OPERATIONS

The focus of this topic is the strategies for effective operations management in large businesses.
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1 Role of Operations Management
● strategic role of operations management – cost leadership, good/service differentiation
● goods and/or services in different industries
● interdependence with other key business functions

2 Influences
● globalisation, technology, quality expectations, cost-based competition, government policies, legal
regulation, environmental sustainability
● corporate social responsibility
- the difference between legal compliance and ethical responsibility
- environmental sustainability and social responsibility

3 Operations Processes
● inputs
- transformed resources (materials, information, customers)
- transforming resources (human resources, facilities)
● transformation processes
- the influence of volume, variety, variation in demand and visibility (customer contact)
- sequencing and scheduling – Gantt charts, critical path analysis
- technology, task design and process layout
- monitoring, control and improvement
● outputs
- customer service
- warranties

4 Operations Strategies
● performance objectives – quality, speed, dependability, flexibility, customisation, cost
● new product or service design and development
● supply chain management – logistics, e-commerce, global sourcing
● outsourcing – advantages and disadvantages
● technology – leading edge, established
● inventory management – advantages and disadvantages of holding stock, LIFO (last-in-first-out),
FIFO (first-in-first-out), JIT (just-in-time)
● quality management
- control
- assurance
- improvement
● overcoming resistance to change – financial costs, purchasing new equipment, redundancy
payments, retraining, reorganising plant layout, inertia
● global factors – global sourcing, economies of scale, scanning and learning, research and
development

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 ROLE OF OPERATIONS MANAGEMENT

STRATEGIC ROLE OF OPERATIONS MANAGEMENT

● Strategic role: ​affecting all key business operations
● Operations = ​ the business processes that involve transformation or, more generally, “production”
… transforming inputs into outputs
● Overarching goal of the business is to maximise profits, which is done by focussing on revenue or
income and costs or expenses

COST LEADERSHIP
● Cost leadership​ = aiming to have the lowest costs or to be more price-competitive in the market. A
key aspect to cost leadership is that although trading with the lowest cost, the overall business
should still be profitable.
● Input costs:​ facilities, land, resources, interest on investment
● Labour costs ​- employees, subcontractors, overtime, redundancy
● Processing costs​ = machinery maintenance, electricity, scheduling, product design
● Inventory Costs: ​prevention of loss through quality planning and training, sampling and inspection
of goods and processes, error and remediation through warranty claims, sales return and
complaints
● One aspect of cost leadership arises from businesses creating “​economies of scale”​: the cost
advantages created as a result of an increase in scale of business operations

GOOD/SERVICE DIFFERENTIATION
● Product differentiation​ = distinguishing products in some way from those of competitors
● Goods:
○ Varying from the actual product features
○ Varying product quality
○ Varying any augmented features
● Services:
○ Varying the amount of time spent on a service
○ Varying the level of expertise brought to a service
○ Varying the qualifications and experience of the service provider
○ Varying the quality of materials/technology used in service delivery
● Cross branding​ = adds value to products by offering consumers added benefits from
cross-branding arrangement (strategic alliance eg. woolworths-caltex)
● Standardisation​ = making products that are homogeneous or identical (mass production,
economies of scale)
● Differentiated through features, quality, add-on or additional benefits, time, expertise, qualifications,
experience, materials and technology
Goods Services

● Tangible = physical ● Intangible

● Perishables must be sold quickly ● Customised and labour intensive
● Value determined by adding costs of all inputs, ● Cannot be owned
expenses and addition of a margin to create Value is highly subjective and depends what the
profit market is prepared to bear
● Varied through product features, quality and ● Production & consumption is simultaneous
materials ● Differentiated through qualifications or experience

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 o service provider, quality of service, technology,
professionalism of workers and time spent with
customer
● Value increases with high level of skills,
experience, education, etc.

GOODS AND/OR SERVICES IN DIFFERENT INDUSTRIES

GOODS
● Standardised goods​ = mass produced, uniform in quality and meet predetermined level of quality
● Standardised good down costs → eg. McDonalds uses same process for everything to increase
efficiency and minimise costs
● Customised goods​ = vary according to needs of consumers → produced with market focus →
competitive advantage

Perishable goods Non-perishable goods

● High standards of safety, quality, cleanliness in ● More durable than perishable → raises quality
all operating process ● Required effective inventory management and
● Short lead time & fast distribution due to be highly responsive to market demand to avoid
perishable nature) → efficiency is imperative overproduction ​= waste = extra cost =
● Appropriate, sturdy packaging and cold storage inefficiency
process through production and distribution ● Manage all aspects of quality, from sourcing to
production to distribution

