What is operations?

Outputs: customer service and warranties

Outputs
Outputs are the end result of a businesss production processes, the good or service that is sold to
the customer. Some outputs are also inputs into another businesss production process. For example
a flour mill will make wheat, sell this wheat to a baker who will in turn make a cake which is sold to a
caf or an individual customer. It is vital that the output of a business must meet the demands of
customers if the business is to be able to cover the costs of making the product. The cake made by
the baker must sell for more than the cost of making it.
Customer service
Customer service is a non- physical output of the operations process. It refers to how well the
business can meet the expectations of customers. Although this is often seen as the domain of the
marketing department (and will be discussed more in this topic), it is important that the operations
department recognises its obligations in this area. Operations management is responsible for the
provision and quality of the product and if customers are disappointed in these things, they will look
to other businesses for an alternative product. A good quality product, which is provided in a timely
fashion, will not only encourage customer loyalty but will often let the business charge a higher price
than competitors.
Cathay Pacific and customer service
Cathay Pacific is a Hong Kong based airline which is able to successfully sell its product at a higher
price than its competitors. Why is this? Because customers perceive that they are getting much
better quality of service. Cathay Pacific has been focusing on employees to boost their brand. Using
the slogan meet the team that goes the extra mile in their advertising campaign, the airline has
been emphasising the point that customer service is vitally important to it. The campaign was
devised from customer surveys that indicated that Cathay Pacifics service and attitude of employees
were what made the airline stand out over its competitors.
For this reason, Cathay Pacific is able to charge higher prices than many other airlines flying the
same routes.
Warranties
By law in Australia, all products sold must come with a warrantee or guarantee that the product will
serve its advertised purpose. Many businesses when selling a physical product over a certain value
will offer a written warranty, valid for a period of time.
In monitoring the effectiveness of the operations department, management can look at how many
warranty claims are made. Customers usually only make a warranty claim when the product is
defective in some way. If the number of claims is high, it would indicate that something is wrong
with the production process and this must be rectified. If the business has good monitoring and
quality control mechanisms in place, then the business will be able to reduce warranty claims.
Relationship between outputs and the performance objectives.

Performance objectives
Low cost
Quality
Flexibility
Dependability

global sourcing
quality management
HR Rucruitment
New product design

Eg kmart; what do kmart customers value?:

Everyday low prices
Everyday replacement items
Enjoyable shopping experience
Operations function do really waell :
Customer service
Warranty
(iii) Global sourcing
Just as customers are able to shop globally thanks to technology, so can businesses. Whether
it be to access cheaper resources, have access to latest technology or to take advantage of
relaxed government regulations, many businesses will look beyond their national borders. By
global sourcing businesses are able to reduce costs, gain competitive advantages and, thus,
be more profitable.
One of the most well-known examples of global sourcing in the last decade is when Pacific
Brands (a company that makes Bonds clothing) decided to have much of its manufacturing
carried out in Asia, to take advantage of cheaper labour. This caused national outrage that an
Australian iconic brand would now be made offshore. By global sourcing businesses are able
to reduce costs, gain competitive advantages and, thus, be more profitable.

Cost leadership refers to the strategies to produce goods or services at the lowest possible
cost whilst they are still acceptable to customers. By reducing the costs of production and
distribution, a business will be able to gain an advantage over competitors. However, it is
important that customers see that they are gaining value for money, otherwise this strategy
will not see long term rewards for the business. If the strategy is successful, the business will
become the leading provider of a particular good or service based on their lowered costs.
Businesses adopting a cost leadership strategy commonly have standardised products
The car manufacturer Kia is well known for being a cost leader. It has concentrated on
reducing costs of production but also focused on the look of the car because customers will
not buy a car that looks cheap.
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(i) Quality

Management set performance objectives around the quality of design and the resources used
in the product. Quality is usually be monitored at different stages of the production process
from the quality of inputs, the quality of processes to the quality of outputs. If the quality of
the final product is not well regarded by customers, they will not buy the product.

Quality Expectations
Quality expectations of consumers influence a business because if the product or service is
not considered good enough, especially compared to the way it is marketed, it can lead to
disappointment and consumers taking their business elsewhere.
A business also expects certain quality standards from its suppliers. If the inputs are not
satisfactory then the overall quality of the product/service may be affected. Similarly, if the
quality of the input is too high to suit the needs of the business, then the price of the product
is increased to maintain profit margins. Both situations result in a business potentially losing
customers.

Cost based competition

When a business becomes a cost leader, it will attract competition into the market other
businesses that will try to offer a similar product at similar low prices. An example of this is in
Australia is Virgin Airlines, Jetstar Airlines and Tiger Airlines all competing against each other
to attract customers to a low price, no frills product. And, when Burger King offered a $4.95
lunch deal, MacDonalds soon followed. Being a cost leader, and maintaining this position, can
put pressure on the operations function as management will be constantly having to look for
ways to decease production costs.

