What is Operations - Notes

8/10/2019 What is Operations - Notes

1/20

What is operations? Outputs: customer service and warranties

Outputs

Outputs are the end result of a businesss production processes, the good or service that is sold to

the customer. Some outputs are also inputs into another businesss production process. For example

a flour mill will make wheat, sell this wheat to a baker who will in turn make a cake which is sold to a

caf or an individual customer. It is vital that the output of a business must meet the demands of

customers if the business is to be able to cover the costs of making the product. The cake made by

the baker must sell for more than the cost of making it.

Customer service

Customer service is a non- physical output of the operations process. It refers to how well the

business can meet the expectations of customers. Although this is often seen as the domain of the

marketing department (and will be discussed more in this topic), it is important that the operationsdepartment recognises its obligations in this area. Operations management is responsible for the

provision and quality of the product and if customers are disappointed in these things, they will look

to other businesses for an alternative product. A good quality product, which is provided in a timely

fashion, will not only encourage customer loyalty but will often let the business charge a higher price

than competitors.

Cathay Pacific and customer service

Cathay Pacific is a Hong Kong based airline which is able to successfully sell its product at a higher

price than its competitors. Why is this? Because customers perceive that they are getting muchbetter quality of service. Cathay Pacific has been focusing on employees to boost their brand. Using

the slogan meet the team that goes the extra mile in their advertising campaign, the airline has

been emphasising the point that customer service is vitally important to it. The campaign was

devised from customer surveys that indicated that Cathay Pacifics service and attitude of employees

were what made the airline stand out over its competitors.

For this reason, Cathay Pacific is able to charge higher prices than many other airlines flying the

same routes.

Warranties

By law in Australia, all products sold must come with a warrantee or guarantee that the product will

serve its advertised purpose. Many businesses when selling a physical product over a certain value

will offer a written warranty, valid for a period of time.

In monitoring the effectiveness of the operations department, management can look at how many

warranty claims are made. Customers usually only make a warranty claim when the product is

defective in some way. If the number of claims is high, it would indicate that something is wrong

with the production process and this must be rectified. If the business has good monitoring and

quality control mechanisms in place, then the business will be able to reduce warranty claims.

Relationship between outputs and the performance objectives.


2/20

Performance objectives

Low cost global sourcing

Quality quality management

Flexibility HR Rucruitment

Dependability New product design

Eg kmart; what do kmart customers value?:

Everyday low prices

Everyday replacement items

Enjoyable shopping experience

Operations function do really waell :

Customer service

Warranty

(iii) Global sourcing

Just as customers are able to shop globally thanks to technology, so can businesses. Whetherit be to access cheaper resources, have access to latest technology or to take advantage ofrelaxed government regulations, many businesses will look beyond their national borders. Byglobal sourcing businesses are able to reduce costs, gain competitive advantages and, thus,

be more profitable.

One of the most well-known examples of global sourcing in the last decade is when PacificBrands (a company that makes Bonds clothing) decided to have much of its manufacturingcarried out in Asia, to take advantage of cheaper labour. This caused national outrage that anAustralian iconic brand would now be made offshore. By global sourcing businesses are ableto reduce costs, gain competitive advantages and, thus, be more profitable.

Cost leadership refers to the strategies to produce goods or services at the lowest possiblecost whilst they are still acceptable to customers. By reducing the costs of production and

distribution, a business will be able to gain an advantage over competitors. However, it isimportant that customers see that they are gaining value for money, otherwise this strategywill not see long term rewards for the business. If the strategy is successful, the business willbecome the leading provider of a particular good or service based on their lowered costs.Businesses adopting a cost leadership strategy commonly have standardised products

The car manufacturer Kia is well known for being a cost leader. It has concentrated onreducing costs of production but also focused on the look of the car because customers willnot buy a car that looks cheap.

???????//////////////////////

(i) Quality


3/20

Management set performance objectives around the quality of design and the resources usedin the product. Quality is usually be monitored at different stages of the production processfrom the quality of inputs, the quality of processes to the quality of outputs. If the quality ofthe final product is not well regarded by customers, they will not buy the product.

Quality Expectations

Quality expectations of consumers influence a business because if the product or service isnot considered good enough, especially compared to the way it is marketed, it can lead todisappointment and consumers taking their business elsewhere.

A business also expects certain quality standards from its suppliers. If the inputs are notsatisfactory then the overall quality of the product/service may be affected. Similarly, if thequality of the input is too high to suit the needs of the business, then the price of the productis increased to maintain profit margins. Both situations result in a business potentially losingcustomers.

Cost based competition

When a business becomes a cost leader, it will attract competition into the market otherbusinesses that will try to offer a similar product at similar low prices. An example of this is inAustralia is Virgin Airlines, Jetstar Airlines and Tiger Airlines all competing against each otherto attract customers to a low price, no frills product. And, when Burger King offered a $4.95lunch deal, MacDonalds soon followed. Being a cost leader, and maintaining this position, canput pressure on the operations function as management will be constantly having to look forways to decease production costs.

