BUSINESS STUDIES OPERATIONS

role of operations management

● strategic role of operations management – cost leadership, good/service
differentiation
● goods and/or services in different industries
● interdependence with other key business functions

influences
● globalisation, technology, quality expectations, cost-based competition,
government policies, legal regulation, environmental sustainability
● corporate social responsibility
○ the difference between legal compliance and ethical responsibility
○ environmental sustainability and social responsibility

operations processes
● inputs
○ transformed resources (materials, information, customers)
○ transforming resources (human resources, facilities)
● transformation processes
○ the influence of volume, variety, variation in demand and visibility
(customer contact)
○ sequencing and scheduling – Gantt charts, critical path analysis
○ technology, task design and process layout
○ monitoring, control and improvement
● outputs
○ customer service
○ Warranties

operations strategies
● performance objectives – quality, speed, dependability, flexibility, customisation,
cost
● new product or service design and development
● supply chain management – logistics, e-commerce, global sourcing
● outsourcing – advantages and disadvantages
● technology – leading edge, established
● inventory management – advantages and disadvantages of holding stock, LIFO
(last-in-first-out), FIFO (first-in-first-out), JIT (just-in-time)
● quality management
○ control
○ assurance
○ improvement
● overcoming resistance to change – financial costs, purchasing new equipment,
redundancy payments, retraining, reorganising plant layout, inertia
● global factors – global sourcing, economies of scale, scanning and learning,
research and development

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1. Role of operations management

Operations:

● Refers to the transformation process of a business, which is the conversion of

inputs (resources) into outputs (goods and services) - production

Customer focus:

● Historically, what customers wanted was not relevant to the production

process
● Now customers and their needs are very important- want innovative products
at low costs that improve quality of life
● Customers desire firms to engage in processes that-
○ Waste minimal resources in their production (lean production)
○ Operate at low costs so as to maximise affordability
○ Integrate environmental awareness and a need for ecological
sustainable practices
○ Reflect changes in the needs of consumers over time

role of operations management

● strategic role of operations management – cost leadership, good/service
differentiation
● goods and/or services in different industries
● interdependence with other key business functions

1.1 Strategic role of operations management – cost leadership, good/service

differentiation

● The strategic role of the operations management involves operations

managers contributing to the strategic direction or strategic plan of the
business
● Overall goal is to maximise profit - achieved by focusing on revenue or
income, and costs or expenses

Cost leadership:
● There are a number of costs that feature in the operations process - inputs,
labour, processing, inventory, quality management costs
● Cost leadership is aiming to have the lowest costs or to be the most
price-competitive in the market, so pricing of products can drop, whilst
maintaining the same profit margin - hence undercutting competitors
● Describes how a business can work to achieve a competitive advantage
● A cost strategy where a business sets out to provide customers with the best
value for a relatively low price has been found to provide a sustainable
competitive advantage

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 ● Cost leadership can also be gained by achieving low operating costs from
offering high volumes of standardised no-frill products using fewer, standard
components and with limited varieties of models
● There is a direct relationship between cost and quality (kmart vs gucci)

● Economies of scale:
○ Refers to cost advantages that can be created as a result of an
increase in scale of the business operations
○ Typically the costs savings come from being able to purchase lower
cost per unit of input and from efficiencies created through improved
use of technology and machinery
● Apple reduces its operations costs by forming a partnership with
manufacturers such as Foxconn in China. Costs of production such as labour
and materials are significantly lower in China than the USA or Australia.

Goods and service differentiation:

● Operations managers can opt for a strategy of competing in markets based

on product differentiation
● From an operations perspective strategies will be assessed and it will be
determined which one can be undertaken with a cost leadership focus
● Standardisation involves producing goods or services that are homogeneous
or identical → mass producing eg. apple iphones
● Product differentiation strategies for goods:
○ Varying the actual product features
■ Basic variety or more complex variety
○ Varying the product quality
■ Low quality- very affordable
■ Increase quality- higher price
■ Higher quality may be sold under a different name to make it
seem that both products are different goods
○ Varying any augmented features (add ons)
■ Add-ons or additional benefits associated with the good
■ Not standard features
● Product differentiation strategies for services:
○ Varying the amount of time spent on a service (same day delivery)
○ Varying the level of expertise brought to a service (medical)
○ Developing self-service options (online banking)
○ Flexibility (own choice)
○ No fuss (returns policy, free postage)
○ Varying the quality of materials/ technology used in service delivery
● Cross branding or strategies alliances is an approach used to offer consumers
add on benefits (e.g. Woolworths - Caltex or Coles - Shell)

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 ● Apple differentiates their iPhones from its competitors by the product features
and quality. Product features include their operating system (iOS), touch
screen, app, iTunes and distinctive appearances.
● The focus on iTunes and apps has been key to Apple’s success in establishing
itself as a market leader for smartphones. However, when the iPhone 5 was
released in late 2012 it fell from the top position as highest selling smartphone,
superseded by Samsung due to lack of innovation and rising competition in
the smartphone market which are considered the main reasons for Apple’s
continuous loss of market share.
● Quality has been one of the key focuses of Apple’s as they market their
iPhones as a premium product and priced accordingly. Apple has promoted
their iPhone with a focus on innovation to differentiate it from competitors.
Quality issues in the production of the iPhone 5 (scratching of cases) led to
the model being discontinued in 2013 and replaced by the iPhone 5c which
used a low cost plastic casing. This represented a shift in Apple’s approach to
quality yet low sales of the model would suggest it was not a success.

1.2 Goods and/or services in different industries

● Manufacturing outputs are tangible - physically exist and can be touched

and felt. Therefore, the outputs can be stored before distributed to customers
● Services are not tangible. Services are more labour intensive and require a lot
of interaction with customers who consume the services
● The layout of operational processes will vary depending on whether goods
produced are standardised or not
● standardised goods - mass produced, usually on an assembly line, uniform in
quality and meet a predetermined level of quality. generally produced with a
production focus.
● customised goods - varied according to the needs of customers. produced
with a market focus rather than a production focus.
● The choice of the process selection is strategic as it requires a high degree of
cross-functional interaction and coordination
● This means all four key business functions need to work together to achieve
the operations outcome
● Vary between sectors depending on whether good is perishable or
non-perishable
● Apple's products are mostly standardised (mass produced)
● Customers can customise standardised goods through apps, music, etc
● Apple supplies goods and services – Apple Genius bars provide customised
after sales service
● Online booking system for Genius bar provides an element of self-service

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Perishable goods and operational process:

● Operational processes will need to integrate a number of factors

○ High standards of quality, safety and cleanliness at all stages of
production
○ Very short lead (production) time and distribution that is efficient
○ Suitable, robust packaging and storage processes throughout
production and distribution

Non-perishable goods and operational processes:

● Non-perishable goods are inherently more durable than perishable goods

and therefore the issues of quality and inventory management arise for the
operations function
● Operational processes will need to integrate a number of factors
○ Manage all aspects of quality in the process, from sourcing through to
production and distribution
○ Implement effective inventory management strategies and be highly
responsive to market demand in order to minimise waste

Intermediate goods:

● Sometimes goods may be processed more than once

● Completed goods may then become inputs into further processing

Services in different industries:

● Services can also be both standardised and customised (eg, accountants,

dentists, doctors and lawyers)

