Operations- Notes.docx

OPERATIONS

CHAPTER 1 – ROLE OF OPERATIONS MANAGEMENT

1.2 Introduction Operations is the business function, which take inputs or raw materials and transforms them into finished products. Operations is informed by: The business’s drive to maximise profits The needs of consumers Apart from transformation, operations involves the creation of value – value adding Minimising waste, also called lean production, is an operations approach designed to eliminate waste. Sources of waste include the under use of labour, over production, errors and defects requiring remediation, under utilisation of machinery, slow lead times and carrying of excess inventory. The growth of the Fair Trade movement is a direct result of consumers advocating for operation processes in production and supply to integrate notions of a fair price, decent working conditions and local sustainability.

Operations refer to the business processes that involve transformation or, more generally ‘production’.

Transformation is the conversion of inputs (resources) into outputs (goods and services) Value adding is the creation of value as inputs are transformed into outputs.

Lean production aims to eliminate waste at every stage of production. It involves analysing each stage of the production process, detecting where inefficiencies are and correcting them.

Operations - It is the core key business function

Assets - a large proportion of the assets of a business are in operations.

Importance of operations management

Visibility - part of a business most commonly seen by customers

Employment most employment in any business is in operations

Interdependent Other key business functions are interdependent on operations. They exist because of operations

1.2 Strategic role of operations management Strategic role of operations involves operations managers contributing to the strategic direction/ plan of the business.

Strategic means affecting all key business areas. A role is strategic not so much by time length, but rather the level in which it integrates and affects key business areas. Management is a process of working with and through other people to achieve the goals of the business in a rapidly changing environment.

Operations management is concerned with working with and through other people to ensure that production deadlines are met in an effective and efficient manner. An effective business achieves their desired goals and objectives in a set time period. EXAMPLE: Apple had a goal for their iPhone to attain 1% of the global phone market by the end of 2008 (global phone market is 1 billion per year). Even though this sounds like a “gentle goal”, this meant Apple aimed to sell 10 million iPhones in 2008. They achieved this. Costs in the operations function

Types of costs incurred in the operations function Input    

Capital Land Resources Interest on investment Leases on machinery

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Labour     

Full – time and part time staff Casual staff Sub -contractors Redundancy Overtime

Processing     

Machinery maintenance Electricity Product design Template and tooling Prototyping

Cost leadership Cost leadership involves aiming to have the lowest costs or to be the most price-competitive in the market. A key aspect to cost leadership is that although trading with the lowest cost, the overall business should still be profitable. Economies of scale occur when a business becomes large enough to benefit from its size. This will enable the business to negotiate better rates with its suppliers and to take advantage of improvements in technology. EXAMPLE: IKEA achieves significant economies of scale as a result of flat packs. This means more goods can be transported at the same time and more goods can be easily stored in the warehouse. IKEA then passes these savings along to the customer in the form of lower prices, thus maintaining a competitive advantage. Strategies for cost leadership: 1. 2. 3. 4.

Develop an efficient scale of operations (economies of scale) Use up to date technology Control production costs (labour raw; materials; overheads) Control other costs

1.3 Good/service differentiation

Inventory     

Back order Logistics/ distribution Storage Insurance Inventory management

Quality Management 

 

Prevention of loss through quality planning and training Sampling and inspection Error and remediation warranty claims, returns and complaints

Myer demonstrates cost leadership in its supply chain management through the use of international distribution centres, which invested in IT, transformed operational processes and employed new staff.

Economies of scale refer to the cost advantages that can be created because of an increase in scale of business operations. LOWER INPUT COSTS + INCREASED OUTPUT

Good/service differentiation involves providing a product or service, which is different or distinguishable from those of the competitors. The risks associated include that competitors may imitate market leader’s innovations and consumer preferencnes can still change. Products may be differentiated by: 

Varying the product features – McDonalds introduced the Angus Burger in 2009. The burger is ‘different’ because it uses 100% Angus beef, has a salad mix and a gourmet sourdough bun.



Varying product quality – Done by making a low-quality model that is very affordable, more expensive, by increasing the quality of the product. The Angus burger is an example of this - ‘premium’ product and is subsequently more expensive than a Big Mac. By offering this wide range, McDonalds increases their market share.



Varying augmented features – Augmented features are additional features or benefits associated with a product. For example: GPS and Blue Tooth are standard features with the Renault Koleos. A reverse camera may be fitted for an additional cost. In the case of a Toyota Rav4, all these features can be fitted for an added cost.

The strategic role of operations management is to determine which of these strategies may be undertaken will still maintaining cost leadership Services can be differentiated by: 

Varying the time spent on a service – Lattouf Hair Spa chain in Sydney offer a free head massage with aromatherapy oils as standard, prior to any hair dressing service. They are the first hairdressing salons to offer this.

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Varying the level of expertise brought to a service – If a person has a higher level of expertise then they can provide more specialized service. Experienced trades people generally charge more for their services.

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Varying the qualifications and experience of the service provider – highly qualified and experiences service providers can significantly affect the quality of the service provided.

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Varying the quality of materials and technologies used in service delivery – The use of computer-based technologies such as accounting software, CAD and CAM programs, medical technologies, ICTs can significantly affect the quality of the service provided. Notable in services sector.

Operations management must decide on the service mix used, to ensure that the requirements of the customer are met, while still maintaining a cost leader focus. Cross branding Cross-branding or strategic alliances can be used to differentiate goods and services. This approach add value to products by offering consumers added benefits (Woolworths-Caltex alliance) Goods and services in different industries 

Goods in different industries

Standardised goods are uniform in size and quality and will always be the same. EXAMPLE: A Big Mac meal in Sydney will be the same as in Paris. This helps to achieve economies of scale as mass production reduces manufacturing costs. IKEA products are standardised in all markets they serve, with the exception of the US. IKEA found that standardised products didn’t work, as serving sizes and bed sizes are different. Customised goods are designed according to the needs of the customers. These goods will be more expensive.

Standardised goods are those that are mass-produced, usually on an assembly line. Standardised goods are uniform in quality and meet a Customised goods areofthose that are predetermined level quality. varied according to the needsfocus. of Produced with a production customers. These goods are produced with a market focus rather than a production focus.

EXAMPLE: Tailored suits and designer cakes. Technology has also allowed customers to customise some products, for example iTunes allows people to make playlists, which are unique to them.

Manufactured goods are tangible. This means we can see and touch them. They are produced in a capital-intensive manner using machinery and technology. Services on the other hand provide intangible products and are mostly labour intensive. Intermediate goods are goods used in conjunction with others to form a final product. EXAMPLE: A manufacturer converts steel into tiny screws.

