Operations management Unit 3, area of study 3

Key knowledge key skills the operations function and its relationship to business objectives and business strategy; characteristics of operations management within large-scale manufacturing and service organisations; key elements of an operations system (inputs, processes and outputs) in different types of large-scale organisations; productivity and business competitiveness, their importance for and impact on the operations system; strategies adopted to optimise operations, including: facilities design and layout materials management management of quality extent of the use of technology; ethical and socially responsible management of an operations system. accurately use relevant management terms; research aspects of operations management using print and online sources; analyse business information and data; apply operations management knowledge and concepts to practical and/or simulated situations; discuss key aspects of operations management; analyse strategies that arise through practices within operations management.

Key terms to add to your definitions…so far! Assembly line Inputs Process layout Automation Inventory Product layout Batch production Inventory control Production process Cell production Just In Time Productivity Closed factory Lean manufacturing Quality Competitive advantage Mass production Quality assurance Competitive scope Multi-skilling Quality circle Computer Aided Design Office layout Retail layout Customisation Operations Robotics Environmental management system Operations management Transformation Operations manager Virtual factory Facility layout Outputs Fixed position layout Proactive Functional layout

The operations function and its relationship to business objectives and business strategy

What is operations management?

What is operations management? ROTE LEARN ALERT: “Operations” refers to the actual work done to transform inputs into outputs and delivering the goods and / or services for sale. Operations management is the management of resources to achieve the efficient output of goods and services. INPUTS PROCESSES / TRANSFORMATION OUTPUTS Procuring materials, labour, technology, finance etc. Final good or service for sale Utilising the inputs in the production process

Activity time! baking bread at benny’s bakery What are the inputs required to bake bread? What are the processes required to bake bread? What is the output?

Operations management – note taking exercise Read through pp.131-133. Definition of 'operations management' The role of the operations manager . What do operations managers do? Why is the operations management function important? How does it assist the organisation to achieve its objectives?

What is an operations manager? ROTE LEARN ALERT: An operations manager is responsible for the management of resources, the transformation process and the delivery of finished products. The operations manager aims to achieve the efficient and effective use of resources to create the best-quality products at the lowest possible price.

The role of the operations manager Levels of planning and decision making in operations management Somers, Cain and Jeffery (2011) p.133

Operations mgmt: the heart of all organisations Operations (producing the actual good or service for sale) is the core function or purpose of an organisation. It is what generates the revenue! Objective of all organisations To produce their product (the good or service they sell) as efficiently as possible Operations management The strategy that organisations use to achieve this objective How operations management is designed and executed affects the: quality of the goods or services, the cost of production, and the capacity of the production process (the number of goods or services) that can be supplied to the market. p

Link between ops man & bus. objectives & strategy Operations management decision Impact on operations management Impact on achievement of business objectives Change to a cheaper flour supplier. Reduce the cost of an input to production - flour Increase profit because costs have decreased. Undertake regular quality control tests on jam doughnuts. Ensures that each batch of jam doughnuts includes the right amount of jam. Increase profit because sales will increase if the quality of the product is high and consistent between batches. Purchase a bigger oven. Increase capacity of the bakery and decrease overall production time. More can be produced in less time = Can cut baker’s shifts. Regularly service and maintain ovens Minimise time lost due to machine break down. Increase productivity because there is no lost time. Minimise human labour by investing in machinery to knead and mix ingredients. Reduce the number of bakers required. Reduce the cost of an input to production – labour.

Predict what would happen to bread prices at Benny’s Bakery if Benny purchased a larger oven? Operations management influences the quality, cost availability of goods and services and therefore profit generated by the company. Predict what would happen to bread prices at Benny’s Bakery if Benny was able to change suppliers and decrease the cost of flour from 1.00 p/kg to 50 cents p/kg? Therefore, it influences the achievement of other business objectives, including the ability of the LSO to increase market share, profits, increase quality & returns to investors. How does the operations management function assist the business to achieve its objectives?

Practice sac question CASE STUDY INFORMATION “Benny’s Bakery” is a Melbourne based large scale organisation with stores in all major shopping centres in Victoria. It produces baked goods including loaves of bread, bread sticks, bread rolls, doughnuts, sweet scrolls, savoury scrolls, meat pies and scones. According to the founder, Benny’s Bakery “has a passion for fresh, delightful bread”. The company has the following overall objectives: To provide customers with quality baked goods. To sell products at an affordable price. To increase sales and market share. Analyse the relationship between the operations function and the achievement of business objectives, using Benny’s Bakery as an example.

