operations management unit 3, area of study 3. key knowledge the operations function and its...

OPERATIONS MANAGEMENT UNIT 3, AREA OF STUDY 3

KEY KNOWLEDGE the operations function and its relationship to business objectives and business strategy; characteristics of operations management within large-scale manufacturing and service organisations; key elements of an operations system (inputs, processes and outputs) in different types of large-scale organisations; productivity and business competitiveness, their importance for and impact on the operations system; strategies adopted to optimise operations, including: facilities design and layout materials management management of quality extent of the use of technology; ethical and socially responsible management of an operations system. accurately use relevant management terms; research aspects of operations management using print and online sources; analyse business information and data; apply operations management knowledge and concepts to practical and/or simulated situations; discuss key aspects of operations management; analyse strategies that arise through practices within operations management. KEY SKILLS

KEY TERMS TO ADD TO YOUR DEFINITIONSSO FAR! Assembly line Automation Batch production Cell production Closed factory Competitive advantage Competitive scope Computer Aided Design Customisation Environmental management system Facility layout Fixed position layout Functional layout Inputs Inventory Inventory control Just In Time Lean manufacturing Mass production Multi-skilling Office layout Operations Operations management Operations manager Outputs Proactive Process layout Product layout Production process Productivity Quality Quality assurance Quality circle Retail layout Robotics Transformation Virtual factory

THE OPERATIONS FUNCTION AND ITS RELATIONSHIP TO BUSINESS OBJECTIVES AND BUSINESS STRATEGY

WHAT IS OPERATIONS MANAGEMENT?

INPUTS PROCESSES / TRANSFORMATION OUTPUTS Procuring materials, labour, technology, finance etc. Final good or service for sale ROTE LEARN ALERT: Operations refers to the actual work done to transform inputs into outputs and delivering the goods and / or services for sale. Operations management is the management of resources to achieve the efficient output of goods and services. Utilising the inputs in the production process

ACTIVITY TIME! BAKING BREAD AT BENNYS BAKERY What are the inputs required to bake bread? What are the processes required to bake bread? What is the output?

OPERATIONS MANAGEMENT NOTE TAKING EXERCISE Read through pp.131-133. Definition of 'operations management' The role of the operations manager. What do operations managers do? Why is the operations management function important? How does it assist the organisation to achieve its objectives?

WHAT IS AN OPERATIONS MANAGER? ROTE LEARN ALERT: An operations manager is responsible for the management of resources, the transformation process and the delivery of finished products. The operations manager aims to achieve the efficient and effective use of resources to create the best-quality products at the lowest possible price.

THE ROLE OF THE OPERATIONS MANAGER Levels of planning and decision making in operations management Somers, Cain and Jeffery (2011) p.133

OPERATIONS MGMT: THE HEART OF ALL ORGANISATIONS Objective of all organisations To produce their product (the good or service they sell) as efficiently as possible Operations management The strategy that organisations use to achieve this objective Operations (producing the actual good or service for sale) is the core function or purpose of an organisation. It is what generates the revenue! How operations management is designed and executed affects the: quality of the goods or services, the cost of production, and the capacity of the production process (the number of goods or services) that can be supplied to the market.

LINK BETWEEN OPS MAN & BUS. OBJECTIVES & STRATEGY Operations management decision Impact on operations management Impact on achievement of business objectives Change to a cheaper flour supplier. Reduce the cost of an input to production - flour Increase profit because costs have decreased. Undertake regular quality control tests on jam doughnuts. Ensures that each batch of jam doughnuts includes the right amount of jam. Increase profit because sales will increase if the quality of the product is high and consistent between batches. Purchase a bigger oven.Increase capacity of the bakery and decrease overall production time. More can be produced in less time = Can cut bakers shifts. Increase profit because costs have decreased. Regularly service and maintain ovens Minimise time lost due to machine break down. Increase productivity because there is no lost time. Minimise human labour by investing in machinery to knead and mix ingredients. Reduce the number of bakers required. Reduce the cost of an input to production labour. Increase profit because costs have decreased.