SERVICES
● Can be both standardised (eg. fast food industry) and customised (eg. dental, medical, legal)
● Self service ​= encouraging customers to help/order themselves → bus concentrate on
customisation
○ Consumers dislike online self-service issue of drip pricing = business advertises one prices
with increases with additional charges as customer purchases the service (eg. airline on
travel ticket prices)

INTERDEPENDENCE WITH OTHER KEY BUSINESS FUNCTIONS

Finance Marketing Human Resources

● Budgets make funds available ● Research nature of goods and ● Provide suitable staff with
for inputs, equipment, services consumers want right training, skills and
maintenance and repairs (R&D) qualifications to operate
● Minimizing production costs to ● Implementing marketing effectively = increase
maximise profit margins strategies to encourage productivity (highly
● Operations focuses on quality purchases → product design productive employees
which enables finance to raise ● Understanding what price produce more with the
procure and gain higher profits consumers are willing to pay same cost of inputs)
● The operations function and build quality of product ● Uses leadership style and
produces, so if costs of based on those factors; needs rewards to ensure quality
production can be minimised, and wants of consumers work is done by
then profit margins can be through provision of products employees in operations
increased at prices they are willing to pay ● As the nature of work

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● If operations processes focus ● Marketing is concerned about changes, so too does the
on quality, products can be the design of products, and skills and qualities sought
sold at higher prices → more their subsequent sale, to meet in employees
profit the needs of consumers. The ● Within the operations
operations function involves function, modern
the acquisition/sourcing of businesses are
products for resale or the implementing new
sourcing of inputs for technologies that enable
production faster processing speeds
● Requirement of product design and are changing the way
(marketing requirement) the work is done →
directly affects the operations directly affects HR
function ● Changing shape of
businesses mean that
communication can be
more complicated and
increasing reliance on
tech

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 INFLUENCES

MAIN INFLUENCES: GLOBALISATION, TECHNOLOGY, QUALITY EXPECTATIONS,

COST-BASED COMPETITION, GOVERNMENT POLICIES, LEGAL REGULATION,
ENVIRONMENTAL SUSTAINABILITY

● Influences​ = internal/external factors which create opportunities or threats for the business and its
processes
● Changes in influences are acted upon by the implementation of strategies (to monitor or control the
impact)
GLOBALISATION ● Globalisation​ - removal of trade barriers between nations → opportunity for trade,
access to new resources (materials/tech) and access to new markets/global
consumers
● Take adv of outsourcing and economies of scale
● Global web​ = web of suppliers chosen on basis of lowest overall costs, lowest risk
and maximum certainty in quality and timing of supplies → strategy of expense
minimisation in supply chain = chose location close to suppliers
● Supply Chain Management ​= the range of suppliers a business has and the
nature of its relationship with those suppliers
● Global businesses tend to have standardised products (customisation on this scale
is $$$)
● Product design must meet the needs of diversity within global consumers (culture,
language)

TECHNOLOGY ● Technology​ = used in design, construction and/or application of innovative

devices, methods and machinery in operations processes
● Improved communication and improved production processes → efficiency =
increase productivity
● Makes operations more efficient = decrease costs, decrease time (faster production
and distribution)
● Constant need to meet customers tech demand to maintain comp adv
● Use of tech in op = higher overall quality, increase accuracy, speed of processing
and outputs

QUALITY ● Quality​ = how well designed, made and functional goods are and the degree of
EXPECTATIONS competence with which services are delivered and organised
● Quality expectations inform all operation processes→ manufacturing of
product/delivery of service
● Customer satisfaction with product indicates if quality has met expectations
● Some businesses disregard this as product is marketed at low cost (eg. hot dollar)
● ‘International Standards Organisation’ (ISO) defines quality as features and
characteristics of products that holds its ability to satisfy state/implied needs
Quality expectations with Goods Quality expectations with services

● Quality of design ● Professionalism of the

● Fitness for purpose service provider
● Durability ● Reliability of the service
provider
● Level of customisation

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COST-BASED ● Cost-based comp ​= derived from determining break even point (fixed +variable
COMPETITION costs) and applying strategies to create cost advantages over competitors
● Use cost-leadership to minimise costs and maintain profit margins → Competitive
adv in market
● Fixed costs​ = not dependent on level of operating activity → do not change (eg.
rent)
● Variable costs​ = vary in direct relation to levels of operation activity/production (eg.
cost of energy)
● Cost control​ = eliminating unsold products and concentrating bus focus on
successful products
● Ways to cut cost… bulk buying, economies of scale, produce high volume output,
use automated production systems, produce standardised products for larger
(global) market and eliminate waste (waste = inefficiency)

