1. The operations management function Area of Study 3

2. 3.1 The operations function and its relationship to business objectives and business strategy Key terms: Operations management: consists of all the activities in which managers engage to produce goods or services Tangibles: are goods, which can be touched Intangibles: include services, which cannot be touched

3. Defining operations management Within the ‘management function’ we had many divisions. What were they? Operations management is the responsibility of managers engaged to produce goods or services It is concerned with creating, operating, and controlling transformational processes that takes inputs from a variety of resources and produces outputs of goods and services, to satisfy customer demand E.g. At a bakery the process of delivering a loaf to you would include inputs such as buying ingredients, mixing, blending, baking and delivering the loaves to retail outlets. The core objective of all organisations is to efficiently produce goods or services – operations management is how organisations try to achieve this Operations management can therefore make or break an organisation!

4. Operations management Production involves the skilful bringing together of a number of resources – finance, equipment, management, technology, people to create finished goods or services Operations will vary depending on the type of product or service The competitive position of an organisation is directly affected by the operations management function by: Establishing the level of quality of the goods and services Influencing the overall cost of production (the operations function is responsible for the organisation’s capital and human expenses) Evaluating whether sufficient products are available to satisfy consumer demand All of the above has direct influence on an organisation’s MAIN objective. Specifically their profit margin, market share and whether they can provide a reasonable return for investors OR wellbeing of the community

5. Characteristics of operations management within large-scale manufacturing and service organisations Operations management differs from other forms of organisations management – this is because it applies specifically to the management of the productive or transformational process (taking raw materials and making it into a product!) Coordinating this process is a management activity It is important to note that operations managers should no longer be considered as simply engineers of a manufacturing process (production managers) this was the case before the 1970s Today, operations managers carry out a wide range of tasks

6. Tangible and intangible products A manufacturer will transform inputs into tangible products Tangibles are physical products that can be handled and stored before they are sold to the consumer i.e. bread, clothing, a car The production process and consumption are not linked – there is little customer involvement in the production process A service organisation will transform inputs into services. Services are intangible. They cannot be touched. I.e. if you get a hair cut you cannot physically touch the ‘service’ but you benefit from the service by being groomed Services cannot be stored, and customers may need to be present for the service to take place. In reality many LSOs produce a combination of both manufactured goods and services. I.e. cars often come with warranty and other services

7. Role of operations manager in senior management

8. Role of the operations manager in senior management Regardless whether an organisation manufactures a product or produces a service, most LSOs will have an operations function or department It may be referred by other names aka productions or supply The strategies used will depend on whether the LSO offers a product or service (Car manufacturer Vs ANZ Bank) The operations manager will use the four management roles (as any other manager does) this includes: lead, plan, organise, control

9. 3.2 Key elements of an operations system in LSOs Key terms: Inputs: are resources used in the process of productions Transformation: is the conversion of inputs (resources) into outputs (goods or services) Outputs: refer to the end result of an organisation’s efforts – the service or product that is delivered or provided to the consumer

10. Inputs Inputs are the resources used in the process of production Some resources are owned by the organisation – others from suppliers There are 6 categories of inputs: Materials Capital equipment Labour Information from a variety of sources Time Money What do you think are the inputs of a hospital?

11. Processes/transformation The main concept of operations management is transformation Transformation is the conversion of inputs into outputs Think of a product – what is the transformation process? The transformation process is not only a physical conversion Your school is a service. The main inputs – students, teachers, curriculum, buildings – produces the output of educated, employable graduates

12. Outputs Outputs are the result of an organisation’s effort The final good or service that is delivered or provided to the consumer Goods tend to be homogenous (that is they are basically the same or similar) Services can be differentiated – suited for a customer or modified You should know the difference between service and manufacturing operations

13. The operations function and objectives There is an important link between an organisation’s operations and its objectives Operations is the ‘engine room’ at supports the organisation’s objectives Without operations, there is no product (good or service). Generating greater profit or maximising market share are typical objectives that depend on efficient production in operations Achieving an organisation’s objectives will include strategic planning in operations. Organisations will look at Facilities design and layout Materials management The management of quality New technology

14. 3.3 Operations, productivity and business competitiveness Key terms: Productivity: is a measure of efficiency – the amount of output produced compared to the amount of input required in production Business competitiveness: refers to the ability of an organisation to sell products in a market

15. Productivity and business competitiveness Productivity can be improved by reducing the amount of input required to obtain the same level of output or increased output Or, productivity can rise if input remains the same but output increases, therefore getting more out of the input Organisations that improve productivity will become more competitive why?

