Area of Study 3: The Operations Management Function Chapter 6: Operations Management function

Operations Management Task of managing the process that transforms resources into finished goods and services Managing resources to achieve efficient output of goods and services Not necessarily just pure production, decrease in Australian on importance of manufacturing, more focus on tertiary businesses so operations management allows for analysis of all businesses, whether primary, secondary or tertiary.

Operations and business objectives Level of Planning Description of tasks undertaken Strategic Planning -what products to make or services to provide -process and layout -facilities -location Tactical planning -material resourcing -labour resourcing -layout and process design -sourcing technology -quality management Operational planning -scheduling – what to process and when -sequencing – order of process -loading – amount of work placed onto resources -rostering – who does what and when An organisation that effectively manages its production of goods and/or services through wise implementation of operations management strategies will use resources efficiently and keep customers satisfied.

Role of Operations Manager Ensuring that the operations systems meet objectives of the organisation as a whole Making strategic decisions relating to planning and designing an operating system Inventory management Manufacturing Quality Maintenance/engineering 2. Eg design and layout of the factory or workplace, product, process, capacity, location, human resources, quality management ie strategic planning Inventory management – determining the levels of stock to be ordered and sorted to ensure customer service requirements are fulfilled Manufacturing – determining the production rate required to meet budgets or forecasts, managing direct labour costs, controlling cost of wastage, defects and rework Quality – determining required standards, documentation of quality procedures, standards and codes of practice Maintenance/engineering – ensuring equipment is reliable and regularly maintained, controlling maintenance costs and keeping up-to-date and accurate documentation of maintenance records

Operations system Series of procedures and processes an organisation take in order to create its outputs of finished goods and services through the transformation of inputs. -Production process: process of transforming resource inputs into finished goods and services While both results from the production process it is important to understand the difference between goods and services Goods are: -tangible -production and consumption occur separately -can be stored as inventory -can be standardised/consistent quality -minimal customer contact (eg manufacturer wil deal with wholesaler/distributor, not generally final consumer) -produced Services are: -intangible -production and consumption often occurs concurrently/simultaneously. Eg Patient goes to see a doctor who performs the service ie provides medical treatment at the time of consultation -difficult to store however record of service is maintained e.g. medical history, legal advice on file -Often specifically provided/tailored to meet individual client/customer requirements eg tax advice quality is more difficult to measure -Higher degree of customer contact established -performed

Key Elements of Operations System - INPUTS Inputs – resources necessary to produce the product Raw materials and components Human Resources Technology Capital, plant and equipment Information and knowledge Times -Raw materials – unprocessed inputs sourced from primary producers. Compontents – processed parts, usually purchased from another producer -Human Resources – labour is human effort expended in a production process. Human resources are employed by organsations to oversee and enact the operations processes that create the output -technology involves computerisation and new developments such as robotics and e-commerce that could potentially improve the efficiency and/or effectiveness of an operations process -capital: any human made object, tool or machine that assists in the production process. Cash is often classified as capital as it can be readily converted into necessary capital items. Plant refers to buildings and non-moveable capital items. Equipment refers to machinery and other tools such as vehicles, computers, furniture and mobile phones -specialised knowledge required in order to enact the production/operations system and to produce the specified goods and services. Such as knowledge of computers, specialised machinery, knowledge of an experience teacher. This category on input is often overlooked y management. Often it is only when an experienced employee leaves an organisation that their experience and specialised knowledge is a major contributor to an operations system’s effectiveness and efficiency. Knowledge can also be obtained from a source external to the organisation, eg statistics from ABS -Time: non-renewable resource which if wasted will add to production costs

Key Elements of Operations System - PROCESSING Transformation of inputs into outputs Plans the process then organises its implementation Process will vary according to: types of goods and services produced Size of the organisation Number, quality and availability of resources While manufacturing organisation have more clearly identifiable production systems, service providers nonetheless still have inputs, and a transofrmation process which results in a service output. The transformation stage for services is often not as easy to identify. The transformation stage is important as it is where value can be added to the inputs and productivity gains made due to efficiency in the processes and procedures undertaken. Activity 6.1 questions 1-3 Homework: 6.2

Key Elements of Operations System - OUTPUTS Final product, the results of the operations process Outputs are goods or services Good involves an object changing hands, service involves purchase of labour Management should ensure output type is responsive to needs of the market 4. Must be what the market wants to buy or the service they require organisation needs to seek feedback on the efficiency of their operations and effectiveness in achieving their objectives. As an organisation does not operate in isolation environmental factors must be taken into consideration. 6 Groups – comes up with the inputs, processes and outputs for a type of organisation: -travel agency -bus company -clothing manufacturer -large bakery -newspaper company -school

How operations management relates to business objectives and strategy An organisation in its desire to increase its level of business competitiveness will require the operations management functional area to establish objectives such as: Increasing productivity Improving quality of processes and output Adopting a sustainable approach to its operations These features can help enhance the competitiveness of the business: Optimal levels of operational efficiency High standards of quality Ethical and socially responsible considerations Being able to measure level of achievement with objectives Optimal levels of operation efficiency (reliable supply chain, minimal wastage, appropriate facilities design and layout, use of technology) High standards of quality built into processes Ethical and socially responsible considerations must be taken into account Must be measureable against the level of achievement of organisational objectives and mission

The productivity objective Productivity: level of output obtained from a level of input Output (O) (units of production) Productivity (P) = Inputs (I) (units of raw materials, capital, labour) Examples of productivity measures: Units of production produced per employee Crop tonnage per hectare planted Number of client attended to per hour or per unit of wage cost Number of units produced per unit of money Productivity and quality improvements are key to achieving international competitiveness Business will attempt to gain competitive advantage based on one or both of these things

Factors determining organisational productivity Technology levels Research and development Equipment and facilities Tasks and processes Layout of facilities Communications processes Workplace safety

Evaluation of operations management Key Performance Indicators appropriate to determining if operations management system is working well: Efficiency Level of waste Productivity Customer satisfaction (measured by repeat orders or number of returned products. Profit

Activities Activity 6.3 Case Study p142-143 Chapter Summary Questions Examination Preparation Chapter 6 p146