?????????????????////////////////////////

(iii) Dependability

It is important that the operations processes are consistent; that is they reliable anddependable, if a business is to retain customers and maintain customer loyalty. The good orservice must be of a consistent and reliable standard. Performance strategies in this areacould concentrate on reducing customer complaints. A number of businesses involved in thefood and beverage industry have had negative social media coverage over changes in their

classic recipes resulting in alterations to the way the product tastes, thus affecting customerloyalty.

(iv) Flexibility

A business needs to be flexible in the way that it adjusts to changes in the external businessenvironment. For example, if customer demand suddenly increases the business must be ableto meet this demand as soon as possible. A performance objective here could involve havingplans (such as critical path analyses) in place for different order sizes. Plans that include theregular maintenance of equipment will allow the business to meet increased demand in atimely way. Training and developing staff so that they can meet changed circumstances isalso important.

New product or service design and development


4/20

It is important that businesses are flexible about their products. Although their core productmay be popular with customers at the moment such as Carmans Fine Foods muesli, this maynot always be the case. Carmans is looking to expand their product range to include bakedgoods, not just muesli related products. New product or service design and development alsoseek to reduce the risk of business failure by increasing options for customers to makepurchases from the business. For example, imagine a fashion store that does not change its

range to suit changing customers tastes in colour, style etc. Mobile phone manufacturers area good example of producers who constantly change their product to reflect the changingtastes and needs of consumers. To do this the operations department must consult with themarketing department to determine what consumers want; they must ensure that productionprocesses are in place to meet these demands. Thus, for product design and development tobe successful operations management must be aware of consumer preferences and as well aschanges and innovations in technology.

??????????//////////////

Quality management control, assurance, improvement

Quality management refers to ensuring that the transformation of inputs results in a qualityoutput. A quality product will not only attract customers to the business but build customerloyalty, ensuring repeat purchases from the customer.

Control

Control is the checking that what was expected to happen, did happen; that is, checking theresults against the plan. Quality control should involve checking the quality of the product at

different stages of the transformation process. Operations will usually employ feed-forward,concurrent and feedback controls to monitor the production process.

Feed-forward controls involve careful planning beforeproduction begins. In this way anyproblems can be anticipated and the solutions considered. An example of this is a bakeryusing a recipe and making sure that all ingredients and equipment are in place before makingbread. Concurrent controls are used duringthe production process. An example is the bakerchecking on the bread during the baking to see if the bread is rising. Feed-back controlsoccur afterthe production process. It can involve checking the final product prior todistribution or even customer feedback to see how satisfied they are with the product. Thebaker could ask customers to fill in a quick survey or even ask questions of customers, togauge how they feel about a new type of bread.

Assurance

Quality assurance is the establishing of a set of procedures so that errors are less likely tohappen in the production of a good or service. This will often involve building a culture withinthe workplace so that every employee strives to produce an output of the highest standard.The aim of quality assurance is to always meet or exceed customer expectations.

For some educational resources available on the internet, businesses have their own qualityassurance standards to ensure equal access for all students. For example, the resources mustpass a few tests including the ability to access information via a variety of web browsers; fitdifferent size monitors; provide adequate colour contrasts for people with vision difficulties;and contain correct spelling and grammar.

Improvement


5/20

Businesses look to continuous improvement in their production processes as this will buildloyalty in existing customers and encourage new customers. This improvement should beaimed at streamlining processes so that waste is eliminated, improving product quality andmaximising the skills of the workforce. The management functions of planning, organising,leading and controlling will be used to carry out these goals.


6/20

To ensure that value adding does occur in the transformation of inputs into outputs;operations management will set performance objectives.

Performance objectives - Quality, speed, dependability, flexibility,customisation, cost

Performance objectives are goals that relate to business operations. They enable the businessto examine specific parts of the transformation process and make necessaryadjustments. These goals are usually quality, speed, dependability, flexibility, customisationand cost. Regular monitoring and control will ensure that performance objectives are met.

(i) Quality

Management set performance objectives around the quality of design and the resources usedin the product. Quality is usually be monitored at different stages of the production processfrom the quality of inputs, the quality of processes to the quality of outputs. If the quality ofthe final product is not well regarded by customers, they will not buy the product.

(ii) Speed

It does not matter how good a product is if the customer does not get that product when theywant it. Objectives in this area will include reducing the time involved to take the customersorder, make the product and deliver it to the customer. For example, like many businessestaking online orders, ING Direct has different rates for delivery of services such as getting a

bank cheque written. If the cheque is urgent, say when paying a deposit on a house, thecustomer can choose from different delivery speeds such as platinum express which


7/20

guarantees next day delivery, standard post which takes 3-5 business days. In mostbusinesses, if an item is in stock for online orders, then often it is up to the customer to pay apremium for immediate delivery.

(iii) Dependability

It is important that the operations processes are consistent; that is they reliable anddependable, if a business is to retain customers and maintain customer loyalty. The good orservice must be of a consistent and reliable standard. Performance strategies in this areacould concentrate on reducing customer complaints. A number of businesses involved in thefood and beverage industry have had negative social media coverage over changes in theirclassic recipes resulting in alterations to the way the product tastes, thus affecting customerloyalty.