16. Competitive advantage Competitive advantage is when an organisation is able to produce goods better than its competitors Organisations compete in TWO ways: 1. cost – providing customers with lower priced goods 2. differentiation- providing customers with superior value in terms of service (quality, speed, flexibility) or added features compare to lower priced competitors

17. How can organisations improve productivity? Improved communication between managers and employees Management styles that involve employees in the decision-making can increase worker productivity – as can rewards programs to improve motivation Automating work processes to reduce labour required Improving design and layout of facilities

18. Productivity may be improved by producing more outputs from the same input or by reducing the level of inputs for the same output

19. Areas of operational competitiveness Competing on cost Competing on quality Competing on speed of delivery See page 112 & 113

20. Competing on cost Outsourcing or cutting staff – moving manufacturing operations overseas Competitive through increasing production capacity (known as economies of scale: finding the right sized operation with the cheapest cost) For many organisations, reducing costs is a matter of working ‘smarter’ by finding new and improved ways to produce products efficiently.

21. Competing on cost Cost per unit can sometimes fall as output increases

22. Competing on cost

23. Operational managers in organisations that compete on cost prioritise their decision making based on reducing costs and improving productivity by: ensuring stable production processes with limited interruption ensuring all resources are used to their optimum advantage constantly looking for opportunities to streamline production processes updating facilities and equipment with new, more efficient technology providing training and development to improve the skills and capabilities of employees.

24. Competing on quality Many organisations compete on quality. Patties Foods is a company that is known for its emphasis on quality. According to Patties Foods’ guiding principle, they ‘only use the best quality ingredients available that represent good value for the consumer. From our state-of-the art production facility at Bairnsdale, in regional Victoria, we make quality food in keeping with our company commitments.’ It does this is by listening to the needs of customers and responding to those needs and by dealing with reputable suppliers who meet strict quality standards.

25. Competing on quality

26. In organisations that compete on quality, operational managers make decisions based on ensuring strict application of total quality management (TQM) (see Section Total quality management) approaches by: evaluating processes to ensure minimal defect rates reducing human variables relying on extensive use of integrated technology and computerisation building strong links with the customer.

27. Competing on speed of delivery

28. In organisations that compete on speed of delivery, operational managers make decisions based on ensuring faster transformation processes by: creating autonomous work teams establishing supply chains which work efficiently between the supplier and the organisation developing faster feedback mechanisms adapting the transformation process to reflect the necessity for constant change.

29. 3.4 Facilities design and layout Key terms Facilities design and layout: involves planning the layout of workspace to streamline the production process Fixed position layout: deals with large-scale processes, such as the construction of bridges, ships, aircraft or buildings Product layout: deals with the manufacturing of goods in mass volume using an assembly line Process layout: deals with high varieties of products by grouping activities, equipment and machinery of similar fuction together

30. Facilities design and layout Imagine if McDonald’s was set up as a complete mess – what is the impact on operations? What are some ways that McDonald’s optimises its operations? Think about the layout, how you receive food, seating etc Facilities that are arranged in order will achieve the highest level of efficiency in production. The best layout will result in improved productivity, satisfied customers and deadlines being met

31. Facilities design and layout When choosing the best layout an operations manager needs to consider 5 steps: 1.Production selection – decide the goods and services to be produced 2.Volume – decide the volume to be produced 3.Activities – plan the details of the production 4.Space – decide the amount of space needed for the operations 5.Layout – decide the best layout for the operations (OH&S requirements) The physical layout of facilities will depend on type of operations conducted by the organisation

32. Manufacturing layouts There are two specific layouts that apply to MANUFACTURING in particular – fixed position layout & product layout Fixed position layout This is used for big project production Large scale, bulky activities such as construction of bridges, ships, aircraft or buildings It is more efficient to bring materials to the site, workers and equipment come to the one work area This layout is used when it would be too difficult to move the product A disadvantage is of the layout is storage – materials needs change constantly, and it can be hard to find space to store them safely

33. Fixed position layout Bridge construction is an example of a manufacturer using a fixed position layout.

34. Fixed position layout https://www.youtube.com/watch?v=Ps0DSihggio

35. Manufacturing Layouts Product layout Machinery and equipment are arranged in line and components are added to the product in a sequence of steps A motor vehicle being produced on an assembly line is an example It is best suited to manufacture high-volume, standardised goods. Generally, the product would move along a highly automated production line on a conveyor belt Cost is reduced because of the use of technology, stall only complete specialised task It can be expensive to set up a capital-intensive, automated assembly line Staff can also become bored with repetitive, low-skilled activities A problem with the production line could mean the whole factory needs to be shutdown