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(iii) Dependability
It is important that the operations processes are consistent; that is they reliable and
dependable, if a business is to retain customers and maintain customer loyalty. The good or
service must be of a consistent and reliable standard. Performance strategies in this area
could concentrate on reducing customer complaints. A number of businesses involved in the
food and beverage industry have had negative social media coverage over changes in their
classic recipes resulting in alterations to the way the product tastes, thus affecting customer
loyalty.

(iv) Flexibility
A business needs to be flexible in the way that it adjusts to changes in the external business
environment. For example, if customer demand suddenly increases the business must be able
to meet this demand as soon as possible. A performance objective here could involve having
plans (such as critical path analyses) in place for different order sizes. Plans that include the
regular maintenance of equipment will allow the business to meet increased demand in a
timely way. Training and developing staff so that they can meet changed circumstances is
also important.

New product or service design and development

It is important that businesses are flexible about their products. Although their core product
may be popular with customers at the moment such as Carmans Fine Foods muesli, this may
not always be the case. Carmans is looking to expand their product range to include baked
goods, not just muesli related products. New product or service design and development also
seek to reduce the risk of business failure by increasing options for customers to make
purchases from the business. For example, imagine a fashion store that does not change its
range to suit changing customers tastes in colour, style etc. Mobile phone manufacturers are
a good example of producers who constantly change their product to reflect the changing
tastes and needs of consumers. To do this the operations department must consult with the
marketing department to determine what consumers want; they must ensure that production
processes are in place to meet these demands. Thus, for product design and development to
be successful operations management must be aware of consumer preferences and as well as
changes and innovations in technology.

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Quality management control, assurance, improvement

Quality management refers to ensuring that the transformation of inputs results in a quality
output. A quality product will not only attract customers to the business but build customer
loyalty, ensuring repeat purchases from the customer.

Control
Control is the checking that what was expected to happen, did happen; that is, checking the
results against the plan. Quality control should involve checking the quality of the product at
different stages of the transformation process. Operations will usually employ feed-forward,
concurrent and feedback controls to monitor the production process.
Feed-forward controls involve careful planning before production begins. In this way any
problems can be anticipated and the solutions considered. An example of this is a bakery
using a recipe and making sure that all ingredients and equipment are in place before making
bread. Concurrent controls are used during the production process. An example is the baker
checking on the bread during the baking to see if the bread is rising. Feed-back controls
occur after the production process. It can involve checking the final product prior to
distribution or even customer feedback to see how satisfied they are with the product. The
baker could ask customers to fill in a quick survey or even ask questions of customers, to
gauge how they feel about a new type of bread.

Assurance
Quality assurance is the establishing of a set of procedures so that errors are less likely to
happen in the production of a good or service. This will often involve building a culture within
the workplace so that every employee strives to produce an output of the highest standard.
The aim of quality assurance is to always meet or exceed customer expectations.
For some educational resources available on the internet, businesses have their own quality
assurance standards to ensure equal access for all students. For example, the resources must
pass a few tests including the ability to access information via a variety of web browsers; fit
different size monitors; provide adequate colour contrasts for people with vision difficulties;
and contain correct spelling and grammar.

Improvement

Businesses look to continuous improvement in their production processes as this will build
loyalty in existing customers and encourage new customers. This improvement should be
aimed at streamlining processes so that waste is eliminated, improving product quality and
maximising the skills of the workforce. The management functions of planning, organising,
leading and controlling will be used to carry out these goals.

To ensure that value adding does occur in the transformation of inputs into outputs;
operations management will set performance objectives.

Performance objectives - Quality, speed, dependability, flexibility,

customisation, cost
Performance objectives are goals that relate to business operations. They enable the business
to examine specific parts of the transformation process and make necessary
adjustments. These goals are usually quality, speed, dependability, flexibility, customisation
and cost. Regular monitoring and control will ensure that performance objectives are met.

(i) Quality
Management set performance objectives around the quality of design and the resources used
in the product. Quality is usually be monitored at different stages of the production process
from the quality of inputs, the quality of processes to the quality of outputs. If the quality of
the final product is not well regarded by customers, they will not buy the product.

(ii) Speed
It does not matter how good a product is if the customer does not get that product when they
want it. Objectives in this area will include reducing the time involved to take the customers
order, make the product and deliver it to the customer. For example, like many businesses
taking online orders, ING Direct has different rates for delivery of services such as getting a
bank cheque written. If the cheque is urgent, say when paying a deposit on a house, the
customer can choose from different delivery speeds such as platinum express which

guarantees next day delivery, standard post which takes 3-5 business days. In most
businesses, if an item is in stock for online orders, then often it is up to the customer to pay a
premium for immediate delivery.

(iii) Dependability
It is important that the operations processes are consistent; that is they reliable and
dependable, if a business is to retain customers and maintain customer loyalty. The good or
service must be of a consistent and reliable standard. Performance strategies in this area
could concentrate on reducing customer complaints. A number of businesses involved in the
food and beverage industry have had negative social media coverage over changes in their
classic recipes resulting in alterations to the way the product tastes, thus affecting customer
loyalty.

