Chapter 1 Role of operations management 1.

1 Intro
  Operations: business processes that involve transformation/production, i.e. inputs into outputs. Applies to both services and manufacturing. Also involves creation of value by businesses. Operations includes o Production of goods and services o Production controls and associated quality controls + input management o Inventory controls o Supply chain management o Logistics and distribution o Management decision making in terms of operational processes Operations function is intrinsic and is interdependent on other business processes Transformation for a producer of goods involves: Business inputs: Ideas, labour resources, capital (CELL) Transformation and value adding Business output: Finished goods/intermediate goods i.e. Bakers Delight Transformation for a producer of services involves: Business inputs: Skill, education, time, technology Transformation and value adding Business output: Effects/results of a service Operations and customer focus: customers want innovative products of low cost and improve quality of life. They may desire processes such as: o Waste minimal resources in their production lean production; eliminate waste and production processes are most efficient. The sources of waste in business include under use of labour, over production, under utilisation of machinery. They add cost but not value. o Reflect fair value for any labour used in processes business operates fairly and treats employees appropriately. The growth of the fair trade movement is due to consumer advocate for the integration of decent working conditions and fair price. o Operate at low cost so as to maximise affordability consumers comparison shop and the need for them to buy affordable goods and services affects the operations functions of business. o Integrate environment awareness and a need for ecologically sustainable practises Reduce waste, recycle, save electricity etc o Reflect changes in needs of consumers over time Innovative products i.e. Apple

 

1.2 Strategic role of operations management

    Strategic: affecting all key business areas, involves operations management contributing to strategic direction/plan of the business. Main goal of business is - maximise profits, focusing on revenue/costs. Either maximise/minimise Profit centres: aspects of the business that directly derive income Cost centres: are those that do not directly derive income but do incur cost (i.e. the operations function of a business)

These costs of the operations function include: Input costs: CELL QM costs: Machinery errors, prevention of loss through training Inventory costs: Insurance, Storage, Back order Labour costs: Employees, Rostering Processing costs: Electricity, product design, template and tooling Cost leadership: involves aiming to have the lowest costs/most price competitive in the market, key aspect is that although trading with the lowest cost, overall business should still be profitable (Woolworths and Myer case study) o Economies of scale: cost advantages that can be created as a result of an increase in scale of business operations. Cost savings come from purchasing lower cost per unit of input and from efficiencies created through improved technology and machinery. oods/service differentiation

Characteristics
Tangibility and perish ability Customisation Ownership Time between production and consumption Determination of value

Goods
Tangible, some are perishable (fresh) i.e. fruits Standardised (What you see, what you get) sometimes customised Can be owned and transferred between people Can be considerable (long time) Can be independently ascertained through costing all inputs and adding a margin.

Services
Intangible and only exist while being performed Customised but can be standardised Cannot be owned Simultaneous (instant) Subjective and what market is prepared to bear. Value increases with service that has high level of skill, expertise etc

Product differentiation: distinguishing products (g/s) in some way from its competitors Goods varying the The features: e.g. cereal and electronic goods, Product Quality, and other extra features add-ons brand, packaging, content Services varying the Time spent on service, level of expertise, qualifications and experience, quality of technology and materials i.e. CAD and CAM programs. Cross branding: for both goods and services, this approach adds value to products by offering customers added benefits e.g. Woolworths-Caltex

1.3 Goods and/or services in different industries

 Goods in different industries: May be standardised (mass produced on an assembly line, uniform in quality and produced with a production focus) Or customised (varied according to the needs of customers, produced with market focus) Perishable i.e. foods in grocery sector, Operational processes: high standards of quality, very short lead times, appropriate packaging Non-perishable house hold and business goods, more durable, Operations: manage all aspects of quality in process, implement effective inventory management strategies Intermediate goods processed more than once, e.g. a manufacturer converts steel into tiny screw. Services in different industries: standardised such as fast food industry, local GP but people visiting a specialist is customised and self-service would be pharmacy

