Operations management

OPERATIONS

MANAGEMENT

U N I T 3

, AR E A O

F ST U D Y 3

KEY KNOWLEDGE

• 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 SKILLS

KEY TERMS TO ADD TO YOUR DEFINITIONS…SO FAR!• Assembly line• Automation• Batch production• Cell production• Closed factory• Competitive advantage• Competitive scope• Computer Aided Design• Customisation• Environmental

management system• Facility layout• Fixed position layout

• Functional layout• Inputs • Inventory • Inventory control• Just In Time• Lean manufacturing• Mass production• Multi-skilling• Office layout• Operations• Operations

management• Operations manager

• Outputs• Proactive• Process layout• Product layout• Production process• Productivity• Quality• Quality assurance• Quality circle• Retail layout• Robotics• Transformation• Virtual factory

THE OPERATIONS FUNCTION AND ITS RELATIONSHIP TO BUSINESS OBJECTIVES AND BUSINESS STRATEGY

WHAT IS OPERATIONS MANAGEMENT?

WHAT IS OPERATIONS MANAGEMENT?

INPUTSPROCESSES /

TRANSFORMATION

OUTPUTSProcuring materials, labour, technology, finance etc.

Final good or service for sale

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.

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 MANAGERLevels of planning and decision making in operations management

Somers, Cain and Jeffery (2011) p.133

OPERATIONS MGMT: THE HEART OF ALL ORGANISATIONS

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

Operations (producing the actual good or service for sale) is the core function or purpose of an organisation. It is what generates

the revenue!

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.

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.

Increase profit because costs have decreased.

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.

Increase profit because costs have decreased.

Operations management influences the quality,

cost availability of goods and services and

therefore profit generated by the company.

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.

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?

Predict what would happen to bread prices at Benny’s Bakery if Benny

purchased a larger oven?

How does the operations management function assist the business to achieve its objectives?

PRACTICE SAC QUESTIONCASE 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 SOLUTIONThe 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 - 2014Tangible (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 - 2013Tangible (physical)

product (good)Intangible (non-

physical) product (service)

Shampoo Dentist

Apples Education

Fairy floss Public transport

Laptop Massage

Vacuum Cleaner

THINK-PAIR-SHARE - 2012Tangible (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.

Somers, Cain and Jeffery (2011) p.136

It’s important to know the differences between goods and services with respect to the operations management function.

OPERATIONS MANAGEMENT: KEY DIFFERENCES BETWEEN GOODS & SERVICES

KEY ELEMENTS OF AN OPERATIONS SYSTEM IN DIFFERENT TYPES OF LSO

INPUTSPROCESSES /

TRANSFORMATION

OUTPUTS

Inputs

Raw materials

and componen

tsPlant and

capital equipment

Technology

LabourInformatio

n 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:

1. Facilites design and layout.2. Materials management.3. Management of quality.4. The extent of the use of technology.