1.3 Interdependence with other key business functions

● Interdependence refers to the mutual dependence that the key business

functions have on one another
● The key business functions work best when they overlap and employees work
towards a common goal
● Each function area depends on the support of the other if it is to perform at
capacity
● Each section of the business may perform its specialised function extremely
competently, but if they together do not work as a ‘team’ and aim for the
same business goals, the business is not likely to achieve its objectives
● Interdependence occurs when each KBF area is committed to the same
business goals as the other areas and they each work in a coordinated and
collaborative way to achieve these goals

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 ● Operations is linked
○ finance funds the process
○ marketing advertise the good/ service produced
○ human resources create or run the production process

● Operations/marketing – market research from previous sales of ipad provided

Apple with benchmarks for ipad mini sales (how much to produce).
Operations provide marketing dept with costs for production of the iPhone 5c
so as to determine the price of the new iPhone
● Operations/ finance – Apple allocates a price per unit for production of
iPhones, which it pays outsourcing partners. Partners negotiate with Apple if
prices go up
● Operations/human resources – Apple tends to hire technically savvy staff
from product development to retail staff. Foxconn employed an extra 10,000
factory staff to meet production of the iPhone 5c in 2013

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2. Influences

influences
● globalisation, technology, quality expectations, cost-based competition,
government policies, legal regulation, environmental sustainability
● corporate social responsibility
○ the difference between legal compliance and ethical responsibility
○ environmental sustainability and social responsibility

2.1 Globalisation, technology, quality expectations, cost-based competition,

government policies, legal regulation, environmental sustainability

Globalisation:

● The removal of barriers of trade between nations.

● It allows for the transfer of capital, labour, intellectual capital and ideas,
financial resources and technology
● It is an opportunity: opens up markets, cheaper source of labour/ taxes,
global customers and supply chain
● It is a threat: increase competition, large manufactures that use same quality/
products to develop competitors products
● To meet the needs of global consumers, many large businesses are structuring
their production around global (transnational) production facilities
● Other processes that global businesses are involved in include:
○ Product design
○ Location of manufacturing facilities
○ Quality management
○ Logistics
○ Inventory management
● Apple uses the global web and sources production globally (Foxconn has
factories in China, Europe and South America, produces 40% of the world’s
electronics). Apple relies on partners in China to ensure production targets
and quality standards are met. Imitation and reverse engineering issues
(Samsung copying Apple technology).

Technology:

● Technology = design, construction and or application of innovative devices,

methods and machinery upon operation process
● Technology and operations management:
○ Technologies used in administration of operations include:
■ Gantt charts
■ Critical path analysis
■ Office technologies
■ Software

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 ○ Technologies used in operations processes include:
■ Large machines
■ Assembly lines
■ Robotics
■ CAD
■ CAM
● Apple was forced to continually patent/trademark innovations to compete.
Lack of innovation saw Samsung go into top position for smartphones.
Significant investments in R&D needed to be innovative and competitive.

Quality expectations:

● A specific reference to how well designed, made and functional goods are,
and the degree of competence with which services are organised and
delivered
● Consumers expect that goods/services are of a certain quality to meet their
needs - Quality and expectations cannot be separated
● Quality forms the foundations of operations processes
● The expectation that people have of businesses determine the way that
products are designed, created and delivered to customers
● Quality expectations in the level of excellence
● Quality expectation in operations management can be summarised into
several things that customers look for in products
● Goods:
○ Quality of design (accounted for needs, materials used, enviro friendly)
○ Fitness for purpose (does it do as it supposed to, easy to use)
○ Durability (how reliable + long lasting is it and how easy it can be fixed)
● Services:
○ Professionalism of the service provider (dialogue of staff, cleanliness)
○ Reliability of the service provider (efficiency, ability levels)
○ Level of customisation (how well the needs of customer are fulfilled)
● A lot of Apple’s success has been due to its reliable, durable, functionally
simple and clean designs. Premium price with a premium price. In 2013 the
iPhone 5c (low cost option using low cost materials along with the iPhone 5s
(premium quality) allowed them to cater for quality expectation in multiple
target markets.

Cost-based competition:

● Is derived from calculating the break-even point and then applying strategies
to create cost advantages over competitors
● In operations, there is a focus on reducing costs while maintaining profit levels
= cost leadership approach
● Moving production overseas can assist in achieving cost-leadership

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 ● Cost-based competition brings a cost leadership approach to the operations
function- focus on reducing costs to a minimum while maintaining profit
margins
● In applying a cost leadership approach to operations management costs
may be divided into those which are fixed and those which are variable
○ Fixed costs: not dependent on level of operating activity in a business.
must be paid regardless of what happens in the business - insurance
○ Variable costs: vary in direct relationship to the levels of operating
activity or production in a business - labour costs, costs of energy
● Standardised nature of production allows Apple to shift resources and adjust
fixed and variable costs to other products of volume or demand changes.

Government:

● Political decisions affect the business rules and regulations - which affect key
business functions
● Government policies change and influence operations
● Policies such as tax, materials, practices, WHS, training, public health,
environmental and trade practices all impact a business
● Government policies influence/lead to laws
● In March 2013 Apple were summoned to appear before a federal
parliamentary committee to explain their pricing policies and why Australia
were forced to pay more for some of their products compared to other
countries.

Legal regulations:

● The range of laws with which a business must comply are collectively called
compliance
● The regulations that shape business practices and procedures must be
followed at the risk of penalty
● Compliance costs are the expenses associated with meeting the
requirements of legal regulations
● Some regulations include:
○ Work Health and Safety:
■ Safe and healthy working conditions
■ Appropriate safety training/ protective equipment
■ Changed to WHS in 2012
○ Training and development:
■ Use and application of technology
○ Fair work and anti-discrimination laws:
■ Requiring that employees be treated with dignity and respect
○ Environmental protection:
■ In the use of minimising pollution, eliminating toxic residue and
waste

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 ○ Public health
■ fair trading rules that influence product safety standards and
fitness for purpose of products
● Apple has been repairing phones outside the warranty period for free since
the Australian Consumer Law (ACL) changed in 2011. Electronic goods should
be covered for a time that is reasonable – phones for the durations of their
contract.

Environmental sustainability:

● (ecological sustainability) to shape business operations around practices that

consume resources today without compromising access to those resources
for future generations
● Sustainable use of renewable resources
● Reduction in the use of non-renewable resources and the application of the
precautionary principle:
○ where environmental impacts are uncertain, a business undertakes
actions likely to cause the least environmental impact
● The carbon footprint refers to the amount of carbon produced and that
enters the environment from operations processes - reduce + minimise waste
● Apple’s website states: “The way products are manufactured, used and
recycled represents the largest percentage of Apple’s greenhouse emissions.
That’s why we design them for better environmental performance to try and
reduce our carbon footprint”

2.2 Corporate social responsibility

– The difference between legal compliance and ethical responsibility

– Environmental sustainability and social responsibility

Corporate social responsibility (CSR):

● Refers to open and accountable business actions based on respect for

people, community/society and the broader environment
● It involves businesses doing more than just complying with the laws and
regulations
● Formerly called the triple bottom line (financial profitability, social impact and
the environmental impact of a business)
● Operations management involves processes of transformation that draw from
a range of inputs to make final products.
● Principles of CSR require a business to manage effects of its activities on
society, community & environment, so that negative impacts are minimised
● The Apple website in the section of Apple’s supplier responsibility states
“workers everywhere should have the right to safe and ethical working

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 conditions. 6 areas of focus: accountability, empowering workers, labour and
human rights, health and safety, environment and audited results”.

