1. Operations management
Unit 3, area of study 3

2. 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.

3. 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

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

5. What is operations management?

6. 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

7. 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?

8. Operations management – note taking exercise
Read through pp
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?

9. 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.

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

11. 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

12. 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.

13. 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?

14. 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.

15. 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.

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

17. 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

18. 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

19. 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

20. Activity time!

21. 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.

22. 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

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

24. 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.

25. 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.

26. 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.

27. Activity time! Virtual ops systems tour
Visit the website Select two products to explore and summarise the operations process in table.

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

29. 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.

30. 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.

31. ACTIVITY TIME!

32. 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

33. 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.

34. FACILITIES DESIGN AND LAYOUT (floor plan)
KEY IDEA: The physical layout of plant and equipment impacts the efficiency of the organisation’s operations.
Consider the following scenarios:
An office worker needs to walk to the next floor up to collect paper from the printer.
A hamburger restaurant locates the sliced tomato on the opposite end of the kitchen to the chopped lettuce and sliced cheese.
The local independent supermarket places the milk and bread next to one another at the front of the store as you walk in.
Consider how the layouts described affect the operation of the system and therefore affect the achievement of the organisation’s objectives.

35. Choosing a layout strategy
A number of factors influence the location and the layout strategy, including:
The product being manufactured / the service being produced.
The process to be undertaken.
The volume of output required to be produced or services provided.
Actual amount of physical pace required and the location.
Occupation health and safety standards
NOTE: Operations facilities are expensive and are constructed to be permanent,
so questions of design and layout are critical to operational efficiency and to longer-term business success. Facilities are not easily changed.

36. THINGS TO THINK ABOUT WHEN MAKING FACILITIES DESIGN AND LAYOUT DECISIONS
Occupational health and safety laws must be adhered to.
People need an adequate amount of space to work in.
People need to be able to communicate with their colleagues easily.
Equipment needs to be located so that it is easily accessible.
Equipment needs to be serviced regularly to avoid breakdown.
Inputs must be located so that they can be accessed & used when needed.
Ouputs need to be stored where they can be packed & delivered safely.
Ergonomics must be considered: furniture, equipment, high of workbenches, protective clothing, lighting, temperature.
Facilities design and layout impacts on the health, safety & happiness of employees and it therefore affects their productivity.

37. FIXED POSITION / PROJECT
LAYOUT STRATEGIES
FIXED POSITION / PROJECT
PRODUCT
MASS CUSTOMISATION
PROCESS / FUNCTIONAL
OFFICE LAYOUT
RETAIL LAYOUT
VIRTUAL FACTORY

38. Fixed-position (project) layout
Features
The product remains in one position whilst being built.
The workers and equipment come to the product.
Each individual product is finished before the next one is started.
Application:
For large and bulky items that cannot be moved.
Used to produce a customised product.
Advantage:
Flexible – build to specifications.
Disadvantage:
Expensive and time consuming – high labour input
Storing materials can be difficult.
Examples: Bridges, ships, aircraft, buildings.
Aircraft assembly:

39. Examples: Yakult, chocolate
Product layout
Features
Products move along a conveyor belt.
Standardised inputs are put through standard processes to product the required output.
Involves automation and high levels of technology.
Application
Used when one standardised product is being produced in large volumes.
Advantages
Low per unit cost
Consistency in output rate and quality.
Disadvantages
Expensive to set up initially – capital-intensive high tech.
Employees can become unmotivated through repetitive tasks.
No allowance for any customisation.
The assembly lines stops if there is an issue in one section.
Examples: Yakult, chocolate
Fridge assembly:

40. Examples: Automotive manufacturing, computer manufacturing
MASS CUSTOMISATION
Features
Uses an assembly line.
Employs multi-skilled workforce.
Inputs are added to create variations of the same product.
Involves automation and high levels of technology.
Application
Used when one product is being produced in large volumes but the product can be customised in some way.
Advantages
Low per unit cost.
Consistency in output rate and quality.
Employees get some variety.
Allows for customisation.
Disadvantages
Expensive to set up initially – capital-intensive high tech.
The assembly lines stops if there is an issue in one section.
Examples: Automotive manufacturing, computer manufacturing

41. Process / functional layout
Features
Equipment and workstations are grouped together according to their function (the task they carry out).
Application
Where there are a variety of products or variations on a single product generally only produced in small amounts.
Suits batch production, where groups of different products move through the system one at a time.
Advantages:
Allows for variation in volume produced.
Allows for specification – good or service to be tailored.
Disadvantage:
Can become monotonous for staff involved in only one stage – icing the doughnuts!
Examples: Medical care, bakery

42. Examples: Clothing, IT, customer service.
VIRTUAL FACTORY
Features
Operations is outsourced.
Application
Where some or all of the operations system can be done more efficiently somewhere else.
Advantages:
Reduced fixed costs from plant and equipment.
Ability to take advantage of the cost savings offered in low-wage countries.
Disadvantage:
Language and cultural barriers.
High set-up costs.
Difficult to change suppliers.
Possibility of political and economic disruptions in developing countries.
Ethics and social responsibility issues.
Examples: Clothing, IT, customer service.