Operations management influences the quality, cost availability of goods and services and therefore profit generated by the company. Therefore, it influences the achievement of other business objectives, including the ability of the LSO to increase market share, profits, increase quality & returns to investors. Predict what would happen to bread prices at Bennys Bakery if Benny was able to change suppliers and decrease the cost of flour from 1.00 p/kg to 50 cents p/kg? Predict what would happen to bread prices at Bennys Bakery if Benny purchased a larger oven? How does the operations management function assist the business to achieve its objectives?

PRACTICE SAC QUESTION CASE STUDY INFORMATION Bennys Bakery is a Melbourne based large scale organisation with stores in all major shopping centres in Victoria. It produces baked goods including loaves of bread, bread sticks, bread rolls, doughnuts, sweet scrolls, savoury scrolls, meat pies and scones. According to the founder, Bennys Bakery has a passion for fresh, delightful bread. The company has the following overall objectives: To provide customers with quality baked goods. To sell products at an affordable price. To increase sales and market share. Analyse the relationship between the operations function and the achievement of business objectives, using Bennys Bakery as an example.

SUGGESTED SOLUTION The operations function transforms inputs into outputs for sale through a range of processes. It is the core function or purpose of an organisation because it is what generates the revenue for the business. Bennys Bakery has three objectives; to provide quality goods at an affordable price and in doing so, increase sales and market share. It is the operations function at Bennys Bakery that will determine whether or not these objectives are achieved. For example, putting in place a quality management strategy like quality control will help Benny to monitor the quality of his goods. This involves setting quality standards and checking the quality of his products against these standards. Thus, Benny can determine whether he is producing quality products and identify necessary changes to the process. Benny could put in place strategies to reduce waste in the production process. For example, maximise the number of scones cut out of a batch. This will assist Benny to minimise his costs and therefore his prices. By lowering his product prices, Benny will be able to increase his sales and therefore his market share. In summary, the way that the operations function is designed and executed affects the quality of the goods and the cost of production, which has a direct impact on the achievement of Bennys organisational objectives.

CHARACTERISTICS OF OPERATIONS MANAGEMENT WITHIN LARGE-SCALE MANUFACTURING AND SERVICE ORGANISATIONS

THINK-PAIR-SHARE - 2014 Tangible (physical) product (good) Intangible (non-physical) product (service) MilkGardening ComputerDefence MagazineMedical appointment PhoneMechanical check up / service TableCleaner LunchboxGym

THINK-PAIR-SHARE - 2013 Tangible (physical) product (good) Intangible (non-physical) product (service) ShampooDentist ApplesEducation Fairy flossPublic transport LaptopMassage VacuumCleaner

THINK-PAIR-SHARE - 2012 Tangible (physical) product (good) Intangible (non-physical) product (service) PaperMedical check-up Mars barLegal advice CokeEducation DressTransport FruitCleaning services

ACTIVITY TIME!

KEY POINT! The nature of operations varies. Different products utilise different production processes. The nature and type of operations used to produce goods are different to the process used to produce services.

Somers, Cain and Jeffery (2011) p.136 Its important to know the differences between goods and services with respect to the operations management function. OPERATIONS MANAGEMENT: KEY DIFFERENCES BETWEEN GOODS & SERVICES

KEY ELEMENTS OF AN OPERATIONS SYSTEM IN DIFFERENT TYPES OF LSO INPUTS PROCESSES / TRANSFORMATION OUTPUTS

Inputs Raw materials and components Plant and capital equipment TechnologyLabour Information and knowledge Time Capital. Money Inputs are the resources used in the process of production. In order to be competitive, LSO s attempt to procure high quality inputs for the lowest possible price.

TRANSFORMATION The conversion of inputs (resources) into outputs (goods and services). The conversion process used to produce goods is different to the process for services. LSOs that produce goods are likely to use a process that is highly mechanised, utilises sophisticated machinery where it can instead of using human labour. LSOs that produce services rely much more heavily on the interaction between staff members and the customer. For example, financial advice provided at a bank. In order to stay competitive, LSO s must ensure their transformation processes are efficient. An efficient production process is one where there is little waste.

OUTPUTS The end result of the organisations efforts. Either a good or a service. Good purchased: A good changes hands from the seller to the buyer. Service purchased: The seller provides her or her labour to the buyer. In order to stay competitive, LSO s must produce what the market wants and remain responsive to changes in custmer preferences.