The difference between legal compliance and ethical responsibility:

● Legal requirements require that a business follows the letter of the law
● Ethical responsibility is meeting all of their legal obligations and taking it further
by following the intention and ‘spirit of the law’
● Complying with legislation incurs compliance costs
● In demonstrating ethical responsibility, a business is demonstrating that it
values something more than just earning maximum profits because it is
allocating money over and above what it costs to comply with the law
● Sometimes businesses seek to avoid compliance by using outsourcing as a
business strategy
○ Onshore outsourcing: use of domestic businesses as the outsourcing
provider (in)
○ Offshore outsourcing: taking the activities to a provider in another
country (out)
● Ethical business enterprises recognise that variations in laws between
countries can undermine social and ethical responsibility
● Therefore they may seek independent sources, such as the ILO (International
labour conference) and lobby groups, to create ways of applying ethical
standards across the operations function
● Fiduciary is a person in a position of financial trust with respect to others’
money

Environmental sustainability and social responsibility:

● Both are features of an ethical approach to operations management

● Economic development must be accomplished sustainably - there must be a
balance between economic and environmental concern
● Environmental sustainability refers to the economic and environmental
performance of a business
● Social responsibility refers to a business’s management of the social, political
and human consequences of its actions
● A socially responsible business tries to achieve two goals simultaneously:
○ 1. expanding the business
○ 2. providing for the greater good of society.

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3. Operations processes

operations processes
● inputs
○ transformed resources (materials, information, customers)
○ transforming resources (human resources, facilities)

3.1 Inputs
– Transformed resources (materials, information, customers)
– Transforming resources (human resources, facilities)
● Operations processes are those processes involved directly with
transformation.
● The processes may be broadly classified according to their role in
transformation:
○ Inputs into transformation processes
○ The actual processes of transformation
○ Outputs of the transformation process

Inputs:

● Inputs are the resources used in the transformation (production) process

● Some inputs are already owned by the business, while others come from
suppliers

Common direct inputs

● 4 main inputs
○ Labour (mental and physical human effort - employment)
○ Energy: (form of electricity or fuels which can be converted into
heat, movement, light, sound or other forms of energy. Required
to bring inputs to business, to transform them and to distribute
them to consumer markets)
○ raw materials: (wood, unprocessed agricultural products,
natural resources in form of minerals, fossil fuels, water)
○ Machinery and technology (capital equipment): (enable the
transformation processes and are used to process raw materials,
design and make products)

Input classification:
● Inputs can be classified as transformed resources (resources changed or
converted in the operations process) and transforming resources (resources
that carry out the transformation process)

Transformed resources:

● Are considered the resources that give the operations process its purpose or
goal

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 ●They include: materials + intermediate goods, information (internal and
external & customers (needs, feedback)
● Materials
○ Are the basic elements used in the production process and consist of
two types: raw materials and intermediate goods - oil, wood or steel
○ Raw materials are unprocessed (natural or raw) states and usually
come from mines, forests, oceans or recycled waste
○ Materials can also refer to intermediate goods that are unfinished and
usually undergo further processing.
● Information
○ knowledge gained from research, investigation and instruction, which
results in increased understanding
○ Information can come from two sources: internal and external
○ Information acts as a transformed resource when it is used to inform
how inputs are used, where they are drawn from, which suppliers and
supplies are available and so on
○ External information
■ Market reports
■ Statistics from industry observers
■ Industry bodies
■ Australian Bureau of Statistics (ABS)
■ Media reports
■ External information is an excellent and generally independent
source for operations managers to use
○ Internal information
■ Comes from internal sources such as financial reports, quality
reports, and internal key performances indicators (KIPs - criteria)
eg. lead times, inventory turnover rates and production data
■ Acts as a transformed resource when it informs processes and
creates a process improvement
● Customers
○ To better understand the desire and preferences of customers,
businesses can implement a customer relationship management
(CRM) program
○ CRM refers to the systems that businesses use to maintain customer
contact
○ CRM software can be used to improve customer services, increase
competitiveness, and identify changes in consumer
tastes
Materials (Memory chips, speakers and touch screens), Information (development in
technology) and Customers (tastes and preferences)

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Transforming resources:

Are those inputs that carry out the transformation process

●
They enable the change and value adding to occur
●
They include: human resources (labour) and facilities (plant, factory or office)
●
Human resources
●
○ Employees are the single most important input into business as they
combine and coordinate other resources
○ Well designed human resources management policies such as good
job designs, extensive training programs, flexible work practices and
good communications can all assist to maximise performance and
enable the business’s objectives to be achieved
○ Training and development to improve them
● Facilities
○ Major decisions include the design layout of the facilities, the number
of facilities to be used, their location and capacity
○ Plant and machinery make a significant difference to a businesses
capacity to transform
Human resources (Apple Australia employed 2418 staff in 2013 while Foxconn
employs around 200,000) and facilities (17 final assembly plants around the world in
2012 with 200 suppliers)

3.2 Transformation processes

● transformation processes
○ the influence of volume, variety, variation in demand and visibility
(customer contact)
○ sequencing and scheduling – Gantt charts, critical path analysis
○ technology, task design and process layout
○ monitoring, control and improvement

The transformation process:

● A manufacturer transforms inputs into tangible products (goods that can be

touched)
● A service organisations transforms inputs into intangible products (services
that cannot be touched)
● The operations process of a manufacturer tends to be highly automated or
mechanised
● Manufacturers use machinery, robots and computers to transform inputs into
outputs
● Service providers rely heavily on interaction with the customer and their
processes tend to be more labour- intensive; that is, staff are crucial to the
operations

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The transformation processes and value adding:

● Transformation processes are also directly involved with value adding

● Costs are incurred when something created by manufacturing is processed or
when a service is created
● The addition of cost in transforming the inputs into a process, which will turn
them into outputs, adds value, thus cost is often related to value

The influences of volume, variety, variation in demand, and visibility (customer

contact)

● How much to make - what volume of input to draw in and to process

○ Volume refers to how much of a product is made
○ Volume flexibility is how quickly the transformation process can adjust
to increases or decreases in demand
○ This responsiveness to the required changes in volume is essential to
effectively managing lead times
■ Lead time: time taken for order to b fulfilled from moment made
○ If businesses cannot quickly adjust to changes in market demand, it
can over-produce, which may lead to wastage and increased
inventory costs
○ If backorders cannot be quickly fulfilled it may result in lost sales
○ The smartphone market is competitive and subject to rapid change in
product design and demand. Predicting volume required involves risks
and costs, such as over-ordering components

● How much variety - what range of outputs should be made in the process of
transformation
○ The mix of products made, or services delivered through the
transformation process, is sometimes called mix flexibility
○ Mix flexibility is known by consumers as product range or variety of
choice
○ The influence of variety on transformation processes is, the greater the
variety made, the more the operations process need to allow of
variation
○ iPads, iPods, iPhones, etc.