1.4 Interdependence with other key business functions

 Interdependence mutual dependence that the key functions have with one another, they work best when they overlap and employees work towards common goals. o Operations: manufacturing, provision of services, other value adding, domestic/global Refers to business processes that involve transformation, for both g/s production o Marketing: sales and ad, product design, marketing strategies Meeting needs and wants of customers through provision of products at prices market is prepared to pay. All aspects of buying and selling i.e. pricing, promotion etc. inance: Admin, financial management and planning, management and change o Concerned with recording and summarising financial transactions in a series of reports such as income statements and balance sheets. o Human resources: industrial relations (IR), HRM, personnel Deal with people the business employs and issues arising from their employment include employment resourcing and acquiring, development, maintaining and motivating and separation. Synergy benefits of interdependence, means the whole is > than the sum of all individual parts

Chapter 2 Influences on operations management

2.1 Main influences on operations management

 Globalisation removal of barriers of trade between nations, characterised by increased integration between national economics and high degree transfer of capital, labour, technology etc o Significant on operations management i.e. global consumers seek global brands and tend to seek standardised products o Global web Global sourcing Regional operations European markets, South-Asian and Oceania markets, North Asian markets etc o Processes that seek to target global markets: product design must meet needs of global consumers, choice of location of manufacturing facilities, QM, logistics and inventory management processes o Use of manufacturing plants achieve massive economics of scale advantages o Production services on a global scale financial services, travel, seek to standardise o Supply chain management and global web range of suppliers a business has and nature of its relationship with them. For large global businesses the integration of range of

suppliers creates a network called global web (network of suppliers chosen based on lowest overall cost, lowest risk and maximum certainty in quality) Global web strategy aims to minimise cost across range of suppliers i.e. opt for location that places it in appropriate proximity to the suppliers o Imitation, innovation and supply chain Supply chain approach either imitator or innovator. A business that imitates create products similar to those that exist (at a low cost) and businesses may reverse engineer. A process that involves a business taking the product of a competitor that has already been released into the market and tries to make their own version of it using different materials and at a lower cost. Innovation occurs when a business creates a new product and leads the market, it may make a technological breakthrough that allows for a leap in the quality of life and opportunities for consumers. (Case study Apple) Technology defined as the design, construction and/or application of innovative devices, methods and machinery upon operations processes. (Woolworths case study) o Operations management used in manufacturing, logistics, distribution etc Quality expectation it is how well designed, made and functional goods are and the overall degree of competence with which services are organised and delivered. o Quality and expectations cannot be separated o Quality expectations Goods: Quality of design concept development taking into account customer needs and expectations, nature of materials used. Fitness for purpose how easy it is to use, how well product performs Durability reliable, how easily repaired and maintained Services: Professionalism of service provider cleanliness and courtesy of staff Reliability efficient, overall competence Level of customisation how well customer needs are fulfilled through app of expertise Cost-based competition derived from determining breakeven point (level which firm matches TC to TR) and applying strategies to create cost advantages over competitors. o Cost leadership approach, focusing of reduce costs to a minimum while maintaining profit margins e.g. eliminate waste, bulk buy inputs, achieve economies of scale etc o Costs may be fixed (do not change regardless of business activity level) and variable (vary according to production/business level) Government policies government policies change from time to time, due to government change and social expectations e.g. carbon pricing. o Policies such as OH&S, trade and industry policies all impact business operations Legal regulation range of laws a business must comply are collectively called compliance. Compliance costs are expenses associated with meeting legal requirements of legal regulations. o OH&S in the use of machinery and interacting with business environment, safe and healthy working conditions etc o Training and development, fairwork and anti-discrimination laws. o E.g. Age discrimination act 2004 (Cwlth), Fair work act 2009 (Cwlth) Environmental sustainability business operations should be shaped around practices that consume resources today without comprising access to those resources for future generations. Includes sustainable use of renewable resources and reduction in use of non-renewable. o Business operations must adopt environmentally sustainable practises such as reduce and reuse and recycle to reduce carbon footprint.