(iv) Flexibility

A business needs to be flexible in the way that it adjusts to changes in the external businessenvironment. For example, if customer demand suddenly increases the business must be able

to meet this demand as soon as possible. A performance objective here could involve havingplans (such as critical path analyses) in place for different order sizes. Plans that include theregular maintenance of equipment will allow the business to meet increased demand in atimely way. Training and developing staff so that they can meet changed circumstances isalso important.

(v) Customisation

Customisation means the ability of business operations to meet the needs of its customers. Itis the ability of the business to customise its good or service. This is relatively easy in somebusiness sectors such as those selling software. It services focus on tailoring the software tosuit the needs of other businesses. Another example of customisation can be seen in hair

salons. A hairdresser will listen to the clients preferences and provide a style to meet theirrequest. Other sectors find it difficult to customise their product due to the business modelset up, usually involving mass production. They have relied on a one size fits all philosophy.Henry Ford famously said, about his mass produced Model T Ford, they can have any colour as long as it is black. Technology has allowed businesses to move away from this way ofoperating and let them adapt their production processes to satisfy the desires of individualsand small groups. Performance objectives in this area will involve implementing technologythat allows customer choice in how the final product looks.

KIA SOUL a size for every soul

Korean car manufacturer, KIA has developed a car and the technology that will

allow buyers to customise the car to suit their personality. The KIA SOUL boastsan extensive range of combinations and options (3 body styles) x (2 enginetypes) x (2 transmissions) x (2 interior trims) x (11 colours) x (3 body kits) x (6body art decals) = 4752 possible combinations. How can they do this? Well theystart with the same body and, for the rest, computerised technology allows KIAto add the other things quiet fast so that customer wait times are not too long.The car has proved to be a popular seller with drivers who want a car to reflecttheir personality or soul. More information about KIA can be seenathttp://www.kia.com.au

New product or service design and development
http://www.kia.com.au/http://www.kia.com.au/http://www.kia.com.au/http://www.kia.com.au/


8/20

It is important that businesses are flexible about their products. Although their core productmay be popular with customers at the moment such as Carmans Fine Foods muesli, this maynot always be the case. Carmans is looking to expand their product range to include bakedgoods, not just muesli related products. New product or service design and development alsoseek to reduce the risk of business failure by increasing options for customers to makepurchases from the business. For example, imagine a fashion store that does not change its

range to suit changing customers tastes in colour, style etc. Mobile phone manufacturers area good example of producers who constantly change their product to reflect the changingtastes and needs of consumers. To do this the operations department must consult with themarketing department to determine what consumers want; they must ensure that productionprocesses are in place to meet these demands. Thus, for product design and development tobe successful operations management must be aware of consumer preferences and as well aschanges and innovations in technology.

Supply chain management logistics, e-commerce, globalsourcing

For a smooth production process, it is critical that inputs are available on time and that

customers receive the outputs as required. In business this is called the supply chain and isthe responsibility of the operations department. For the supply chain to meet the needs of thebusiness, management must have procedures in place to ensure that orders for inputs areplaced in a timely manner. Not enough stock will mean that orders cannot be completed ontime; too much stock can lead to storage issues, spoilage and loss of stock. Many businessesmonitor their stock levels and movement of stock with information technology systems. Forexample, when a customer buys a hammer from a hardware store, it will be scanned at thecheckout and the computer will record this transaction. The computer will send an alert to theperson who is in charge of ordering stock when stock of hammers become low so that morehammers can be ordered. This same system will also show management which products arepopular, and which are slow to sell.

(i) Logistics

Logistics management is the coordination of the supply chain and what goes where at whattime. It plans, organises and monitors activities such astransportation ,inventory,warehousing ,material handling , andpackaging , and oftensecurity . Somebusinesses will outsource aspects of the supply chain and so management will have tooversee the contracting process involved. For example, Coca-Cola Amatil (CCA) has, in thepast, outsourced the delivering of its drink products to Linfox, a business that specializes intransportation. CCA does this so it can concentrate on its prime function of drink production,and not worry about managing and maintaining a fleet of vehicles as well. Operationsmanagement in CCA is responsible for getting quotes (tenders) for the transportationcontract and monitoring the contract.

More about Coca- Cola Amatils can be seen athttp://ccamatil.com More about Linfoxs can be seen athttp://www.linfox.com/

(ii) E-commerce

E-commerce means electronic commerce. Technology means that customers can now placeorders on line from anywhere in the world. This not only provides opportunities for a businessto gain more customers but it also provides opportunities for other businesses, resulting ingreater competition. Ensuring that the customer receives their on-line order is an importantfunction of the operations department. Australia Post has adapted its operations, due to thechange in the way that people communicate, by providing the delivery of many onlinepurchases. The Financial Review has written a case study about how Australia Post has met