● How much variation in demand will there be - how can the operations
processes respond to changes in demand
○ Variety is the amount of a product desired by consumers
○ An increase in demand will require inputs from suppliers, human
resources, energy use and use of machinery and technology.
○ Increase in demand may be hard to meet if:
■ Suppliers cannot supply quickly enough
■ Labour is not flexible enough, skilled or available

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 ■ The adopted machinery cannot adjust to increased capacity
quickly, either because it is not designed to or because it breaks
down
■ Increased energy and power are not able to be readily sourced
○ A decrease in demand will also require operational flexibility as staff
may need to have their hours reduced, production may need to slow
to avoid inventory build up and suppliers may put on pressure due to
contractual agreements
○ All businesses will try to forecast demand so that adjustments can be
anticipated and a business can act accordingly
○ In 2012 the demand for the iPhone 5 exceeded the initial supply during
the launch. The ability to produce more in a short period of time
depended on the suppliers and their ability to adjust operations.

● How much customer contact (visibility) should there be and what, if any, role
should it have on transformation processes
○ Visibility is the nature and amount of customer contact (feedback)
○ Customer contact or feedback can directly affect transformation
processes
○ Direct contact
■ Customer feedback
■ Surveys
■ Interviews
■ Warranty claims
■ Letters
■ Wikis
■ Verbal contact
○ Indirect contact
■ Review of sales data- gives an indication of customer
preferences
■ Market share data- observation of peoples’ decision making
processes and customer reviews
The iPhone 4 has 2 versions with many problems in the 4 fixed in the 4S. This is due to
customer feedback.

Sequencing and scheduling tools

● Scheduling and sequencing tools are used to identify all steps in the
operations process and organise them into the most efficient order to
complete
● sequencing: the order in which activities in the operations process occur
● scheduling: the length of time activities take within the operations process
● Gantt charts

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 ○ Created by Henry Gantt in 1917
○ Outlines the activities that need to be performed, the order in which
they should be performed and how long each activity is expected to
take
○ Gantt charts are used for any process that has several steps and
involves a number of different activities that need to be performed
○ Advantages include:
■ They force the manager to plan the steps needed to complete
a task and to specify the time required for each task
■ They make it easy to monitor actual progress against planned
activities
● Critical path analysis (CPA)
○ a scheduling method or technique that shows what tasks need to be
done, how long each takes and the order necessary to complete
those tasks.
○ shows PERT - programme evaluation and review technique
○ The critical path is the shortest length of time it takes to complete all
tasks necessary to complete the process or project
○ Some tasks can be performed simultaneously
○ Because each activity on the schedule must be completed to make
the final product the critical path is the shortest path through the
process
○ Scheduling enables a manager to see what needs to be done and
allows the timing of tasks to be considered
○ With this information a business will be able to see in what order
activities need to be done and also be able to see which tasks can be
done at the same time
○ Apple has tracked an order-delivery sequence (critical path analysis)
of an iPad at 12 days, 18 hours and 8 minutes.

● Comparison
○ Gantt charts are useful in business production and operations activities
are not too complicated
○ In production operations where there are numerous activities- some
which cant start until the preceding operations and production
activities have been complete
○ The PERT network figure outlining the critical path is then used to
schedule and plan the operations and production
○ PERT allows operations and production management to obtain an
overview of the relationship between the activities in a complex
operation, evaluate progress and take any necessary corrective
action early on

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Technology

● The use of machinery and systems that enable businesses to undertake the
transformation process more effectively and efficiently
● In the manufacturing sector, technology can be used to speed up (shorten)
processes and enable fuller utilisation of raw materials
● This makes the operations processes more cost effective
● In the service sector, office and communications technology have enabled
whole markets to open up and allow for a small to medium business to trade
globally
● Office technology:
○ Computers, keyboards, CD ROM, USB, modem, mobile phones and
hands free, paging services, answering machines, personal organiser-
personal digital assistant, combined printer photocopier scanner and
facsimile machine, EFT and EFTPOS
● Technologies have created the opportunity to do more work in less time,
which means a greater range of tasks can be completed
● These technologies have also enabled office workers to work at a great
distance from the office
● Automation is used by Apple for placement of small components that are
difficult to perform and error prone, not to eliminate work that can be done
manually.
● Manufacturing technologies:
○ Key manufacturing technologies include robotics, computer aided
design and computer aided manufacturing
○ Robotics
■ Applies to highly specialised forms of technology, capable of
complex tasks
■ They can shape the transformation processes so that they are
very high quality, of a consistently high standard, efficient and
minimise waste
■ They allow for a degree of precision and accuracy generally
unmatched by human labour
■ High powered and highly automated form of technology that
can be used for tasks
■ They are very high cost items that are unaffordable for most
small to medium-scale manufactures
○ Computer-aided design (CAD)
■ a computerised design tool that allows businesses to create
product possibilities from a series of input parameters
■ A graphic design tool that generates 3-D diagrams from a set of
given input data
■ Can be viewed from multiple angels. This assists both the
designers and the end user to visualise what will be produced

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 ■From the design, materials usage can be calculated, as can
lead. This enables the costing of the project to be qualified
■ If the cost is too high or the design is too limited, the input
parameters can be altered
■ Given the speed of CAD software, it is easy to customise a series
of options that meets the client’s or customer’s needs
■ CAD software can also design the sequence of steps that would
need to be taken to create the desired product in the shortest
possible lead time using the least amount of materials
○ Computer-aided manufacturing (CAM)
■ Software that controls manufacturing process
■ used to allow the manufacturing process to become computer
controlled
■ The CAD software can be linked to the CAM software to allow
the instantaneous manufacturing of designs that are accepted
by clients
■ CAM can also be used more broadly to calculate how much of
each input resource would be required
■ The CAM software can store historic purchasing records to assist
with present purchasing decisions

Task design:

● Task design involves classifying job activities in ways that make it easy for an
employee to successfully perform and complete the task
● Task design overlaps the employment relations functions of job analysis, job
description, and person specification
● Task design is breaking down the work into a series of jobs in which each
contributes to the final goal q: “what needs to be done?”

Task design → job description → person specification → recruitment → selection

● Employees on an iPhone assembly line will require certain knowledge and

skills. Unskilled workers have specific functions with no shared tasks. They are
highly supervised and the speed of work is quick.
● Skills audit:
○ Sometimes, a business already has available staff however the staff
may not have the requisite skills
○ Under these circumstances the managers may wish to conduct a skills
audit - formal process used to determine the present level of skilling
(and any skill shortfalls) that need to be made up either through
recruitment or through training

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 ● different considerations when organising the physical layout of a workplace
● The method adopted by managers will depend on the type of manufacturing
operations or services performed by the business.
● The layout options are the:
○ Process layout
○ Product layout
○ Fixed position layout

Process layout

● Process layout is the arrangement of machines such that the machines and
equipment are group together by the function (or process) they perform
● The process layout is sometimes called the functional layout
● Typical of hospitals - maternity wars and intensive care units

● Process layout for intermittent production:

○ Process production deals with high-variety, low-volume production
○ Each product as a different sequence of production and the
production is intermittent, moving from one department to another
○ The necessary machinery is arranged according to this sequence
○ This approach also lends itself to “job lots”- that is, the manufacture of
parts in small quantities
○ Many small to medium-sized manufacturers employ this process
○ In service businesses, process layout is used to accommodate the
handling of customers with different needs
○ A feature of this approach is creation of work cells or work teams
○ Cellular or team-based work arrangements can be used to create
combinations of machinery and equipment to produce a single
product or a range of similar products

● Product layout:
○ Product production (mass production) is characterised by the
manufacturing of a high volume of constant quality goods
○ An assembly line is the most common layout for this type of production
because it aims to achieve the best possible combination of personnel
and machine use- “assembly line balance”
○ This type of layout is referred to as product layout where the
equipment arrangement related to the sequence of tasks performed
in manufacturing a product
○ Work stations are arranged to match the sequence of operations, as
work flows from station to station
○ Emphasis is placed on sequencing the flow from 1 work cell to another
○ Operations managers must set times for the assembly task, requires an
understanding of the nature of the task, tools and skills required

20
 ● Fixed position layout:
○ Project production deals with layout requirements for large-scale, bulky
activities - construction of bridges, ships, aircraft or buildings
○ With project production, it is more efficient to bring materials to the site;
workers and equipment come to the one work area
○ A fixed position layout is where a product remains in one location due
to its weight or bulk
● Office layout:
○ Typically an office space is organised around discrete workstations
○ Office layout is tailored to meet the needs of a business
○ Enables the work to be performed efficiently in a safe office
environment
○ Designed in a way that allows for smooth workflow; it should also
provide a space that enables employees to take a break from the
work environment if required - lunch room, games room
○ More effective workplace design: open spaces, flexible walls, open
windows, larger meeting areas or temporary hubs where people within
the organisation can meet and then go home to work remotely
● Apple suppliers use a product layout for their manufacturing. Machines and
equipment are arranged according to the sequence in which the iPhone is
assembled.

Monitoring

● All operations processes should be monitored for their effectiveness

● monitoring is the process of measuring actual performance against planned
performance
● involves the measuring of all aspects of operations, from supply chain
management and use of inputs, to transformation processes and outputs
● Collect information of the performance of operations including quality,
speed, dependability, flexibility, customisation and costs
● Monitoring is arranged around the needs to measure Key Performance
Indicators (KPI’s)- predetermined variables that are measured so appropriate
controls to operations processes can be made
● They include:
○ Lead times/ wait times/ idle times
○ Inventory turnover rates/ stock-out rates
○ Defect rates, repair rates and warranty claims
○ Process flow rates
○ Capacity and volume rates/ capacity utilisation rates
○ IT and maintenance costs
○ Direct and indirect costs

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 ● Monitoring of the KPIs gives operations managers a chance to measure how
the business is going and to assess performance against targeted levels of
performance

Controlling

The main transformational processes should be subject to control

●
This required effective monitoring and a focus on continuous improvements
●
Control occurs when the KPIs are assessed against predetermined targets
●
and corrective action is taken if required
● it compares what was intended to happen with what has actually occurred
● If there is a discrepancy between performance and goals, changes and
improvements can be made
● Regular performance review indicates were corrective action may need to
be taken
● Control requires operations managers to take corrective action - operations
manager will make changes to the transformation process
● Apple suppliers have a high level of supervision as many workers are unskilled.
Tasks need continual monitoring and control checks to improve time
management, improve quality, etc.
Improving
● Monitoring and control lead to improvements when there is a focus on quality
and standards
● refers to systematic reduction of inefficiencies and wastage, poor work
processes and the elimination of any bottlenecks
● A bottleneck is an aspect of the transformation process that slows down the
overall processing speed or creates an impediment leading to a backlog of
incompletely processed products.
● Analysing the operations process and determining what can be changes to
improve quality, speed, dependability, flexibility, customisation and cost
● Improvement typically is sought in the following areas
○ Time, through the minimisation of bottlenecks, assessment of necessity
in all transformation processes and wait times
○ Process flows and smoothness of transitions between transforming
processes
○ Quality, through the pursuit of quality goals, measurement of product
standards and quality and an assessment of returns and warranty
claims
○ Cost, through an assessment of per unit costs of production, a review
of expenses (fixed and variable) and an assessment of per unit costs of
delivery
○ Efficiency, through the reduction of waste and the creation of greater
outputs per unit inputs

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 ● Six sigma- process/ steps to try and ensure improvement continuously occurs
○ D - define process to be improved
○ M - measure variables and set new goals
○ A - analyse the cause of problems and alternatives
○ I - improve and implement changes
○ C - control
● Continuous improvement - this concept involves an ongoing commitment to
achieving perfection
● The iPhone 5 has a metal band, which is prone to scratching. Continuous
customer feedback about receiving new products with scratches have led to
tighter production standards and tougher quality tests and controls. Longer
lead times were a result.

3.3 Outputs

● outputs
○ customer service
○ Warranties

Outputs:

● end result of the business efforts - the g/s provided or delivered to customer
● Must always be responsive to customer demands
● operations manager must be able to link transformation processes to the
activities performed by other areas of the business
● Customer service refers to how well a business meets and exceeds the
expectations of customers in all aspects of its operations
● Both are considered outputs of the transformation process - imply that the
inputs and transformations processes are subject to scrutiny as the outputs will
be assessed by consumers

Customer service:

● Is an intangible output that requires customer contact

● Central to customer service is to make sure the right good or service is
delivered or provided at the right place at the right time
● To maintain existing customers and attract new ones, the business needs to
communicate with customers
● Customer service can no longer be regarded as merely explaining the refund
policy or providing a complaints section.
● Can increase consumer satisfaction and contribute to competitive
advantage

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Warranties:

● Warranties are businesses’ promises to correct any defects in their products or

in the service they deliver
● Warranty claims are made against goods that have defects arising from an
issue in transformation
● Operations managers need to trace the source of the fault in manufacturing
and rectifying it
● Warranty claims therefore lead the business to improve the transformation
process
● Apple suppliers have a high level of supervision as many workers are unskilled.
Tasks need continual monitoring and control checks to improve time
management, improve quality, etc.
● Under Australian law all businesses must ensure that the goods they sell:
○ Are suitable for the purpose of job they will be used for
○ Match the product description in any advertising or promotion
○ Are free from defects or faults

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4. Operations strategies

operations strategies
● performance objectives – quality, speed, dependability, flexibility,
customisation, cost
● new product or service design and development
● supply chain management – logistics, e-commerce, global sourcing
● outsourcing – advantages and disadvantages
● technology – leading edge, established
● inventory management – advantages and disadvantages of holding stock,
LIFO (last-in-first-out), FIFO (first-in-first-out), JIT (just-in-time)
● quality management
○ control
○ assurance
○ improvement
● overcoming resistance to change – financial costs, purchasing new
equipment, redundancy payments, retraining, reorganising plant layout, inertia
● global factors – global sourcing, economies of scale, scanning and learning,
research and development

4.1 Performance objectives – quality, speed, dependability, flexibility, customisation,

cost

● Goals that relate to particular aspects of the transformation processes

● Set so that the business becomes more efficient, productive and profitable

Quality:

● Often determined by consumer expectations, which are used to inform the

production standards
● ​Quality performance objectives include: quality of design, quality of
conformance, quality of service
● Eg. Mercedes Benz
● Quality of design - how well a product is made or a service is delivered
○ Design begins prior to the creation of a product
○ Determines the inputs and transformation processes
○ As high-quality inputs add cost, this will be reflected in a higher price
that some consumers may not want to pay

● Quality of conformance - focus on how well the product meets the standard
of a prescribed design with a certain specifications
○ The specifications do not have to require high-quality inputs
○ A measure of how consistently products achieve compliance
(conformance with) the desired specifications regardless of the
standard of specifications

25
 ● Quality of service - quality of design and quality of conformance can be
applied to the design and delivery of services
○ How reliable the service is
○ How well the service meets the specific needs of the client
○ How timely or responsive the service delivery is

● CEO Tim Cook stated “We have never been about selling the most. We’re
about selling the best experience and the happiest customers”. The
challenge is maintaining quality due to rising competition.