GOVERNMENT ● Mgt must be aware of current govt policies and what they comprise of → eg. WH&S
POLICIES standards, environmental policies, employment regulations…
● Impose taxation rates → increased taxes = increased costs (eg. tariff)
● Some gov policies restrict practices and others encourage businesses and provide
opportunities
● Change regularly due to changes in gov or social expectations
● Failure to comply to gov policies can result in heavy fines and/or jail time

LEGAL ● Compliance costs​ = expenses associated with meeting requirements of legal

REGULATION regulations
● Compliance​ = collective term referring to range of laws the businesses must
comply with
● Federal and state law ensures safe operations through WHS laws, consumer
protection through product satefy/quality standards, minimal environmental impact
and anti-discrimination
● Unions play key role in promoting safety in workplace operations
● EG. Corporations Act 2001, Disability Discrimination Act 1992

Racial Discrmination Act Sex Discrimination Act Workers Compensation Act

1975 (Cth) 1984 (Cth) 1987 (NSW)

Disability Discrimination Act Age Discrimination Act Anti-Discrimination Act

1992 (Cth) 2004 (Cth) 1977 (Cth)

Work Health and Safety Environment Protection and Superannuation Guarantee

(WHS) Act 2012 (Cth) Biodiversity Conservation Act 1992 (Cth)
Act 1999 (Cth)

Taxation Act 1953 (Cth) Corporations Act 2001 Fair Work Act 2009 (Cth)
(Cth)

ENVIRONMENTAL ● Environmental sustainability​ = operations should comprise of practices that

SUSTAINABILITY consumer resources without compromising access to those resources for future
generations
● Precautionary principle ​= if environmental impacts are uncertain, bus should
undertake actions that are more likely to cause the least environmental impact
● Two main aspects = sustainable use of renewable resource and less consumption
of non-renewable (finite) resources → through this, business should attempt to
minimise/reduce waste, recycle and reduce carbon footprint
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 ● Can be used by marketing department → customers prefer “green” products

CORPORATE SOCIAL RESPONSIBILITY

● CSR​ = open and accountable bus actions based on respect for people, community/society and
broader environment → involves doing more than just complying with laws and regulations
● CSR aims to achieve ​Triple Bottom Line​ = bus aim to achieve​ profit, social justice and
environmental protection
● Create image of being socially responsible (eg. donating to charities) → more appealing to
consumers
● CSR can generate a comp adv if marketed effectively and apply to operations efficiently

THE DIFFERENCE BETWEEN LEGAL COMPLIANCE AND ETHICAL RESPONSIBILITY

LEGAL COMPLIANCE ETHICAL RESPONSIBILITY

● Meet prescribed standards dictated by ● Meeting all legal obligations and taking it further
legislation → non-compliance can result in fines by following intention/’spirit’ of the law and moral
or imprisonment code
● Compliance areas include: ● Variation in laws between countries make it hard
○ Labour law → minimum wage, working to know what is ethical → can choose (optional)
hours, leave time to follow international labour standards from
○ Taxation → profits and superannuation International Labour Organisation (ILO)
○ Trade practices and fair marketing
dealings → addresses market power,
misleading/unfair conduct
● Outsourcing = method of reducing compliance
costs → can be on or off shore → takes
advantages of regulatory differences between
nations (lower tax, lower safety/quality
standards, cheaper labour) → raises ethical
issues

ENVIRONMENTAL SUSTAINABILITY AND SOCIAL RESPONSIBILITY

● Triple Bottom Line → ensures that they make profit while also ensuring that they are considering
social and environmental responsibilities and issues → attempts to please and attract customers
ENVIRONMENTAL SUSTAINABILITY SOCIAL RESPONSIBILITY

● Concept that economic development should not ● Management of social environment and human
occur at cost of environment → requires consequence of its actions → operations
business to evaluate full environmental effects influence on them
of their operations → growing customer ● Customers may stop buying if they discover a
expectation for this in today's society business exploits its customers or uses
● Businesses expected to adopt greenhouse unethical practices
reduction measures and develop long-term ● Social responsibility tries to achieve expansion
sustainability strategies and produce for greater of society
simultaneously

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 OPERATIONS PROCESSES

INPUTS
● Inputs → transformation → output
● Inputs​ = resources used in the production process → common direct inputs include energy and
technology
● Transformed resources​ = those inputs that are changed/converted in operations process
● Transforming resources​ = those inputs that carry out the transformation process
TYPES OF INPUTS