(iv) Flexibility
A business needs to be flexible in the way that it adjusts to changes in the external business
environment. For example, if customer demand suddenly increases the business must be able
to meet this demand as soon as possible. A performance objective here could involve having
plans (such as critical path analyses) in place for different order sizes. Plans that include the
regular maintenance of equipment will allow the business to meet increased demand in a
timely way. Training and developing staff so that they can meet changed circumstances is
also important.

(v) Customisation
Customisation means the ability of business operations to meet the needs of its customers. It
is the ability of the business to customise its good or service. This is relatively easy in some
business sectors such as those selling software. It services focus on tailoring the software to
suit the needs of other businesses. Another example of customisation can be seen in hair
salons. A hairdresser will listen to the clients preferences and provide a style to meet their
request. Other sectors find it difficult to customise their product due to the business model
set up, usually involving mass production. They have relied on a one size fits all philosophy.
Henry Ford famously said, about his mass produced Model T Ford, they can have any colour
as long as it is black. Technology has allowed businesses to move away from this way of
operating and let them adapt their production processes to satisfy the desires of individuals
and small groups. Performance objectives in this area will involve implementing technology
that allows customer choice in how the final product looks.

KIA SOUL a size for every soul

Korean car manufacturer, KIA has developed a car and the technology that will
allow buyers to customise the car to suit their personality. The KIA SOUL boasts
an extensive range of combinations and options (3 body styles) x (2 engine
types) x (2 transmissions) x (2 interior trims) x (11 colours) x (3 body kits) x (6
body art decals) = 4752 possible combinations. How can they do this? Well they
start with the same body and, for the rest, computerised technology allows KIA
to add the other things quiet fast so that customer wait times are not too long.
The car has proved to be a popular seller with drivers who want a car to reflect
their personality or soul. More information about KIA can be seen
at http://www.kia.com.au

New product or service design and development

It is important that businesses are flexible about their products. Although their core product
may be popular with customers at the moment such as Carmans Fine Foods muesli, this may
not always be the case. Carmans is looking to expand their product range to include baked
goods, not just muesli related products. New product or service design and development also
seek to reduce the risk of business failure by increasing options for customers to make
purchases from the business. For example, imagine a fashion store that does not change its
range to suit changing customers tastes in colour, style etc. Mobile phone manufacturers are
a good example of producers who constantly change their product to reflect the changing
tastes and needs of consumers. To do this the operations department must consult with the
marketing department to determine what consumers want; they must ensure that production
processes are in place to meet these demands. Thus, for product design and development to
be successful operations management must be aware of consumer preferences and as well as
changes and innovations in technology.

Supply chain management logistics, e-commerce, global

sourcing
For a smooth production process, it is critical that inputs are available on time and that
customers receive the outputs as required. In business this is called the supply chain and is
the responsibility of the operations department. For the supply chain to meet the needs of the
business, management must have procedures in place to ensure that orders for inputs are
placed in a timely manner. Not enough stock will mean that orders cannot be completed on
time; too much stock can lead to storage issues, spoilage and loss of stock. Many businesses
monitor their stock levels and movement of stock with information technology systems. For
example, when a customer buys a hammer from a hardware store, it will be scanned at the
checkout and the computer will record this transaction. The computer will send an alert to the
person who is in charge of ordering stock when stock of hammers become low so that more
hammers can be ordered. This same system will also show management which products are
popular, and which are slow to sell.

(i) Logistics
Logistics management is the coordination of the supply chain and what goes where at what
time. It plans, organises and monitors activities such as transportation , inventory
, warehousing ,material handling , and packaging , and often security . Some
businesses will outsource aspects of the supply chain and so management will have to
oversee the contracting process involved. For example, Coca-Cola Amatil (CCA) has, in the
past, outsourced the delivering of its drink products to Linfox, a business that specializes in
transportation. CCA does this so it can concentrate on its prime function of drink production,
and not worry about managing and maintaining a fleet of vehicles as well. Operations
management in CCA is responsible for getting quotes (tenders) for the transportation
contract and monitoring the contract.

More about Coca- Cola Amatils can be seen at http://ccamatil.com

More about Linfoxs can be seen at http://www.linfox.com/

(ii) E-commerce
E-commerce means electronic commerce. Technology means that customers can now place
orders on line from anywhere in the world. This not only provides opportunities for a business
to gain more customers but it also provides opportunities for other businesses, resulting in
greater competition. Ensuring that the customer receives their on-line order is an important
function of the operations department. Australia Post has adapted its operations, due to the
change in the way that people communicate, by providing the delivery of many online
purchases. The Financial Review has written a case study about how Australia Post has met
the challenge of change in the external environment. The case study can be found
at http://www.afrbiz.com.au/case-studies/australia-post-building-the-logistics-of-anation.html

(iii) Global sourcing

Just as customers are able to shop globally thanks to technology, so can businesses. Whether
it be to access cheaper resources, have access to latest technology or to take advantage of
relaxed government regulations, many businesses will look beyond their national borders. By
global sourcing businesses are able to reduce costs, gain competitive advantages and, thus,
be more profitable.
One of the most well-known examples of global sourcing in the last decade is when Pacific
Brands (a company that makes Bonds clothing) decided to have much of its manufacturing
carried out in Asia, to take advantage of cheaper labour. This caused national outrage that an
Australian iconic brand would now be made offshore. By global sourcing businesses are able
to reduce costs, gain competitive advantages and, thus, be more profitable.