43. RETAIL LAYOUT Examples: Supermarkets and variety stores (Kmart, BigW)
Features
Customers are guided through different sections.
It can be difficult for customers to get what they want because of ‘barriers’ established to showcase different goods.
Locate high-impulse or high-margin products in prominent locations.
Locate high-draw items at opposite ends of the store
Locate high power (‘high-priority’) items at intervals throughout the store.
Application
Used in retail stores where exposure to product is the critical consideration.
Advantages:
Customers are exposed to products they did not intend to purchase when they walked into the store = potential for further sales.
Disadvantage:
Customers can get frustrated because they can’t find what they need efficiently.
Examples: Supermarkets and variety stores (Kmart, BigW)

44. Office LAYOUT Examples: Bank, Law Firm, School staff room. Features
Requires efficient movement of information and people and proximity to resources (photocopiers, computers etc.)
May co-locate colleagues who work in same department together.
Privacy is often a key consideration.
Should include space for employees to take their breaks.
Personal storage space and meeting rooms.
May be open plan or in pods.
Employees need to develop a code of conduct – ‘cubicle etiquette’: minimum noise, tidy work area etc.
Application
Used in office buildings, service organisations.
Advantages:
Employees have the space and privacy they need to work individually as well as proximity to colleagues which enables them to work efficiently with others in their team.
Disadvantage:
Innovations are removing the traditional office layout. Some employees claim that decreased privacy, uncertainty and distance from colleagues and resources actually decreases their productivity.
Examples: Bank, Law Firm, School staff room.

45. LEAN MANUFACTURING Examples:
Reducing unnecessary movement of workers, machines and products.
Minimising storage required.
Reducing defects in products and equipment breakdown.
Reducing waste.
Reducing the time workers wait for work to come through
Shortening the time taken to switch equipment and people to produce new products.
A philosophy – not a facilities option.
It’s about streamlining production and minimising the use of resources.
It’s about removing activities and processes that don’t add value to the product.
It involves….
Identify what the customers want (quality, customer service, variety etc.)
Identify all steps taken to make the product.
Make all processes flow.
Remove processes that don’t produce what the customer wants.
Ensure that the process only produces the quantity demanded by the customer.
Identify and remove waste wherever it exists.

46. THE USE OF TECHNOLOGY
KEY IDEA: The acquisition of up-to-date technology is one strategy which operations managers use to optimise operations.

47. ACTIVITY TIME! USE OF TECH. BRAINSTORM
Brainstorm technology used in manufacturing and service organisations.
How does the use of technology change operations in service and manufacturing organisations?

48. How does technology impact operations?
in human labour =  in labour costs and  in human error
 technology =  in precision;  in quality  in transformation time;  in efficiency
Read top of p.128

49. Office technology
Refer to “office technology” p.128

50. ACTIVITY TIME! TIME TRAVEL….
Let’s consider how some service industries might have operated without modern technology.

51. Customer relationship management (crm)
CRM stores information about existing and potential customers.
Information can be entered and retrieved by employees all over the business.
This means that information is easily accessible, it is not duplicated, and therefore it is accurate.

52. Manufacturing technology
Robotics: Highly specialised forms of technology capable of complex tasks. Computer aided design (CAD): Software that can creation and modify product designs. Computer aided manufacturing (CAM): Software that controls manufacturing processes remotely. Computer integrated manufacturing (CIM): A method of manufacturing in which the entire production process is controlled by a computer.

53. ACTIVITY TIME!
BRW – USE OF TECHNOLOGY IN MANUFACTURING (4 minutes) FUTURE USE OF TECHNOLOGY IN MANUFACTURING (9:42) minutes)

54. The use of technology: ethics and social responsibility considerations
Technology can replace some people’s jobs. However, it can also create new jobs!
How do we transition to a technology intensive process in an ethical and socially responsible manner?
Assist redundant employees to find new jobs.
Try and re-deploy redundant employees into other areas of the business.
Train employees to use and maintain the new technology.
Multi-skill employees so they can do various jobs.

55. Materials management
KEY IDEA: It’s about managing the use, storage and delivery of materials to ensure the right amount of inputs are available when required.

56. MATERIALS AND SUPPLY CHAIN MANAGEMENT: ELEMENTS
INVENTORY MANAGEMENT
PROCURMENT OF INPUTS
TRANSPORT AND DISTRIBUTION (LOGISTICS)
Supply chain management definition: The process of integrating and planning, implementing and controlling the system of organisations, people, technology, activities, information and resources that transforms inputs into finished outputs.

57. Materials handling at toyota!

58. Materials planning
Develop a production plan: Outline the activities necessary to combine resources (inputs) to create goods or services (outputs).
Develop a master production schedule (MPS): Provide details of what is to be produced and when.
Develop a materials requirements plan (MRS): Create a list of all the materials required to meet the orders outlined in the MPS.
Consider:
Supplier lead times
Exact number of inputs required.
Stock already on hand
purchasing procedures (bulk, in advance?)