TRANSFORMED RESOURCES (MIC) TRANSFORMING RESOURCES (HRF)

Materials Human Resources

● Basic elements used in prod process → consist ● Mental and physical efforts of employees
of raw materials and intermediate goods ● Effectiveness of HR determines how successful
● Raw materials​ = unprocessed essential transformation and value adding occurs
substances ● Employees​ = most essential but most
● Intermediate goods​ = goods manufactured and expensive input that determines success of the
used in further manufacturing/processing business
● Employees coordinate and combine other
Information resources (eg. machinery and tech, raw
● Knowledge gained from research, investigation materials and finance) to produce goods and
and instruction = increased understanding of services add a crucial element in input of
demand operations process
● External (eg. media reports) or internal (eg.
financial reports, production data, KPIs) Facilities
● KPIs such as lead times and inventory turnover ● Refers to plant (factory/office) and machinery
rates used in operations process
● Plant and machinery can make significant
Customers different to a business’ capacity to transform
● Crucial as their choices shape inputs → divided inputs and can determine the nature of the
into needs and feedback operations environment
● Their needs and wants constantly change and
therefore drive the design of the product
● Feedback (how to improve) they give changes
how operations process will occur
● Customer relationship management (CRM) ​=
the systems that businesses use to maintain
customer contact… used to better understand
consumer preferences

TRANSFORMATION PROCESSES
● Transforming process ​= inputs (resources) are converted into outputs (goods and services)
● Value adding:
○ More inputs purchased/added to transformation process, higher value of output
○ More inputs = more expenses → not bad if value is increasing well → Can lead to increase
in quality
○ Manufacturing → Value added through adding inputs
○ Services → Value added through adding inputs like knowledge, skills and expertise

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 INFLUENCES OF THE 4 V’S
VOLUME ● How much of a good or service is produced
● Volume​​ f​ lexibility​​ = how fast transformation process can adjust to increases or
decreased in demand → prevents over-producing (which leads to wastage, increased
inventory costs) or under-producing (that results in lost sales)
● Responsiveness to changes in volume is essential to effectively managing lead times (time
taken for order to be fulfilled to moment it is made)
● Lead times​ = the time it takes for an order to be fulfilled from the moment it is made

VARIETY ● How much variation​​ → number of different models/variations of the G/S made and
offered
● Greater variety = greater complexity of the transformation process → operations will need
to allow for variation → produced in batches that can be changed rather than mass
produced
● Low variety = higher volume = allows business to produce high-volume of standardised
goods
● Mix flexibility ​= the mix of products made, or services delivered through the information
process

VARIATION IN ● How much of the product is needed​​ → increased demand requires more inputs from
supplier
DEMAND
● Can be difficult to meet if suppliers cannot supply fast enough, labour not
flexible/skilled/available, adopted machinery cannot adjust to increased capacity,
increased energy & power not able to be readily sourced
● Predicting demand (difficult) → bus will try and forecast demand so adjustments are
anticipated
● Constant demand​ = full time workers, bulk material orders
● Seasonal demand​ = contract workers, seasonal material orders
● Unpredictable demand​ = casual workers, frequent material orders

VISIBILITY ● Degree to which customers can witness operations process → customer contact
throughout
(CUSTOMER
● Low visibility = manufacturing
CONTACT) ● High visibility = serviced based
● Direct contact → customer feedback given through surveys, interviews, warranty claims
and letters
● Indirect feedback → sales data that gives indication of customer preferences, customer
reviews online and market share data
● Types of production include ​job production ​(outputs are customised), ​batch production
(outputs are produced in groups) and​ flow production​ (outputs are standardised)

SEQUENCING AND SCHEDULING

● Sequencing​: the order in which activities in the operations process occur
● Scheduling​: the length of time activities take within the operations process

GANTT CHART CRITICAL PATH ANALYSIS

● Type of bar chart that shows scheduled and ● Flow diagram that shows the interrelationship of
completed work over a period of time all tasks that must be completed to finish a
● Used in planning and tracking a project project
● Shows order in which they must be done and ● The critical path is the path that takes the
how long they quill take shortest length of time to complete all tasks
● Usefulness = force managers to plan steps to ● To calculate, find the longest → this ensures all
complete tasks and specify times for each task tasks that are required are completed
○ Makes it easy to monitor actual progress
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 against planned activities