Toyotas supply chain management

Toyota has a unique approach to supply chain management which has
contributed to its success at an international level. Toyota builds relationships
with its suppliers by adopting four principles:
1. Treat all suppliers fairly
2. Establish long term supplier relationships.
3. Retain critical new-product development and design knowledge in
house
4. Take responsibility for suppliers development and growth
Each supplier must fit with Toyotas philosophy of:

Kaizen demonstrate commitment to continual improvement

Sharing of information and knowledge be transparent and open in
all discussions
Consistent reasoning base decisions on facts and have a deep
understanding of reasons behind decisions
Responsiveness reply promptly to requests and be reliable in
delivery

Suppliers are chosen very carefully. It often takes 3-5 years to select the right
supplier because detailed discussions about cost, quality and technology
requirements take place and critical issues are identified and resolved before a
contract is signed. The performance of suppliers is monitored very carefully and
those that perform well often earn more business. Toyota believes that longterm partnerships are more cost-effective and flexible, than short term ones.

Outsourcing
A business may contract out some of its operations to other businesses that specialise in
these tasks. This is called outsourcing and may occur for a variety of reasons. For example,
as stated above, Coca-Cola Amatil does not own its own transport fleet as it wants to focus
its energy on what it does best.
Outsourcing has advantages and disadvantages:Advantages

The business is able to focus on core activities

Access to professional, expert and high quality service
Can reduce costs (for example instead of employing a fulltime truck driver, just use
the contracted driver as required). It also saves on training costs, etc
Faster production as outsourced provider will concentrate on specialist task

Disadvantages

Management has less control over production process

It may be difficult to maintain quality
Loss of jobs and career prospects (sometimes resulting in low morale amongst
workers)
Security and confidentiality issues
There may be communication issues which lead to customer service problems

It is important before making the decision to outsource some of its production processes that
the Operations manager weighs up the advantages and disadvantages.

Technology
Technology will give a business a competitive advantage in the market place but will also be
expensive to implement. The operations manager will have to decide whether to be a leader
in implementing new technology and absorb the associated costs, hoping for increased
profits; or to be a follower and let another business take the leading role, perhaps also
gaining most of the customers as well. If the business decides to be a follower, it is able to
look at the advantages and disadvantages of introducing the established technology. It will
be able to examine the successes and failures of businesses that have already introduced the
technology. However, timing is important and the business may find that the other
businesses have built strong customer loyalty by introducing the new technology earlier.
Apple has a competitive edge over many other businesses producing electronics due to its
innovative and unique technological designs. Fierce competition over technology has arisen
between Apple and Samsung. In a court case over patent infringement, Apple was awarded
over $1 billion when, in August 2012, a jury decided that Samsung looked to Apples devices,
software icons and general features to design their own technology.

Inventory management- advantages and disadvantages of holding

stock. LIFO, FIFO, JIT
All businesses will have different requirements when it comes to inventory. For example a car
dealership will only stock a few samples of each car, as customer taste on such things as
colour will influence the final product. A large retail store or supermarket will need to stock
large quantities of popular items so that customers can take them home with them,
otherwise the customer will go to the competition. Inventory management involves
considering these stock requirements, looking at such things as how much stock to order and
how to handle and store it. Modern technology such as electronic stock monitoring systems,
have made this task much easier.
Managers will look at different things as they make decisions about inventory. They will look
at the advantages and disadvantages of holding stock. Holding stock will mean that customer
demand is met immediately; it will also mean that the business can take advantage of
discounts offered with bulk purchases; however, holding stock means that business has to
provide storage facilities; the stock may be slow to sell and affect cash flow and the stock can
be subject to damage, spoilage and theft.
Moving old stock is important to a business as, while it is unsold, it is not making any money.
Many businesses will use a first-in-first-out (FIFO) system to move the stock. An example of

this is in a supermarket where the new milk is placed behind the older milk on the shelf so
that the milk with the shorter expiry date sells first.
Other businesses will use a last-in-first-out (LIFO) system where new items are placed in
front of older stock. Products that have along expiry date are usually shelved in this manner.
Businesses that are running special promotions on products with may also use this inventory
system.
Just in time (JIT) inventory management is where the product is made or delivered just in
time to meet consumer demand. Modern technology involving electronic stock monitoring
systems have made this possible for many businesses and have meant that they can cut
down on the costs involved in holding stock at the retail outlet. Many businesses will
warehouse bulk stock on the outskirts of large urban areas, where rent is cheaper, and have
items delivered in time to meet consumer demand. Toyota uses the JIT method of lean
production to eliminate waste and reduce warehousing costs. Increased productivity for
Toyota is due to the JIT method where they make only what is needed, when it is needed
and in the amount needed.