59. Materials management approaches
Bar coding
Stock taking
Materials handling
Master production scheduling
Materials requirements planning
Just-in-time delivery
Supply chain management

60. THE MANAGEMENT OF QUALITY
Consumers look for high quality at the lowest price.
High quality producers gain a competitive advantage over their rivals.
Quality management programs aim to:
Minimise waste
Minimise defects rates
Produce consistently high quality goods and services
Achieve quality standards or benchmarks

61. The management of quality – brainstorm
What is quality?
What are the features of a quality product?
What strategies can you put in place to maintain the quality of your product?

62. Quality – What is it? Quality products
Quality is the degree of excellence of goods or services and their fitness for a stated purpose.
Reliable
Durable
Consistent
Conform to established standards
Easy to use
Well designed
Delivered on time
Include after sales service
Of an agreeable appearance
Quality products

63. Activity time!
List and explain the characteristics you would look for in each of the following products/services for it to be judged as ‘quality’:
An education
A car
A hamburger
A business suit
A bathroom renovation
A taxi ride
A household appliance
A mobile phone service

64. Total quality management
Quality control
Quality assurance
Total quality management
Quality management in LSO’s may take the form of one or a combination of the following approaches.

65. Quality control
Physical checks at different stages of the production process.
Aim is to ensure products and services meet established standards
Defective products are rejected and may be sold as seconds.
It’s a reactive process, meaning it aims to detect defects after they have happened.
Ops. Manager decides whether production must be stopped.
Sometimes a product recall may be necessary.
What quality control measures did Yakult have in place?

66. Quality control stages

67. Quality assurance ISO – International Organisation for Standardisation
Aim is to build quality into work processes.
It’s a proactive process, meaning it aims to avoid errors before they occur.
Organisations may enlist the help of an external body to ‘certify’ their processes against national or international quality standards.
What are the benefits of external quality certification?
ISO – International Organisation for Standardisation

68. Benefits of external certification
Help reduce costs by identifying areas of waste or duplication. By having the entire process laid out and viewed regularly, it provides insight into where efficiencies may be gained.
The “FiveTick” StandardsMark™ logo clearly lets customers know that you are certified with the market leading certification body in Australia.
Improved product or service quality and consistency so your customers know what they are getting time and time again.
Exporting into global markets customers may demand an Internationally recognised certification.
Contracts and tenders, especially in government, may request ISO 9001 certification as a pre-requisite.
Competitive edge over other companies that don’t have a system in place.
Documenting processes and locking in system changes. Can help ensure that your business can continue to operate effectively, even if staff leave.
Staff can follow the systems and procedures giving you more time to deal with more critical business issues.
Locking in best practice and using this as a benchmark to further improve.
Reviewing and documenting issues and potential issues, helps identify key trends and eliminate problems. You can then base any actions on real data.

69. Quality certification processes

70. Areas of certification
Standards cover aspects such as:
Production process
Training of staff
Documentation of processes
Controls
Corrective Action
Auditing of processes
What does the globe have to do with quality assurance certification?

71. KEY QUESTION
What is the difference between quality control (QC) and quality assurance (QA)?

72. Kaizen! (Continuous improvement) = tqm
William Edwards Deming, an American statistician first developed TQM in Japan after WWII. He was sent to Japan to assist with the reconstruction. His idea was that if company’s tried to build a product the right way the first time, organisations would avoid the expense of inspection and the waste of rejected products. The Japanese adopted Deming’s philosophy and developed them further.

73. Total quality management (tqm)
A holistic approach to quality.
Organisation wide commitment to excellence.
All members of an organisation participate in ongoing improvement.
Quality is a commitment and a responsibility of everyone.
Aim is to improve performance at every level in every aspect.
Core TQM concepts:
Continuous process improvement
Customer focus
Defect prevention
Universal responsibility
See p.125 of your text book

74. TQM CONCEPT EXPLANATION
CONTINUOUS IMPROVEMENT
Empower employees by placing them into a “quality circle,” a work team. Quality circles are responsible for analysing problems with their part of the overall business and developing solutions to fix it. In this way, employees are constantly striving for improvement.
CUSTOMER FOCUS
Find out what the customer (both internal and external)needs and wants and ensure the process provides it
DEFECT PREVENTION
Tries to prevent defects from occurring by creating reliable production process.
UNIVERSAL RESPONSIBILITY
No one person is responsible for quality. Everyone plays a part and should seek new ways to improve their product or service.

75. KEY QUESTION
Why do you think “quality circles” are so successful in identifying strategies for quality improvement?

76. Ethics and social responsibility
Brainstorm
Refer to the ethics and social responsibility chapter (chapter 12) focussing on operations management
Environmental management system (EMS)
Triple-bottom line reporting – Social responsibility report