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Services in different industries

Services can also be standardised or customised. EXAMPLE: The fast-food industry aims to standardise their services. This differs from industries that are characterised by professionally educated and trained people (Accounting services or legal services who are generally customised). Self service Self service means encouraging the customers to take the initiative to help themselves. This is evident in the financial services sector and travel industry. In this way, businesses concentrate on customization when people cannot help themselves. 1.4 Interdependence with other key business functions In most businesses, closely related tasks are grouped together – for example, sales and marketing, finance and administration and operations and research and development Operations & HR Operations provides the majority of employment. HR contributed to operations through the acquisition, development, maintenance and separation of employees.

Interdependence refers to the mutual dependence that the key functions have on one another. The key business functions work best when they overlap and employees work towards common goals. Each area depends on the support of the others if it is to perform at capacity.

Operations & Marketing Marketing connects the operations function to the consumer Marketing identifies consumer demand and therefore determines the supply that must be produced. Operations & Finance Business will be based on budgets, which will be submitted, by all of the functions (inclusive of operations). Finance is concerned with making decisions on how to raise finance so that production and distribution (key elements of operations) can take place. Financial manager carefully monitor inputs and outputs thorough working capital management to ensure the business remains liquid. CASE STUDY: Bunnings Warehouse or REX (See Excel Book)

CHAPTER 2 – INFLUENCES ON OPERATIONS MANAGEMENT 2.1 Main influences on operations management 1.

Globalisation

From a business perspective, globalisation:  

Provides a source of market opportunities. May act as a threat to business as businesses effectively apply cost leadership principles to undercut the market and dominate.

Globalisation refers to the movement of goods, people and capital around the globe. This has been facilitated by the reduction and removal of trade barriers (Trade liberalisation).

Globalisation and operations management Global operations can present cost saving opportunities for management if operations managers choose the most appropriate means of sourcing and if they consider the advantages offered by locating different parts of their operations in different countries. Operations that are well set up will allow the business to respond to the changing global business environment.  -

Manufacturing is often located overseas to take advantage of lower employment costs. Businesses in recent decades have relocated aspects of operations to India to take advantage of a computer literate workforce and lower rates of pay. Optus operates its customer service over there.

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Relocating production overseas can also make the supply of raw materials easier and cheaper to source. IPhones are designed in California, but made in China.

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Some countries have reputations for particular skills and expertise – driver for relocation of production Italy has a reputation for contemporary design whilst Japan has a reputation for technological design.

The emergence of global consumers cannot be overlooked. In countries like India and China, the middle class is expanding rapidly. With this affluence comes the demand for consumer goods. India is tipped to be the 5th biggest consumer market globally by 2025.

Most businesses cope with this by offering standardised products. However, there will be times when a product will have to be differentiated, as in IKEA where there beds are not the same size. It is essential that markets be thoroughly researched to determine whether products are culturally sensitive. EXAMPLE: Gloria Jeans failed in China due to distinct differences in tastes and preferences. 

Language barriers can be a difficulty to overcome as well.

Supply chain management and the global web Supply chain management is crucial because: A global business needs to have reliable suppliers who are able to respond to changes in demand. Without suppliers, the operations process will not have any inputs to produce outputs. Cost leadership principles will be integral to the selection of suppliers. The global web strategy aims to achieve this by locating reliable suppliers who are close to the manufacturing facilities. In supply chain management the global web strategy is one in which the business aims to minimise costs across the range of its suppliers. Imitation, innovation and the supply chain There are two alternative approaches to the supply chain, depending on whether a business is an imitator or an innovator. A business that imitates will tend to create products similar to those that already exist, but will aim to do so at a lower cost. As aspect of imitation can be seen in businesses who engage in reverse engineering. Innovation occurs when the business creates novel (new) products and in doing so, leads the market.

Supply chain refers to the range of suppliers a business has and the nature of its relationship with those suppliers. Global web refers to the network of suppliers a business has chosen on the basis of lowest overall costs, lowest risk and maximum certainty in quality and timing of suppliers.

Reverse engineering is a process that involves a business taking a product of a competitor that has already been released into the market. The product is then taken apart to see how it is made. The imitating business then tries to make their own version of the product, but does so using different materials and at a lower cost.

Innovations:  Improve an existing product  May lead to a new and easier way of life through the creation of products that solve a problem in a way not previously done.  May make a technological breakthrough that allows for leap in the quality of life and opportunities for consumers.

How does innovation affect operations? By differentiating products and therefore making them novel in the market. This means the supply chain will need to be shaped around the need for innovation. EXAMPLE: Companies like Apple and McDonalds take an innovative approach to operations. This approach allows a business to be a market leader. Other organisations are imitators. Burger King for example, waits for McDonalds to innovate and then produce a similar product, at a lower cost. Burger King’s Angry Angus vs. McDonald’s Angus Burger. To prevent reverse engineering, companies like Toyota, patent products to preserve their place in the market. 2.

Technology

Advancements in technology is a driver of globalisation, hence they have encourages and facilitated global expansion. Administration and operations rely on technology. Administration 1.

Use of planning technologies – CPA, MRP (Material Requirements Planning) and Gantt charts

Operations 1.

Use of machinery – assembly line production

2.

Use of robotics – self check out

2.

Office technologies - PCs, printers, faxes, mobile phones

3.

Use of soft ware – word processing

3.

CAD (Computer Aided Design) & CAM (Computer Aided Manufacture) & CIM (Computer Integrated Manufacturing) technologies

A business can gain a competitive advantage through the use of technology. -

Woolworths was the first supermarket to introduce self-checkout robots.  Less time queuing  Aimed at shoppers with only a few items.  Although expensive, it has resulted in saving for HR

When deciding whether or not to invest in technology, management must consider: -

Technology used by competitors The cost of technology and how that cost will be financed The time taken to introduce the technology Staffing implications – training costs

Computer Aided Design (CAD) – this technology allows architects, designers and engineers to draw and manipulate 3D designs using a computer. 

Allows designs to be viewed from a number of different angles and emailed to clients all over the world.

Computer Aided Manufacture (CAM) – this technology links the design to the manufacturing process through computers.  

Fewer workers are needed in the manufacturing process Fewer errors are made

3.

Quality expectations

Quality informs all operations processes. The expectations people have of a business determine the way that products are designed, created and delivered to customers.

Quality refers to how well designed, made and functional goods are, and the degree of competence with which services are organised and delivered.

Consumers have an expectation that the goods and services that they purchase are of a good quality and offer value for money. This means that operations must be completed to a basic minimum standard. Quality expectations of goods 1. -

Quality of design Quality of raw materials Innovative design How well it meets customer needs

2. -

Fitness for purpose Does it do what it is designed to do Is it easy to use

3. -

Durability Is it reliable and long lasting Is it easy to maintain and repair Is there good after sales service

Quality expectations of services 1. -

Professionalism of the service Cleanliness and layout of the facility Courtesy of staff and attention to detail

2. -

Reliability of the service provider Efficiency of the service Overall levels of competence

3. -

Level of customization How well the particular needs of the customer are met through the expertise and experience of the service provider.

