Operations: Role of Operations Management

Download as docx, pdf, or txt
Download as docx, pdf, or txt
You are on page 1of 14

Operations

Role of Operations Management


Operations are one of the four key business functions concerned with the transformation of inputs into outputs. The operations manager oversees this process by planning production, organising inputs, motivating employees, monitoring and controlling the outputs. The transformation process adds value to businesses inputs on the creation of outputs.

Goods and/or Service Different Industries


Producers of Goods Tangible (touch) Mostly standardised (identical), sometimes customised (modified/tailored) Transferred to a new owner Time between production and consumption of a good is considerable Value of a good is easy to calculate (cost of production input + markup)

Producers of Service Intangible Mostly customised, possibly standardised Cannot be transferred to another owner Production and consumption is simultaneous Value of a service is subjective and depends upon the skill and qualifications of the service provider

There is several business sectors to the Aust. commercial environment and the economy, most sectors have many firms competing in the marketplace. Operations must establish cost leadership and goods/service differentiation for the business to sustain a completive advantage or effectively compete in the market place.

Strategic Role of Operations Management Cost Leadership Approach


A business lowers its average cost per unit of output to enable the business to operate more effectively to compete in the market place due to lower costs leading to lower prices and therefore higher competitive advantage. Method of keeping cost low: Input: capital, resources, land Labour: full-time, par-time, casual, overtime Processing: scheduling, electricity, product design Inventory: logistics, storage, distribution Quality management: quality planning, sampling, training

However, there must be a balance between lower costs (efficiency) and quality in operations strategy, lower costs will add to profits but a poor quality could lead to less sales revenue and therefore lower profits and market share.

Goods/Service Differentiation Approach


A business differentiates their product against competitors to encourage sales leading to a higher market share and therefore a competitive advantage. Differentiate a Good Vary the product feature Vary the product quality Vary augmented (improved/add on) features

Differentiate a Service Vary time spent on service Vary qualifications and experience Vary the level of expertise (skills) Vary the quality of materials and technology

Interdependence with other Key Business Functions


Marketing to sell the product (sales) Finance to purchase inputs, pay for machinery and equipment as well as the operational costs Human resources management (HRM) to allocate the correct employees to the suited operational tasks

Operation Influences
Globalisation (Economic & Financial influence on operations)
Globalisation is the increase economic integration between nations, the removal of trade barriers which allow for greater transfer of goods, services, labour, capital (finances), intellectual property and technology between nations. It provides many opportunities for business operations. A business can source inputs for a business, mostly physical and human resources form O.S suppliers, inputs are often better quality, cheaper and reliable. A business can have a global supply chain (range of suppliers) and large businesses are able to have a complex global web (large network of suppliers). A business can now have a greater opportunity to sell products in global markets (export) mainly in the region due to the regional trade agreements, thus, a greater need for inputs and production (operations). A business faces tougher international competition, large firms with greater economies of scale, lower cost and prices, which is a major threat to local operations requiring local firms to review production methods and costs to effectively compete, for example Holden for reducing workers. Overall, globalisation influences operations (production) by global supply chains, export opportunities for a greater market and strong import competition.

Technology (influences on operation)


Technology refers to new products, ideas and methods of production which can influence operation. Technological changes can impact the administration, range of operation processes and production methods. Office technologies such as computers, scanners and mobile phone improve the administration of operations. The use of large machines in manufacturing mainly computerised and automated equipment such as assembly line production influence production methods; involving robots to enhance production with great precision, in addition the use of Computer Aided Design (CAD) and computer aid manufacturing technologies (CAM).

Scanners linked to computer data bases assist the operation of retailing and stock or inventory management, also enabling self-serve retailing, for example, Woolworths, Coles, KMart. Overall technology clearly influences operations and effects how the businesses produce.

Quality Expectations (influence from Consumers)


Consumers expect a quality product for both a good and/or service, thus the operations manager must ensure product activity. Quality of a Good Durability: how long the product last given a reasonable amount of use Reliability: how long does the product function operate without maintenance or repairs Fit for Purpose: how well does the product actually do all the function advertised (FIT)

Quality of a Service Professionalism of the service provider: perceptions of cleanliness, layout of physical facilities The reliability of the service provider: how competently and efficiently the service is performed The level of customization when providing the service: how well the particular needs of the customer are met using their expenses and expertise

A high quality and price good/service is perceived to be expensive, a good/service with high quality and low price is expected and perceived to be too good to be true, a good/service between high and low price with low quality is perceived as poor value for money . Overall, the are many perceptions and expectations of consumers relating to quality and price, however the consumer generally expect a quality product and operations management must ensure in this in their production processes.