the challenge of change in the external environment. The case study can be foundathttp://www.afrbiz.com.au/case-studies/australia-post-building-the-logistics-of-a-nation.html
http://en.wikipedia.org/wiki/Transportationhttp://en.wikipedia.org/wiki/Transportationhttp://en.wikipedia.org/wiki/Transportationhttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Warehousinghttp://en.wikipedia.org/wiki/Warehousinghttp://en.wikipedia.org/wiki/Warehousinghttp://en.wikipedia.org/wiki/Materials_managementhttp://en.wikipedia.org/wiki/Materials_managementhttp://en.wikipedia.org/wiki/Materials_managementhttp://en.wikipedia.org/wiki/Packaginghttp://en.wikipedia.org/wiki/Packaginghttp://en.wikipedia.org/wiki/Packaginghttp://en.wikipedia.org/wiki/Securityhttp://en.wikipedia.org/wiki/Securityhttp://en.wikipedia.org/wiki/Securityhttp://ccamatil.com/http://ccamatil.com/http://ccamatil.com/http://www.linfox.com/http://www.linfox.com/http://www.linfox.com/http://www.afrbiz.com.au/case-studies/australia-post-building-the-logistics-of-a-nation.htmlhttp://www.afrbiz.com.au/case-studies/australia-post-building-the-logistics-of-a-nation.htmlhttp://www.afrbiz.com.au/case-studies/australia-post-building-the-logistics-of-a-nation.htmlhttp://www.afrbiz.com.au/case-studies/australia-post-building-the-logistics-of-a-nation.htmlhttp://www.afrbiz.com.au/case-studies/australia-post-building-the-logistics-of-a-nation.htmlhttp://www.afrbiz.com.au/case-studies/australia-post-building-the-logistics-of-a-nation.htmlhttp://www.linfox.com/http://ccamatil.com/http://en.wikipedia.org/wiki/Securityhttp://en.wikipedia.org/wiki/Packaginghttp://en.wikipedia.org/wiki/Materials_managementhttp://en.wikipedia.org/wiki/Warehousinghttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Transportation


9/20

(iii) Global sourcing

Just as customers are able to shop globally thanks to technology, so can businesses. Whetherit be to access cheaper resources, have access to latest technology or to take advantage ofrelaxed government regulations, many businesses will look beyond their national borders. Byglobal sourcing businesses are able to reduce costs, gain competitive advantages and, thus,

be more profitable.

One of the most well-known examples of global sourcing in the last decade is when PacificBrands (a company that makes Bonds clothing) decided to have much of its manufacturingcarried out in Asia, to take advantage of cheaper labour. This caused national outrage that anAustralian iconic brand would now be made offshore. By global sourcing businesses are ableto reduce costs, gain competitive advantages and, thus, be more profitable.

Toyotas supply chain management

Toyota has a unique approach to supply chain management which has

contributed to its success at an international level. Toyota builds relationshipswith its suppliers by adopting four principles:

1. Treat all suppliers fairly2. Establish long term supplier relationships.3. Retain critical new-product development and design knowledge in

house4. Take responsibility for suppliers development and growth

Each supplier must fit with Toyotas philosophy of:

Kaizen demonstrate commitment to continual improvement Sharing of information and knowledge be transparent and open in

all discussions Consistent reasoning base decisions on facts and have a deep

understanding of reasons behind decisions Responsiveness reply promptly to requests and be reliable in

delivery

Suppliers are chosen very carefully. It often takes 3-5 years to select the rightsupplier because detailed discussions about cost, quality and technologyrequirements take place and critical issues are identified and resolved before a

contract is signed. The performance of suppliers is monitored very carefully andthose that perform well often earn more business. Toyota believes that long-term partnerships are more cost-effective and flexible, than short term ones.

Outsourcing

A business may contract out some of its operations to other businesses that specialise inthese tasks. This is called outsourcing and may occur for a variety of reasons. For example,as stated above, Coca-Cola Amatil does not own its own transport fleet as it wants to focusits energy on what it does best.

Outsourcing has advantages and disadvantages:-

Advantages


10/20


11/20

this is in a supermarket where the new milk is placed behind the older milk on the shelf sothat the milk with the shorter expiry date sells first.

Other businesses will use a last-in-first-out(LIFO) system where new items are placed infront of older stock. Products that have along expiry date are usually shelved in this manner.Businesses that are running special promotions on products with may also use this inventory

system.

Just in time (JIT) inventory management is where the product is made or delivered just intime to meet consumer demand. Modern technology involving electronic stock monitoringsystems have made this possible for many businesses and have meant that they can cutdown on the costs involved in holding stock at the retail outlet. Many businesses willwarehouse bulk stock on the outskirts of large urban areas, where rent is cheaper, and haveitems delivered in time to meet consumer demand. Toyota uses the JIT method of leanproduction to eliminate waste and reduce warehousing costs. Increased productivity forToyota is due to the JIT method where they make only what is needed, when it is neededand in the amount needed.

Quality management control, assurance, improvement

Quality management refers to ensuring that the transformation of inputs results in a qualityoutput. A quality product will not only attract customers to the business but build customerloyalty, ensuring repeat purchases from the customer.

Control

Control is the checking that what was expected to happen, did happen; that is, checking theresults against the plan. Quality control should involve checking the quality of the product atdifferent stages of the transformation process. Operations will usually employ feed-forward,concurrent and feedback controls to monitor the production process.