ACTIVITY TIME! VIRTUAL OPS SYSTEMS TOUR Visit the website http://manufacturing.stanford.edu. Select two products to explore and summarise the operations process in table.

PRODUCTIVITY AND BUSINESS COMPETITIVENESS, THEIR IMPORTANCE FOR AND IMPACT ON THE OPERATIONS SYSTEM

PRODUCTIVITY & BUSINESS COMPETITIVENESS Productivity is a measure of efficiency. It is the amount of output produced compared to the inputs required. Productivity can be measured using the formula: Businesses aim to maximise their productivity. In other words, businesses aim to get as much they can out of the inputs they use in the production process.

PRODUCTIVITY & BUSINESS COMPETITIVENESS The more productive an organisation becomes, the more competitive it becomes. The flour, meat and pastry costs $5. Therefore, in this scenario each pie cost $2.50 to make. The flour, meat and pastry costs the same amount. Therefore, in this scenario each pie cost $1 to make. A business has a competitive advantage when it can produce goods better than its competitors. Say the business above improved its productivity by upgrading its cutting equipment and reducing waste. This improvement more than halved the production cost per pie.

ACTIVITY TIME!

WHAT FACTORS DETERMINE BUSINESS PRODUCTIVITY? The use of technology Research and development The quality and maintenance of equipment and facilities The types of tasks and the methods used The layout of facilities Communication processes use of participative management style! Workplace safety The level of training of staff Communication in the workplace. Getting employees to buy in - Share ownership schemes

OPTIMISING OPERATIONS MANAGEMENT The operations manager aims to extract maximum productivity and levels of quality from the production process whilst also achieving ethical and social responsibility objectives. There are four strategies they use to achieve this: 1.Facilites design and layout. 2.Materials management. 3.Management of quality. 4.The extent of the use of technology.

FACILITIES DESIGN AND LAYOUT (FLOOR PLAN) Consider the following scenarios: An office worker needs to walk to the next floor up to collect paper from the printer. A hamburger restaurant locates the sliced tomato on the opposite end of the kitchen to the chopped lettuce and sliced cheese. The local independent supermarket places the milk and bread next to one another at the front of the store as you walk in. Consider the following scenarios: An office worker needs to walk to the next floor up to collect paper from the printer. A hamburger restaurant locates the sliced tomato on the opposite end of the kitchen to the chopped lettuce and sliced cheese. The local independent supermarket places the milk and bread next to one another at the front of the store as you walk in. KEY IDEA: The physical layout of plant and equipment impacts the efficiency of the organisations operations. Consider how the layouts described affect the operation of the system and therefore affect the achievement of the organisations objectives.

CHOOSING A LAYOUT STRATEGY A number of factors influence the location and the layout strategy, including: The product being manufactured / the service being produced. The process to be undertaken. The volume of output required to be produced or services provided. Actual amount of physical pace required and the location. Occupation health and safety standards NOTE: Operations facilities are expensive and are constructed to be permanent, so questions of design and layout are critical to operational efficiency and to longer- term business success. Facilities are not easily changed.

THINGS TO THINK ABOUT WHEN MAKING FACILITIES DESIGN AND LAYOUT DECISIONS Occupational health and safety laws must be adhered to. People need an adequate amount of space to work in. People need to be able to communicate with their colleagues easily. Equipment needs to be located so that it is easily accessible. Equipment needs to be serviced regularly to avoid breakdown. Inputs must be located so that they can be accessed & used when needed. Ouputs need to be stored where they can be packed & delivered safely. Ergonomics must be considered: furniture, equipment, high of workbenches, protective clothing, lighting, temperature. Facilities design and layout impacts on the health, safety & happiness of employees and it therefore affects their productivity.