4.

Cost based competition

Cost based competition occurs when operations management employ a cost leadership approach. Businesses may seek to do this by: Reducing the cost of their inputs – sourcing cheaper suppliers. 

Allows lower prices will still maintaining profit margins.

Cost based competition is derived from determining the breakeven point (the level at which the firm matches total costs and total revenue) and then applying strategies to create cost advantages over competitors.

Some businesses may use a differentiation strategy. Costs can be fixed or variable. Fixed – do not change and must be covered, regardless if not sales are made (Rent, insurance, salaries) Variable – change with level of business activity and directly related to output (Electricity, labour, production level). The higher the level of output, the greater these costs will be.

Achieve economies of scale

Buy bulk inputs

Businesses that reduce costs

Produce standardised products for larger markets

Eliminate waste

5.

Government policies

All businesses operate in a political-legal environment and therefore are impacted by government policies. -

Political decisions affect the business riles and regulations, directly affecting business functions. Government policies change due to a change in government or shift in social expectations. Therefore government policies are a notable source of change, influencing business operations. Introduction of the carbon tax – a price imposed for the use of carbon.

Operations and government policies Government policies such as the OH&S and WHS (2010) standards, environmental regulations, employment relations and trade and industry policies will all have an impact. Consequently, operations manager need to be aware of and fully understand these policies. GST introduced in 2007 The Federal Government provides financial assistance in the form of grants and tax breaks to businesses that export. The reduction of trade barriers in the form of tariffs and the negotiation of trade agreements has facilitated the global expansion of

many Australian businesses around the globe. BY 2013, the car industry is expected to have zero tariffs. This has increased pressure on Ford and Holden. In 2009 & 2010 Pacific Brands relocated production controversially overseas in response to the removal of the protections enjoyed by the clothing-manufacturing sector in Australia.

6.

Legal regulations

Governments regulate businesses to promote safety and fair business conduct. The operations manager has the legal responsibility to ensure that these laws are complied with. The expenses associated with meeting the requirements of legal regulations are termed compliance costs. Failure to comply with laws can result in: Large fines Closure of the business while the problem is still being addressed Some instances, prison sentences Area of regulation

Legislation

Legal obligations & implications

Workplace safety

Occupational Health & Safety Act 1991 (Cwlth)

An OHS assessment must be conducted to ensure that the work environment is physically and mentally safe:

Work Health and Safety Act 2011 (Cwlth)

Hazardous Materials

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Safe worksite Safe machinery Safe systems of work Information, training and supervision

Occupational Health and Safety Act 1991 (Cwlth)

Training, warning signs and safety precautions to prevent injury.

Dangerous Goods (Road & Rail Transport) Act 2008 (NSW)

Use of hazardous materials is to be avoided. Safety measures to transport hazardous and dangerous goods.

Environmental Protection

Federal Environmental and Biodiversity Conservation Act 1991

Hazardous waste, fuels and chemicals must not enter the environment.

Climate Change

National Strategy on Energy Efficiency Opportunities Program

Stronger energy efficiency requirements (e.g. energy efficient lighting in a building industry)

Australian standards for quality, environmental impacts and safety and information.

Competition and Consumer Act 2010 (Cwlth) Formerly Trade Practices Act 1974

Quality standards – products must perform the task intended

Fair Trading Act 1987 (NSW)

Goods need to comply with environmental standards – labels to inform consumer Safety standards Information standards

7.

Environmental sustainability

Environmental sustainability refers to business activities that meet the needs of current society without compromising the ability of future generations to meet their own needs. With evidence mounting in regard to the devastating human impact of unbridled economic growth and development, businesses will increasingly have to consider their role in sustaining high living standards for future generations.

Environmental sustainability means that business operations should be shaped around practices that consume resources today, without compromising access to those resources for future generations.

How are governments addressing this? Governments around the world are attempting to provide tougher regulations ad mechanisms to reduce the impact of development. The Australian Government is introducing a Carbon Trading Scheme (July 2012), to make Australia’s largest polluters pay for every tonne of carbon they emit. It is hoped that they will reduce carbon pollution by at least 160 million tonnes a year by 2020.

8.

Corporate social responsibility (2.2)

Corporate social responsibility focuses on doing right by an organisation’s stakeholders. It starts with the company’s visions, ethics and values, and extends to the way products are manufactured, marketed, priced and distributed. It encompasses every facet of the business process and value chain including: -

Corporate social responsibility 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.

Employment policies and practices Supply chain management Health, safety and environmental practices Transparency and corporate governance

KEY TERMS Ethics – the standards of behaviour that are expected by management, and commonly known throughout the organisation whether expressly communicated or not Corporate governance – the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed and how performance is optimised. Good Corporate governance encourages organisations to create value and provide accountability and control systems. Social responsibility – Occurs when an organisation acts in the best interests of society as well as itself. The challenge is to balance corporate citizenship with a fair level of profits.

Social responsibility occurs when organisations do things for the greater good of society. Acting in such a way is an example of enlightened self-interest where the business also received benefits in the form of enhanced reputation and consumer acceptance. EXAMPLE: Production of products that are environmentally friendly (green bags at supermarkets) Bendigo Bank – Operation of Community Banking where local communities own and operate banking facilities. Difference between legal compliance and ethical responsibility Legal compliance refers to businesses abiding by the word of the law, whereas ethical responsibility encompasses a much broader integration of social, community and environmental concerns. Legal compliance involves making sure that the laws and regulations relating to the operation of a business are strictly observed. Most of our laws are based on ethical principals but this does not necessarily mean that strict compliance with the laws relating to business operations is ethically responsible.

Ethical responsibility in operations management is where managers understand value systems and morality (wrong or right) with the production of goods and services. Ethical managers will implement programs where the operations of a business not only comply with the law but will also build into those programs what is morally and socially right. The most important area of ethical responsibility relates to how managers deal with all the stakeholders of the business. How to ensure an organisation acts ethically? 1. 2. 3. 4. 5.

Develop a code of ethics Change the corporate culture Empower all staff to implement and abide by new policies Encourage “whistle blowing” where staff report breaches of the code Develop an environmental policy to conform to acceptable community standards.

CHAPTER 3 – OPERATIONS PROCESSES

3.2 Inputs Inputs are the resources used in the transformation process. Four common inputs include: 1. Labour (human effort – physical and mental) 2. Energy (electricity or fuels) 3. Raw Materials (basic components of manufactured goods – wood) 4. Machinery and technology (necessary to enable transformation processes) – there is concern over capital labour substitution – the machinery and technology displace people by doing the work they do. This makes labour redundant. However, there is a period of training that takes place, as people acquire new skills relevant to new technologies.