Feed-forward controls involve careful planning beforeproduction begins. In this way anyproblems can be anticipated and the solutions considered. An example of this is a bakeryusing a recipe and making sure that all ingredients and equipment are in place before makingbread. Concurrent controls are used duringthe production process. An example is the bakerchecking on the bread during the baking to see if the bread is rising. Feed-back controlsoccur afterthe production process. It can involve checking the final product prior todistribution or even customer feedback to see how satisfied they are with the product. Thebaker could ask customers to fill in a quick survey or even ask questions of customers, togauge how they feel about a new type of bread.

Assurance

Quality assurance is the establishing of a set of procedures so that errors are less likely tohappen in the production of a good or service. This will often involve building a culture withinthe workplace so that every employee strives to produce an output of the highest standard.The aim of quality assurance is to always meet or exceed customer expectations.

For some educational resources available on the internet, businesses have their own qualityassurance standards to ensure equal access for all students. For example, the resources mustpass a few tests including the ability to access information via a variety of web browsers; fitdifferent size monitors; provide adequate colour contrasts for people with vision difficulties;and contain correct spelling and grammar.

Improvement


12/20

Businesses look to continuous improvement in their production processes as this will buildloyalty in existing customers and encourage new customers. This improvement should beaimed at streamlining processes so that waste is eliminated, improving product quality andmaximising the skills of the workforce. The management functions of planning, organising,leading and controlling will be used to carry out these goals.

Overcoming resistance to change financial costs, purchasingnew equipment, redundancy payments, retraining,reorganising plant layout, inertia

Businesses are not stagnant, they are dynamic and change is always occurring in them. Thisis because in order to have continuous improvement, a business will have to monitor andmodify its operations. In addition, the business environment is also dynamic place and tokeep up with changes, a business will have to adapt its mode of operations. Not allstakeholders will be happy with change for various reasons and may resist any attempt tomodify processes and procedures.

Some changes in the business environment include the introduction of the carbon tax, therise of video-conferencing, work, health, and safety laws, paid parental leave, environmentalregulations and superannuation. There are a plethora of changes in addition to these, but haseach has specific implications for business.

Employees may resist change because they feel that they may lose career opportunities, maylose their skills or may even lose their jobs. They may worry about new training that isrequired. Change may mean that the plant layout is reorganised which places employeesoutside their comfort zone and lead to low morale.

Owners may also resist change because they may have concerns about the costs involved,such the purchase of new equipment and redundancy payments made to staff who are losingjobs. These costs will affect reduce the return on their investment.

Managers will resist change if they feel overburdened with responsibility. They sometimes feelinertia (or lack of energy) toward the change with a feeling of if it aint broke, dont fix it.

Change can be viewed as a positive thing though. For example, employees can often gaininspiration and develop new skills and promotion prospects by retraining; and purchasingnew equipment or reorganising plant layout can make for more efficient and effectiveproduction. To overcome resistance to change, it is important that management consider whythe change is occurring, have sound rationale for the change and decide on the moststrategic time to bring it about. Management must ensure that all relevant stakeholders areincluded in the reasons for change. By involving employees and empowering them withtaking part in the decision-making process they can feel a sense of ownership and control

over the direction of change. In this way, managers can gain support for the change ratherthan encounter resistance.

Management will need to create a culture of change by using such things as change agents.In this way stakeholders will be likely to accept the change.

Global factors global sourcing, economies of scale, scanning andlearning, research and development

As discussed earlier, a business will look to global markets for a variety of reasons. Theseinclude such factors as the sourcing of inputs at the best price available.

A business may be looking to source inputs globally, to improve its economies of scale, whichis producing as many outputs as possible with the least amount of inputs. It is about seeking


13/20

a cost advantage. By then selling to customers in other countries, a business can optimise itsproduction processes.

Globalisation has also given businesses the opportunity to scan and learn which means thatmanagement can see what is happening in global businesses and economies and benefit fromthese experiences. In the same way, businesses can take advantage of research that is being

carried out in other countries and adapt this research to develop products for the domesticmarket.

?????????????????????????????????????????????????????????????????????????????

Operation refers to the coordination of those activities in a business that are involved incombining inputs for the purpose of producing an output that is valued by consumers. Thisprocess is called value adding. For example, a bag of oranges can go through certainprocedures to turn it into bottles of orange juice. The bottles of juice will be worth more thanthe original bag of oranges because, at each stage of production, value was added.

The operations department is responsible for acquiring the inputs and devising the bestproduction methods so that value adding occurs in the most efficient and effective way. Thus,the role of operations management (and the operations manager) is to ensure a smooth

production process that contributes to the output of goods and services of an organization.

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

The term strategic refers to things that are important or essential in relation to a plan ofaction; thus, the strategic role of operations management in business is to play a part inensuring that the goals of the organisation are met. This means that the operations managerwill have to be involved in the development of the businesss goals so that the operationsdepartment knows what resources and production methods are needed to meet these goals.

Cost leaders and differentiation can exist in the same industry. For example, in the carindustry.


14/20

Cost leadership

Cost leadership refers to the strategies to produce goods or services at the lowest possiblecost whilst they are still acceptable to customers. By reducing the costs of production anddistribution, a business will be able to gain an advantage over competitors. However, it isimportant that customers see that they are gaining value for money, otherwise this strategywill not see long term rewards for the business. If the strategy is successful, the business willbecome the leading provider of a particular good or service based on their lowered costs.Businesses adopting a cost leadership strategy commonly have standardised products

The car manufacturer Kia is well known for being a cost leader. It has concentrated onreducing costs of production but also focused on the look of the car because customers willnot buy a car that looks cheap.