TECHNOLOGY, TASK DESIGN AND PROCESS LAYOUT

TECHNOLOGY ● Business technology​ = involves use of machinery and systems → enables bus to
undertake transformation process more efficiently and assists employees to work
more productively
● Enables bus to relocate dangerous or repetitive tasks away from employees
● Helps make production quicker, more efficient, less wasteful and more consistent with
quality
● In short-term tech is expensive due to purchasing/leasing costs and
retrenchment/redundancy and restraining costs → however more cost-effective in the
long term
● Robotics​ = used in engineering, assembly lines where it can be programed to do
different tasks with high quality, minimum waste and no complaints or demands for
increases in wages
● Computer-aided design (CAD)​ = tool used to create 3D product possibilities from
input data which can be adjusted of predicted material/labour cost is to high → can
design sequence of steps needed to create product in shortest time with the least
amount of material
● Computer-aided manufacturing (CAM)​ = software used to allow manufacturing
process to be computer controlled → linked with CAD

TASK DESIGN ● Task design ​= classifying job activities in ways that make it easy for an employee to
successfully perform and complete the task
● Breaking down a large task into a series of smaller, more manageable activities
● Task design enables employees to perform efficiently and complete the task
successfully
● Involves job analysis (number of staff required, whether training/retraining is
necessary) and can be done after a skills audit (managers determine skill level of staff
→ if shortfalls then skill-recruitment or training will be implemented

PROCESS ● Process layout ​= type of plant/process layout which involves arranging machines and
LAYOUT equipment by grouping them based on their actions/processes
● Product layout ​= product moves from station to station → allow for flexibility and

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 customisation
● Fixed Position layout ​= production remains in one location due to its
weight/large-scale and is therefore more efficient to bring materials and workers to
one area (eg. construction of bridges)
● Effective planning and positioning of process layout reduces time of production,
decreases size of plant, therefore reduces land costs, decreased use of electricity,
and overall improved efficiency

MONITORING, CONTROL AND IMPROVEMENT

MONITORING ● Monitoring ​= process of measuring actual performance against planned
performance
● Arranged around need to measure KPIs such as lead times, defect rates, and
inventory turnover
● Operations managers must identify reasons why actual vs forecasted performance
differs

CONTROL ● Control ​= occurs when KPIs are assessed against predetermined targets and
corrective action is taken if required → short-term monitoring of action to keep
current production on target
● Regular performance review = crucial because it indicates issues and
intervention/corrective action can be taken to rectify the issue as soon as possible

IMPROVEMENT ● Improvement ​= reduction of any inefficiencies, wastage and poor work processes
● Involves identifying and implementing changes into the transformation process to
help meet long-term business objectives
● Improvement sought in lead times, smooth transition between transformation
processes to improve process flows, quality, expenses (assessing per unit costs),
and reducing waste

OUTPUTS
● Output ​= end result of business efforts → goods and services that are delivered to the customer

CUSTOMER SERVICE
● Customer service ​= how well a business meets and exceeds expectations of customers in all
aspects of operation
● If customer expresses dissatisfaction of product (quality, time, request warranty claim) op should be
reviewed
○ Customers where are disappointed may choose to purchase from a competitor = loss of
sales
● Customer service adds value to the product and ensures profitability
● Main methods of customer service delivery include telephone, internet, in person and written
communication

WARRANTIES
● Warranties ​= written guarantees by the business, that faulty products (not for neglect and misuse,
or normal wear and tear) will be repaired, replaced or refunded for a stated period of time
● Promise that they will correct any defects in goods they produce or services they deliver
● Effectiveness of operations process can be measured by amount of warranty claims
● Businesses must ensure that the product quality outlasts the warranty period
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 OPERATIONS STRATEGIES

PERFORMANCE OBJECTIVES
QUALITY ● Quality​ = meeting of standards (goods) and the level of customer satisfaction
(servies)
● Determined by consumer expectations → improving quality required better inputs
and more highly skills employees which therefore lead to higher costs
● Quality objectives = necessary as they ensure consistency and dependability of
output → ensuring quality = eliminating wastage and remedial costs
○ Quality of design ​= arises from customer preferences and determines
inputs and process
○ Quality of conformance ​= how well products meet standards of prescribed
design
○ Quality of service ​= reliability and responsiveness of service and how well
service meets clients needs

SPEED ● Speed ​= time taken for production and other operations processes to respond to
market demand → aims to satisfy customer demands as soon as possible
● Imperative to remove and avoid bottlenecks
● Speed can b e achieved through ​faster processing times ​(time taken for input to
be transformed), ​reducing wait times ​(time taken for product to reach customer
after transformation) and ​shorter lead times ​(time taken for an order to be fulfilled)

DEPENDABILITY ● Dependability ​= consistency of service standards and reliability of products

● Can be measured by warranty claims (shows how long they are useful before they
fail), ​returns/refunds ​(shows level of customer satisfaction and ​complaints ​(show
consistency of service standards and reliability)

