Thought for the day:

“Think ahead. Don't let day-to-day operations drive out planning.”

OPERATIONS

OPERATIONS STRATEGIES

GET AN A

Knowledge

Application & Analysis

Evaluation

AGrade

Understand

Define, Clarify, describe, extract, identify, outline, recall,

recount, state summarie

Compare, Contrast, distinguish,, construct,

calculate, explain.

Apply, Examine, Analyse, Interpret, Formulate.

To what extent, Evaluate, discuss, justify, advise, recommend.Band 6

Band 5

Band 4

Band 2/3

OPERATIONS STRATEGIES-SYLLABUS

performance objectives – quality, speed, dependability, flexibility, customisation, cost

new product or service design and development supply chain management – logistics, e-commerce, global sourcing outsourcing – advantages and disadvantages technology – leading edge, established inventory management – advantages and disadvantages of holding stock, LIFO

(last-in-first-out), FIFO (first-in-first-out), JIT (just-in-time) quality management Control Assurance improvement overcoming resistance to change – financial costs, purchasing new equipment,

redundancy payments, retraining, reorganising plant layout, inertia global factors – global sourcing, economies of scale, scanning and learning,

research and development

OPERATIONS STRATEGIES• To achieve operations goals and broader business goals, operations managers can

apply numerous operations strategies.

• Overview of the operations strategies

Operations strategies are based around the need to achieve performance objectives.

These performance objectives help define what inputs are required and influence all aspects of the transformation processes.

PERFORMANCE OBJECTIVESWhen dealing with the operations function of business, there are particular performance objectives that are targeted by managers.

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

These objectives or targets will be set so that the business becomes more efficient, productive and profitable.

PERFORMANCE OBJECTIVESThe six main performance objectives that can be allocated to particular key performance indicators (KPIs) are:

• quality • speed • dependability • flexibility • customisation • cost.

KPIs – a specific criteria used to measure the efficiency and effectiveness of the businesses’ performance (pg 46)

PERFORMANCE OBJECTIVES – Quality including:

• design — how well a good is made or a service is delivered• conformance—how well the good or service meets a prescribed design with a certain specification• service — how reliable, suitable and timely the service delivery is.

– Speed: the time it takes for the production and the operations processes to respond to changes in market demand.

PERFORMANCE OBJECTIVES –  Dependability: how consistent and reliable a business’s goods or services

are.

–  Flexibility: how quickly operations processes can adjust to changes in the market.

–  Customisation : the creation of individualised goods or services to meet the specific needs of the customers.

–  Cost: the minimisation of expenses so that operations processes are conducted as cheaply as possible. • Each of the performance objectives will be allocated targets or goals.

ACTIVITY:#3. (pg 77) Complete a concept map to summarise the three quality performance objectives. ………The concept map has been started for you.

ACTIVITY:(pg 77)4  Demonstrate what is meant by the term ‘speed’ in relation to

operations processes. 5  Recall three goals for speed. 7  Explain the relationship between dependability and the number of

warranty claims or complaints received. 8  Describe how flexibility of processes is linked to market demand. 9  Explain why full customisation of products is rare. 10  Account for why many businesses offer mass customised

products.  Identify three operational strategies a business can use to reduce

cost.

EXTENSION:

NEW PRODUCT OR SERVICE DESIGN AND DEVELOPMENT

An important strategy for the operations processes of business is the creation, or design and development, of new products (goods and services).

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

Activity: Note key points - Pg 78 –> 80 – 4.2 New product or service design and development

A business needs to design and develop new products and services. There are two different approaches that determine product design

and development: –  consumer preferences –  changes and innovations in technology. Important factors in new product design and development include: –  quality –  supply chain management –  capacity management –  cost.

Service design and development differs from the design and development of products as services are intangible and ‘consumed’ as they are produced.

A service can be: –  explicit — the application of time, expertise, skill and effort –  implicit — the feeling of being looked after.

Account for why Apple is successful even though it does not base its product design and development on market research.

ACTIVITY – PG 81

3  Summarise the four factors that must be given consideration when undertaking new product design and development.

4  Explain the role of the customer or client in the design and development of a service.

5  (a) Compare explicit service with implicit service. (b) Outline the relationship between explicit service and implicit service. Extension 2  We figure out what we want... So you can’t go out and ask people, you know,

what’s the next big [thing]. There’s a great quote by Henry Ford, right? He said, ‘If I’d have asked my customers what they wanted, they would have told me “A faster horse”’.

Steve Jobs, Apple CEO. Assess the accuracy of this statement.

ACTIVITY – PG 81

SUPPLY CHAIN MANAGEMENT

Supply chain management (SCM) involves integratingand managing the flow of supplies throughout the inputs,

transformation processes (throughput and value adding) and outputs in order to best meet the needs of customers.

