Strategic role of operations management
1. cost leadership
2. Good/Service differentiation
Strategic - long term
Interdependence with…
Marketing → producing based on market needs, marketing based on cost
Finance → cost of production, labour costs
Human Resources → staff needed for production, technology changing operations,
outsourcing specialists
Influences on Operations Management
- Globalisation - removal of barriers of trade between nations
o increasing integration between national economies. Leads to cheaper inputs and
easier economies of scale but also greater competition and more difficult SCM
- Technology - use of innovative devices, methods, and machinery in operations Processes.
o Improves Flexibility, Dependency, Quality, Cost, and Speed
- Quality expectations
o Goods: how well they are designed and made, and how functional they are.
o Services: overall level of competence with which they are organised and delivered.
- Cost-based competition → applying strategies to reduce costs and sell products at a
lower price than competitors (cost-leadership).
- Government policies - supporting, promoting and protecting businesses.
- legal regulation – legislations and regulations, which all businesses must comply with.
Compliance can increase operating costs.
Areas of regulation Legislation
Workplace safety Work Health and Safety Act 2011 (NSW)
Australian standards for Competition and Consumer Act 2010 (Cth)
quality and safety Fair Trading Act 1987 (NSW)
Hazardous materials Dangerous Goods (Road and Rail Transport) Act 2008 (NSW)
Environmental protection Federal Environment Protection and Biodiversity Act 1999
- Environmental Sustainability
o Promoting business practices that do not compromise access to resources for future
generations and can improve CSR.
- Corporate social responsibility
o ‘Triple bottom line’ - Financial profitability, Social and Environmental responsibility
o CSR creates a brand reputation and can reduce profits / increase costs.
o Legal compliance- must comply with all laws and regulations. Eg, maternity leave
o Ethical responsibility
Operations Processes - processes involved directly with transformation. There are 3 key
components...
Inputs
Transformed – will be converted. E.g. raw materials
Transforming – things that do the transforming. E.g. building, staff
Transformation process
- Variation in demand - Is it a seasonal product? How will demand vary (iced drinks
summer/winter)
- Visibility – how much customer contact should there be
- Variety - product range or variety of choice
- Volume – how much to make
Sequencing and scheduling
A Gantt chart and CPA
Technology, task design and process layout
- Technology - undertaking the transformation process more effectively and efficiently.
o Process technology - improvements in machines & equipment
o Product technology - innovations in the actual goods or services
- Leasing reduces upfront costs compared to buying and can have tax advantages as lease
payments are tax deductible
- CAD and CAM
- Task design - classifying job activities to make it easier for an employee to complete the
task.
- Process layout - arrangement of equipment, machinery and staff - impacts efficiency.
o Process layout - equipment grouped by function
o Office layout - designed to meet the needs of the business
o Product layout - assembly line production (sequential)
o Fixed position layout - workers and equipment come to the site – bulky goods
KPIs include (monitoring)
- Lead times - how much time “leading” time
- Wait times - when nothing is happening
- Idle times - at the end / not waiting on anyone - Inventory turnovers
- Defect rates
- Process flow rates
- Capacity and volume rates
- IT and maintenance costs
- Direct and indirect cost analysis
Control and improvement occur by assessing KPIs against targets and taking corrective
actions.
Improvement reduces inefficiencies, waste, poor processes, and bottlenecks
Outputs: Final good or service delivered to the customer.
Customer Service: How well a business meets/exceeds customer expectations. A review is
needed if defects, long lead times, returns, or warranty claims arise.
Warranties: A promise to fix defects within a specific time (e.g., replacement for faulty
products within 12 months).
Operations Strategies - Performance Objectives: Goals to improve efficiency, productivity,
and profitability.
Quality: Product meeting customer expectations; mistakes raise costs, quality inputs may
increase cost.
Speed: Time between a customer's request and delivery (lead time).
New Product/Service Design: Key strategy for business growth and competitive advantage,
driven by consumer demand or technological advances.
Supply Chain Management: Managing the flow of supplies through inputs, processes, and
outputs to meet customer needs.
Logistics:
Distribution: Delivering goods/services to customers.
Transportation: Physical movement of inventory.
Storage: Securing inventory until needed.
Warehousing: Storing, protecting, and distributing goods.
Materials handling: Meeting standards for moving goods.
E-commerce: Buying and selling via the internet.
E-procurement: Online systems managing supply and giving suppliers access to supply
levels.
Global Sourcing: Purchasing inputs globally, considering cost, demand, quality, flexibility, and
timeliness.
Technology: Tools used by businesses to produce goods/services.
Leading edge: Most advanced or innovative tech.
Established: Widely used, standard technology.
Inventory Management: Tracking raw materials, work in progress, and finished goods at any
point.
Keeping Stock:
Advantages: Stock available for sale.
Disadvantages: Costly, risk of unsold stock needing to be discounted.
LIFO (Last In, First Out): Assumes the last purchased goods are sold first, costing the most
recent price.
FIFO (First In, First Out): Assumes the first purchased goods are sold first, costing the earliest
price.
JIT (Just In Time): Inputs arrive exactly when needed for the operations process.
Quality Management: Ensuring consistent, reliable, and purpose-fit output.
Control: Inspections to meet quality standards; reactive corrective action.
Assurance: Systems ensuring standards, often complying with international standards for
competitiveness.
Improvement:
o Continuous Improvement: Ongoing efforts to enhance goods/services.
o Total Quality Management: Company-wide commitment to quality delivery.
Causes of Resistance to Change:
Financial Costs:
o Purchasing new equipment
o Redundancy payouts
o Retraining
o Structural reorganization costs (e.g., plant/equipment layout changes)
Inertia: Psychological resistance due to uncertainty and fear of the unknown.
How Change Helps a Business:
New equipment leads to:
o More consistent production
o Shorter lead times
o Reduced wastage and losses from equipment failure.
Retaining
→ staff become more skilled, thus quality of outputs improves
- Reorganising plant layout
→ initially expensive (transport costs etc), but aims to increase efficiency, thus reduce
expenses in the long term
Managing change effectively:
a manager’s responsibility is to plan, implement and evaluate change... This requires a
formulated approach:
Global Sourcing: Purchasing goods/services from worldwide suppliers.
Advantages: Cost benefits, competition stimulation, increased variety.
Disadvantages: Longer lead times, unmet quality/CSR expectations, communication
challenges, complex supply chains.
Economies of Scale: Cost savings by producing on a larger scale, lowering costs per unit.
Scanning and Learning: Observing global practices and learning from the best, such as
insights gained from conferences.
Research and Development: Activities focused on innovating and introducing new
products/services.
Ensures competitive advantage.
Necessary due to technological advancements.
Promotes innovation.