SUGGESTED SOLUTION The operations function transforms inputs into outputs for sale through a range of processes. It is the core function or purpose of an organisation because it is what generates the revenue for the business. Benny’s Bakery has three objectives; to provide quality goods at an affordable price and in doing so, increase sales and market share. It is the operations function at Benny’s Bakery that will determine whether or not these objectives are achieved. For example, putting in place a quality management strategy like quality control will help Benny to monitor the quality of his goods. This involves setting quality standards and checking the quality of his products against these standards. Thus, Benny can determine whether he is producing quality products and identify necessary changes to the process. Benny could put in place strategies to reduce waste in the production process. For example, maximise the number of scones cut out of a batch. This will assist Benny to minimise his costs and therefore his prices. By lowering his product prices, Benny will be able to increase his sales and therefore his market share. In summary, the way that the operations function is designed and executed affects the quality of the goods and the cost of production, which has a direct impact on the achievement of Benny’s organisational objectives.

Characteristics of operations management within large-scale manufacturing and service organisations

Think-pair-share - 2014 Tangible (physical) product (good) Intangible (non-physical) product (service) Milk Gardening Computer Defence Magazine Medical appointment Phone Mechanical check up / service Table Cleaner Lunchbox Gym

Think-pair-share - 2013 Tangible (physical) product (good) Intangible (non-physical) product (service) Shampoo Dentist Apples Education Fairy floss Public transport Laptop Massage Vacuum Cleaner

Think-pair-share - 2012 Tangible (physical) product (good) Intangible (non-physical) product (service) Paper Medical check-up Mars bar Legal advice Coke Education Dress Transport Fruit Cleaning services

Activity time!

key point! The nature of operations varies. Different products utilise different production processes. The nature and type of operations used to produce goods are different to the process used to produce services.

Operations management: key differences between goods & services It’s important to know the differences between goods and services with respect to the operations management function. Somers, Cain and Jeffery (2011) p.136

Key elements of an operations system in different types of LSO INPUTS PROCESSES / TRANSFORMATION OUTPUTS

Inputs are the resources used in the process of production. Raw materials and components Plant and capital equipment Technology Labour Information and knowledge Time Capital. Money Inputs are the resources used in the process of production. In order to be competitive, LSO ‘s attempt to procure high quality inputs for the lowest possible price.

Transformation The conversion of inputs (resources) into outputs (goods and services). The conversion process used to produce goods is different to the process for services. LSOs that produce goods are likely to use a process that is highly mechanised, utilises sophisticated machinery where it can instead of using human labour. LSOs that produce services rely much more heavily on the interaction between staff members and the customer. For example, financial advice provided at a bank. In order to stay competitive, LSO ‘s must ensure their transformation processes are efficient. An efficient production process is one where there is little waste.

outputs The end result of the organisations efforts. Either a good or a service. Good purchased: A good changes hands from the seller to the buyer. Service purchased: The seller provides her or her labour to the buyer. In order to stay competitive, LSO ‘s must produce what the market wants and remain responsive to changes in custmer preferences.

Activity time! Virtual ops systems tour Visit the website http://manufacturing.stanford.edu. Select two products to explore and summarise the operations process in table.

Productivity and business competitiveness, their importance for and impact on the operations system

Productivity & business competitiveness Productivity is a measure of efficiency. It is the amount of output produced compared to the inputs required. Productivity can be measured using the formula: Businesses aim to maximise their productivity. In other words, businesses aim to get as much they can out of the inputs they use in the production process.

Productivity & business competitiveness The more productive an organisation becomes, the more competitive it becomes. The flour, meat and pastry costs $5. Therefore, in this scenario each pie cost $2.50 to make. The flour, meat and pastry costs the same amount. Therefore, in this scenario each pie cost $1 to make. A business has a “competitive advantage” when it can produce goods better than its competitors. Say the business above improved its productivity by upgrading its cutting equipment and reducing waste. This improvement more than halved the production cost per pie.

ACTIVITY TIME!

What factors determine business productivity? The use of technology Research and development The quality and maintenance of equipment and facilities The types of tasks and the methods used The layout of facilities Communication processes – use of participative management style! Workplace safety The level of training of staff Communication in the workplace. Getting employees to ‘buy in’ - Share ownership schemes

Optimising operations management The operations manager aims to extract maximum productivity and levels of quality from the production process whilst also achieving ethical and social responsibility objectives. There are four strategies they use to achieve this: Facilites design and layout. Materials management. Management of quality. The extent of the use of technology.