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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 pricecompetitive 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 KBFs (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 (KBFs 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 arent 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, COSTBASED 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
regulation
Technology
Environmental sustainability
Quality Expectations
Cost-based competition
Government policies

- Legal
-

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 doesnt 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 (Dont 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 businesss 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 business
2) 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
interests.

Long turn- Turns out to be to the companys own

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 Information
This 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 Information
Internal information comes from within the business and is gathered from
internal sources such as financial reports, quality reports and internal key
performance indicators (KPIs) 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.

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).
KPIs (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
resistance to change
Supply chain management
factors
Outsourcing
Technology
Inventory Management

- Overcoming
-Global

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 businesss 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 desires

For services, flexibility can be achieved through:


-

Increasing the number of service providers


Increasing the providers 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 ones 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
KPIs
Strategic 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.

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.

INVENTORY MANAGEMENT- ADVANTAGES AND


DISADVANTAGES OF HOLDING STOCK, LIFO (LASTIN-FIRSTOUT), 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 businesss 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 businesss 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 redundant
o The amount of unused leave that the employee has accrued
o Any outstanding wages

RETRAINING: This cost arises from change that causes a reorganisation


of the businesss 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 Lewins unfreeze-change-refreeze
model or the more contemporary Kotters eight-step change model, as a
means of helping businesses manage change effectively.

Kurt Lewins unfreeze-change-refreeze model


Lewins 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.
Kotters 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
businesss operating procedures and systems.

8. Institutionalise the changes. (Make it part of a structured and wellestablished 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

o
o
o
o
-

Refers to scanning the global environment to identify and learn the critical
global trends that may impact the business. For example:
Changing consumer demands
New Products and services developed in other countries
New Manufacturing processes available
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.

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