Capital labour substitution means that machinery and technology displace people by doing the work they do.

Inputs are classified as either transformed or transforming resources. Transformed resources  Materials = raw materials and intermediate goods  Information (internal and external)  Customers (needs and feedback)

Transforming resources  Human resources (labour)  Facilities (plant, factory or office)

Transformed Resources Transformed inputs are those resources that are changed or converted in the operations process. Transformed resources are also considered the resources that give the operations process its purpose or goal. They include: 1.

Materials

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Materials are the basic elements used in the production process and consist of two types: raw materials and intermediate goods Raw materials are the essential substances in their unprocessed state. Intermediate goods are goods manufactured and used in further manufacturing or processing.

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2.

Information

Information is the knowledge gained from research, investigation and instruction, which result in an increase in understanding. EXTERNAL: comes form market reports, media reports, government statistics (ABS) INTERNAL: comes form internal sources such as financial reports and KPI’s such as lead times and inventory turnover rates.

KPI’s are specific criteria used to measure the efficiency and effectiveness of the business’s performance.

3.

Customers

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Customers become transformed resources when their choices shape inputs. Customer orientation is essential to a business Customer orientation takes the preferences and interest of consumers as an input and their desires and preferences act as a transformed resource. To better understand the desires and preferences of customers, businesses can implement a customer relationship management program

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CRM:     

Customer relationship management refers to the systems that businesses use to maintain customer contact.

Improves customer service Increases competitiveness Identifies changes in consumer tastes Improves services Makes the operations process more responsive to customer desires.

Transforming Resources Transforming resources are those inputs that carry out the transformation process. They enable change and value adding to occur. They include: 1.

Human resources

The effectiveness with which HR carry out their work duties and responsibilities can determine the success with which transformation and value adding occurs. This is because it is employees who coordinate and combine other resources such as machinery and finance to produce goods and services. Skills enable inputs to become transformed through the application of particular qualities or abilities to operate processes Effort and time In this sense, they are the most CRUCIAL of all inputs

2.

Facilities

Facilities refer to the plant (factory or office) and machinery used in the operations processes. The plant and machinery can make a very significant difference to a business and its capacity to transform.

The facilities determine the nature of the operations environment.

3.3 Transformation processes

Transformation is the conversion of inputs into outputs. Transformation differs between manufacturing businesses and service businesses. -

A manufacturer transforms inputs into tangible products A service organisation transforms inputs into intangible products.

TRANSFORMATION PROCE SS INVOLVES VALUE ADDING Transformation processes are influences by: 1.

Volume – how much of a product is made

Refers to not only the amount of the product made, but also the volume flexibility – how quickly the product can be made. Volume flexibility is essential to ensure: That lead times are met – lead times are the time taken for an order to be filled once the order has been made. A business with a high volume is likely to produce a standardised product where HR performs simple repetitive tasks (McDonalds). A business with a low volume is likely to produce customised products where the number of different tasks requires different skills (Expensive gourmet restaurant – Aria) It is essential that businesses are able to respond to changes in demand. Failure to deliver orders will result in loss of business and over production will create wastage. 2.

Variety – the mix of products

Refers to the mix of products, which is also referred to as mix flexibility. In other words, the range of goods or services delivered by the business. A business with a high variety will produce a number of different goods and services, and tend to cater more for individual’s needs, meaning there is more flexibility and complexity involved in the operations process. (Dressmaker) A business with a low variety would produce high volumes of a limited range of products. (Garment factory)

3.

Variation in demand – the amount of a product desired by consumers

Refers to the fluctuations in demand over time. This can depend on the time of day or time of year. When demand is predictable (low variation) as in the case of bread or milk, a low variation approach strategy will be taken – where operations will use more capital than labour and focus on low costs. When there is volatility in demand the operations manager will need to anticipate and plan for changes in demand. A business that would have high variation demand would be a business specialising in home heating, where demand would be high in winter and lower in summer (seasonal influences) 4.

Visibility – the nature and amount of customer contact (feedback)

Operations are influenced by the degree to which customers can see the process. Service based industries have a high visibility where as manufacturing based firms have a low visibility. In visible operations, the quality of labour will be important. Employees will have to be well trained, highly skilled and adaptable. Many businesses will have a mix of visibility. A 5 star restaurant will be highly visible in the dining areas, but the kitchen will be less visible.

Influence of the four V’s Volume and variety will have the most influence on the operations process. A business that is a high volume producer will be limited in flexibility to produce a large variety or respond quickly to changes in demand.

Sequencing and scheduling Sequencing refers to the order in which activities in the operations process occur. Scheduling refers to the length of time activities take within the operations process. Both of these important aspects assist with structuring and ordering transformation processes. The two main scheduling tools include: 1.

Gantt Chart – a type of bar chart that shows both the scheduled and completed work over a period of time. It is often used for planning and tracking a project. Outlines:

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The activities that need to be performed The order in which they should be performed How long each activity is expected to take

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Allows a manager to compare actual progress with planned progress

2.

CPA (Critical Path Analysis) – is a scheduling method that shows what tasks need to be done, how long they take and what order is necessary to complete those tasks.

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The critical path is the shortest length of time it takes to complete all tasks necessary Enables a manager to see what needs to be done Allows them to assess and consider the timing for each of the tasks to be complete.

SCHEDULING gives direction and organisation to operations processes, providing overall coordination and a means of control. 

Shows the likely impact on the whole project if not action were taken

What can a business do if a project is delayed?  

If there is a float elsewhere it might be possible to switch staff from another activity to catch up on the delayed activity Hiring additional people or making labour work overtime – this increases costs.

Technology Technology is a key input into the operations process. Business technology involves the use of machinery and systems that enable the businesses to undertake the transformation process more efficiently and effectively. Most technology assists employees in working ore productively. Pair of scissors = low tech

Robots = hi tech

In the manufacturing sector technology can be used to speed up (shorten) processes and enable the utilisation of raw materials. This makes the operations processes more cost effective.

fuller

In the services sector, office and communications technology have enabled whole markets to open up and allows for a small to medium business to trade globally. -

The capital cost of technology is relatively high so businesses need to decide whether to purchase technology or lease it. Leasing is more common because it is cheaper (lease payments are tax deductible), which allows money saved to be spent elsewhere.

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Additional costs may include set up or cabling, and the loss of workers who may be displace due to the acquisition of technology (capital labour substitution)

Office technology

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Have created the opportunity for people to do more work in less time, which means greater range of tasks can be completed in their working time (efficiency). Enabled workers to work at a great distance form the office Emails/ video conferencing/ webcam In many businesses, the ‘virtual office’ and ‘paperless trading’ is becoming a reality and, as office structures changes, ‘hot desking’ is not uncommon.

‘Hot desking’ is another method of teleworking. It involves one desk shared between several people who use the desk at different times.