Speed:

● Speed refers to the time it takes for the production and the operations
processes to respond to changes in market demand
● Speed requires that changes in input levels and processing times can align
with consumer expectations
● Goals for speed include: reduce wait times, shorter lead times, faster
processing times - in order to satisfy customer demand as quickly as possible
● Requires a reduction in procedural and technical bottlenecks and smooth
internal communications

● The level of demand of a new iPhone cannot always be accurately

determined in advance, so once it is launched operations must quickly
respond to the new level of demand.

Dependability (reliability):

● dependability, as a performance objective, refers to how consistent and

reliable a business’s products are
● Dependability of goods refers to how long the products are useful before they
fail - e.g. measured by warranty claims
○ A highly durable product is a dependable product
○ Perishable products can also be dependable if they are of consistent
and predictable standard
● For services, dependability refers to consistency of service standards and
reliability
○ A measure for service dependability is the number of complaints
received; the fewer the complaints the more dependable the service

● Some features of the iPhone were criticised for lack of dependability (e.g.
maps). Apple needed to respond quickly to dependability issues in order to
maintain consumer confidence in the iPhone.

26
Flexibility (adaptability):

● How quickly operations processes can adjust to changes in the market

○ Changes in market demand cause a pressure on capacity
○ It can take a business months to create a new product or extend a
product line
○ Time and flexibility are related - the quicker the processing time the
greater the likelihood that processes can be adjusted quickly
● Is best achieved by
○ increasing the capacity of production
○ using plant and machinery better
○ buying new technologies
○ Changing the product design thus creating a broader variety
● With services, flexibility can be achieved through
○ Increasing the number of service providers
○ Increasing the provider’s skill level
○ Through improving the level of technology used when providing the
service
● Changing the design of the iPhone 5 to embrace colour and achieve lower
production costs was a strategy to increase its market share of low-cost
smartphones.

Customisation:

● Refers to creation of individualised products to meet the specific needs of the

customers
● Services are generally customised, aspects of services can be standardised -
fast-food sector
● A customer orientation to operations means that over time businesses would
push operations processes towards customisation
● The production of many of today’s goods and services are based on the
principle of mass customisation; a process that allows a standard,
mass-produced item to be personally modified to specific customer
requirements (vehicle, computer, miAdidas)
● Full customisation is rare and can only be offered when products (g/s) are
created after an order specifying the requirements is received
● The cost of customisation is higher than the cost of mass producing
standardised products
● Apple products can be customised through Apps, music, cases, etc.

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Cost:

● Minimising expenses - seek to become more efficient and allocate costs

better (use new technologies - inputs are better used/less wastage)
● Seek to reduce supplier costs, manage inventory better and find distribution
methods that are most cost and time effective
● All of the performance objectives (KPIs) will be allocated particular targets or
goals, and will be measured against the achievement of those targets
● Apple has made cost a performance objective by: outsourcing operations to
China, switching outsourcing partners to reduce production costs and
designing the iPhone 5c, with cheaper components such as plastic casing.

4.2 New product or service design and development

● The design and development, launch and sale of new products enables a
business to grow and to attain a competitive advantage

Consumer approach:

● The preferences and desires of consumers, as identified by market research,

determine which products are designed and developed

Changes and innovations in technology:

● Enables new, appealing products to be made because they use advanced

technologies

Factors:

● Supply chain management - a new product will draw from suppliers and
extend the range of supplies sought, the timing or the volume of supplies
● Quality- as demanded by customers
● Capacity- may increase the use or range of present resources, or require an
investment in new technology and machinery
● Cost- value is directly related to cost but also includes the customer’s
perception of product utility

Service design and development:

● Customised nature - taken the position of the customer/client as the starting

point in design
● Some do not require interaction with customers and thus tend to be largely
standardised in nature
● Need to consider explicit (application of time, expertise, skill, effort - tangible)
and implicit (feeling of being looked after - intangible) services and if any
goods will be required to deliver the service

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Services using a good:

● The delivery of a service may require goods - additional aspects must be

considered when designing and developing a service
● Goods can also help in the delivery of a service
● Surgeon: bandages, medical equipment
● Tutor: books, stationery

Development of the iPad mini launched in 2012.

○ Market research, product concept and development –

customers wanted a smaller screen.
○ Product and quality design – Apple engineers spent months
designing a smaller and lighter tablet.
○ Testing and assessment – assessing customer feedback,
improvements in future models.
○ Product refinement – testing iPad mini led to developments of
the iPad mini 2. Improved screen resolution and large storage
model were some ideas.
○ Product launch and distribution – in 2013 the launch of the iPad
mini2 was delayed to allow the launch of the iPhone 5 to stand
alone.

4.3 Supply chain management – logistics, e-commerce, global sourcing

● Acronym: LEGS (logistics, e-commerce, global sourcing

● Supply chain management involves integrating and managing the flow of
supplies throughout the inputs, transformation processes and outputs in order
to best meet the needs of customers
● Since the supply chain is influenced by what is sold and returned, supply
chain management involves sourcing (supply-side) and logistics & distribution
● Can be determined by looking at the final product and then tracing through
all the processes it went through to add value

Logistics:

● Is the distribution and also transportation, the use of storage, warehousing

and distribution centres, materials handling and packaging
● Distribution is a way of getting the good or service to the customer
○ Producer → wholesaler → retailer → consumer
○ Producer → agent → retailer → consumer
○ Producer → retailer → consumer
○ Producer → consumer
○ Producer → global agent → domestic offshore agent → retailer →
consumer

29
 ● Mode of transport selected is determined by the type of product to be
delivered, the cost involved, the capacity of the mode, as well as the
distance the product needs to travel to get to its destination
● Storage needs to be considered when there is a large amount of stock to be
held (including warehouses and distribution centres)
○ Location is important
○ J-I-T can reduce the need for storage
○ Warehousing can be expensive, but it can also save money if used well
(stock moves in and out quickly)
○ Distribution centres are used for long term storage, whereas
warehouses are used for short term storage
● Material handling is an important aspect of logistics - some products need
extra care during transportation and storage
● Packaging of products assists in protecting the product during the
transportation and storage stages of distribution
● These are government regulations surrounding materials handling and
packaging of dangerous goods (cleaning agents, chemicals)
● In 1998, to ensure new iMacs were available at Christmas, Steve Jobs paid
$50 million to buy up all the available holiday air freight space.