2.2 Corporate Social responsibility (CSR)

 CSR refers to open and accountable business actions based on respect for people, community/society and broader environment, more than just complying with law. o Formerly called triple bottom line, CSR places value on financial returns as well as social responsibility and environmental responsibility e.g. Westpac employs women, stresses social disadvantages and act carbon emission (electricity etc) Difference between legal compliance and ethical responsibility o Legal compliance require that a business follows the letter of the law the prescribed standards of behaviour whereas ethical responsibility sees businesses meeting all their legal obligations and taking it further by following intention and spirit of the law o Complying with legislation costs money, in demonstrating ethical responsibility a business must allocate money over and above what it costs to comply with law o Legal compliance and business operations: Labour law compliance min wages, award wages, working hours etc Taxation, business licensing rules, environmental compliance, intellectual property, Financial and accounting regulations aims to standardise methods around financial records and ensure company director follow particular rules as fiduciaries (in a position of financial trust with respect to others money) o One way to reduce compliance costs is outsourcing its operations onshore and offshore. Outsourcing involves use of outside specialists to undertake one/more key business function, onshore (domestic) and offshore (another country) o Ethical responsibility: going beyond the law and taking into account broader social, community and environmental concerns. Laws and regulations differ between nations International labour organisation ILO devoted to advancing opportunities for women and men and aims to promote rights at work, encourage decent employment opportunities. Holds annual conventions and raises matters on provision of safe working conditions etc Environmental sustainability and social responsibility o Businesses are being asked to take increasing responsibility for protection of the environment by adopting policies of conservation, recycling and restoration o Growing consumer expectations that products should be clean, green and safe is changing management practises in many Australian businesses o Socially responsible business tries to achieve 2 goals simultaneously expanding the business and providing for the greater good of society. (Case study, Bendigo bank and the body shop)

Chapter 3 Operations processes 3.1 Intro

 Operations processes are those processes involved directly with transformation includes inputs, transformation and outputs.

3.2 Inputs
 Inputs resources used in the transformation process includes Labour: mental and physical includes areas of sourcing and supply chain, quality processes Energy: form of electricity/fuel heat, light, input into transformation. Raw materials: manufactured goods are wood, natural resources in the form of minerals Machinery and technology: used to process raw materials and design and make products. Machinery integrated with technologies can perform complex tasks very quickly. I.e. overtime, capital-labour substitution (makes labour redundant) Input classification

Transformed resources are those inputs changed/converted in the operations processes o Materials: basic elements used in production process includes raw (essential substances in the unprocessed state) e.g. wood, oil and intermediate (goods manufactured and used in further manufacturing) o Information: the knowledge gained from research, investigation and instruction. Acts as a transformed resource when it is used to inform how inputs are used, where they are drawn from etc. External market reports, ABS etc. excellent source and very useful Internal from financial reports, quality reports etc and internal key performance indicators (KPIs). It is used to measure efficiency and effectiveness of the businesses performance o Customers: become transformed resources when their choices shape inputs. Costumer orientation is important. Businesses can implement a CRM program to maintain customer contact; this improves services, cuts production costs etc  Transforming resources are those inputs that carry out the transformation process o Human resources: effectiveness with which HR carry out their work duties determines success with which transformation and value adding occurs. Well designed HRM policies and practises can improve the performance of operations processes. Good job designs, extensive training programs, flexible work practises etc can assist to maximise performance and enable business objectives to be achieved acilities: businesses need to decide the following o Whether if required facilities should be located in one/two large sites or divided among numerous sites, Impact zoning and other restrictions upon size and location, Special conditions such as energy, Optimum plant and process layout (arrangement of machinery, equipment and people within the facility)

3.3 Transformation processes

    Transformation is the conversion of inputs into outputs I.e. at school, inputs include students, staff, syllabus and produces educated graduates Transformation differs between manufacturing (tangible goods and highly automated) and services (intangible products and relies on interaction with customers and labour intensive) Transformation process and value adding: o Costs are incurred when something created by manufacturing is processed/service is created. The addition of cost in transforming the inputs into outputs adds value, thus cost is related to value. E.g. the value of apple pies is greater than the cost of inputs o Service sector it is harder to see how value is added, usually occurs through skills etc