Quality management control, assurance, improvement

Quality management refers to ensuring that the transformation of inputs results in a quality
output. A quality product will not only attract customers to the business but build customer
loyalty, ensuring repeat purchases from the customer.

Control
Control is the checking that what was expected to happen, did happen; that is, checking the
results against the plan. Quality control should involve checking the quality of the product at
different stages of the transformation process. Operations will usually employ feed-forward,
concurrent and feedback controls to monitor the production process.
Feed-forward controls involve careful planning before production begins. In this way any
problems can be anticipated and the solutions considered. An example of this is a bakery
using a recipe and making sure that all ingredients and equipment are in place before making
bread. Concurrent controls are used during the production process. An example is the baker
checking on the bread during the baking to see if the bread is rising. Feed-back controls
occur after the production process. It can involve checking the final product prior to
distribution or even customer feedback to see how satisfied they are with the product. The
baker could ask customers to fill in a quick survey or even ask questions of customers, to
gauge how they feel about a new type of bread.

Assurance
Quality assurance is the establishing of a set of procedures so that errors are less likely to
happen in the production of a good or service. This will often involve building a culture within
the workplace so that every employee strives to produce an output of the highest standard.
The aim of quality assurance is to always meet or exceed customer expectations.
For some educational resources available on the internet, businesses have their own quality
assurance standards to ensure equal access for all students. For example, the resources must
pass a few tests including the ability to access information via a variety of web browsers; fit
different size monitors; provide adequate colour contrasts for people with vision difficulties;
and contain correct spelling and grammar.

Improvement

Businesses look to continuous improvement in their production processes as this will build
loyalty in existing customers and encourage new customers. This improvement should be
aimed at streamlining processes so that waste is eliminated, improving product quality and
maximising the skills of the workforce. The management functions of planning, organising,
leading and controlling will be used to carry out these goals.

Overcoming resistance to change financial costs, purchasing

new equipment, redundancy payments, retraining,
reorganising plant layout, inertia
Businesses are not stagnant, they are dynamic and change is always occurring in them. This
is because in order to have continuous improvement, a business will have to monitor and
modify its operations. In addition, the business environment is also dynamic place and to
keep up with changes, a business will have to adapt its mode of operations. Not all
stakeholders will be happy with change for various reasons and may resist any attempt to
modify processes and procedures.
Some changes in the business environment include the introduction of the carbon tax, the
rise of video-conferencing, work, health, and safety laws, paid parental leave, environmental
regulations and superannuation. There are a plethora of changes in addition to these, but has
each has specific implications for business.
Employees may resist change because they feel that they may lose career opportunities, may
lose their skills or may even lose their jobs. They may worry about new training that is
required. Change may mean that the plant layout is reorganised which places employees
outside their comfort zone and lead to low morale.
Owners may also resist change because they may have concerns about the costs involved,
such the purchase of new equipment and redundancy payments made to staff who are losing
jobs. These costs will affect reduce the return on their investment.
Managers will resist change if they feel overburdened with responsibility. They sometimes feel
inertia (or lack of energy) toward the change with a feeling of if it aint broke, dont fix it.
Change can be viewed as a positive thing though. For example, employees can often gain
inspiration and develop new skills and promotion prospects by retraining; and purchasing
new equipment or reorganising plant layout can make for more efficient and effective
production. To overcome resistance to change, it is important that management consider why
the change is occurring, have sound rationale for the change and decide on the most
strategic time to bring it about. Management must ensure that all relevant stakeholders are
included in the reasons for change. By involving employees and empowering them with
taking part in the decision-making process they can feel a sense of ownership and control
over the direction of change. In this way, managers can gain support for the change rather
than encounter resistance.
Management will need to create a culture of change by using such things as change agents.
In this way stakeholders will be likely to accept the change.

Global factors global sourcing, economies of scale, scanning and

learning, research and development
As discussed earlier, a business will look to global markets for a variety of reasons. These
include such factors as the sourcing of inputs at the best price available.
A business may be looking to source inputs globally, to improve its economies of scale, which
is producing as many outputs as possible with the least amount of inputs. It is about seeking

a cost advantage. By then selling to customers in other countries, a business can optimise its
production processes.
Globalisation has also given businesses the opportunity to scan and learn which means that
management can see what is happening in global businesses and economies and benefit from
these experiences. In the same way, businesses can take advantage of research that is being
carried out in other countries and adapt this research to develop products for the domestic
market.