Manufacturing technology Key manufacturing technologies include robotics, CAD and CAM. Robotics are used in engineering and specialized areas of research, as well as on assembly lines where a programmable machine capable of doing several different tasks is required. Robotics applies to highly specialized forms of technology, capable of complex tasks. Robotics can help shape transformation processes so that they are very high quality, of a consistently high standard, efficient and with minimal waste. Computer Aided Design (CAD) – this technology allows architects, designers and engineers to draw and manipulate 3D designs using a computer. 

Allows designs to be viewed from a number of different angles and emailed to clients all over the world.

Computer Aided Manufacture (CAM) – this technology links the design to the manufacturing process through computers.  

Fewer workers are needed in the manufacturing process Fewer errors are made

Task design – this involves classifying job activities in ways that make it easy for an employee to successfully perform and complete the task. Task analysis determines the ingredients and the order of steps required to make the products, whereas task design determines how the product can be made. Once task analysis has been completed, task design is performed. Due to a separation between manufacturing and administrative operations, in task design, it is necessary to group skills and competencies because this helps when acquiring staff. A prospective employee will be screened against these skills and competencies to ensure a match.

Sometimes, a business already has available staff, however the staff may not have the requisite skills and therefore managers may wish to conduct a skills audit – a formal process used to determine the present level of skilling and any skill shortfalls that need to be made up wither through recruitment or through training.

Plant (factory/office) layout

Skills audit is a formal process used to determine the present level of skilling and any skill shortfalls that need to be made up wither through recruitment or through training.

Plant layout is the arrangement of equipment, machinery and staff within the facility (factory or office) An operations manager needs to consider the best layout to ensure: -

Enough space for the projected volume of production Effective use of production equipment Appropriate technology Adequate location of stock and warehousing requirements A work environment that is of a sufficient quality Conformity with OHS standards and other legal regulations.

The layout options are the:

1.

Process layout – the arrangements of machines and equipment are grouped together by the function or process they perform.

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Sometimes called the ‘functional layout’ Deals with high variety, low volume production (process production) Each product has a different sequence of production and the production is intermittent, moving from one department to another. A feature of this approach is the creation of work cells or work teams.

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EXAMPLE: Typical of hospitals 2.

Product layout – where the equipment arrangement related to the sequence of tasks performed in manufacturing a product.

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Workstations are arranged to match the sequence of operations, and work flows from station to station. Product production is characterised by the manufacturing of 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 balancing.

EXAMPLE: Production of motor vehicles 3.

Fixed position layout – where a product remains in one location due to its weight or bulk

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Characterised by project production - deals with layout arrangements for large-scale, bulky activities such as the construction of bridges, ships and aircraft or buildings

4.

Office layout – organised around discrete workstations – desk areas required by office workers

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Office layout is tailored to meet the needs of the business EXAMPLE: A manufacturing business will have an informal office layout whilst a hospital will have a layout that provides a degree of privacy. Monitoring, controlling and improvement 1. Monitoring is the process of measuring actual performance against planned performance. -

All operations processes should be monitored for their effectiveness.

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The main transformational processes should be subject to control. This requires effective monitoring and a strong focus on continuous improvement.

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Monitoring and controlling lead to improvements when there is a focus on quality and standards.

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Monitoring involves the measuring of all aspects of operations, from supply chain management and the use of inputs through to transformation processes and outputs.

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Monitoring is typically arranged around the needs to measure KPIs (lead times, turnover rates) – the predetermined variables that are measured so that appropriate controls to operations processes can be made.

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

2. Control occurs when KPIs are assessed against predetermined targets and corrective action is taken, if required. -

Controlling compares what was intended to happen with what has actually occurred.

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Controls are implemented if there is a discrepancy between performance and goals, so that changes and improvements can be made.

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Control requires operations managers to take corrective action – making changes to the transformation process (redesigning the facilities layout or adjusting the level of technology to correct the problem.

3. Improvement refers to the systematic reduction of inefficiencies and wastage, poor work processes and the elimination of bottlenecks -

Improvements occur by analysing the operations process and determining what can be changed to improve quality, speed, dependability, flexibility, customisation and cost.

Bottlenecks are aspects of the transformation process that are slowing down the overall processing speed, possibly creating an impediment leading to a backlog of incompletely processed products.

Improvement can be sought in: Time (minimisation of bottlenecks and assessment of lead times) Process flows (smoothness of transitions in transformation process) Quality (pursuit of quality goals and standards) Cost (assessment and review of per unit costs and fixed and variable costs) Efficiency (reduction of waste and creation of greater output per unit - economies of scale; sigma six process) The concept of continuous improvement involves an ongoing commitment to achieving perfection. Although the goals of perfection will never be reached, the ‘striving’ is important to business culture. The process becomes one of setting higher and higher standards in the continual pursuit of improvement. Japanese business culture applies the term kaizen to describe this process. We use the terms ‘zero defects’ or ‘sigma six’

Sigma six is a quality management approach that seeks to identify and remove the causes of problems in the operations process, achieving virtually defect-free production.

3.4 Outputs Outputs refer to the end result of the business efforts – the good or service that is provided or delivered to the customer. Customer service and warranties are important outputs as they add value to the product. 

Customer service refers to how well a business meets and exceeds the expectations of customers in all aspects of operations.

Customer service is an intangible output that requires customer contact. It can increase customer satisfaction and contribute to one’s competitive advantage. It may include: Answering questions and providing after sales advice Frequent and meaningful communication Anticipating customer needs Following up customer inquiries and complaints. Warranties – business promises to correct any defects in their products or in the services they deliver. Under Australian law, all businesses must ensure that their goods: Have a level of quality that is comparable to the price and product description Are suitable for the purpose they will be used for Match the product description in any advertising or promotion Are free from defects or faults.

CHAPTER 4 – OPERATIONS STRATEGIES

4.1 Performance Objectives Operations strategy is the total patterns of decisions and actions, which set the role, objectives and activities of the operations so that they contribute to, and support the organisation’s business strategy. The operations function can provide a competitive advantage through its performance objectives – quality, speed, dependability, flexibility, customisation and cost. 1.

Performance objectives are goals that relate to particular aspects of the transformation processes.

Quality

Quality means the good or service is as it is supposed to be in appearance and performance. Quality is often determined by the consumers expectations, which are used to inform production standards applied by the business. Quality performance objectives include: -

Quality of design – how well a product is made or service is delivered.

Design determined the inputs, how the transformation processes will be arranged and will perform in relation to the production of the good or service. As a performance objective, a business needs to decide the quality of the product it will deliver to the market as high quality inputs add cost, and this will be reflected in a higher price that some consumer may not wan to pay.