Influence of volume, variety, demand and visibility o Volume: how much of a product is made. Volume flexibility refers to how quickly the transformation process can adjust to increase/decrease demand. Ability to respond to chances in volume is essential to manage lead times, if unable to respond to changes to demand, it can over produce leading to wastage and increased inventory costs. Low volume 5 star restaurants ; High volume fast food o Variety: mix flexibility refers to mix of products made/services delivered through info process. The greater the variety made, the more the operations process need to allow for variations. Low car factory with small variation; High financial advice o Variation in demand: increase in demand will require increased inputs from suppliers, increased HR etc. Low bread and milk; High- Ice cream factory Increased demand may be hard to meet if suppliers cannot supply quickly enough, labour is not flexible/skilled enough, adopted machinery cannot adjust to increased capacity quickly, and increased energy and power cannot be met. Decreased demand may require staff to have their hours reduced, production may tend to slow to avoid inventory build up and suppliers may put on pressure to contraction agreements. Predicting demand past trends, seasonal factors o Visibility (customer contact): may be direct/indirect, direct is through feedback through surveys, interviews etc. Indirect is through sales data and consumer reviews Sequencing and scheduling Sequencing order which activities in operations occur Scheduling length of time activities take within the operations process o Gantt Charts type of bar chart that shows both scheduled and completed work over a period of time. The advantages forces managers to plan steps needed to complete task and specify the time required. Also makes it easier to monitor actual progress o Critical path analysis (CPA) scheduling method that shows what tasks need to be done, how long they take and what order is necessary to complete the tasks. It is the shortest length of time it takes to complete all tasks necessary to complete process.

Technology o Business tech involves the use of machinery and systems that enable businesses to undertake the transformation process more effectively and efficiently. o Benefits of using up-to-date tech includes being able to complete, speed up processes and enable full utilisation of materials which makes processes more cost effective. o Capital cost of technology is relatively high, businesses need to decide whether to purchase/lease. o Office technology includes computers, mobile phones, CD ROM etc. Increased telecommute and work from home. o Manufacturing technology Robotics, CAD and CAM Robotics highly specialised forms of technology, capable to complex tasks, used in engineering etc. it can shape transformation processes so they are high quality, efficient. Allows degree of precision and accuracy however it is costly. CAD (Computer aided design) is a computerised design tool that allows businesses to create product possibilities from a series of input parameters. From the design, material usage can be calculated and time to complete task , it can design the sequence steps that would need to be taken to create desired product in shortest possible lead time using least amount of material CAM (Computer aided manufacturing) software that controls manufacturing processes, can be used more broadly calculate how much of each input resource would be required and can store historic purchasing records Task design o Involves classifying job activities in ways that make it easy for an employee to successfully perform and complete the task o Overlaps with employment relation functions of job analysis, job description and person specification. o Steps involved include: 1. Define what needs to be done in a general statement 2. Analyse the general job into specific duties 3. Allocate degree of difficulty and time element 4. Match tasks to existing state/federal awards 5. Articulate the task via job descriptors and pay scale (type of skill etc needed) o Task design helps in selecting the right candidates for the jobs (HR) o Skills audit formal process used to determine present level of skilling and any skill shortfalls that need to be made up either through recruitment/training. Plant (factory/office) layout o Plant layout is the arrangement of equipment, machinery and staff within the facility o An operations manager needs to consider: Enough physical space for projected volume of production, effective use of production equipment, use of appropriate equipment, conformity with OH&S etc o There are different ways to organise the physical layout of a plant and depends on the types of manufacturing operations conducted by the business. Includes Process layout arrangement of machines such that machines and equipment are grouped together by function e.g. in hospitals Process production deals with high-variety, low volume production. Each product has a diff sequence of production and production is intermittent (moves around). Lends to Job lots manufacture parts of small quantities. In services, banks and insurance companies use this layout to handle customers with different needs.