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Operation refers to the coordination of those activities in a business that are involved in
combining inputs for the purpose of producing an output that is valued by consumers. This
process is called value adding. For example, a bag of oranges can go through certain
procedures to turn it into bottles of orange juice. The bottles of juice will be worth more than
the original bag of oranges because, at each stage of production, value was added.
The operations department is responsible for acquiring the inputs and devising the best
production methods so that value adding occurs in the most efficient and effective way. Thus,
the role of operations management (and the operations manager) is to ensure a smooth
production process that contributes to the output of goods and services of an organization.

Strategic role of operations management cost leadership,

good/service differentiation
The term strategic refers to things that are important or essential in relation to a plan of
action; thus, the strategic role of operations management in business is to play a part in
ensuring that the goals of the organisation are met. This means that the operations manager
will have to be involved in the development of the businesss goals so that the operations
department knows what resources and production methods are needed to meet these goals.
Cost leaders and differentiation can exist in the same industry. For example, in the car
industry.

Cost leadership
Cost leadership refers to the strategies to produce goods or services at the lowest possible
cost whilst they are still acceptable to customers. By reducing the costs of production and
distribution, a business will be able to gain an advantage over competitors. However, it is
important that customers see that they are gaining value for money, otherwise this strategy
will not see long term rewards for the business. If the strategy is successful, the business will
become the leading provider of a particular good or service based on their lowered costs.
Businesses adopting a cost leadership strategy commonly have standardised products
The car manufacturer Kia is well known for being a cost leader. It has concentrated on
reducing costs of production but also focused on the look of the car because customers will
not buy a car that looks cheap.

Good/ service differentiation

Product differentiation is the way that a business will make their good or service stand out
from other similar products. A business will use differentiation so that they can improve sales
and/or charge a higher price. For example, airlines will try to differentiate their product so as
to attract consumers. Businesses can differentiate themselves from others by changing
obvious aspects such as price, quality or performance but also in more innovative ways such
as changing the technology used in the process, speeding up delivery time and building
alliances.
Porsche focus on a differentiation strategy to set it apart from other cars in relation to design,
marketing and technology. For Porsche, further developing high performance sports cars also
serves as a value adding activity and enhances its reputation.

Goods and/or services in different industries

The operations function will look different in different businesses depending on their industry
category. Some businesses make tangible products known as goods. These businesses are
usually found in industries in the primary and secondary sectors. For example, a primary
producer, such as a sheep farmer, will provide fleece to a wool manufacturer. In these
sectors, operations managers will focus on obtaining the materials that go into the making of
the product (inputs) and the actual production processes.
Other businesses supply intangible (non-physical) products to customers. This is called a
service and the businesses that provide these are found in industries in the tertiary sector.
The tertiary sector is where the output is sold to the customer. For example, the banking
industry sells financial services to customers and the retail industry sells retail products. In
these industries, the operations manager will focus on customer service and after care.

Interdependence with other key business functions

The operations department brings together the materials and the activities needed for the
production of goods and services to meet consumer demand. It also shares ideas across the
business about how to improve processes or achieve cost savings to bring about best
practice. The operations manager will liaise with the other department in the following ways:-

Discuss staffing and training and development needs with the Human Resources
department/manager.
Discuss financing requirements with the Accounting and Finance
department/manager.
Discuss product design with the Marketing department/manager.

Therefore, it can be seen that the Operations department carries out a coordinating role in
the business to ensure that the prime function (main activity) of the business is carried out
efficiently and effectively so that consumer demand is met. In this way the business will be
profitable.

Tiger Airlines differentiating its product by price

Tiger Airlines, a relatively recent arrival in Australia, sells itself as a low-cost
carrier. In this way it differentiates itself from other airlines. Tiger Airlines tries
to be a cost leader in the airline industry as it aims to keep its costs of
operations as low as possible in its bid to attract and retain customers. An
example of how it does this is by having its check-in staff also serve at the
departure gate. This means that customers have to arrive for check in earlier
than for other airlines as the check in desk closes early to allow staff to go to the
departure lounge. While Tiger has had some issues with its operations, and was
grounded for over a month due to safety breaches, the fact that Tiger opened
services in Sydney suggests that its no frills service is winning customers.

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Inputs
Inputs are those features that go into the creation of goods and services. These features are
changed, or transformed, so that value adding occurs and the result is desired by customers.
For example a bag of oranges will be transformed into orange juice; a university student will
be transformed into a professional. A transformed resource is an input that has been already
been altered in some way. Transforming resources are those factors of production that carry
out the actual transformation.
The major inputs into the operations process are human resources, materials, finance, time,
information and customers.

Transformed resources: materials, information, customers

(i) Material
Materials can take the form of raw or partly processed inputs. Raw materials include items
such as timber, metals, animal products and water. If these things have already gone
through some transformation but are not yet ready for sale, they are called partly processed
materials. For example, wheat when it is made into flour has not been fully transformed into
a finished product. This will occur when the wheat is used to bake a cake or a loaf of
bread. Materials can also take the form of component parts, for example a car is made up of
many components which are assembled to make the finished vehicle.

(ii) Information

Businesses use information as an input to ensure the efficiency of production processes.