LAYOUT STRATEGIES FIXED POSITION / PROJECT PRODUCT MASS CUSTOMISATION PROCESS / FUNCTIONAL OFFICE LAYOUTRETAIL LAYOUT VIRTUAL FACTORY

FIXED-POSITION (PROJECT) LAYOUT Features The product remains in one position whilst being built. The workers and equipment come to the product. Each individual product is finished before the next one is started. Application: For large and bulky items that cannot be moved. Used to produce a customised product. Advantage: Flexible build to specifications. Disadvantage: Expensive and time consuming high labour input Storing materials can be difficult. Examples: Bridges, ships, aircraft, buildings. Aircraft assembly: http://www.youtube.com/watch?v=H_oIh7qxCbQhttp://www.youtube.com/watch?v=H_oIh7qxCbQ

PRODUCT LAYOUT Features Products move along a conveyor belt. Standardised inputs are put through standard processes to product the required output. Involves automation and high levels of technology. Application Used when one standardised product is being produced in large volumes. Advantages Low per unit cost Consistency in output rate and quality. Disadvantages Expensive to set up initially capital-intensive high tech. Employees can become unmotivated through repetitive tasks. No allowance for any customisation. The assembly lines stops if there is an issue in one section. Examples: Yakult, chocolate Fridge assembly: http://www.youtube.com/watch?v=f3G3Vm60nqEhttp://www.youtube.com/watch?v=f3G3Vm60nqE

MASS CUSTOMISATION Features Uses an assembly line. Employs multi-skilled workforce. Inputs are added to create variations of the same product. Involves automation and high levels of technology. Application Used when one product is being produced in large volumes but the product can be customised in some way. Advantages Low per unit cost. Consistency in output rate and quality. Employees get some variety. Allows for customisation. Disadvantages Expensive to set up initially capital-intensive high tech. The assembly lines stops if there is an issue in one section. Examples: Automotive manufacturing, computer manufacturing

PROCESS / FUNCTIONAL LAYOUT Features Equipment and workstations are grouped together according to their function (the task they carry out). Application Where there are a variety of products or variations on a single product generally only produced in small amounts. Suits batch production, where groups of different products move through the system one at a time. Advantages: Allows for variation in volume produced. Allows for specification good or service to be tailored. Disadvantage: Can become monotonous for staff involved in only one stage icing the doughnuts! Examples: Medical care, bakery

VIRTUAL FACTORY Features Operations is outsourced. Application Where some or all of the operations system can be done more efficiently somewhere else. Advantages: Reduced fixed costs from plant and equipment. Ability to take advantage of the cost savings offered in low-wage countries. Disadvantage: Language and cultural barriers. High set-up costs. Difficult to change suppliers. Possibility of political and economic disruptions in developing countries. Ethics and social responsibility issues. Examples: Clothing, IT, customer service.

RETAIL LAYOUT Features Customers are guided through different sections. It can be difficult for customers to get what they want because of barriers established to showcase different goods. Locate high-impulse or high-margin products in prominent locations. Locate high-draw items at opposite ends of the store Locate high power (high-priority) items at intervals throughout the store. Application Used in retail stores where exposure to product is the critical consideration. Advantages: Customers are exposed to products they did not intend to purchase when they walked into the store = potential for further sales. Disadvantage: Customers can get frustrated because they cant find what they need efficiently. Examples: Supermarkets and variety stores (Kmart, BigW)

OFFICE LAYOUT Features Requires efficient movement of information and people and proximity to resources (photocopiers, computers etc.) May co-locate colleagues who work in same department together. Privacy is often a key consideration. Should include space for employees to take their breaks. Personal storage space and meeting rooms. May be open plan or in pods. Employees need to develop a code of conduct cubicle etiquette: minimum noise, tidy work area etc. Application Used in office buildings, service organisations. Advantages: Employees have the space and privacy they need to work individually as well as proximity to colleagues which enables them to work efficiently with others in their team. Disadvantage: Innovations are removing the traditional office layout. Some employees claim that decreased privacy, uncertainty and distance from colleagues and resources actually decreases their productivity. Examples: Bank, Law Firm, School staff room.

LEAN MANUFACTURING A philosophy not a facilities option. Its about streamlining production and minimising the use of resources. Its about removing activities and processes that dont add value to the product. It involves. 1.Identify what the customers want (quality, customer service, variety etc.) 2.Identify all steps taken to make the product. 3.Make all processes flow. 4.Remove processes that dont produce what the customer wants. 5.Ensure that the process only produces the quantity demanded by the customer. 6.Identify and remove waste wherever it exists. Examples: Reducing unnecessary movement of workers, machines and products. Minimising storage required. Reducing defects in products and equipment breakdown. Reducing waste. Reducing the time workers wait for work to come through Shortening the time taken to switch equipment and people to produce new products.