Cost-Based Competition (influence from the Competitors)


This influence applies to businesses competing with a similar product in the market, by reducing costs (cost leadership) a business can lower prices, increase sales and therefore increase profits and market share. The operations manager attempts to lower costs below competition to establish a competitive advantage (cost leadership)

If the product is identical for any two businesses the costs and price will affect the operations management, to avoid the business has to differentiate the product known as price competition which has immense influences on the business. Costs can be reduced by: Sourcing cheaper inputs (globalisation) Updating technology (reduce labour and substitute machinery) Outsourcing (another business to print and clean)

If a business competes on cots it may switch to product differentiation strategy for their operations, therefore cost based competition is a huge influence on operations.

Government (Political influence in operations)


This refers to govt. policy and may influence the operations management known as political influence. All govt. mainly a new govt. has political agenda to implement. Some govt. policies will influence business operations (inputs, transformation, and output); the policy could also become a law. Operations management must be aware of govt. policies that could influence their production and adapt these to their production. The current examples of govt. policy The carbon price (tax): 23$ per tonne for major emitters of carbon dioxide (a greenhouse gas) will add to operating costs, threaten cost leadership and therefore change operational processes and strategies The mining tax: for large mining companies (BHP Billiton, Rio Tinto) to tax their super profits which they are receiving because of mineral resources boom in Aust. impacting costs, profits, investment decisions and jobs The federal govt. plan to subsidies and support Holden given its problem with globalisation and a high valued AUD making it very hard to export and revenue losses. Operations is threaten greatly as well as jobs The superannuation levy (superannuation guarantee Act 1992 Cwlth) to increased slowly from 9% to 12%, this will apply to all businesses employees and affect operations through cost leadership.

These are all federal govt. policies with huge implications for business operations

Legal Regulations (Legal influence on operations)


The affected producers will examine their operations and find methods to adapt to their operational strategies to pollute less (carbon tax) and pay less. All aspects of the business must abide the law. Operations management has particular laws how practices and processes are conducted, for example

Workplace Health and Safety (WHS) (WHS Act 2012 Cwlth) mostly in operating machinery where training is required, protective equipment required Fair Work and anti-discrimination (anti-discriminations act 1977 NSW)laws requiring employees treated with respect and dignity Fair trading laws (Fair Work Act 2009) which influence product safety standards and whether the product is fit for the intended purpose

Corporate Social Responsibility (Society influences on operations)


CSR refers to a business taking concern in the broader social, community and environmental concerns when undertaking production, thus, going beyond legislation and demonstrating ethical responsibility, practice self-regulation (ethical), care and concern for the social influences. A business should be concerned about the broader social, community and environmental concerns. Outsourcing Outsourcing involves the use of outside specialist to undertake one or more functions, often to reduce compliance costs with operations. Outsourcing could be onshore (Aust.) or offshore (O.S): For lower taxation rates Lower labour standards (wages, health and safety) Weaker environment regulations in a global economy

It has been suggested that a business should have Service Level Agreements (SLAs) with offshore outsourcing to ensure that the outsourcing provider adheres to high standards of operational conduct that promote environment sustainability, maintain health and safety standards as well as fair wages for employees. This is a responsibility for all stakeholders not just shareholders.

Operation Processes
Operations processes are those processes involved directly with the transformation, which is the conversion of input into output, the operations process involves: Inputs into the transformation processes The actual processes of transformation (and value adding) The outputs of the transformation process

Inputs are resources used in the transformation process, there are several methods of inputs a business may use for transformation and producing outputs, the common direct inputs are Labour: sourcing technical support, maintenance, production, logistics and distribution Energy: electricity, gas and fuels (water) Materials: transformed into production Machinery and Technology (capital equipment)

Types of Inputs Transformed Resources (Materials, Information, Customers)


Transformed resources or inputs are those inputs that are changed or converted in the operation process (they are in the product). Transformed inputs are raw materials, intermediate goods, information and customer product needs and feedback. Raw Materials Raw materials from nature (if required) and intermediate goods used in further manufacturing or processing. Information Information for internal and external sources is a transformed resource, information from research, investigation and instruction that inform production, for example, suppliers and suppliers available at any time and what cost. Customers

Consume choices and their needs shape production, thus their feedback is a vital resource for present and future operations. Producers frequently survey customers about products before, during and especially after the sale. This could shape production decisions and product features. Producers implement Customer Relationship Management (CRM) the system they use to contact customers to improve customer service and identify changes in tastes and design required.