Sony and Panasonic invest huge amounts of money into R&D, creating innovative products that lead change in the consumer electronic market. This means that the price of their products needs to cover the investment in innovative designs and products. Mercedes Benz vehicles combine very high quality design with high standards of conformance.

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Quality of conformance – the focus on how well the product meets the standard of a prescribed design with certain specifications.

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This is a measure of how consistently products achieve compliance or conformance with the desired specifications.

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Quality of service – how reliable the service is, how well the service meets the specific needs of the client and how timely or responsive the service delivery is?

Externally, the ability of a business to meet these objectives:

 

Enhances the product or service’s image in the market Avoids customer complaints

Internally, it prevents errors:  Slowing down speed  Causing internal unreliability and low dependability  Causing wasted time and effort, therefore saving cost. 2.

Speed

Speed refers to the time taken for the operations process to respond to changes in market demand. Speed aims to satisfy customer demand through goals of: -

Reduced wait times Shorter lead times Faster processing times

Tools to improve speed include: Autonomous design Development teams CAD & CAM Externally it means the elapsed time between a customer asking for a product and getting it.  Externally it also enhances the value of the product or service to customers Internally it:  Helps overcome internal problems by maintaining dependability  Reduces the need to manage transformed resources as they pass through the operation, thereby saving costs. 3.

Dependability

Dependability refers to how consistent and reliable a business’s products are -

A highly durable product is dependable The number of complaints determines a dependable service.



Externally it enhances the product or service in the market, or at least, avoids customer complaints.

Internally it prevents:  Late delivery slowing down throughput speed  Prevents lateness causing disruption and wasted time and effort, therefore saving costs

4.

Flexibility

Flexibility refers to how quickly operations processes can adjust to changes in the market (changes in demand can cause pressure on capacity). -

Best achieved by increasing capacity of production (can be done by utilising plant and machinery better, or buying new technologies that increase flexibility and capacity).

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The ability of a business to achieve this objective enables them to meet a broader range of consumer desires and respond to changes in demand.

Product flexibility – the goods and services it brings to the market Mix flexibility – mix or variety of goods ands services produced Volume flexibility – quantity or volume it produces (determined by demand) Delivery flexibility – delivery times of its products. 5.

Customisation

Customisation refers to the creations of individualised products to meed the specific needs of customers. -

Visibility or customer contact is an indicator of customisation (high visibility = greater degree of customisation)

High degree of customisation provides advantages of:  The establishment of a regular clientele – this offsets the relatively low volumes that such businesses experience  Volume and delivery flexibility 6.

Mass customisation is a process that allows a standard, mass-produced item to be personally modified to meet customer requirements.

Cost

Cost, as a performance objective, refers to the minimisation of expenses so that operations processes are conducted as cheaply as possible. Low cost businesses = High volume + Low variety + Low variation in demand + Low visibility 

Achieving some, or even all of the performance objectives will create a positive customer reaction and a reduction of some costs.

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By achieving quality the business does not require a large budget to fix mistakes, and therefore cost savings will arise due to the efficient use of resources. Achieving speed will save the business time and money Achieving flexibility will reduce costs by contributing to the speed of response.

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Establish and maintain a competitive advantage A business that does things right (quality), responds quickly (speed), is reliable (dependability), has the ability to respond to change and customers’ needs (flexibility and customisation) and us a low cost operations (costs), will tend to have a competitive advantage in the marketplace over its rivals.

4.2 New products or service design and development New product/service development is the complete process of bringing a new product or service to market. The development process involves: Identifying a market opportunity Creating a product that will appeal to that market Testing and modifying the product until it is ready for production.

Product utility is the usefulness and value that product has from a customer’s point of view.

NPD focuses on satisfying the needs of customers who already consume the products of a particular business, as well as attempting to sell to new customers – maintains their competitive advantage. New product/service design refers to those activities involves in creating the styling, appearance and feel of the product, deciding on the product’s mechanical make up, selecting materials and engineering the various components necessary to make the product work. When designing services, a business must take into account what the explicit service will be and what the anticipated implicit service will be.

Steps in developing new product 1. Idea generation

Implicit service is the intangible aspect of the service – the feeling that comes with the provision of the service.

Explicit service is the tangible aspect of the service (application of time, expertise and effort)

 

SWOT analysis (Chapter 2) Brainstorm with focus groups

2. Idea screening  Eliminate ideas that won’t work  Consider customer benefits, market growth, competitions manufacturing needs, profit expectations  Feasibility 3. Concept development  Develop marketing and engineering details  Identify target market  Specify feature the product must have  Computer modelling for prototype design (form, fit and function)  Estimate production costs 4. Business analysis Develop estimates for: Selling price Sales volume Break even point (sales revenue = production costs + profitability)

DESIGN

DEVELOPMEN T

5. Market testing  Produce prototype of product  Test product in real use situations  Feedback from focus groups  Refine prototype  Produce small quantity and test market 6. Technical implementation  Engineering operations planning  Identify suppliers  Plan logistics  Contingency planning (what if?) 7. Commercialisation  Product launch  Promote product – advertising  Initiate distribution channels 8. New product pricing  Product costs (FC & VC)  Forecast volumes, revenue and profit  Competition

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4.3 Supply Chain Management Supply chain management (SCM) involves integrating and managing the flow of supplies throughout the inputs; transformation processes (throughput and value adding) and outputs in order to meet the basic needs of customers EXAMPLE

It is said that the effective goal of supply chain management is to reduce inventory. SOURCING  Sourcing – refers to the purchasing of inputs for the transformation processes.  Global sourcing – refers to businesses purchasing supplies or services without being constrained by location Factors influencing choice of sources or suppliers include: 1. Consumer demand 2. Quality of inputs required 3. Flexibility and timeliness of supply 4. Cost of supplier Strategies for sourcing 1. Supplier rationalisation involves assessing the number of suppliers in order to reduce the number of supplier to the least amount.   

Less contracting Less wastage and duplication Improved timeliness

2. Backwards-vertical integration – purchasing through mergers or acquisitions of suppliers.  

Guarantees supply as supplier is owned by the business Achieve time and cost savings

3. Cost minimisation – use of offshore suppliers to minimise costs 

Take advantage of low cost labour and cheap regulatory costs in countries such as India and Philippines

E-COMMERCE E-commerce involves the buying and selling of goods and services via the Internet. 1.

E-procurement – the use of online systems to manage supply

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Allows suppliers direct access to the business’s level of supplies

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Enabled by business to business arrangement (B2B) – direct access from one business (supplier) to another (buyer), allowing the supplier to assess the needs of the buyer and meet them in a timely manner

2. E-commerce and the consumer

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Businesses may opt to sell directly to consumers in transactions called business to consumer – B2C – the selling of goods and services to consumers over the Internet, with payment usually by credit card.