E-commerce:

● The buying and selling of goods and services via the internet
● Regarding supply chain management, some orders for suppliers may needs
to be placed online, and hence e-commerce plays an important part in
supply chain management
● E-procurement is using an online system to manage supplies. It allows suppliers
direct access to the business’s level of suppliers
● When stock falls to a predetermined point, the supplier will supply even
without a formal request from the buyer enabled by what is called
business-to-business arrangement (B2B)
● The use of e-commerce has impacted on the supply chain - businesses can
sell directly to consumers online where they pay via a credit card -
business-to-consumer (B2C)
● A business that sells directly to consumers online must be able to manage
supplies
● When apple.com was established, iPod sales took off. Apple realised it was
economical to ship them directly from Chinese factories to consumer’s doors.

30
Global sourcing:

● Sourcing is the purchasing of inputs for the transformation process (aka.

procurement)
● Need to consider - consumer demand, quality of inputs required, flexibility
and timeliness of supply, cost of suppliers
● Global sourcing is businesses purchasing supplies or services without being
constrained by location
● In supply chain management activity, global sourcing means buying or
sourcing from wherever the suppliers are that best meet the sourcing
requirements
● Benefits of global sourcing include: cost and expertise advantages, access to
new technologies and resources
● Challenges of global sourcing include: possible relocation of some parts of
operations, increased costs of logistics/ storage/ distribution and managing
regulatory conditions between countries
● Apple has a variety of suppliers from all around the world. E.g. Korea and
Taiwan (LCD screens, chipset, batteries and flash memory), Europe
(gyroscope, rotation of display), Inner Mongolia (rare earth minerals used in
glass polishing, colour screen, etc) and USA (software, audio chip, design and
development).

4.4 Outsourcing – advantages and disadvantages

● Outsourcing involves the use of external providers to perform business

activities

Outsourcing examples:

● Operations - manufacturing, designing

● Human resources - training and developing, counselling
● Administrative - data entry
● Information technology - desktop/ network outsourcing
● Finance and accounting outsourcing (FAO) - preparation of financial reports
● Knowledge process outsourcing (KAO) - marketing/ public relations
● Legal process outsourcing - legal support

Decisions:

● To outsource or not?
● Favourable location
● Which vendor to use
● Management of contract
● Length of contract
● KPI’s/ service objectives

31
 Options:

● Creation of shared service centres: in-house outsourcing option

● Fee for service arrangement: engaging a suppliers for a fixed service at a
predetermined price
● Joint ventures: provider is also free to outsource to other businesses in the
same industries
● Build-operate-transfer approach: offshore outsourcing, involves contracting
with external organisations (agreed KPIs)

Advantages Disadvantages

● Simplification ● Cost VS benefits

● Efficiency and cost savings ● Payback periods and costs
● Increased process capability ● Communication and language
● Increased accountability ● Loss of control of standard and information
● Access to skills and resources lacking security
within business ● Hierarchies
● Capacity to focus on core business or ● Organisational change and redesign
key competencies ● Loss of corporate memory and vulnerability
● Eliminate trade barriers ● Cost of adapting IT
● Expertise of outsourcing partner ● Information technology
● Trading in different time zones ● Increased transportation costs
● Improvements to in-house performance ● Loss of control
● Reduced costs of production: labour, ● Security risks
materials, facilities and energy ● Human resource problems/loss of jobs
● Access to expertise, Foxconn is the ● Language problems
largest outsourcer in the world of ● Dependant on other businesses
electronic products
● Greater flexibility
● Access to the best technology
● Able to focus on core business activity

4.5 Technology – leading edge, established

Leading edge technology:

● technology that is the most advanced or innovative at any point in time

● Best technology is used to distinguish operations processes
● Use to create products faster and to higher standards, with less waste
● Helps a business operate more effectively
● Created by innovative processes and thinking
Fingerprint sensor technology or face identification

32
Established technology:

● technology developed, widely used, simply accepted without question

● Includes the use of computers and various software packages in managing
business operations and functions
● Functionally sounds and help to establish basic standards for productivity and
speed
● Includes: barcoding + POS, robotics, CAD, CAM, CIM, IT, and FMS
● The iOS operating system that runs on the iPhone, iPod touch and iPad
devices

4.6 Inventory management – advantages and disadvantages of holding stock, LIFO

(last-in-first-out), FIFO (first-in-first-out), JIT (just-in-time)

● Inventory/stock refers to the amount of raw materials, work-in-progress and

finished goods that a business has on hand at any particular point in time
● Apple must order components in advance of new product launches.
Materials are acquired through a combination of purchase orders, supplier
contracts, open orders and prepaid orders
● High inventory turnover and the number of days in which inventory is
warehoused is very low.
● JIT is employed as once products are ordered online the product is shipped
directly from China.
● This reduces lead times, demands are met quickly, Apple avoids damage or
warehousing costs and it minimises the chance of stock becoming obsolete

Advantages of holding stock:

● Consumer demand can be met when there is stock available

● If a line runs out it can be replaced by an alternative- generating an income
● Reduces lead times between ordering and delivery
● Stock gives opportunity to generate immediate revenue
● Can be distributed to distribution centres - can be rapidly transported as
indicated by demand
● Allows the business to promote use of products in non-traditional or new
markets
● Older stock can be sold at a reduced price- encourage cash flow and sales
● Are an asset and reflected on the balance sheet
● Economies of scale in bulk purchasing

Disadvantages of holding stock:

● Costs - storage, spoilage, insurance, theft, handling 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

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LIFO:

● The method of pricing inventory assumes that the last goods purchased are
also the first goods sold and therefore the cost of each unit sold is the last
cost recorded
● method used to account for inventory that records ‘the most recently
produced items as sold first
● May overstate cost and understate gross profit
● May undervalued stocks on hand at the end of a period

FIFO:

● The method of pricing inventory assumes that the first goods purchased are
also the first goods sold and therefore the cost of each unit sold is the first
cost recorded
● an asset-management and valuation method in which assets produced or
acquired first are sold, used, or disposed of first
● Understate costs and overstate profit
● Stock at the end of a period may be overvalued

Just in time:

● Alternative method
● Is an inventory management approach which ensures that the exact
amount of material inputs will arrive only as they are needed in the
operations process
● Allows retailers to display a wider range of products as they need to store less
- can order based on customer demand
● Saves money as it is not spent on storage, costs due to obsolescence are
minimised
● Requires a responsive operations function with flexible processing
● Need to have a high ability to respond quickly to changes in market demand
and have reliable suppliers

4.7 Quality management

– Control
– Assurance
– Improvement

● Quality management refers to those processes that a business undertakes to

ensure consistency, reliability, safety and fitness of purpose of product

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Quality control: (QC) - inspection, measurement and intervention

● Involves the use of inspections at various points in the production process to

check for problems and defects
● Business needs to have a defined quality standard and parameters, as well
as tests that can test their standards
● Reactive approach - needs to be balanced with a proactive approach that
encourages continuous improvement
● Inspection and quality control:
○ Business may carry out inspections of all or part of the total volume
of production
○ Will be passed as okay or defective

Quality assurance - application of international quality standards

● Involves the use of a system to ensure the set standards are achieved in
production - done through taking a series of measurements standards
● Important aspects include:
○ The notion of ‘fitness for purpose’- how well a product does what it
is designed to do
○ The desire to achieve ‘right first time’ so that products do not need
to be reworked, which wastes time, energy and other resources
● Standards have been developed in response to globalisation’s impact e.g.
ISO 9000 (international organisations for standardisation)
● These standards are voluntary but enhance domestic and international
competitiveness

Quality improvement: - total quality management and continuous improvement.