FLEXIBILITY ● Flexibility​ = how quickly operations processes can adjust to changes in the market
(eg. changes in demand, input variability)
● Best achieved by increasing capacity of production of goods (eg. changing product
mix, volume, delivery times) or increasing the number of services provided

CUSTOMISATION ● Customisation ​= creation of individualised products to meet specific customer

needs
● Businesses customise products to appeal to a range of markets → increase
market share
● Mass customisation​ = process allowing standard, mass produced items to be
customised
● Achieved through technologies and changing product design to broaden range

COST ● Cost ​= minimisation of expenses so operations are conducted as cheap as

possible
● Decreasing costs may decrease output quality → decrease cost by improving
efficiency
● Lower by acquiring new tech, minimising waste, reduce
supplier/distribution/inventory cost

NEW PRODUCT OR SERVICE DESIGN AND DEVELOPMENT

● New products/services to grow and gain a comp adv and keep up with changes in demand
● Can take a consumer preference approach or a changes/innovation in technology approach

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 ○ Changes in consumer preferences ​→ identified through market research
○ Changes in underlying technology → create a design and create the need for it (eg. apple)
● Key considerations in the design and development of services include:
○ Explicit service ​= application of time, expertise, skill and effort
○ Implicit service ​= feeling of being looked after → treatment and wellbeing of customer
● Some services are customised (eg. surgery) and others do not require integration with customer,
therefore standardised

KEY STAGES IN THE DESIGN AND DEVELOPMENT OF NEW PRODUCTS

● Identifying an opportunity ​→ changes in consumer demand (indicated by market research),
advancements in tech, or identification of gaps in the market
● Designing the product ​ → consider quality, SCM (volume, variety, timing), capacity management
and cost (must be profitable for business and useful/valuable to the customer)
● Testing and refining the product​ → until ready for production

SUPPLY CHAIN MANAGEMENT

● Supply Chain Management (SCM)​ = integration and managing flow of supplies throughout inputs,
transformation processes (transformation and value adding) and outputs
LOGISTICS ● Logistics ​= moving inputs, resources and outputs through the supply chain as fast as
possible → management of resources between supply and consumption
● Involves distribution, storage and material handling and packaging
○ Distribution and modes of transport
■ Distribution​ = ways of getting products to the customer
■ Transportation​ = physical movement of inventories → speed, distance,
cost and capacity of stock must be considered
○ Storage, warehousing and distribution centres
■ Storage​ = secure place to hold stock in the short or long-term →
preserve product → JIT management minimizes storages and
associated costs
■ Warehousing​ = facility for storage, protection and later distribution of
stock → useful for storing durable items which needs to be transported
with little notice → Costs include premises, insurance, security
measures, transport, damage, theft
■ Distribution centres​ = short term storing, handling and wholesale
distribution of goods → strategically located to centralise distribution
hub → efficiency and cost savings
○ Material handling and packaging
■ Packaging and handling​ = involves meeting particular standards and
applying particular methods when moving goods
■ Government regulations for goods that require extra skill, care or
attention to be packaged and handled in a specific safe manner (eg.
chemicals, glass)

E-COMMERCE ● E-commerce​ = buying and selling of products via the internet

● Provides real-time instant access to information on quantity, quality, availability, source
and price of all products from a range of suppliers (local and international)
● Poses privacy/security issues and increased risk of buying unsatisfactory/faulty
materials
● Business-to-business ​(B2B) = involved e-procurement = using online systems to
manage supply → allows suppliers direct

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GLOBAL ● Global sourcing​ = sourcing supplies or services without being constrained by location
SOURCING ● Bus expand supply chains over national boundaries to seek most cost-efficient location
for product manufacturing
● When determining suppliers, bus must consider consumer demand (volume of inputs),
quality of inputs (determine if they match desired quality of finished products), and
timeliness of supplier (responsiveness to changes in demand)
● Benefits​ = cost/expertise advantages, access to new technologies, resources and
information
● Disadvantages = possible relocation of aspects of operations (costly), increased cost
of logistics, storage and distribution, difficulty managing different regulatory conditions
between nationals and increased complexity of operations

OUTSOURCING
● Outsourcing​ = use of external providers to perform business activities → specialise in particular
bus functions
● Aim to cut costs and achieve greater efficiencies than that which would be achieved internally
● Bus must consider adv and disadv, along with:
○ Which country should we outsource to?
○ Which business should we outsource to?
○ How long should we outsource for?