Good/ service differentiation

Product differentiation is the way that a business will make their good or service stand outfrom other similar products. A business will use differentiation so that they can improve salesand/or charge a higher price. For example, airlines will try to differentiate their product so asto attract consumers. Businesses can differentiate themselves from others by changingobvious aspects such as price, quality or performance but also in more innovative ways suchas changing the technology used in the process, speeding up delivery time and buildingalliances.

Porsche focus on a differentiation strategy to set it apart from other cars in relation to design,marketing and technology. For Porsche, further developing high performance sports cars alsoserves as a value adding activity and enhances its reputation.

Goods and/or services in different industries

The operations function will look different in different businesses depending on their industrycategory. Some businesses make tangible products known as goods. These businesses areusually found in industries in the primary and secondary sectors. For example, a primaryproducer, such as a sheep farmer, will provide fleece to a wool manufacturer. In thesesectors, operations managers will focus on obtaining the materials that go into the making ofthe product (inputs) and the actual production processes.

Other businesses supply intangible (non-physical) products to customers. This is called aservice and the businesses that provide these are found in industries in the tertiary sector.The tertiary sector is where the output is sold to the customer. For example, the bankingindustry sells financial services to customers and the retail industry sells retail products. Inthese industries, the operations manager will focus on customer service and after care.

Interdependence with other key business functions

The operations department brings together the materials and the activities needed for theproduction of goods and services to meet consumer demand. It also shares ideas across thebusiness about how to improve processes or achieve cost savings to bring about bestpractice. The operations manager will liaise with the other department in the following ways:-

Discuss staffing and training and development needs with the Human Resourcesdepartment/manager.

Discuss financing requirements with the Accounting and Financedepartment/manager.

Discuss product design with the Marketing department/manager.


15/20

Therefore, it can be seen that the Operations department carries out a coordinating role inthe business to ensure that the prime function (main activity) of the business is carried outefficiently and effectively so that consumer demand is met. In this way the business will beprofitable.

Tiger Airlines differentiating its product by price

Tiger Airlines, a relatively recent arrival in Australia, sells itself as a low-costcarrier. In this way it differentiates itself from other airlines. Tiger Airlines triesto be a cost leader in the airline industry as it aims to keep its costs ofoperations as low as possible in its bid to attract and retain customers. Anexample of how it does this is by having its check-in staff also serve at thedeparture gate. This means that customers have to arrive for check in earlierthan for other airlines as the check in desk closes early to allow staff to go to thedeparture lounge. While Tiger has had some issues with its operations, and wasgrounded for over a month due to safety breaches, the fact that Tiger openedservices in Sydney suggests that its no frills service is winning customers.

///////////////////////////////////////////////////////////////////////////////////////////////////////

Inputs

Inputs are those features that go into the creation of goods and services. These features arechanged, or transformed, so that value adding occurs and the result is desired by customers.For example a bag of oranges will be transformed into orange juice; a university student willbe transformed into a professional. A transformed resource is an input that has been alreadybeen altered in some way. Transforming resources are those factors of production that carryout the actual transformation.

The major inputs into the operations process are human resources, materials, finance, time,information and customers.

Transformed resources: materials, information, customers

(i) Material

Materials can take the form of raw or partly processed inputs. Raw materials include itemssuch as timber, metals, animal products and water. If these things have already gonethrough some transformation but are not yet ready for sale, they are called partly processedmaterials. For example, wheat when it is made into flour has not been fully transformed intoa finished product. This will occur when the wheat is used to bake a cake or a loaf ofbread. Materials can also take the form of component parts, for example a car is made up ofmany components which are assembled to make the finished vehicle.

(ii) Information


16/20

Businesses use information as an input to ensure the efficiency of production processes.Information is gathered to construct the flow of production that will create the most products,be the most cost effective and, thus, the most profitable. The operations manager will workwith other departments to gather information on trends in consumer demand, newtechnology, inventory levels, relevant legislation, competitor activity and product qualityissues.

(iii) Customers

The goal of operations is to ensure that the product made meets consumer demand.Therefore, it is important that consumer input is included in the production process.Traditionally many businesses made a product first and then developed the marketingcampaign to sell the product to consumers. However, the modern approach is to researchconsumer needs and wants first and then develop the product. This modern approach has ledto more efficient production processes and more loyal consumers and, as a result, a moresustainable product.

Transforming resources

(i) Human Resources

Human resources play an important part in transforming resources so that value addingoccurs. Human resources can range from untrained employees to highly skilled employeesand consultants. Each plays an important role in the production process. For the operationsfunction, job design is a vital aspect of operations management. If job design and jobspecifications are poorly done, employees may not understand the requirements of their job,product quality may suffer and employee dissatisfaction may arise. Therefore, jobs should bedesigned to motivate workers so that they can meet the goals of the business using theirskills and abilities.