SUPPLY CHAIN MANAGEMENT Note 4.3 - Pg 81 – 87 ‘4 – 5 key words under each heading’

• Sourcing

-supplier rationalization

-Backwards vertical integration

-cost minimization

• Global Sourcing

• Ecommerce

-Business sourcing & ecommerce

- Ecommerce & the consumer

• Logistics

-distribution

-transportation & distribution

-storage, warehousing & distribution centers

-Materials handling and packaging

OUTSOURCINGOutsourcing involves the use of external providers to perform

business activities.

The theory behind outsourcing is that when a service is performed by an external provider that specialises in a particular business function, it will do so at a lower cost and with a greater effectiveness than the same task done within the business hierarchy.

The term ‘outsourcing’ is often called business process outsourcing (BPO).

OUTSOURCINGBusiness process outsourcing is a term that captures a range of

outsourced business processes including: • operations such as manufacturing, value-adding manufactures,

design, merchandising, sourcing, distribution and logistics • human resources including employee remuneration, employee

counselling, pensions, data management, training and development, and travel and expenses management

• administrative work including data entry and ‘back office’ work • information technology (IT) including data work, desktop

outsourcing and network outsourcing (remotely hosted software applications)

OUTSOURCINGOther types of outsourcing include: • Finance and accounting outsourcing (FAO)including preparation of

financial accounts and reports, analytics, and taxation compliance • Knowledge process outsourcing (KPO) including the outsourcing of

managerial work such as marketing strategy, public relations and management decision making

• Legal process outsourcing (LPO) including paralegal support, legal support (including drafting, research and counsel) and other legal services (such as patents and trademarks).

THE OUTSOURCING DECISION Before a business decides to use outsourcing as an operations strategy,

operations managers need to assess whether the use of outsourcing is viable.

THE OUTSOURCING DECISION What are the factors that must be considered when assessing whether

and when to use outsourcing……pg 89 - 90

THE OUTSOURCING DECISION The factors that must be considered when assessing whether and when

to use outsourcing are: Whether to outsource or not: this requires assessing whether the use

of outsourcing is cheaper and more efficient that performing the work in-house.

If deciding to outsource, the managers must decide which geographical location is favoured.

The managers must also decide which vendors to use. If the decision is to outsource then details such as the management of

the outsourcing contract, the length of contract, the KPIs and service levels are required.

THERE ARE FOUR DIFFERENT OUTSOURCING OPTIONS THAT CAN BE USED:

OUTSOURCING OPTIONS… QUESTIONS…Which outsourcing service can then outsource the service? Which is offshore and uses external organisations? Which is a short term stratagey? Which is in-house? Which is the lowest risk? Which involves re-locating services? Which is best if you want to ‘test the water?” of outsourcing?

OUTSOURCING OPTIONS… ANSWERS…Which outsourcing service can then outsource the service?

(Joint venture)Which is offshore and uses external organisations? (Build-

operate-transfer)Which is a short term stratgey? (Fee-for service)Which is in-house? (Creation of shared Centers)Which is the lowest risk? (Fee-for service)Which involves re-locating services? (Build-operate-transfer)Which is best if you want to ‘test the water?” of outsourcing?

(Fee-for service)

The incidence of outsourcing, either domestically or globally, is increasing worldwide, with business structures changing to benefit from lower cost and greater efficiency.

Outsourcing can be highly beneficial for businesses, but it also can present a number of significant challenges or issues.

OUTSOURCING: THE ADVANTAGES AND DISADVANTAGES

P L A Y

OUTSOURCING: THE ADVANTAGES AND DISADVANTAGES

A D V A N T A G E S

–  simplification –  efficiency and cost savings –  increased process capability –  increased accountability –  access to skill/resources

lacking within the business –  provides a capacity to focus

on core competencies thus improvingin-house

performance and several strategic benefits.

D I S A D V A N T A G E S–  the cost and uncertainty

associated with payback –  issues with communication

and language –  loss of control of standards

and information security –  loss of corporate memory

and costs associated with IT, organisational

change, redesign and management of hierarchies.

TECHNOLOGY — LEADING EDGE, ESTABLISHED The thoughtful application of technology helps a business create a

competitive advantage. Leading edge technology —the most advanced or innovative at any

point in time — can help businesses to: create more products quickly and to higher standards reduce waste operate more effectively. Established technology —that is widely accepted and used—helps to

establish basic standards for productivity and speed. Both forms of technology give businesses efficiencies ,productivity

gains and a capacity to improve operations processes.

1  Distinguish between leading edge and established technology. 2  (a) Identify two (i) leading edge and (ii) established technologies

within your school. (b) Deduce the benefits these technologies provide to your learning

environment. 3  Outline two benefits of leading edge technology. 4  Explain the relationship between innovation and technology. 5  ‘Businesses need to acquire leading edge technology in order to

compete effectively.’ Discuss. 6  Recall four forms of established technology.

