Extensive Notes on Topic 1 – Operations

Resource Description

Role of Operations Management

• Operations refers to the business processes involving transformation or production ® inputs into outputs.  
• Businesses try to minimize production costs so retail prices are as low as possible. 
• Effective operations management adds value to businesses through increasing productivity, lowering costs & improving quality ® strategic competitive advantage through lower costs & differentiated goods

 

Strategic Role of Operations Management 

1. Cost leadership  

• Aiming to have lowest cost or be most cost competitive in market
• Operations managers must also minimize costs so business remains profitable 
• Should create economies of scale = producing increased quantities decreases fixed cost per unit

 

1. Product Differentiation 

• Offering goods or services distinguished from those of competitors  
• Differentiation sources in goods:

• Product features
• Product quality
• Varying augmented features (add-ons or additional benefits e.g. option for built in GPS in a car) 

• Differentiation sources in services: 

• Amount of time
• Qualifications or experience of service provider
• Quality of materials/technology used in service delivery 

 

Goods and Services in Different Industries  

• Standardised goods = mass produced, usually on an assembly line. They are uniform in quality & generally produced with a production focus.

• Customised goods = vary according to customer needs & produced with a market focus.  

 

• Services can be both standardised & customized (e.g. fast food standardized whereas accounting services are customized) 

• Goods can also be classified as perishable and non-perishable:

 

Perishable Goods	Non-Perishable Goods
High standards of safety, quality & cleanliness in all operating processes Very short distribution Appropriate, sturdy packaging & cold storage	More durable than perishables Includes household and business goods Requires effective inventory management

 

Interdependence with Other Key Business Functions  

• Marketing

• Research nature of goods consumers want 
• Marketing strategies to encourage purchases

• Human resources

• Provide suitable staff & organize training based on requirements of operations 
• Uses leadership style + rewards to ensure quality work is done by employees in operations

• Finance

• Budgets & makes funds available for inputs, equipment, repairs/ maintenance.
• Minimizes production costs to maximize profit margins

 

Influences On Operations

Globalisation, Technology, Quality Expectations, Cost-based Competition, Government Policies, Legal Regulation & Environmental Sustainability  

Globalisation	Refers to the removal of trade barriers between nations. Characterized by increased integration of national economies & high flow of money, labor, ideas, financial resources. Large businesses selling to global markets and meeting needs of global customers  Businesses establishing global supply chain to reduce costs: Global web = network of supplier’s business has chosen on basis of lowest cost, lowest risk and maximum certainty in quality & timing of supplies.
Technology	New technologies in production and operations has allowed for less energy, less waste and faster production Robotics allow for greater precision in sophisticated production processes and also easy standardization of products  Includes CAD & CAM
Quality Expectations	How well designed, made and functional goods are and the degree of competence in which services are organized and delivered. Goods:  quality of design fitness for purpose durability Services:  professionalism of service provider reliability of service provider level of customization
Cost-based Competition	Derived from determining breakeven point then applying strategies to create cost advantages over competitors. Base cost of a product involves fixed and variable costs  Ways to cut costs include purchasing bulk inputs or updating technology
Government Policies	Since policies can inform law making and lead to business opportunities, operations mangers need be aware of current government policies and what they comprise  Includes required materials handling practices, OHS standards, public health polices, environmental policies
Legal Regulation	Compliance costs = expenses associated with meeting requirements of legal regulation Federal and state law ensures: Safe operations (e.g. WHS in machinery use) Consumer protection (product minimum safety/quality standards) Minimal environmental impact Unions also play a key role in promoting safety in workplace operations as well as industrial awards
Environmental Sustainability	Practices that allow resources to be used today without compromising future access  Significantly impacted by climate change awareness and the need to integrate long-term sustainable view of resource management.   This can be seen in businesses efforts to reduce and minimize waste; recycle water, glass, paper metals & reduce their carbon footprint.

 

Corporate Social Responsibility 

• Refers to open and accountable business actions based on respect for people, community & the broader environment → more than following the law
• Triple bottom line is crucial to CSR = business try to achieve all three aspects:

• profit
• social justice
• environmental protection

 

1. The Difference Between Legal Compliance & Ethical Responsibility  

• Legal requirements require business to follow the letter of the law (prescribed behavior standards) 

• e.g. labour law compliances, human rights

• Ethical responsibility sees businesses meeting all of their legal obligations and taking it further by following the intention and ‘spirit’ of the law.
• Variation in laws between countries can make it hard to know what is ethical. Businesses may choose to follow ethical standards from ILO (international labour organisation). 

1. Environmental Sustainability & Social Responsibility 

Environmental sustainability

• Requires business to evaluate full environmental effects of their operations
• Growing expectation that products should be “clean, green, safe” so businesses have been 
• Businesses expected to adopt greenhouse reduction measures & develop long-term sustainability strategies

 

Social responsibility 

• Management of social environmental & human consequence of its actions.
• Customers may stop buying if they discover a business exploits its customers, however they will reward SR businesses by purchasing more