Product layout where the equipment arrangement relates to sequence of tasks performed in manufacturing a product Product production is characterised by manufacturing of high volume of constant quality goods, assembly line is most common for the layout as it aims to achieve the best possible combination of personnel and machine use assembly line balance. Work stations are arranged to match sequence of operations and workflows, operations manager must set times for assembly task e.g. motor vehicles ixed position layout an operational arrangement in which employees and equipment come to the product. (Product remains in one location) Project production deals with layout requirements for large scale, bulky activities such as construction of bridges, more efficient to bring materials to site. o Office layout enable the work to be performed efficiently in a safe office environment, an office space is organised around discrete workstations (desk areas required by office workers etc). Tailored to meet needs of the business, in manufacturing it is informal and services it is formal Monitoring, control and improvement o Monitoring: process of measuring actual performance against planned performance. It is intended to measure key performance indicators (KPIs). These are predetermined variables that are measured so that appropriate controls to operations processes can be made. Such as process flow rates, direct and indirect cost analysis, lead times etc. o Control: occurs when KPIs are assessed against predetermined targets and corrective action is taken if required. Compares what was meant to happened to what has. Control requires managers to take corrective action, such as making changes to the transformation process or adjusting level of technology in order to correct problem. o Improvement: refers to the systematic reduction of inefficiencies and wastage, poor work processes and elimination of any bottlenecks (aspect that slows down the overall processing speed/creates any impediment leading to backlog. Improvements are sought in time, process flows, quality, cost and efficiency Continuous improvements ongoing commitment to achieve perfection, the striving is important and the process becomes one of the setting higher and higher standards in continual pursuit of improvement

3.4 Outputs
 Outputs end result of business efforts and must be responsive to customer demands Warranties: A promise made by a business that they will correct any defects in the product  Warranty claims are made against goods that have defects arising from an issue in transformation, small prop of warranty claims are false, the no of claims made against business on particular product line will give indication of problems in processing.

Customer service: Refers to how well a business meets and exceeds the expectations of customers in all aspects of its operations  If a customer is unsatisfied with a product being defective, not meeting quality requirements, finds lead times too long than operations processes needs review  It can no longer be regarded as merely explaining the refund policy but it is an attitude that should be adopted by all departments

Chapter 4 Operations strategies

4.1 Performance objectives

 Performance objectives goals related to particular aspects of the transformation process will be set for business to be more efficient, productive and profitable. The 6 KPIs are: Quality, speed, dependability, flexibility, customisation and cost o Quality: depends on customer expectation, performance objectives includes Quality of design Arises from an understanding of consumers and their needs. Design determines the inputs. A high-quality design will be clear from high-grade materials, long lasting it is and so on. High-quality inputs add cost, reflected in the higher price that some may not be willing to pay Quality of conformance focus on how well the product meets the standard of a prescribed design with design specifications, does not have to require high-quality inputs. It is a measure of how consistently products achieve compliance. Quality of service reliability, how well service meets specific needs, responsiveness Quality is a crucial aspect that distinguishes products in the market o Speed: refers to the time it takes for the production and operations process to respond to changes in market demand. Goals for speed include reduced waste times, shorter lead times and faster processing times. To achieve this, requires reduction in procedural and technical bottlenecks and smooth internal communications o Dependability: aka reliability, as a performance objective refers to how consistent and reliable businesses products are. In goods, dependability refers to how long the products are useful before they fail. One measure of this is by warranty claims. For services, dependability refers to consistency of service standards and reliability, can be measured by no. of complaints received and fewer, the more dependable. o lexibility: aka adaptability; refers to how quickly operations processes can adjust to changes in the market. Time and flexibility are related. Can be best achieved by increasing capacity of production, using machinery better or purchase new technology. o Customisation: refers to creation of individualised products to meet specific needs of the customers. E.g. wedding dresses, home interior, party cakes etc Mass customisation process that allows standard, mass produced items to be personally modified to specific needs such as computers, coke cans etc. Cost of customisation is higher than cost of mass producing standardised products o Cost: refers to the minimisation of expenses so that operations processes are conducted as cheaply as possible. Cost determines the price, overtime businesses seek to become more efficient and new technology allows businesses to lower costs, use inputs Reduce cost of production specialisation, change tech, efficiency with resources, outsource workers etc.