● Continuous improvement is an ongoing commitment to improving a

business’s goods or service
● may be a monumental breakthrough achieved through innovation all at
once or it may occur gradually over time
● Basis - inclusion of staff into improvement processes (encouraged to
demonstrate initiative and suggest improvements)
● Achieved through six sigma- a quality management approach that seeks to
identify and remove the causes of problems in the operations processes,
achieving virtually defect-free production
● Total quality management is a concept that focuses on managing the total
business to deliver quality to customers
● Quality becomes both a commitment and the responsibility of every
employee of the business
● An ongoing and business-wide commitment to excellence developed by W.
Edwards Deming
● Objectives include: benchmarking, employee empowerment. Focus on the
customer and continuous improvement

35
 ● Apple requires a commitment to rigorous quality assurance. This ensures the
highest standards of total quality management. The ideal suppliers are those
who understand Apple’s culture, standards and expectations.
● Control checks – Apple employs a secure online database that has regularly
updated information on current and potential suppliers
● Control issues with iPhone5. At least 5 million were returned to Foxconn due to
an unnamed defect

4.8 Overcoming resistance to change – financial costs, purchasing new equipment,

redundancy payments, retraining, reorganising plant layout, inertia

Changes:

● Legislative and regulatory changes

● Changes in economic activity
● Social changes
● Technological changes and updates
● Most important step in overcoming resistance to change is understanding
why the change is resisted
● Resistance to change arises from financial and psychological/emotional
sources

Financial costs and resistance to change:

● Cost of purchasing new equipment:

○ Investment in place and equipment is expensive as it is classed as
capital cost, however the use of such equipment adds value in the
transformation process
○ Allows for some operational goals to be achieved e.g. improved
processing speeds + shorter lead times, higher quality of processing,
reduced waster, consistency in production
○ Decision whether to lease or buy must be made
● Cost of redundancies:
○ Redundancy is a loss of work arising from job skills that are no longer
required/relevant to the workplace (due to technological changes, an
organisational restructure or a merger or acquisition)
○ Redundancy payouts can be quite high as they depend on the
employee’s length of service, the level of pay the employee is at,
amount of unused leave, outstanding wages
● Cost of retraining employees:
○ The need to retrain employees arises with changes to business’ internal
hierarchy or the acquisition of technology
○ New skills need to be taught to efficiently complete tasks

36
 ● Costs associated with structural reorganisation of the business, including
changes to plant layout and equipment:
○ Plant = “facilities where the machinery is arranged”
○ plant layout is organised around the needs of the goods and the
transformation processes required to create these goods
○ Can be high costs associated with reorganising plants including:
■ Transporting, placing and powering the new equipment
■ Downtime as a result of transferring from old machinery to new
and when testing machinery its capacity
■ Loss of productivity in the ‘learning stage’ of implementing new
machinery/technology

Psychological resistance to change - inertia

● Inertia is a term that describes a psychological resistance to change

● Fear of the unknown or uncertainty can cause people to resist change
○ Threat of job loss
○ Loss of career opportunities
○ Intimidation (new staff, new technologies)

Managing change effectively:

● Identify the reasons for resistance to change

● Be proactive with change, not reactive - initiate it don’t wait for it to take over
● Integrate change slowly into the business
● Communicate the changes + reasons to staff throughout the change process
● Use change agents (someone who initiates and facilities change)- staff here
will assist in creating a culture of change and they will be more supportive
● Apply change models: Lewin’s unfreeze/change/refreeze or John Kotter’s
8-step model

Lewin’s model:

● Unfreezing - break down focus supporting existing system & prepare them for
change
● Change - new procedures and behaviours must be communicated and
implemented
● Refreeze - requires that the manager offers positive reinforcement to make
sure the change lasts

John Kotter’s model:

● Establish a sense of necessity

● For a guiding group
● Create a vision
● Communicate the vision
● Empower people to fulfil the vision

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 ● Recognise and reward achievements
● Consolidate improvements
● Institutionalise the changes
● Since Steve Jobs returned to Apple in the 80’s, executive staff have been
made redundant, new equipment has been procured, change agents have
been introduced and all current and new staff are continually retrained in
new technology.
● Supply chains are continually reorganised and any sign of inertia from
suppliers/staff is not tolerated.

4.9 Global factors – global sourcing, economies of scale, scanning and learning,
research and development

● In the modern day businesses operate globally, and this presents

opportunities for operations strategies to better meet business objectives, but
also creates new risks

Global sourcing:

● (broadly means) Businesses purchasing supplies or services without being

constrained by location
● (as an operations strategy) involves undertaking any business decision that
leads to achieving cost advantages
● ensures outsourcing decision is exposed to global market so decision is made
based on cost, efficiency, productivity, technical ability and an ability to
operate over more hours of the day
● Benefits for Apple include cost savings by outsourcing, proximity to suppliers
and overseas markets, and access to leading technologies. The majority of
components come from China and Mongolia (reduces transportations costs).
Negatives include worldwide economic conditions, fuel costs,
unemployment, etc.

Benefit:

● Cost advantages
● Access to new technologies
● Expertise and labour specialisation
● Operate over extended hours

Challenges:

● Relocation of parts of the business

● Increased cost of logistics
● Storage and distribution
● Different regulatory conditions
● Increased complexity

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Economies of scale:

● Refers to cost advantages gained by producing on a larger scale

● businesses can lower their per unit input costs
● As outputs rise operational costs decrease because of benefits such as
discounts for bulk buying and greater specialisation
● “savings resulting from mass production”
● Operations outcomes can therefore be improved if the business expands into
overseas markets
● The business will be producing more, allowing it to achieve economies of
scale
● Efficiencies in production by using skilled labour of mega factories such as
Foxconn. Having over 300 suppliers in China, Apple outsources large overseas
production to gain lower unit costs, economies of scale and quick lead times,
giving Apple a competitive advantage.

Scanning and learning:

● Refers to the systematic process of acquiring information about changes and

trends in external economic conditions and using them to make decisions
about operations
● Many leading edge technologies or business practices are developed in
other countries and therefore businesses need to be continually researching
ways to improve efficiency
● Kaizen is Japanese for improvement. It emphasises continuous improvement
in all areas of the business, from the way the CEO managers to the way
assembly line workers perform their jobs
● Due to the competitive nature of the smartphone market, competitors need
to scan and learn from competitors in the design, manufacturing and delivery
of smartphones in order to remain competitive. Issues include imitation and
protection of intellectual property

Research and development (R&D):

● Systematic work undertaken to improve or create new products and

production processes, or to extend product life cycles. It can be a costly
investment but is vital for business innovation
● helps businesses create leading edge technologies, innovative products and
solutions.
● Government often encourages R&D through taxation incentives and grants
● Apple's investment in R&D is a crucial strategy in maintaining a competitive
position in the smartphone market. Total R&D expenses in 2013 was $4.5
billion.

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