Information is gathered to construct the flow of production that will create the most products,
be the most cost effective and, thus, the most profitable. The operations manager will work
with other departments to gather information on trends in consumer demand, new
technology, inventory levels, relevant legislation, competitor activity and product quality
issues.

(iii) Customers
The goal of operations is to ensure that the product made meets consumer demand.
Therefore, it is important that consumer input is included in the production process.
Traditionally many businesses made a product first and then developed the marketing
campaign to sell the product to consumers. However, the modern approach is to research
consumer needs and wants first and then develop the product. This modern approach has led
to more efficient production processes and more loyal consumers and, as a result, a more
sustainable product.

Transforming resources
(i) Human Resources
Human resources play an important part in transforming resources so that value adding
occurs. Human resources can range from untrained employees to highly skilled employees
and consultants. Each plays an important role in the production process. For the operations
function, job design is a vital aspect of operations management. If job design and job
specifications are poorly done, employees may not understand the requirements of their job,
product quality may suffer and employee dissatisfaction may arise. Therefore, jobs should be
designed to motivate workers so that they can meet the goals of the business using their
skills and abilities.

(ii) Facilities
The physical place where the production process occurs is very important in the achieving the
goals of the organisation. The operations manager must consider many factors when deciding
on the facilities. Location decisions play an important role in the success of the
business. Management must ask a range of questions such as how easy it is for suppliers to
access the premises, how the finished product will be distributed and how accessible the
premises are for employees and customers.
The premises might be cost effective in terms of rent or mortgage but if it is difficult for
suppliers, staff and customers to access, it will not be sustainable in the long run.
Management must also consider the future when choosing premises, such as potential for
expansion.
Internal layout is important. The operations manager must look at configuring the facilities to
ensure the most efficient and safe method of production. For example, if the process involves
assembling a good, there needs to be a logical work flow. If the process involves shared
equipment there must be a roster so that one piece of equipment is not required by everyone
at the same time.

Transformation processes
The transformation process refers to the actual conversion of inputs to outputs. It is
important that management makes this process as efficient and profitable as possible. Having
spent time and money on ensuring the right inputs, the business needs to also make sure
that the output is the desired result.

The influence of volume, variety, variation in demand and visibility

(i) Volume
Volume refers to how much of a product is needed to be produced. The more a business can
produce using the same production processes will often mean greater cost savings. For
example a baker can make one loaf of bread in an oven, or 12 loaves; however, it is
important to make sure that a demand does exist for the large amount produced or the
savings in production costs will not result in any greater profits.

(ii) Variety
The production process must also be flexible enough to provide variety, that is, although a
basic product is provided, it can be adapted to suit individual customer needs. For example, a
car manufacturer can use the same processes to make a basic model car with slight
adaptations made for different colours.

(iii) Variations in demand

It is important that volume flexibility is built into the production process so that the amount
produced can be adjusted to meet variations in demand. If a business is to have short lead
times (the time taken from the placing of an order to providing the customer with the
product), then the operations department must be able to meet changes in demands.
Inflexibility could lead to wasted resources and/or delays in meeting customers
orders. Increases in demand influenced Carmans Fine Foods operations. This business is
based in Melbourne and started 20 years ago making muesli and selling to cafes in small
quantities. After contracts with Coles and Woolworths where the muesli was promoted as an
upmarket brand, Carmans had to drastically alter its production process and location to cope
with huge demand.

(iv) Visibility
Visibility refers to building a relationship with the customer; this not only builds customer
loyalty but also enables the business to improve its operations. An example of this is asking
customers to fill out satisfaction surveys and questionnaires. Sydney Morning Herald now
requires paid subscriptions to access news via the internet and sought feedback about this
about two months after the initiative was introduced. Questions were posed to investigate the
times and types of access to digital information and results were used to tailor appropriate
packages to both suit the needs of customers and boost the SMHs profits.

Sequencing and scheduling Gantt charts, critical path analysis

In order to transform inputs in such a way that they make are profitable for the business, the
operations department must allocate resources efficiently, ensuring that the least amount of
waste occurs. Production planning will look at such things as sequencing and scheduling so
that goods and services are produced smoothly. Sequencing will consider in what order
products should be made. This will enable management to determine the layout of the
business, what inputs are needed and when.
Once the order of production is decided, management can then work on the scheduling of the
production process. This will allow the right inputs to be in the right place on time, it will also
allow for the required skilled employees to be available to do their specific task. If sequencing
and scheduling is not planned, it will mean that resources may not be available as needed, or
some inputs and employees are available when they are not needed getting in the way or
causing confusion. This will be costly for the business and reduce profits.

In order to sequence and schedule the production process, management will use different
planning tools. A Gantt chart is a type of bar chart that illustrates the start and finish dates of
a project. The project will be broken down into the different tasks that must be performed
and the time frame for their completion. This allows management to see what jobs need
doing, when they need doing and any overlapping tasks. For example, Gantt charts were
used for teams of people in the co-ordination and construction of building Royal North Shore
Hospital.
Critical path analysis allows management to map out the production process, looking at the
longest possible time frame the project could take. It is very like a flow chart that shows how
one task will lead to another. This analysis not only helps sequence and schedule tasks but
also to see where problems might arise.