4.2 New product/service design and development

 Product design and development: o 2 approaches to product development preferences of consumers and changes in technology. E.g. Apple maintains complete control over the design and development of both software and hardware o Steps in product design and development process

actors affecting product design quality, SCM, capacity management and cost. SCM new product will draw from suppliers and may extend range of supplies sough, timing and volume Quality customers will demand particular quality and certain features Cost addition of value through processing, determined from amount of inputs, time and energy used. Product utility defined as the usefulness and value that a product has from consumers point of view. Service design and development o Depends whether if service is standardised or customised and must consider explicit service (tangible aspect such as time, expertise) and implicit (feeling and intangible) Factors to consider include level of skill, time and expertise and as it is delivered, the customer knows they have been specifically catered for, giving implicit satisfaction. Services using goods - e.g. a surgeon will need swabs, bandages etc and tutors will need books, paper etc. o

4.3 Supply Chain Management

Involves integrating and managing flows of suppliers through the inputs, transformation and outputs in order to best meet the needs of customers. Sourcing, e-commerce and logistics Sourcing: refers to purchasing inputs for the transformation processes, drawn from a range of suppliers. Factors influencing choice of sources: Consumer demand, quality of inputs required, flexibility and timeliness of supply, cost of supplier Trends in SCM include Supplier rationalisation (reduce no of suppliers to least amount), Vertical integration purchasing through mergers, supply owned by the business. Thus breaking down levels of production Cost minimisation offshore suppliers has low cost inputs Flexible supply chain processes lean processes, minimises wastes and seeks to lower costs and process speed and ensure sources are used optimally

Global sourcing: refers to businesses purchasing supplies/services without being constrained by location, buying/selling from wherever suppliers that best meet the sourcing requirements. o Benefits cost and expertise advantages, access to new tech and resources. o Challenges possible relocation of aspects of location, increased cost of logistics, storage and distribution. Etc E-commerce: involves buying and selling of goods and services via the internet. o E-procurement or use of online systems to manage supply, allows suppliers direct access to business level of supplies. When stock falls to a pre-determined point, supplier will supply even without formal request from the buyer. o Process is called business-to-business arrangement (B2B) refers to direct access from one business to another in a timely manner. o B2C selling of goods and services to consumers over the internet usually by credit card. Specialist sites to sell/auction to customers e.g. eBay. Businesses must monitor stock levels regularly, information exchanged frequently so that accurate stock levels can be presented in prospective customers. Logistics: refers to distribution but includes transportation, use of storage and distribution centres and materials handling and packaging. o Distribution way of getting goods/services to customers.

o o

Transportation and distribution: refers to physical movement of inventories. E.g. bicycle costs are low, high inner city areas and capacity to hold documents and files Storage, warehousing and distribution centres: Storage involves finding a secure place to hold stock until it is required, essential when there are numerous outlets and demand is variable. It may be long term/short term. Alternative inventory option is JIT minimise storage and associated costs. Warehousing is the use of warehouses for storage, protection and distribution of stock. Costs include premises, insurance and security for the stock, carrying excess stock etc. can save costs if it is used well Distribution centres DCs not intended for long term storage, located to minimise time it takes to supply stock to retail outlets, important using as an operations strategy and requires managers to balance cost of such centres. May have air-con, cold storages etc Materials handling and packaging important aspect of movement and storage of goods and particular standards and methods of operating need to be applied, as some products require particular skills e.g. delicate glassware or dangerous goods

4.4 Outsourcing Advantages and disadvantages

 Outsourcing also called business process outsourcing (BPO) involves the use of external providers to perform business activities for e.g. accountant, admin. Usually at a lower cost and with greater effectiveness The outsourcing decision costs and efficiency, geographical location, vendors available and management.