36. Product layout An assembly line production method

37. Product layout https://www.youtube.com/watch?v=kQmqNOuRzb0

38. Other layouts These layouts apply to ALL types of organisations: Process layout Retail layout Office layout

39. Other layouts Process layout Often referred to as functional layout, because equipment and machinery that perform similar function are arranged together A process layout is best suited to organisations that deal with a variety of products A manufacturer of sport shoes or brake pads, would commonly use this type of layout A process layout lends itself to batch production, as in the case of a bakery, where different types of bread, rolls or buns are manufactured in limited numbers Each batch would be competed at a production stage and then would move on to another stage In service organisations such as banks or hospitals, a process layout is used to deal with the different needs of customers A disadvantage of this layout is that the work can monotonous for staff, if they are involved only in one stage of the process

40. Process Layout – how to improve

41. Other layouts Retail layout Exposure is a critical consideration to the layout of retail stores Stores such as KMART and BIG W guide customers through departments or sections Customers are exposed to other aisles or sections as they move from one point to another It can be difficult to move efficiently from one part of the store to another, barriers are established to ‘showcase’ or ‘display’ items for sale Retailers such a Coles and Woolworths use approaches such as Locating high-impulse or high-margin products in prominent location – often at the end of the aisles or near checkouts Locating ‘high draw’ items such as bread and dairy products on opposite sides of the store (back of the store) Locating ‘power items’ at intervals throughout a series of aisles

42. Other layouts Office layout Efficient movement of information and proximity to resources (photocopier, computers, printers etc) are priorities for the layout of an office Locating work stations together in departments that are required to communicate constantly In a manufacturing organisation, the office layout is often informal and may overlook the factory floor, so managers can easily supervise. For a service provider, such as an accountant or doctor, clients need to feel welcome – but privacy is a concern. The layout should reflect this An office may need to provide space for a lunch room, that enables employees to take a break Personal storage space, meeting rooms etc may also be required Cubicle etiquette – staff who work in close proximity are expected to be considerate with noise levels, being tidy, etc

43. 3.5 Materials management Key terms: Materials management Inventory Materials handling Production plan Master production scheduling Materials requirements planning

44. Ford Vehicle manufacturer Ford uses ‘just in time’ production – a strategy where assembly plants keep small supplies of parts on hand, and materials are delivered from nearby facilities when needed. A delay in delivery can shut down the entire manufacturing process. In 2012, Ford was forced to stop production for several days after one of its key suppliers, CMI International, was placed into voluntary receivership. Managing materials so that tey arrive in the right places, in the right quantities and at the right time is an important area of operations management

45. Materials Management Materials management is an intricate strategy. It involves several critical activities

46. Materials management This is all about managing the way the materials are received and stored Making sure that the materials are available in the operations system when required Many organisations have large amounts of materials on hand to complete production – this is referred to as stock or inventory A large inventory is held by an organisation to ensure that materials do not run out, however this represents a cost to the organisation Stock taking up storage space for lengthy periods of time can mean that the organisation misses the opportunity to invest money in other places Materials can also have a ‘use by date’ which means that they can become unsable aftera period Some LSOs like Ford, reduce costs by having fewer materials held as inventory Efficient handling of materials keeps costs down, but when material don’t arrive on time the consequences can be devastating.

47. Materials Management Huge warehouses holding a large inventory represent a cost to a large-scale organisation. It is important that materials are handled efficiently to keep costs down.

48. Materials handling One of the mist important activities of materials management is materials handling Materials handling refers to the handling of goods in warehouses and at distribution points. Adequate materials handling procedures and techniques can result in a more efficient production process and cost savings. Proper handling can also reduce accidents, breakage and spoilage

49. Materials planning The initial stages of operations planning involve the organisation establishing a production plan Production plans lists the activities necessary to combine various resources together to produce goods or services The organisation needs to decide what goods or services to produce, how to produce it and in what quantity This plan provides the basic information necessary for detailed materials management planning Modern large organisations typically complete materials planning by using software. Such planning includes master productions scheduling (MPS) and materials requirement planning (MRP)