TECHNOLOGY — LEADING EDGE, ESTABLISHED

INVENTORY MANAGEMENTIn groups - PlanYou have four minutes to explain the concept of:• Holding stock (adv & disadv)• LIFO• FIFO• WAC• JIT

QUALITY CONTROL

AND QUALITY ASSURANCE

STOCK CONTROL

STOCK CONTROLCosts: Storage costs – warehousing, etc. Depreciation costs – wear and tear, perishability, shelf-life, etc. Opportunity cost – zero revenue earned on stocks sitting around! Administration costs – monitoring stock levels, ordering and

processing, etc.

STOCK CONTROLBenefits: Availability of stocks to meet customer needs Buffer stocks help to cope with unplanned changes in demand Smoothes out the volatility of lead times

STOCK CONTROL

Stock Level

Time

Maximum Stock Level

Minimum Stock Level

Re-order level

The Traditional Stock Control Model Maximum stock levels achieved after stock delivery. Stock levels decline during production.

When the stock level reaches the re-order level, it triggers a new order. The difference between the time of re-order and delivery is the ‘lead time’.

Lead Time

Re-order triggered

ALTERNATIVESComputerisation – The functionality and power of

computers allow companies to be able to keep accurate stock control processes in place.

Use of bar codes has facilitated this. Allows constant flow of information to distribution centres.

Just-In-Time – Minimise the amount of stock held – in pure systems, the stock arrives as it is needed.

JIT – relies on excellent relationships with suppliers JIT – requires excellent communication and infrastructure links

between suppliers and businesses

QUALITY

WHY IS QUALITY A CONCERN?Gives competitive

advantageEncourages return

purchasesProvides customer with

information and builds consumer confidence in the brand

Reduces costs incurred in solving post sales problems

Helps improve efficiencyIf quality control breaks down,

the cost can be severe.Source: Photolibrary Group

QUALITY CONTROL

QUALITY CONTROLThe responsibility of every member of the workforce for the

quality of products and services provided by the business.Emphasis on reducing defects, etc. before it gets to the final

stage of production and certainly to the consumer.

TQM (TOTAL QUALITY MANAGEMENT)Name given to quality controlFeatures of TQM: Quality Circles – meetings of relevant workers

to discuss issues relating to maintenance and improvement of quality in the business – may also double as a form of empowerment and motivation.

Statistical Process Control – statistical data generated to inform the evaluation of processes within the business.

Zero defects – systems in place to ensure that no product leaves the business with a defect – important in building supplier relationships, image, reputation.

QUALITY ASSURANCE

QUALITY ASSURANCEThe process whereby quality is at the forefront of every stage

of the development, design, marketing, manufacturing and selling process.

‘Quality’ is influenced by the internal philosophy of the business and the external influences -

GLOBAL FACTORS1 Recall four global factors that affect operations strategy and that provideopportunities for operations managers.2 Demonstrate, using examples found in your home, how your family uses globalsourcing.3 State the benefits and challenges associated with global sourcing.4 Distinguish between financial and contractual concerns associated with globalsourcing.5 Define the term ‘economies of scale’.6 Explain the relationship between economies of scale and profi tability.7 Clarify why an effective manager should continuously scan the business environment.8 Outline the importance of R&D as an operations strategy.(pg 115)

RESISTANCE TO CHANGEWhy do you like/dislike change?

Explain what this tells you about the strategy a manger could best use to help overcome resistance to change.

Play: 6 mins: http://www.youtube.com/watch?v=hcz1aZ60k7w&feature=related

RESISTANCE TO CHANGEWas covered in perlimary course.

Businesses change in response to the external environment, globalization and the need to maintain a competitive advantage through operations.

Driving Forces – Push towards the need for changeRestraining forces - those that hold the business back and

resist any change that is attempted.Mgt challenge = to identify and develop strategies to

overcome the resistance to change.

The driving forces for change must outweigh the resisting forces.

Force Field anayslis: http://www.youtube.com/watch?v=64t_NIAG2QY&feature=related

Change in 30 seconds: http://www.youtube.com/watch?v=fpuHUiy_xog&feature=fvwrel

In operations the resisting forces will be related to cost and inertia.

Cost: purchasing new equipment, redundancy payments, training, changing layout.

Inertia: people react emotionally, not embracing the opportunity, wishing things remain the same.

Note: Cambridge pg 82 - 84

RESISTANCE TO CHANGE

GLOBAL FACTORS• There are four key global factors that affect operations strategy and

provideopportunities for operations managers: global souring, economies of

scale,scanning and listening, and research and development (R&D).• Global sourcing is a broad reference to sourcing business supplies or

serviceswithout being constrained by location and it therefore includes all

outsourcing.• Economies of scale can lead to significant cost saving in various

aspects of thebusiness enterprise.• Scanning and learning can be a very valuable operations

management tool asit can help managers adapt best practice to the business operations.• R&D can make a very big difference