Outsourcing Name of outsourcing option options

Option 1 Centre of shared services centres (SSC) Use of fee-for-service arrangement Joint ventures

Features
In-house option, involves creation of in-house centre that performs work for multiple subsidiaries Low risk, short term strategy. Involves engaging a supplier for fixed services at a pre-determined price, allows testing of outsource market Engages with an outsourcing service but provider is also free to outsource to other businesses Offshore outsourcing and contracting with external organisations. Use of contracts that detail agreed levels of service and relocation of services to a new off-shore location is transferred to an independent vendor the company contracts

Option 2

Option 3

Option 4

Use of build-operate-transfer approach

Advantages
   Simplification- reducing no of activities performed within business Efficiency and cost savings cheaper labour, regulatory differences and skilled labour in offshore location Increased process capability access to improve technologies and highly skilled labour, produces are produced and delivered to market with improved levels of service Access to skills/resources lacking within business i.e. to India, highly skilled and disciplined labour at a low cost = double saving Capacity to focus on core business focus on what it cannot outsource such as vision, purpose, sustainable adv through innovation etc Strategic benefits 1st benefit is using outsource around trade barriers, 2nd benefit is use of vendor that outsources for others within the same industry can bring expertise, 3rd benefit is training in different time zones, and 4th is strong partnerships between business and outsourcing vendor Improvements in in-house performance can focus on core competencies, improve in-house performance + internal changes reduce cost etc

Disadvantages
 Payback periods and cost how long it takes to repay cost of organising outsource, overtime business will experience cost savings but itll take a while Communication and language between business and the vendor. Negotiations may be confusing, cultural differences may be a problem, leading to misalignment between business and vendor. Misunderstandings about what agreed service levels are what KP measure are acceptable Loss of control of standards and info security feel loss of control when outsourcing and how info is used. Also privacy issues and security Hierarchies trying to eliminate costs associated with hierarchies but managing complex outsource agreements can create its own hierarchies Organisational change and redesign downsizing, causing loss of domestic employment Loss of corporate memory and vulnerability reliance on outsourcer. To counter this, some banks create shadow teams to retain corporate knowledge Info tech

  

   

4.5 Technology leading edge, established

 Leading edge technology is the technology that is the most advanced/innovative at any point in time. In both inputs and processes, it has assisted in making publically listed Australian company CSL Ltd one of the worlds most innovative pharmaceutical companies. o Helps business create products more quickly and to higher standards with less waste Established technology is the technology that has been developed and widely used and is simply accepted without question. Such as computers. It is functionally sound and help to establish basic standards for productivity and speed. Includes POS, CAD, CIM etc Both give businesses efficiencies, productivity gains and capacity to improve operations processes

4.6 Inventory management

 Inventory/stock refers to amount of raw materials, work-in progress and finished goods a business has on at any particular point in time

Advantages
       Consumer demand can be met when there is stock, prevents them from going to other businesses If a particular product line runs out, alternative can be offered = generating income Reduces lead times between order and delivery Stock gives business to generate immediate revenue Stocks can be distribute to DCs, which rapidly transport the products to places as indicated by demand Older stock can be sold at reduced prices and thereby encourage cash flow and attract sales of other products Making products in bulk may reduce costs as there are economies of scale in purchasing inputs, could be cheaper than cost of holding the stock once it is made

Disadvantages
 Costs associated with holding stock, including storage charges, spoilage, insurance and theft expenses Invested capital, labour and energy cannot be used elsewhere as it has been used to create the stock Cost of obsolescence, occurs if stock remains unsold

Inventory valuation methods: refer to page 99 LIFO (Last-in-first-out) method of pricing inventory assumes that the last goods purchased are also the first goods sold and cost of each unit sold is the last cost recorded FIFO (First-in-first-out) method of pricing inventory assumes that the first goods purchased are also the first goods sold and therefore cost of each unit sold is first cost recorded WAC (Weighted average cost) LIFO and FIFO impact. LIFO may overstate cost and understate gross profit, and it may under value stocks on hand at end of the period. FIFO approach, stock costs may be understated and profits overstated and stocks at the end may be undervalued at end of period JIT (Just in time) inventory management approach which ensures that the exact amount of material inputs will arrive only as they are needed in the operation process. It is a lean production method, saves money as there are no expensive holding and insurance costs. But JIT requires a very flexible operation function with flexible processing and high ability to respond quickly to changes in market demand and reliable supplier deliveries.