Technology, task design and process layout

Technology is used in the transformation process, whether it is a computer to type up
documents or a fully computerised assembly line to make a can of soft drink. In the past,
many production techniques were very labour oriented with an emphasis on repetitive tasks;
however, with behavioural management theory, emphasising that employees are more
productive when engaged in fulfilling work, and the development of new technologies, many
products are designed and assembled using computer assisted technology (CAT). New
technologies have allowed businesses to reallocate dangerous and repetitive tasks away from
employees. This has allowed for more efficient production processes, and while new
technology may be expensive in the short run, in the long run it usually results in more cost
effective practices and, therefore, higher profits.
Task design refers to planning the flow of activities that has to be done to complete a task. If
the flow of activities are organised into a logical sequence, employees will be able to
successfully perform and complete their allocated task. Task design usually involves the
following steps: -

Define what needs to be done

Identify who needs to do it
Break down the task into specific skills and duties
Allocate time elements and difficulty levels to the task

The process layout will affect how efficiently a business is able to transform the inputs into an
output. Technology and task design will impact on this layout. Technology will need to be
located in the business dependent on its requirements as access to electricity, cooling, water,
etc. If the technology is needed to be used by different employees at different times, task
design will identify this so that clashes do not occur. At all times the process layout needs to
emphasise a smooth flow of production and occupational health and safety.

Old fashioned task design and process layout

http://upload.wikimedia.org/wikipedia/commons/thumb/2/29/Ford_assembly_line__1913.jpg/566px-Ford_assembly_line_-_1913.jpg
Modern process layout note the absence of people. In modern organisations employees are
not doing the repetitive work of an assembly line

http://www.themanufacturer.com/wp-content/uploads/2011/11/Wakefield-productionline.jpg

Monitoring, control and improvement

In order to ensure that it is meeting its goals, a business must have strategies that involve
monitoring, controlling and improving production processes. Monitoring refers to the
collecting and analysing of information so that processes can be improved. Businesses will
put into place Key Performance Indicators (KPIs) so that they can actually see if targets are
being met. For example a manufacturing business may have a target of making a certain
amount of items in a day; a retail business may have expectations of selling a certain number
of products. Monitoring these indicators will allow the business to see if these targets are
being met. If they are not being met, then the reasons can be analysed so that corrective
action can be taken.
Control is the process of comparing the predetermined target against the actual result and
assessing what action is needed to correct a shortfall.
Monitoring and control lets the business undertake continuous improvement. This will see the
reduction of wastage and inefficient work practices. Monitoring operations will help the

business do such things as reduce the time that it takes to provide the customer with the
good or service; to reduce the costs involved in providing the product; to reduce dangerous
work place practices and to provide a better quality product.

Outputs
Outputs are the end result of a businesss production processes, the good or service that is
sold to the customer. Some outputs are also inputs into another businesss production
process. For example a flour mill will make wheat, sell this wheat to a baker who will in turn
make a cake which is sold to a caf or an individual customer. It is vital that the output of a
business must meet the demands of customers if the business is to be able to cover the costs
of making the product. The cake made by the baker must sell for more than the cost of
making it.

Customer service
Customer service is a non- physical output of the operations process. It refers to how well the
business can meet the expectations of customers. Although this is often seen as the domain
of the marketing department (and will be discussed more in this topic), it is important that
the operations department recognises its obligations in this area. Operations management is
responsible for the provision and quality of the product and if customers are disappointed in
these things, they will look to other businesses for an alternative product. A good quality
product, which is provided in a timely fashion, will not only encourage customer loyalty but
will often let the business charge a higher price than competitors.

Cathay Pacific and customer service

Cathay Pacific is a Hong Kong based airline which is able to successfully sell its
product at a higher price than its competitors. Why is this? Because customers
perceive that they are getting much better quality of service. Cathay Pacific has
been focusing on employees to boost their brand. Using the slogan meet the
team that goes the extra mile in their advertising campaign, the airline has
been emphasising the point that customer service is vitally important to it. The
campaign was devised from customer surveys that indicated that Cathay
Pacifics service and attitude of employees were what made the airline stand out
over its competitors.
For this reason, Cathay Pacific is able to charge higher prices than many other
airlines flying the same routes.

Warranties
By law in Australia, all products sold must come with a warrantee or guarantee that the
product will serve its advertised purpose. Many businesses when selling a physical product
over a certain value will offer a written warranty, valid for a period of time.
In monitoring the effectiveness of the operations department, management can look at how
many warranty claims are made. Customers usually only make a warranty claim when the
product is defective in some way. If the number of claims is high, it would indicate that
something is wrong with the production process and this must be rectified. If the business
has good monitoring and quality control mechanisms in place, then the business will be able
to reduce warranty claims.