Transforming Resources (Human Resources, Facilities)


Transforming resources or inputs are the human resources (labour and management) and the facilities the plant, factory, office, tools and equipment as well as machinery used in production. Energy and water requirements is a transforming input (electricity), transforming resources carry out the production process. Human Resources (Employees, Managers) Most important input, usually trained, qualified, productive (and efficiency vital), they combine all the other resources (machinery, technology, raw materials) and produce goods and services. It is important to have operations strategies such as good job designs, extensive training programs and flexible work practices to maximise productivity and efficiency. Facilities Facilities refer to the plant (office, factory) tools, equipment and machinery used in operations processes, involving energy and water requirements. An efficient plant designs or layouts is important and arranges where to locate machinery and equipment (people) vital for the production. Also the people repair and maintain facilities which are an effective operational strategy.

Transformation Process
The transformation process is converting the relevant inputs into outputs and adding value, inputs are no value until they are transformed in to something with demand and value.

Volume (Influence)
Volume is the amount of products, thus the volume of inputs to source for transformation, a high volume business (fast food restaurants) will produce a more standardised product and human resources will perform simple, repetitive tasks, vice versa.

Variety (Influence)
Variety refers to the range of outputs made and different types of goods and services to be produced by the business. A business with high variety (financial advice) will produce a number of goods and services, thus not a standardised product but a customised.

Variations (Influence)
The variations in demand over time affect volume (responding production to change in demand), as operations need resources available (labour, surpluses, machinery, energy) to respond/satisfy rapid demand. Operations must be flexible with its production targets to manage lead in times (must be quick) and to changing demand. High variations (ice cream), low (bread, milk).

Visibility (Customer Contact influence)


The nature and amount of customer contact (feedback) influencing transformation process, service businesses will have high visibility compared to a manufacturing company, informing and influencing its operations. High customer contact (restaurants), low (online university course).

Sequencing and Scheduling (Gantt Charts, Critical Path Analysis)


Sequencing refers to the order in which operational activities occur when a major operational task is to complete (Order). Scheduling refers to the length of time for the activities to take place within the operations process and for task to be completer and by a deadline (Timing). List activities in order (sequence) that need to be completed to produce a good or service or compete a task Schedule (time) each activity over a period of time

Gantt Charts (Henry Gantt 1861-1919) A Gantt chart is a type of bar chart showing sequencing and scheduling activities (planned and completed) for a task over a period of time to a deadline. A Gantt chart plans major operational tasks in a business Scheduling the steps (in blue) over time Definite deadline for its completion

Critical Path Analysis (CPA) (Modern) CPA is sequencing and scheduling planning method or technique showing The tasks to be completes (letters) Duration (time taken) Sequence (order) the task need to be accomplished Deadline for management to be effective (job done in time)

A map of sequencing and scheduling, a planned operational task, it is an alternative to Gantt chart, possibly a more efficient way to organise operations. Calculating CPA The critical path is the longest time taken to complete all the tasks.

Technology
Technology is applied or used in business to better the transformation process, enabling new ideas and perform tasks more efficiently. Science is applied to business operations (production) New products are established New methods of operations (transformation) are created Overall, improved productivity, greater production with less inputs and efficiency, keeping costs low (cost leadership)

Technology impacts on employers (management) and employees (staff), there two key stakeholders impacted by technology are: Management: must be aware of new technologies, how they function and determine how it can be applied to their business to improve transformation, thus achieving cost leadership improving competitiveness which is a key role of operations. Employees: must understand how to use technology and be trained to use the technology in their daily workplace.