4.7 Quality management

 QM refers to the processes that a business undertakes to ensure consistency, reliability, safety and fitness of purpose of products. There are 3 common approaches: o Quality control inspection, measurement and intervention. Use of inspections at various points in production process to check for problems and defects; it is setting pre-determined targets using a range of tests, quality of products and processes assessed against these targets. Appropriate action taken to correct any issues that has caused quality standards to fall below expectations o Quality assurance application of international quality standards Use of system to ensure that set standards are achieved in production; aspects of QA include notion of fitness for purpose and desire to achieve right first time. A no. of QA standards have been developed in response to the impact of globalisation and international emphasis on quality. A widely used international standard is the ISO 2000 series of quality certification. o Quality improvement TQM and continuous improvement Con improvement: belief that overtime processes will be made more efficient and effective. Inclusion of staff into improvement processes and helps in maintaining a competitive advantage. TQM focuses on managing the total businesses to deliver quality to customers. Objectives include: benchmarking, employee empowerment, a focus on the customer and continuous improvement.

4.8 Overcoming resistance to change

 Sources of change are external i.e. legal, economic etc and the business is responding to the threat that change can pose  Resistance to change can be a major obstacle to the realisation of operations goals. Overcoming the resistance to change is necessary aspect of change management  The two principal sources include financial and psychological (inertia)  Financial costs Purchasing new equipment plant and equipment (machinery and technology capital) costs are high and cost can be recouped through use and depreciation. But the advs are improved processing flexibility and speeds and shorter lead times also reduced waste. Redundancy payout it is loss of work arising from job skills that are no longer required for the workplace. The cost is given to employees when they are forced out of work and it value depends on length of employment, level of pay, total unused leave etc. Retraining reorganisation if businesses internal hierarchy/acquisition of technology. Such as job roles due to different work skills, achieved through training and technology requires training/retraining on new software. Reorganising plant layout plant is the facilities in which the machinery is arranged. Major changes such as re-engineering of systems require extensive reorganisation but minor has little effect. Cost is high includes transport, placing and bringing power to the new plant. Also incurred in the downtime and when testing new equipment.  Psychological inertia (resistance to change) Inertia can be due to a feeling of uncertainty or fear of unknown.

Managing change effectively: identify reasons, successful managers anticipate and adjust changing conditions, they are proactive (initiate change) not reactive. Changes must occur at a pace that it can be absorbed, evaluated thoroughly Change management strategies: identify sources of change, lower resistance to change through communication, using change agents (somebody who initiates change) and apply change models such as Kurt Lewins unfreeze-change-refreeze model. Unfreeze: breaks down the forces supporting the existing system, prepares 4 changes Change: new procedures and behaviours must be communicated and implemented Refreeze: manager offers positive reinforcement to make changes last

4.9 Global Factors

 Global sourcing: Operations strategy involving the sourcing of any business operations that gives the business cost advantages. It ensures that the outsource decision is exposed to the global market so the best decision is made on cost, efficiency, productivity, technical ability etc. Benefits ability to operate over extended hours, labour specialisation and advs of expertise Challenges increased cost of logistics, storage, increased complexity of overall operations which includes financial (exchange rates fluctuates) + contractual (language, regulatory diffs etc) Economies to scale: Lower per unit input costs, major factor when businesses sell to global markets, need to sell to global markets become a decision based on scale advs. Production increases, costs per unit falls. It arises in production advs in producing high volumes and derived capital investment and improved use of technologies. Scanning and learning: Very valuable operations management tool as it can help managers adapt best practice to business operations. Diversity of experience helps businesses learn how to handle issues. Research and development (R&D) It can make a very big difference to level of innovation, quality and competitive advantage of a business.