LOGISTICS Logistics is the management of the flow of goods between the point of origin and the point of destination in order to meet the requirements of customers and corporations. Involves the integration of: Information Transportation Inventory Warehousing Material and handling Packaging Security The role of logistics is to ensure that operations have the right items in the right quantity at the right time at the right place for the right price in the right condition for the right customer. Distribution refers to the ways of getting the goods and services to the customer Traditional distribution channels include: 1. 2. 3. 4.

Producer to customer - used in services (car repairs) Producer to retailer to customer – used for bulky or perishable items (furniture or fruit) Producer to wholesaler to retailer to customer – used for the distribution of consumer goods (resells smaller quantities to retailers) Producer to agent to wholesaler to retailer to customer – used for inexpensive, frequently used products.

Storage involves finding a secure place to hold stock until it is required. May be long or short term JIT (Just in time inventory) Warehousing is the use of warehouses for storage, protection and, later, distribution of stock. Must consider the cost of: Premises Carrying excess stock Insurance and security

Distributions centres differ from warehouses in that they are not intended for longterm storage. Strategically located to minimise the time to take to supply stock to retail outlets

Coles and Woolworths use a network of distribution centres to assist with inventory management, distribution and costs management.

PURPOSE: Short-term storing, handling and wholesale distribution goods Materials and handling is another important aspect of the movement and storage of goods and therefore particular standards and methods of operating need to be applied. This is because some goods require particular skills, care or attention when being moved (glassware). Government has regulations that require dangerous goods to be stored and handles in particular ways

4.4 Outsourcing – advantages and disadvantages Forms of outsourcing 1. Captive – ‘do it yourself’ 2. Non captive – external third party provider Advantages  Simplification Reducing number of activities performed by the business  Efficiency and costs savings Access to cheaper labour, regulatory differences and skilled labour in offshore locations all lead to cost saving for the business  Increased process capability Comes from access to improved technologies and highly skilled labour  Increased accountability Through the use of SLAs (service level agreements)  Access to skill/resources lacking within a business Highly skilled, disciplined labour at a low cost (Vietnam and India) 

Provides a capacity to focus on core competencies thus improving in house performance Focus on the things that they cannot outsource: vision, purpose and competitive advantage 

Disadvantages 

Cost and uncertainty associated with payback Time to repay the cost of organising outsourcing  Issues with communication and language May lead to difficult negotiations and confusion over expectations. 

Loss of control of standards and information security Less control over the quality of inputs supplied. 

Loss of corporate memory and costs associated with IT, organisational change, redesign and management of hierarchies. A business might use outsourcing to eliminate hierarchies; yet managing complex outsourcing agreements can create its own hierarchies, thereby creating business inefficiency.

Strategic benefits 1. Get around trade barriers 2. Use of a vendor provides greater expertise 3. Different time zones allows Australian businesses to conduct operations during the day and have processing work done overnight. 4. Strong partnerships can lead to innovative solutions that may increase business efficiency and productivity

4.5 Technology – Leading edge and established technology Leading edge technology is the technology that is the most advanced or innovative at any point in time. .

Businesses will seek to obtain a competitive advantage by being the first to develop new of cutting edge technology.

Toyota was the first car manufacturer to develop hybrid technology.

It can help businesses: Create more products quickly and to higher standards Reduce waste Operate more effectively

Apple was the first business to come up with tablet. Android have now copied them technology.

Established technology is technology that has been developed, accepted and widely used. Established technologies are functionally sound and help to establish basic standards for productivity and speed. Some include: CAM CAD Robotics BOTH forms of technology give businesses: Efficiencies Productivity gains Capacity to improve operations processes

4.6 Inventory Management Inventory or 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. Inventory management is concerned with ensuring that there is enough inputs available as required to complete orders and with the handling of the outputs prior to dispatch to the customer. This management process includes the stockpiling and storage of these goods so that the production process can be continued uninterrupted and customer demand is satisfied. Advantages and disadvantages of holding stock Advantages 

Meet consumer demand when stock is available

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Lead time between order and dispatch is reduced

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Stock is an asset on the business’s balance sheet

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Stock can be distributed to distribution centres, which then rapidly transports the products to places as indicated by demand.

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Older stock can be sold at reduced prices, encouraging sales of other products and improving cash flow.

Inventory management systems 1.

LIFO – last in first out

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Simplified cost analysis Suitable for goods with no use by date (machinery) An accounting of recording inventory costs

Disadvantages 

It is expensive to hold stock. Costs include storage charges, spoilage (deterioration of product – perishable foods), insurance, theft and handling expenses.

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The capital invested in stock can negatively impact cash flow

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Stock can become obsolete (out-dated)

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Results in lower net income for the business. Because as time passes, inflation will cause prices to rise, but if inventory is valued on a LIFO basis (selling new inventory first) the business will show less profit on sales as the sale date will be closer to the purchase date and inflation will have little impact on the price of the good, and therefore the business’s profit.

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Lower net income will result in a financial advantage because the business will pay less tax on a lower net income.

2.

FIFO – first in first out

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Simplified cost analysis Oldest stock sold first Appropriate for perishable stock (used by supermarkets)  

Ensures that stock on the balance sheet has a higher value. This will make COGS lower and income higher than if LIFO had been used.

3.

WAC – Weighted Average Cost

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A method of calculating ending inventory cost. It takes Cost of Goods Available for Sale and divides it by the total amount of goods from Beginning Inventory and Purchases. This gives a Weighted Average Cost per Unit.

4.

JIT – Just in Time inventory

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Aims to hold as little stock possible Only the exact amount of stock is delivered from suppliers as required. 

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Improves liquidity and therefore cash flow – as it minimises the amount of capital tied up in inventory.

For this system to work, the suppliers must be reliable and have excellent inventory management systems in place. Scheduling software is used to order the correct stock and information is exchanged through EDI (electronic data exchange)     

Reduced storage and stock security costs Increased liquidity as less capital is tied up in stock Risk of obsolescence is reduced Risk of spoilage is reduced Less warehouse space allows space to be used for cash generating activities

4.7 Quality Management Quality management refers to those processes that a business undertakes to ensure consistency, reliability, safety and fitness of purpose of product. 1.

Quality Control – reduced problem and defects in the product by using inspections at various points in the production process

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Aims to ensure that the finished outputs reach the consumer with the required level of quality

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Involves the checking of transformed and transforming processes at all stages in the production process.

Inspections

Inspections are performed when: Raw materials or inputs are received prior to entering production Whilst transformation is taking place When products are finished, prior to dispatch Problems with inspections:  Does not add value  Costs (in terms of tangible and intangible costs – materials, labour, time, morale, customer goodwill and lost sales)  It is sometimes conducted too late, resulting in defective goods being received by the customer. 2.

Quality Assurance – use of a system to ensure that set standards are achieved in production

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Done through a series of measurements and assessing them against pre-determined quality standards.