(ii) Facilities

The physical place where the production process occurs is very important in the achieving thegoals of the organisation. The operations manager must consider many factors when decidingon the facilities. Location decisions play an important role in the success of thebusiness. Management must ask a range of questions such as how easy it is for suppliers toaccess the premises, how the finished product will be distributed and how accessible thepremises are for employees and customers.

The premises might be cost effective in terms of rent or mortgage but if it is difficult forsuppliers, staff and customers to access, it will not be sustainable in the long run.Management must also consider the future when choosing premises, such as potential for

expansion.

Internal layout is important. The operations manager must look at configuring the facilities toensure the most efficient and safe method of production. For example, if the process involvesassembling a good, there needs to be a logical work flow. If the process involves sharedequipment there must be a roster so that one piece of equipment is not required by everyoneat the same time.

Transformation processes

The transformation process refers to the actual conversion of inputs to outputs. It isimportant that management makes this process as efficient and profitable as possible. Having

spent time and money on ensuring the right inputs, the business needs to also make surethat the output is the desired result.


17/20

The influence of volume, variety, variation in demand and visibility

(i) Volume

Volume refers to how much of a product is needed to be produced. The more a business can

produce using the same production processes will often mean greater cost savings. Forexample a baker can make one loaf of bread in an oven, or 12 loaves; however, it isimportant to make sure that a demand does exist for the large amount produced or thesavings in production costs will not result in any greater profits.

(ii) Variety

The production process must also be flexible enough to provide variety, that is, although abasic product is provided, it can be adapted to suit individual customer needs. For example, acar manufacturer can use the same processes to make a basic model car with slightadaptations made for different colours.

(iii) Variations in demand

It is important that volume flexibility is built into the production process so that the amountproduced can be adjusted to meet variations in demand. If a business is to have short leadtimes (the time taken from the placing of an order to providing the customer with theproduct), then the operations department must be able to meet changes in demands.Inflexibility could lead to wasted resources and/or delays in meeting customersorders. Increases in demand influenced Carmans Fine Foods operations. This business isbased in Melbourne and started 20 years ago making muesli and selling to cafes in smallquantities. After contracts with Coles and Woolworths where the muesli was promoted as anupmarket brand, Carmans had to drastically alter its production process and location to copewith huge demand.

(iv) Visibility

Visibility refers to building a relationship with the customer; this not only builds customerloyalty but also enables the business to improve its operations. An example of this is askingcustomers to fill out satisfaction surveys and questionnaires. Sydney Morning Herald nowrequires paid subscriptions to access news via the internet and sought feedback about thisabout two months after the initiative was introduced. Questions were posed to investigate thetimes and types of access to digital information and results were used to tailor appropriatepackages to both suit the needs of customers and boost the SMHs profits.

Sequencing and scheduling Gantt charts, critical path analysis

In order to transform inputs in such a way that they make are profitable for the business, theoperations department must allocate resources efficiently, ensuring that the least amount ofwaste occurs. Production planning will look at such things as sequencing and scheduling sothat goods and services are produced smoothly. Sequencing will consider in what orderproducts should be made. This will enable management to determine the layout of thebusiness, what inputs are needed and when.

Once the order of production is decided, management can then work on the scheduling of theproduction process. This will allow the right inputs to be in the right place on time, it will alsoallow for the required skilled employees to be available to do their specific task. If sequencingand scheduling is not planned, it will mean that resources may not be available as needed, orsome inputs and employees are available when they are not needed getting in the way or

causing confusion. This will be costly for the business and reduce profits.


18/20

In order to sequence and schedule the production process, management will use differentplanning tools. A Gantt chart is a type of bar chart that illustrates the start and finish dates ofa project. The project will be broken down into the different tasks that must be performedand the time frame for their completion. This allows management to see what jobs needdoing, when they need doing and any overlapping tasks. For example, Gantt charts wereused for teams of people in the co-ordination and construction of building Royal North Shore

Hospital.

Critical path analysis allows management to map out the production process, looking at thelongest possible time frame the project could take. It is very like a flow chart that shows howone task will lead to another. This analysis not only helps sequence and schedule tasks butalso to see where problems might arise.

Technology, task design and process layout

Technology is used in the transformation process, whether it is a computer to type updocuments or a fully computerised assembly line to make a can of soft drink. In the past,many production techniques were very labour oriented with an emphasis on repetitive tasks;

however, with behavioural management theory, emphasising that employees are moreproductive when engaged in fulfilling work, and the development of new technologies, manyproducts are designed and assembled using computer assisted technology (CAT). Newtechnologies have allowed businesses to reallocate dangerous and repetitive tasks away fromemployees. This has allowed for more efficient production processes, and while newtechnology may be expensive in the short run, in the long run it usually results in more costeffective practices and, therefore, higher profits.

Task design refers to planning the flow of activities that has to be done to complete a task. Ifthe flow of activities are organised into a logical sequence, employees will be able tosuccessfully perform and complete their allocated task. Task design usually involves thefollowing steps: -

Define what needs to be done Identify who needs to do it Break down the task into specific skills and duties Allocate time elements and difficulty levels to the task

The process layout will affect how efficiently a business is able to transform the inputs into anoutput. Technology and task design will impact on this layout. Technology will need to belocated in the business dependent on its requirements as access to electricity, cooling, water,etc. If the technology is needed to be used by different employees at different times, taskdesign will identify this so that clashes do not occur. At all times the process layout needs toemphasise a smooth flow of production and occupational health and safety.