ADVANTAGES DISADVANTAGES

● Simplification​ = reducing activities performed ● Payback periods and costs​ = organising and
internally → concentrate on core function → making required changes → cost savings in long
improves in-house performance term → fixing internal inefficiencies could be
● Efficiency and cost savings​ = offshore more cost effective than outsourcing
locations have cheaper skilled labour and ● Communication and language barriers​ =
regulatory differences confusion and misalignment between business
● Access to improved tech and skilled labour and vendor
= product delivered to market with increased ● Loss of control of standards​ = outsource not
level of sales adhering to quality expectations and design
● Access to skills/resources lacking within specifications → more managerial control
bus​ = exposure to in-house
processes/techniques/strategies implemented ● Organisation change and redesign = in-house
overseas that can be implemented downsizing (loss of domestic employment), new
● Market share​ = outsourcing open opportunities hierarchies, cost and time for use and adoption
to enter such markets if business wishes to go of IT for outsourcing requirements
global
● Different time zones ​= bus can operate 24/7

TECHNOLOGY
● Technology helps business gain a competitive advantages by increasing bus efficiency, safety and
accuracy
● Not adapting to new tech can cause bus to fall behind its competitors
● Operations management must choose level of tech and the timing of its adoption/implementation
into the bus
● Both forms of tech give businesses efficiencies, productivity gains and capacity to improve op
processes

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 LEADING EDGE ESTABLISHED

● Leading edge ​= currently most advanced or ● Established technology ​= has already been
innovative developed is widely used → accepted without
● Enables quicker production, increased question
efficiency, higher quality and less wastage ● Established technology includes IT for admin,
● It can be costly, risky (lack of experience) and robotic for complex manufacturing, and
complex to adapt barcoding and point-of-sale (POS) systems/data
for inventory management
● Businesses without established technology may
experience falling behind competitively, lower
productivity, slowed operational speed, trouble
maintaining and servicing older tech, and
appear to be an outdated business

INVENTORY MANAGEMENT
● Inventory = amount of raw materials, work-in-progress and finished goods that bus has on hand at
point in time
● Strategies aim to minimise inventory levels (as it ties up cash and incurs costs) without minimising
sales
HOLDING STOCK: ADV HOLDING STOCK: DISADV

● Consumer demand can be satisfied → prevents ● Costs of holding stock = storage charges,
customers from going to other businesses spoilage, theft, insurance, security, handling and
● Sufficient backup stock → meet demands managing
quickly ● Capital intensive → ties up cash and resources
● Reduces lead times between order and delivery that could be used elsewhere
● Stock means bus can generate immediate ● Risk of stockpiled goods spoiling or becoming
revenue obsolete → high costs incurred with these risks
● Making products in bulk reduces cost → ● Consumer demand may change → inventory
economies of scale → bulk purchasing is may not sell → no recoupment of COGS
cheaper
● Access to spare parts for repairs or
replacements
● Dependability of delivery → customer
satisfaction

INVENTORY PROCESSING STRATEGIES

LIFO ● Last-in-first-out ​= stock purchased and stored more recently is sold first
● Used for non-perishable goods → stock at the back stays at the back
● The cost of each unit sold is assumed to be the cost of the most recently purchased stock
● Falling prices → LIFO understates costs, overstates profits and maximises taxes →
undervalues stock
● Rising prices → LIFO overstates costs, understates profits and minimises taxes →
overvalues stock

FIFO ● First-in-first-out​ = oldest stock is sold first

● Used for perishable goods

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 ● Cost of each unit sold is assumed to be the cost of the oldest stock
● Falling prices → FIFO overstates osts, understated profits and minimize taxes → overvalued
stock
● Rising prices → FIFO understates costs, overstated profits and minimize taxes →
undervalues stock

JIT ● Just-in-time = stock is supplied only demanded (holding stock is minimal)

● Method of managing the flow and storage of inventory
● JIT required flexible operations function with reliable suppliers → unforeseen changes in
market demand can caused increased lead times
● Benefits of JIT include:
○ Increases liquidity /working capital → less cash tied in inventory
○ Reduced costs of storing and securing stock
○ Ability to display a wide range of products
○ Minimised shrinkage costs and losses due to obsolescence

QUALITY MANAGEMENT
● Quality management = processes undertaken to ensure consistency, reliability, safety and fitness
for purpose
● Adv → less need for product replacement or repair, more customer satisfaction and better brand
image
● Disadv → high-quality inputs and skilled labour increase production costs and monitoring measures
can be expensive and time consuming

CONTROL ● Quality control​ = reduces problems and defects through ​inspection at various
points during production​ (reactive approach)
● Involves comparing outputs and processes against predetermined quality targets or
performance objectives → corrective action is taken if the product falls below set
standards
● May require that labour be trained to apply and meet these standards while working