50. Materials planning Master production scheduling (MPS): Describes what is being produced and when Schedule is linked to specific delivery dates or contracts for delivery in future Inability to meet schedule may have serious business implications It is extremely important that the productive capacity has been correctly assessed Business cannot increase rate of production without increasing the amount of necessary inputs Decisions such as upgrading plant and equipment or employing additional staff may be related to ongoing problems in meeting this schedule

51. Materials planning Materials requirement planning (MRP): This is completed after the organisation has a clear understanding of the quantities to be produced and the time frame involved It is an itemised list of all materials involved in production to meet the specified orders Such planning should consider Lead times required suppliers; that is, whether items need to be ordered weeks or months in advance The exact number of inputs to complete the task The amount of inventory (stock) on hand Purchasing procedures, eg. Whether the organisation wishes to take advantage of bulk purchasing discounts offered by suppliers

52. Inventory Control This is a system used to ensure the costs associated with maintaining an inventory of materials are kept to a minimum This can be done by, not allowing materials to remain idle, and y making sure that inputs are available for the operations system when needed. An operations system that runs out of materials will not perform at optimal level Modern organisations use bar coding and computerised stock records to control inventory Computerisations helps minimise theft, loss of stock and gives accurate, up-to- date info on inventory Signals can alert management when it is time to order new materials, and how much to order Organisations also conduct stocktakes, physically counting stock and then comparing the count against what is was expected to be available. In differences would indicate stock control issues

53. Inventory control A common strategy used by many organisations in Australia is the ‘just in time’ (JIT) system mentioned before with Ford This approach makes sre that the right amount of materials arrive just as they are needed for production It can reduce storage costs and reduce the risk of any waste occurring in storage – increasing competitiveness Supplier deliveries must be reliable, and materials must be received at the appropriate time

54. Supply chain management Supply chain, such as Ford’s, starts with the sourcing of natural resources, followed by manufacturing activities such as component construction and assembly The supply chain needs to be well managed because an operations system depends on the inputs Supply chain management is critical for several reasons (read pg 122 of text)

55. 3.6 The management of quality Large organisations use quality management to make sure that their products meet customer expectations. Three quality strategies are : Quality control Quality assurance Total quality management Employee empowerment Continuous improvement Improved customer focus

56. Key terms Quality: refers to the degree of excellence of goods or services and their fitness for stated purpose Quality control Quality assurance Total quality management Quality circles: are groups of workers who meet to solve problems relating to quality Continuous improvement

57. Ambulance Victoria Quality is extremely important to Ambulance Victoria As an organisation that provides medical transport to for patients, any mistakes or faults in its services can be life-threatening

58. Managing quality When managing quality LSOs will, Minimise waste Strictly conform to standards Reduce variance in final output

59. Quality control Quality control reduces problems and defects in the product, using inspections at various points in the production process Many organisations such as Ambulance Victoria minimise errors and waste by ensuring that standards are met Specifications or benchmarks are set before the physical checks are completed Actual performance is then compared to the established criteria If established criteria is met, it is likely to meet customer expectations Competitiveness will increase as the costs with waste and faulty products are reduced E.g Ambulance Victoria monitors quality and response times. It uses a cardiac arrest registry to collect data on cardiac arrest patients who have used its Ambulance Service E.g. Banks might use teller accuracy, speed and courtesy as QC-measures

60. Quality assurance This involves the use of a system so that an organisation achieves set standards in its production Ambulance Victoria’s quality systems are certified to the ISO 9001:2008 standard The ISO 9000 series of quality certifications is a widely used international standard ‘ISO’ stands for International Organization for Standardization Meeting these international standards is voluntary, but many organisations comply to remain competitive locally and internationally The ISO provides guidelines on procedures, controls, and recording and documentation measures Because Ambulance Victoria uses this effective quality system it provides REASSURANCE (quality assurance) to customers that it is able to provide a safe and reliable service

61. Total quality management (TQM) TQM is a commitment to excellence that emphasises continuous improvement in all aspects of an organisation’s operation by sharing responsibility of all the members of the organisation Qualtiy becomes both a commitment and the responsibility of every employee in the organisation The aim of TQM is to create a defect-free production process, & maintain a customer focus in operations TQM can improve the price competitiveness & improve product quality leading to competitive advantage To achieve TQM the following approached can be taken: Employee empowerment Continuous improvement Improved customer focus

