Operations management

1. Operations management Unit 3, area of study 3

2. key skills 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.

3. Key terms to add to your definitions…so 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

4. The operations function and its relationship to business objectives and business strategy

5. What is operations management?

6. What is operations management? 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. Procuring materials, labour, technology, finance etc. Final good or service for sale Utilising the inputs in the production process

7. Activity time! baking bread at benny’s bakery • What are the inputs required to bake bread? • What are the processes required to bake bread? • What is the output?

8. 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?

9. 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.

10. The role of the operations manager • Levels of planning and decision making in operations management Somers, Cain and Jeffery (2011) p.133

11. Operations mgmt: the heart of all organisations Operations (producing the actual good or service for sale) is the core function or purpose of an organisation. It is what generates the revenue! 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 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.

12. Link between ops man & bus. objectives & strategy

13. Predict what would happen to bread prices at Benny’s Bakery if Benny purchased a larger oven? Operations management influences the quality, cost availability of goods and services and therefore profit generated by the company. Predict what would happen to bread prices at Benny’s Bakery if Benny was able to change suppliers and decrease the cost of flour from 1.00 p/kg to 50 cents p/kg? 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. How does the operations management function assist the business to achieve its objectives?

14. Practice sac question • CASE STUDY INFORMATION • “Benny’s 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, Benny’s 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 Benny’s Bakery as an example.

15. 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. • Benny’s 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 Benny’s 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 Benny’s organisational objectives.

16. Characteristics of operations management within large-scale manufacturing and service organisations

17. Think-pair-share - 2014

18. Think-pair-share - 2013

19. Think-pair-share - 2012

20. Activity time!

21. 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.

22. Operations management: key differences between goods & services It’s important to know the differences between goods and services with respect to the operations management function. Somers, Cain and Jeffery (2011) p.136

23. Key elements of an operations system in different types of LSO

24. 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.

25. 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.

26. 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.

27. 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.

28. Productivity and business competitiveness, their importance for and impact on the operations system

29. 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.

30. 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.

31. ACTIVITY TIME!

32. 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

33. 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: • Facilites design and layout. • Materials management. • Management of quality. • The extent of the use of technology.

34. 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. KEY IDEA: The physical layout of plant and equipment impacts the efficiency of the organisation’s operations. Consider how the layouts described affect the operation of the system and therefore affect the achievement of the organisation’s objectives.

35. 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.

36. THINGS TO THINK ABOUT WHEN MAKING FACILITIES DESIGN AND LAYOUT DECISIONS • Occupational health and safety lawsmust 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.

38. 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. Fixed-position (project) layout Examples: Bridges, ships, aircraft, buildings. Aircraft assembly: http://www.youtube.com/watch?v=H_oIh7qxCbQ

39. 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=f3G3Vm60nqE

40. 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 volumesbut 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

41. 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

42. 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.

43. 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 can’t find what they need efficiently. Examples: Supermarkets and variety stores (Kmart, BigW)

44. 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 theirproductivity. Examples: Bank, Law Firm, School staff room.

45. LEAN MANUFACTURING • 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. • A philosophy – not a facilities option. • It’s about streamlining production and minimising the use of resources. • It’s about removing activities and processes that don’t add value to the product. • It involves…. • Identify what the customers want (quality, customer service, variety etc.) • Identify all steps taken to make the product. • Make all processes flow. • Remove processes that don’t produce what the customer wants. • Ensure that the process only produces the quantity demanded by the customer. • Identify and remove waste wherever it exists.

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

47. 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.

48. 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

49. Office technology Refer to “office technology” p.128

50. ACTIVITY TIME! TIME TRAVEL…. • Let’s consider how some service industries might have operated without modern technology.