ASSURANCE ● Quality assurance​ = ​system used to ensure set standards are achieved in
production​ → proactive approach → prevent inefficiencies from occurring from the
beginning
● Involves evaluating finished products and assessing them against predetermined
quality targets or performance objectives
● Ensures global businesses meet the same standards worldwide → achieved
voluntarily by following the International Organisation for Standardisation (IOS) →
enhances domestic and international competitiveness
● Consider fitness for purpose & meeting correct standards the first time (prevent
re-working)

IMPROVEMENT Continuous Improvement

● Continuous improvement​ = ongoing commitment to improve the efficiency &

effectiveness of goods & services → helps bus to obtain & maintain a competitive
advantage (strategic)

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 ● Successful improvements in quality = inclusion of staff in improvement processes →
all staff encouraged to demonstrate initiative & to suggest areas where improvements
can be made

Total Quality Management

● Total quality management​ = ongoing business wide commitment to deliver quality to

customers → requires benchmarking, employee empowerment, a focus on the
customer and continuous improvement
● Emphasises employee involvement in prevention of quality problems (embedded in
culture)
● Making product correctly in first place to avoid expense of inspection & waste of
rejected
● Improving quality can also help business improve market share → better quality &
lower priced products

OVERCOMING RESISTANCE TO CHANGE

FINANCIAL COSTS
● Main financial costs associated with change include purchasing new equipment, redundancy
payments, retraining and reorganising plant layout
PURCHASING ● Purchasing new equipment is expensive, however costs be recouped through use in
NEW the long-term → cost savings through increased efficiency and productivity
EQUIPMENT ● Adds value in transformation process and has potential for appreciation
● New equipment can achieve improved processing speeds, shorter lead times, greater
consistency and efficiency in production (reduced wastage), higher overall quality of
product and reduced losses from equipment failure

REDUNDANCY ● Redundancy payments are given to employees when they are forced out of work as
PAYMENTS their jobs skills are no longer relevant → often occurs when tech replaces labour
● Amounts paid depend on duration of employment, level of pay, outstanding wages
etc…

RETRAINING ● Restraining occurs during structural change in the business when job roles change,
often due to new technologies, requiring employees to acquire different work skills or
extending their existing skills → achieved through training on and off the job

REORGANISING ● Extensive reorganization of the plant layout can incur high costs for transportation,
PLANT LAYOUT installation and testing of machinery and equipment
● Usually organized around the products needs and the transformation process layout

INERTIA
● Main human costs associated with change include inertia + change in skillset
● Inertia = psychological resistance to change → caused by feelings of uncertainty/fear → people
more resistant to change if they feel their job prospects are threatened
● Major reasons for resistance is due to internal stakeholders (eg, owners, manager, employees)
becoming to comfortable in a stable environment
● Strategies to overcome resistance = retraining programs, work teams and flatter management
structure
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 ○ Identify (source of change) and communicate the need for this change
○ Setting achievable goals
○ Create a culture of change within the business → eg. use ‘change agents’ (internal staff or
external professionals that initiate/facilitate change process)
● Changes in skillset = skills of the current staff are no longer needed, resulting in feelings of personal
insecurity and inadequacy

GLOBAL FACTORS
GLOBAL ● Global sourcing​ = sourcing supplies or services without being constrained by
SOURCING location
● Global sourcing involves creating a global web based on suppliers which provide
maximum quality products with lowest cost, risk and lead times
● Financial (risks associated with exchange rate fluctuation and contractual

ECONOMIES OF ● Economies of scale ​= increasing levels of production to lower per unit costs
SCALE ● Economies of scale is a global factor when businesses produce overseas or sell to
global markets → based on scale advantage
● Discounts from bulk buying can achieve economies of scale and boosts efficiency
through greater workforce specialisation
● Increased scale of production = cost per unit falls = profitability increase

SCANNING AND ● Scanning and learning ​= involved observing the global environment to discover
LEARNING the new and best practices to improve competitiveness
● Management journals, conferences & industry/business associations assist in
scanning and learning
● Helps managers adopt best practice into business operations → handle issues with
flexibility & insight → overall improved efficiency

RESEARCH AND ● Research and development ​= work undertaken to improve existing or create new
DEVELOPMENT products & production processes (invention and innovation)
● Investment in R&D provides a competitive advantage through product differentiation
(E.g. leading edge technology)
● Global businesses often have extensive R&D facilities in many countries
● Government encourages this through taxation incentives & grants

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