62. Employee empowerment Quality problems can best be solved with an emphasis on employee involvement Some organisations use quality circles, where groups of up to 10 workers meet regularly to solve problems related to process, design or quality Groups will often make presentations to management with their ideas in order to improve the performance of a business Quality circles help in cost-saving E.g At Chrysler, a quality circle discovered that heating rubber seals before installation could prevent car door leaks

63. Continuous Improvement Continuous improvement is a process that involves a constant evaluation of, and improvement in, the way things are done in an LSO. Higher and higher standards are set in the continual pursuit of improvement Continuous improvement can happen in various parts of an organisation such improving on management styles, improving on assembly lines Perfection is practically impossible – however striving for this is important to organisational culture

64. Customer focus Quality should be the responsibility of every employee The TQM approach considers one of the most important questions an organisation should ask: WHAT DOES THE CUSTOMER REQUIRE? All teams need to realise that they are serving a customer This is as true for the employees that deal directly with external customers as for those that simpy pass work on to other employees within the organisation

65. 3.7 Use of technology The acquisition of up-to-date technology is one strategy which operations managers use to optimise operations Key Terms: Robotics: are highly specialised forms of technology capable of complex tasks Computer aided design (CAD) Computer aided manufacture (CAM) Computer integrated manufacturing (CIM)

66. Office Technology Both service and manufacturing operations use office technology, but organisations providing a service are like to make greater use of it Office and communication technologies have enabled whole markets to open up as business can reach customers around the world Developments in business technologies have created the opportunity for people to do more work in less time 0 this means greater rang of tasks can be completed in work time These technologies have also enabled office workers to work from locations outside the office What are some technologies that you can think of that is used in businesses?

67. Customer relationship management (CRM) CRM refers to the systems that organisations are introducing to maintain customer contact CRM software can be used to improve customer service and increase competiveness because it stores information about existing and potential customers The information can be retrieved and entered by employees from different functions within the organisation such as sales, marketing and operations Because this approach improves services, which are now provided directly to customers, costs will be cut and productivity can improve

68. Manufacturing technology Robotics is a term used to describe special forms of technology capable of complex tasks Robots are used in engineering and specialised areas of research, as well as on assembly lines where a programmable machine capable of doing several different tasks is required Robotics allows a degree of precision and accuracy general unmatched by human labour Robots work without complaint of demand for wage rises, in conditions that would be soul destroying and often dangerous for employees Robots and robotics are high cost items that are unaffordable for most small and medium-scale manufacturers LSOs are increasing incorporating automation – the use of computers to control the operations process – into their manufacturing operations

69. Robotics Robotics used in the car manufacturing industry

70. Manufacturing technology Computer aided design (CAD): is a computerised design tool that allows a business to create product possibilities from a series of input parameters (input data). It generates three-dimensional diagrams Computer aided manufacture (CAM): is software that designs and controls manufacturing processes Computer integrated manufacturing (CIM): is a method of manufacturing in which the entire production process is controlled by a computer - https://www.youtube.com/watch?v=c1j6PJu2xy0

71. Computer aided design (CAD) Computer aided design allows more scope to design complex structures, such as giant waterslides.

72. 3.8 Ethical and socially responsible management of an operation system KEY CONCEPT: Operations managers must be aware of socially responsible and ethical management when pursuing organisational objectives.

73. Social responsibilty and Ethical management NAB’s corporate responsibility policies outline how it will lower costs by improving efficiency and minimising waste, and how it will work with suppliers in an ethical and environmentally friendly manner. Ethical management: is about the application of moral standards to management behaviour. Socially responsible management: refers to management’s awareness of the social and environmental consequences of its actions.

74. Did you know? Toyota Australia’s Five-Year Environment Action Plan sets objectives to reduce energy usage and carbon emissions in all areas of its operations

75. Aspects of ethics and social responsibility that would concern an operations manager 1. Managing inputs appropriately 2. Managing suppliers appropriately 3. Managing staff appropriately 4. Managing the customer relationship appropriately

76. Did you know? Downer EDI is an Australian company that provides infrastructure management and engineering services to the transport, energy, infrastructure, communications and resources sectors. Its Supplier Requirements outline how it expects suppliers to be socially responsible corporate citizens. Downer will only deal with suppliers who have high standards of ethical business behaviour.

77. Did you know? James Hardie Industries manufactured and sold asbestos-related products for a large part of the twentieth century. It established a trust in 2001 to provide financial compensation for victims of asbestos-related diseases caused by its products, but the organisation has been criticised for not providing sufficient funds to settle claims.