legislation a certain no. of

weeks of pay must be paid when a person is made redundanto The amount of unused leave that the employee has accruedo Any outstanding wages

- RETRAINING: This cost arises from change that causes a reorganisation of the business’s internal hierarchy or from the acquisition of technology. In the first instance, job roles may change requiring employees to acquire different work skills. In the second situation, the purchase of technology often requires training or retraining on new software

- REORGANISING PLANT LAYOUT: High costs associated with reorganising plant layout in regards to transporting, placing and bringing power to the new plant and equipment. Further costs come with losses of productivity, arising from staff orientating themselves with new work processes and arrangements.

PSYCHOLOGICAL RESISTANCE TO CHANGE-INERTIA

Inertia is a term that describes a psychological resistance to change. It is where change can create risk and uncertainty. Employees may resist change as their job prospects may be threatened or due to a fear of a loss of familiar work environment.

Resistance to change can be overcome by /(Adapting to change)

- a business identifying the source(s) of change and assessing whether there is a need to accommodate change.

- Lowering the resistance to change through communicating a need for change and evaluating thoroughly to assess their overall impact

- Use of change agents (Somebody who initiates change or facilitates the change process)- Applying change models such as Kurt Lewin’s unfreeze-change-refreeze model or the more

contemporary Kotter’s eight-step change model, as a means of helping businesses manage change effectively.

Kurt Lewin’s unfreeze-change-refreeze model

Lewin’s recommendation on how change be handled in organisations. Lewin outlined each of the steps as follows:

1. Unfreezing. This process breaks down the forces supporting the existing system and prepares the business for change.

2. Change. The new procedures and behaviours must be communicated and implemented.3. Refreezing. This requires that the manager offers positive reinforcement to make sure the

change lasts.

Kotter’s eight-step change model

John Kotter maintains that the change management process consists of the following eight steps

1. Establish a sense of necessity in highlighting impending threats or potential opportunities.2. Form a guiding group. Establish a team of people to act as facilitators.3. Create a vision. Provide employees with direction allowing for the achievement of a

common objective.4. Communicate the vision to build cohesion between employees eliminate fear of unknown.5. Empower people to fulfil the vision, and hence develop a sense of ownership.

6. Recognise and reward achievements, to encourage further risk taking and reinforce positive aspects of embracing change.

7. Consolidate improvements and assemble benefits attained into the business’s operating procedures and systems.

8. Institutionalise the changes. (Make it part of a structured and well-established system)

Adapting to change through overcoming the financial and psychological resistance can help businesses to create sustainable competitive advantage despite the threats that change pose.

GLOBAL FACTORS – GLOBAL SOURCING, ECONOMIES OF SCALE, SCANNING AND LEARNING, RESEARCH AND DEVELOPMENT

There are four key global factors that affect operations strategy and provide opportunities for operations managers: global souring, economies of scale, scanning and listening, and research and development (R&D).

GLOBAL SOURCING

Global sourcing is a broad term that refers to businesses purchasing supplies or services without being constrained by location, and it therefore includes all outsourcing.

Global sourcing as an operations strategy involves the sourcing of any business operations (process of acquiring inputs overseas) that gives the business cost advantages & similar quality inputs from other countries.

Sourcing examines whether a business should make or buy its inputs, or use a combination of both options. The decision will be influenced by price, quality, size and scope of market, nature of product and available technology and local resources.

ECONOMIES OF SCALE

Defined: Cost Saving advantages gained by firms due to a decrease in production costs leading to increasing return to scale. The means with increasing output there is a decrease in per unit of production costs

Economies of scale become a global factor when businesses sell to global markets. As the scale of production increases, the cost per unit falls resulting in a rise in profitability. Moreover, product lifecycles are extended, which means there is greater added value on production.

Economies of scale/a decrease in production costs arise through:

- Purchasing lower cost per unit of input- Efficiencies created from improved use of technology & machinery

SCANNING AND LEARNING

- Refers to scanning the global environment to identify and learn the critical global trends that may impact the business. For example:

o Changing consumer demandso New Products and services developed in other countrieso New Manufacturing processes availableo Technological innovations- Valuable operations management tool as it can help managers adapt best practice to the

business operations

RESEARCH AND DEVELOPMENT

Research and Development enables businesses to create leading edge technologies, and to create innovative products and solutions, which therefore has a significant impact on the competitive advantage of a business.

Government encourages R&D, and may offer taxation incentives and grants. These incentives and grants assist businesses to invest and allocate resources into R&D.

- Companies like 3M spend huge amounts of money in R&D, developing innovative products to better meet the needs of consumers.

- A central aspect of R&D is ascertaining (determining) what consumers want and assisting to create products that meet their needs.