THE USE OF TECHNOLOGY KEY IDEA: The acquisition of up-to-date technology is one strategy which operations managers use to optimise operations.

ACTIVITY TIME! USE OF TECH. BRAINSTORM How does the use of technology change operations in service and manufacturing organisations? Brainstorm technology used in manufacturing and service organisations.

HOW DOES TECHNOLOGY IMPACT OPERATIONS? in human labour = in labour costs and in human error technology = in precision; in quality in transformation time; in efficiency Read top of p.128

OFFICE TECHNOLOGY Refer to office technology p.128

ACTIVITY TIME! TIME TRAVEL. Lets consider how some service industries might have operated without modern technology.

CUSTOMER RELATIONSHIP MANAGEMENT (CRM) CRM stores information about existing and potential customers. Information can be entered and retrieved by employees all over the business. This means that information is easily accessible, it is not duplicated, and therefore it is accurate.

MANUFACTURING TECHNOLOGY Robotics: Highly specialised forms of technology capable of complex tasks. http://www.youtube.com/watch?v=1X0-58OuFhE Computer aided design (CAD): Software that can creation and modify product designs. http://www.youtube.com/watch?v=Fyd8ld2s76A Computer aided manufacturing (CAM): Software that controls manufacturing processes remotely. Computer integrated manufacturing (CIM): A method of manufacturing in which the entire production process is controlled by a computer.

ACTIVITY TIME! BRW USE OF TECHNOLOGY IN MANUFACTURING (4 minutes) http://tv.brw.com.au/video/8395?play=1#7425 FUTURE USE OF TECHNOLOGY IN MANUFACTURING (9:42) minutes) http://www.youtube.com/watch?v=hmxjLpu2BvY

THE USE OF TECHNOLOGY: ETHICS AND SOCIAL RESPONSIBILITY CONSIDERATIONS Technology can replace some peoples jobs. However, it can also create new jobs! How do we transition to a technology intensive process in an ethical and socially responsible manner? Assist redundant employees to find new jobs. Try and re-deploy redundant employees into other areas of the business. Train employees to use and maintain the new technology. Multi-skill employees so they can do various jobs.

MATERIALS MANAGEMENT KEY IDEA: Its about managing the use, storage and delivery of materials to ensure the right amount of inputs are available when required.

MATERIALS AND SUPPLY CHAIN MANAGEMENT: ELEMENTS INVENTORY MANAGEMENT PROCURMENT OF INPUTS TRANSPORT AND DISTRIBUTION (LOGISTICS) Supply chain management definition: The process of integrating and planning, implementing and controlling the system of organisations, people, technology, activities, information and resources that transforms inputs into finished outputs.

MATERIALS HANDLING AT TOYOTA! https://www.youtube.com/watch?v=Ohu9WH3a5FM

MATERIALS PLANNING 1.Develop a production plan: Outline the activities necessary to combine resources (inputs) to create goods or services (outputs). 2.Develop a master production schedule (MPS): Provide details of what is to be produced and when. 3.Develop a materials requirements plan (MRS): Create a list of all the materials required to meet the orders outlined in the MPS. Consider: Supplier lead times Exact number of inputs required. Stock already on hand purchasing procedures (bulk, in advance?)

MATERIALS MANAGEMENT APPROACHES Approaches Bar codingStock taking Materials handling Master production scheduling Materials requirements planning Just-in-time delivery Supply chain management

THE MANAGEMENT OF QUALITY Consumers look for high quality at the lowest price. High quality producers gain a competitive advantage over their rivals. Quality management programs aim to: Minimise waste Minimise defects rates Produce consistently high quality goods and services Achieve quality standards or benchmarks

THE MANAGEMENT OF QUALITY BRAINSTORM What is quality? What are the features of a quality product? What strategies can you put in place to maintain the quality of your product?