The two aspects of QA include:  Fitness for purpose – how well a product does what it is designed to do  Right first time – so that products do not need to be reworked which wastes time, energy and other resources. -

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A series of QA standards have been established due to the impact of globalisation and the international emphasis on quality. Such standards include the widely used ISO 9000 series of quality certifications, Standards Australia and AS/NZS for Australia and New Zealand standards. These standard enhance domestic and international competitiveness.

Yakult meets the highest international food manufacturing standards with an ISO of 90001:2000

3.

Quality Improvement – or TQM is an integrative philosophy of management for continuously improving the quality of products and processes.

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TQM assumes that quality is the responsibility of every organisation This approach is widely used in japan and is known as kaizen.

Improvements in quality can be measured using KPIs: Percentage of defects per 100 units manufactured Warranty claims Percentage of repeat customers Accidents or OHS incidents

Sigma six is a quality management approach that seeks to identify and remove the causes of problems in the operations process, achieving virtually defect-free production.

A focus on improvement of quality management is likely to help: Obtain and maintain a competitive advantage 4.8 Overcoming resistance to change Why might stakeholders resist change? Financial costs  -

Purchasing new equipment Rapid changes in technology increase ongoing requirements to update equipment. Managers may resist the change when assessing the cost of the equipment in comparison to their return on investment If expected gains are small, manager may defer purchase and continue with existing equipment (regardless if it is obsolete) until there is greater evidence of improve efficiency or time to plan more effectively, the required outlay of money.

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Redundancy payments Introducing any change that aims to improve efficiency, such as new technology, flatter organisational structures or outsourcing, often creates a surplus of workers in a business, making them redundant (no longer needed) Involves costly redundancy payments A business may defer changes to avoid large outlays of money

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Retraining New systems, technology and structures create a need for staff retraining.

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Costly as operations are interrupted while workers learn and practice new skills – decline in productivity and increase in errors as workers try to adapt to and become more proficient in their newly acquired skills. Staffs are often reluctant or unable to learn new skills and this creates resistance. Reorganisation of plant layout New technologies such as robotics and CAD and CAM software, flatter management structures and changes in the production process make it necessary to change plant layout. This may be a resistance factor due to its cost, inconvenience, unavailability of space and loss in production time.

Psychological factors 

Inertia - means the tendency for things to remain in their existing state Business owners may resist change as they may be cautious in their decision-making or feel that change is pointless as the business is operating successfully with reasonable profits and few problems without the change.

Other factors relating to staffing    

De-skilling New skills Loss of job prospects/ opportunities for promotion Cultural incompatibility with takeovers and mergers

Managing change effectively Change is inherent in the business world. Therefore those organisations that best manage change and respond to internal and external influences will be more successful over the long term.

Essential aspects of managing change include: 1. Identifying the need for change 2. Setting achievable goals (SMART) 3. Creating a culture of change 4. Use appropriate change models 5. Review and revise 1.

Identifying the need for change

Before initiating change, key decision makers in the organisation must recognise the need for change. Clearly communicating the need for change will encourage support from the relevant stakeholders Making change purposeful and linking the change with the vision and future direction of the business will help develop a sense of purpose for change and will reduce resistance to change. Reasons why businesses would need to respond to change include the need to: 1. Remain productive and competitive 2. Be legally compliant 3. Incorporate new technology 4. Aid efficiency and customer expectations 5. Respond to stakeholder suggestions 6. Provide a motivating and challenging workplace 7. Increase sales and market share 8. Resolve disputes 9. Ensure a successful and profitable business 2.

Setting achievable goals

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Must be SMART goals (Specific, Measureable, Achievable, Realistic and Timed) Important to provide short term wins when undertaking change, so that people involved in the change process feel a sense of achievement in their work, as well as valued and recognised – builds momentum in the change process

3.

Creating a culture of change

A culture of change is one that readily accepts that change is ongoing and that the only thing certain in business is that it is always changing. This type of culture allows for the:  Removal of structural barriers to change  Encouragement of greater levels of innovation  Readiness and willingness to be adaptable and flexible Strategies to develop a culture of change:  Behavioural management teamwork approach Helps develop a culture of change as it emphasises the need to ensure employees are well looked after and valued. 

Change agents – key workers who, by their actions and attitudes, lead others in the organisation to see the need for change. Change agents and teams foster collaboration and transfer information at a faster rate to a wiser and more diverse range of people than an individual manager or CEO. 

Change models – a framework providing a pathway for the implementation of a business change process.

Kurt Lewin’s unfreeze/change/freeze model   

Unfreeze: Breaks down the forces supporting the existing system and prepares the business for change Change: The new procedures and behaviours must be communicated and implemented. Refreezing: Requires that the manager offer positive reinforcement to make sure the change lasts.

Lewin's force field analysis is used to distinguish which factors within a situation or organisation drive a person towards or away from a desired state, and which oppose the driving forces.

4.9 Global factors 

Global sourcing

Global sourcing is a term that refers to a business purchasing inputs regardless of location. This allows businesses to source inputs from low cost locations and thus acquire economies of scale. A global web strategy is one method a business can use to source components used in production from around the world. A global web strategy will locate its financial headquarters in a developed country, source its inputs form around the world, product in the country with the lowest labour costs and export to a global market. Economies of scale

Apple maintains its research, develop, marketing and financial operations in California, with the majority of its products manufactured in China by the Foxconn Technology Group.

Economies of scales are the cost advantages that a business can exploit by expanding their scale of production. Where the more a business produces, the cheaper per unit it is to produce. Allows the business to be more:  Price-competitive  Efficient  Profitable (hence an increase in sales)

Economies of scale can include: Lower cost inputs because discount from purchasing in bulk Discounts in interest rates for debt borrowings as larger sums are borrowed Where a business has developed vertical integration (merging of two businesses) internationally, one subsidiary may sell to another, thus increasing sales for the group.

Scanning and learning -

In today’s business environment, managers have to process increases in the quality and quantity of information when making decisions. This can lead to an ‘information overload’, creating a gap between the knowledge of managers and the information that is needed in the business environment for the business to develop a sustainable competitive advantage.

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Managers will try to overcome ‘information overload’ through environmental scanning – allows managers to learn from the environment (critical for ongoing survival and success).  

Improves managers’ knowledge Assist them with problem solving and strategic planning

Three forms of scanning: 1. Ad-hoc scanning – not planned and usually infrequent 2. Scheduled scanning - done on a regular basis (once every 6 months) 3. Continuous scanning – ongoing data collection and analysis on a broad range of factors in the business environment. Research and Development Innovative companies spend time and money on R&D. This is a way of gaining and maintaining a competitive advantage. R&D is expensive but offers advantages of:   

Extending the product cycle Opening up new markets internationally Providing a reputation as an innovator

 Improving quality  Reducing costs  Increasing profits.