19/20

Old fashioned task design and process layout

http://upload.wikimedia.org/wikipedia/commons/thumb/2/29/Ford_assembly_line_-_1913.jpg/566px-Ford_assembly_line_-_1913.jpg

Modern process layout note the absence of people. In modern organisations employees arenot doing the repetitive work of an assembly line

http://www.themanufacturer.com/wp-content/uploads/2011/11/Wakefield-production-line.jpg

Monitoring, control and improvement

In order to ensure that it is meeting its goals, a business must have strategies that involvemonitoring, controlling and improving production processes. Monitoring refers to thecollecting and analysing of information so that processes can be improved. Businesses willput into place Key Performance Indicators (KPIs) so that they can actually see if targets arebeing met. For example a manufacturing business may have a target of making a certainamount of items in a day; a retail business may have expectations of selling a certain numberof products. Monitoring these indicators will allow the business to see if these targets arebeing met. If they are not being met, then the reasons can be analysed so that correctiveaction can be taken.

Control is the process of comparing the predetermined target against the actual result andassessing what action is needed to correct a shortfall.

Monitoring and control lets the business undertake continuous improvement. This will see thereduction of wastage and inefficient work practices. Monitoring operations will help the
http://upload.wikimedia.org/wikipedia/commons/thumb/2/29/Ford_assembly_line_-_1913.jpg/566px-Ford_assembly_line_-_1913.jpghttp://upload.wikimedia.org/wikipedia/commons/thumb/2/29/Ford_assembly_line_-_1913.jpg/566px-Ford_assembly_line_-_1913.jpghttp://upload.wikimedia.org/wikipedia/commons/thumb/2/29/Ford_assembly_line_-_1913.jpg/566px-Ford_assembly_line_-_1913.jpghttp://www.themanufacturer.com/wp-content/uploads/2011/11/Wakefield-production-line.jpghttp://www.themanufacturer.com/wp-content/uploads/2011/11/Wakefield-production-line.jpghttp://www.themanufacturer.com/wp-content/uploads/2011/11/Wakefield-production-line.jpghttp://www.themanufacturer.com/wp-content/uploads/2011/11/Wakefield-production-line.jpghttp://www.themanufacturer.com/wp-content/uploads/2011/11/Wakefield-production-line.jpghttp://upload.wikimedia.org/wikipedia/commons/thumb/2/29/Ford_assembly_line_-_1913.jpg/566px-Ford_assembly_line_-_1913.jpghttp://upload.wikimedia.org/wikipedia/commons/thumb/2/29/Ford_assembly_line_-_1913.jpg/566px-Ford_assembly_line_-_1913.jpg


20/20

business do such things as reduce the time that it takes to provide the customer with thegood or service; to reduce the costs involved in providing the product; to reduce dangerouswork place practices and to provide a better quality product.

Outputs

Outputs are the end result of a businesss production processes, the good or service that issold to the customer. Some outputs are also inputs into another businesss productionprocess. For example a flour mill will make wheat, sell this wheat to a baker who will in turnmake a cake which is sold to a caf or an individual customer. It is vital that the output of abusiness must meet the demands of customers if the business is to be able to cover the costsof making the product. The cake made by the baker must sell for more than the cost ofmaking it.

Customer service

Customer service is a non- physical output of the operations process. It refers to how well thebusiness can meet the expectations of customers. Although this is often seen as the domainof the marketing department (and will be discussed more in this topic), it is important thatthe operations department recognises its obligations in this area. Operations management isresponsible for the provision and quality of the product and if customers are disappointed inthese things, they will look to other businesses for an alternative product. A good qualityproduct, which is provided in a timely fashion, will not only encourage customer loyalty butwill often let the business charge a higher price than competitors.

Cathay Pacific and customer service

Cathay Pacific is a Hong Kong based airline which is able to successfully sell itsproduct at a higher price than its competitors. Why is this? Because customers

perceive that they are getting much better quality of service. Cathay Pacific hasbeen focusing on employees to boost their brand. Using the slogan meet theteam that goes the extra mile in their advertising campaign, the airline hasbeen emphasising the point that customer service is vitally important to it. Thecampaign was devised from customer surveys that indicated that CathayPacifics service and attitude of employees were what made the airline stand outover its competitors.

For this reason, Cathay Pacific is able to charge higher prices than many otherairlines flying the same routes.

Warranties

By law in Australia, all products sold must come with a warrantee or guarantee that theproduct will serve its advertised purpose. Many businesses when selling a physical productover a certain value will offer a written warranty, valid for a period of time.

In monitoring the effectiveness of the operations department, management can look at howmany warranty claims are made. Customers usually only make a warranty claim when theproduct is defective in some way. If the number of claims is high, it would indicate thatsomething is wrong with the production process and this must be rectified. If the businesshas good monitoring and quality control mechanisms in place, then the business will be ableto reduce warranty claims.

Date post:	02-Jun-2018
Category:	Documents
Upload:	kyle
View:	219 times
Download:	0 times

What is Operations - Notes

Documents