QUALITY WHAT IS IT? Quality is the degree of excellence of goods or services and their fitness for a stated purpose. Quality products Reliable Durable Consistent Conform to established standards Easy to use Well designed Delivered on time Include after sales service Of an agreeable appearance

ACTIVITY TIME! List and explain the characteristics you would look for in each of the following products/services for it to be judged as quality: An education A car A hamburger A business suit A bathroom renovation A taxi ride A household appliance A mobile phone service

Quality management Quality control Quality assurance Total quality management Quality management in LSOs may take the form of one or a combination of the following approaches.

QUALITY CONTROL Physical checks at different stages of the production process. Aim is to ensure products and services meet established standards Defective products are rejected and may be sold as seconds. Its a reactive process, meaning it aims to detect defects after they have happened. Ops. Manager decides whether production must be stopped. Sometimes a product recall may be necessary. What quality control measures did Yakult have in place?

QUALITY CONTROL STAGES

QUALITY ASSURANCE Aim is to build quality into work processes. Its a proactive process, meaning it aims to avoid errors before they occur. Organisations may enlist the help of an external body to certify their processes against national or international quality standards. What are the benefits of external quality certification? http://www.saiglobal.com/Assurance/quality-business- management/Benefits_of_ISO9001.htm http://www.saiglobal.com/assurance/quality-business- management/ ISO International Organisation for Standardisation

BENEFITS OF EXTERNAL CERTIFICATION Help reduce costs by identifying areas of waste or duplication. By having the entire process laid out and viewed regularly, it provides insight into where efficiencies may be gained. The FiveTick StandardsMark logo clearly lets customers know that you are certified with the market leading certification body in Australia. Improved product or service quality and consistency so your customers know what they are getting time and time again. Exporting into global markets customers may demand an Internationally recognised certification. Contracts and tenders, especially in government, may request ISO 9001 certification as a pre-requisite. Competitive edge over other companies that dont have a system in place. Documenting processes and locking in system changes. Can help ensure that your business can continue to operate effectively, even if staff leave. Staff can follow the systems and procedures giving you more time to deal with more critical business issues. Locking in best practice and using this as a benchmark to further improve. Reviewing and documenting issues and potential issues, helps identify key trends and eliminate problems. You can then base any actions on real data.

QUALITY CERTIFICATION PROCESSES

AREAS OF CERTIFICATION Standards cover aspects such as: Production process Training of staff Documentation of processes Controls Corrective Action Auditing of processes What does the globe have to do with quality assurance certification?

KEY QUESTION What is the difference between quality control (QC) and quality assurance (QA)?

KAIZEN! (CONTINUOUS IMPROVEMENT) = TQM William Edwards Deming, an American statistician first developed TQM in Japan after WWII. He was sent to Japan to assist with the reconstruction. His idea was that if companys tried to build a product the right way the first time, organisations would avoid the expense of inspection and the waste of rejected products. The Japanese adopted Demings philosophy and developed them further.

TOTAL QUALITY MANAGEMENT (TQM) A holistic approach to quality. Organisation wide commitment to excellence. All members of an organisation participate in ongoing improvement. Quality is a commitment and a responsibility of everyone. Aim is to improve performance at every level in every aspect. Core TQM concepts: 1.Continuous process improvement 2.Customer focus 3.Defect prevention 4.Universal responsibility Core TQM concepts: 1.Continuous process improvement 2.Customer focus 3.Defect prevention 4.Universal responsibility See p.125 of your text book

TQM CONCEPTEXPLANATION CONTINUOUS IMPROVEMENT Empower employees by placing them into a quality circle, a work team. Quality circles are responsible for analysing problems with their part of the overall business and developing solutions to fix it. In this way, employees are constantly striving for improvement. CUSTOMER FOCUS Find out what the customer (both internal and external)needs and wants and ensure the process provides it DEFECT PREVENTION Tries to prevent defects from occurring by creating reliable production process. UNIVERSAL RESPONSIBILITY No one person is responsible for quality. Everyone plays a part and should seek new ways to improve their product or service.

KEY QUESTION Why do you think quality circles are so successful in identifying strategies for quality improvement?

ETHICS AND SOCIAL RESPONSIBILITY Brainstorm Refer to the ethics and social responsibility chapter (chapter 12) focussing on operations management Environmental management system (EMS) Triple-bottom line reporting Social responsibility report

operations management unit 3, area of study 3. key knowledge the operations function and its...

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