The capital cost (financial implications) of technology is a huge issue for management, as technology can be purchase or leased (financial decision). Technology affects transformation operations in two areas: The office Area (admin./office of business, support devices): new technology in these field involve computers, keyboard and mouse (data entry)

The Transformation/Manufacturing Technology: there are several new improved such as plant, machinery, equipment and tools which assist to transform inputs to outputs (Gs or Ss). Recently, robotics, Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM) has been added to manufacturing.

Robotics: are used in engineering and specialised areas of research, manufacturing assembly lines where a programmable machine capable of multitasking. Computer Aided Design (CAD): a computerised design tool allowing a business to create a product or product possibilities from a series of inputs. The transformation begins with R&D and product design. Computer Aided Manufacturing (CAM): software controlling manufacturing process (an assembly line for a product, the movement from one point on the line to another).

Task Design
Task design refers to classifying job activities to simplify the task for an employee to complete, by planning Human Resources (HR) tasks through the method of: Task design Job description Job specifications (experience, skills, education) Recruitment & selection If completed effectively, the business will achieve greater productivity and efficiency

Process Layout
Layout involves the planning and positioning or products or work spaces in the office or factory unit. Management must consider the plant layout to maximise efficiency and productivity of operations (transformation), aiming to: Minimise time taken in transformation Ensure quality good (Gs) or service (Ss) Minimise cost Improve productivity and efficiency

When considering manufacturing there are different methods of layout: Process layout: machines and equipment grouped together Product layout: machines and equipment must relate to the sequence of tasks performed in manufacturing the product, particularly assembly line

Fixed position layout: employees and equipment must come to the product

A modern office layout must view workstation arrangements in relation to what tasks they perform and locate equipment conveniently for staff.

Monitoring, Controlling and Improvement


Monitoring Monitoring is the process of measuring the planned performance as opposed to actual performance in operations. Operation management monitors many aspects of the operations form supply chain and inputs through to transformation and the outputs. The monitoring requires Key Performance Indicators, measures operations to compare actual performance to planned performance, KPIs could be: Lead (wait/idle) times Inventory turnover (stock out) rate Defect (repair) rates or warranty claims Process flow rates Capacity and volume rates or capacity utilisations (consumption/uses) rates IT and costs

Controlling Controlling operations refers to the corrective action taken if the monitoring identifies issues with operations. Operations management (goal quality product): (consecutively) Planned defect rate (Planning) Measure actual defect (KPI) (Monitoring) Take corrective action (Controlling) Quality improvement (Improvement)

All managers plan by stating operational objectives and then measure performance (KPIs) to take corrective action (monitoring and controlling). The operations manager then changes operations to improve the operations (improvement). Improvement An operations manager will Plan operational strategies Implement the operations process Monitor (measure using KPIs) the operational goals

Control the operational process implemented Identify improvement by reviewing strategies seen not to be effective, this is operational management

Operations Process Outputs


Outputs refer to the Gs made or the Ss provided, which is the actual (finished) good or provided/delivered to another business (intermediate good) or to a customer. Outputs are: Gs made or Ss provided Customer service ( a more subtle output) Warranties, suited for durable, more expensive to consumer Gs

Customer Service
Customer service refers to how well a business meets and exceeds the expectations/needs of the customer in all aspects of operations, customer feedback will shape future operations and transformations process, customer service involves (in relation to customer): Handling customer returns promptly (on time) Answering questions and providing information Frequent and meaningful information about a product or sale Anticipating customer needs Following customer enquires about complaints Using technology to offer 24/7 hour service, email, Facebook, twitter Attending to warranty service where relevant

Customer service is therefore both an output and input into operations; hence customers and customer service are the lifeblood of the business

Warranty
A warranty is a written promise (usually) made by a business to correct any defects in the Gs produces or in the Ss provided or delivered. Warranty in relation to Gs involved: A level of quality comparable to the price and product description Suitable for the purpose Match the product description in any advertising or promotion Overall, free of defect or fault

Warranties are also covered by consumer law (legal influence in operations), for example Fair trading act (1987) NSW or Competition and Consumer Act 2010 (Cwlth) in Aust.

Operation Strategies
Every operational manager must determine the appropriate mix of operational strategies to implement in order to achieve effective management of the operational process. The implementations of the appropriate strategies for the operations is a key determining factor for the success of operations (production)

Performance Objectives
Performance objectives are goals that relate to particular aspects of the transformation process, operations managers need to monitor and control certain areas of the transformation process and implement improvement to transformation.

You might also like