4.

Operations Strategies
1 Performance objectives quality, speed, dependability, flexibility,
customisation, cost
Quality:
1. Quality of design:
Understanding of consumers and their preferences
How well a product is made or a service is delivered
Characterized by high grade materials, durability
Determines type of input and transformation process
2. Quality of conformance:
Focus on how well and consistently the product meets the standard of a
prescribed design with certain specifications
3. Quality of service
1 How reliable the service is
2 How well the eservice meets the specific needs of the client
3 How timely or responsive the service delivery is

Speed:
Time it takes for the production and the operations process to respond to
changes in market demand
Goals for speed:
1 Reduced wait times
2 Shorter lead times
3 Faster processing times
Removal of bottlenecks but can degrade quality
Dependability:
How long the products are useful before they fail
Measured by warranty claims
Perishable products can be dependable if they are of consistent and predictable
standard
In services, measured by number of complaints received

Flexibility (adaptability):
How quickly operations processes can adjust to changes in the market
Product:
1 increasing capacity of production by using plant and machinery better
2 new technologies that increase flexibility and capacity
3 changing product design thus creating broader variety, to better meet a
broader range of consumer desires
Services:
1 Increasing number of service providers
2 Increasing the providers skill level
3 Improving level of technology used when providing the service

Customisation:
Creation of individualised products to meet the specific needs of the customers
 Mass customisation: process allowing standard, mass-produced item to be
personally modified to specific customer requirements.
Cost of customisation is higher than the cost of mass producing standardised
products, therefore only business with a product easily adapted (Dell computers
offer various levels of memory and functionality) tend to customise unless the
actual business model is one of a customised approach to all products

Cost:
Minimisation of expenses so operations processes are conducted as cheaply as
possible
All businesses want to minimise expenses to make operations as cheap as
possibly
acquisition of new technologies
use inputs better
minimise wastage
reduce supplier costs
manage inventory to reduce cost and maximise flexibility
find distribution methods cost and time effective

2 New product or service design and development

Product design and development:
Consumer approach requires identification of customer taste and needs
through market research
Change and innovations in technology enable new appealing products top be
made because they use advanced technologies, which give products greater
functionality.
Considerations include quality, supply chain management, capacity
management and cost
Consider Product utility: usefulness and value that a product has from the
consumers point of view

Service design and development:

Always takes position of customer/client as starting point
Can increase breadth of skills and services they offer, make services and results
more complex or provide more options to consumer, better e quipment
Consider:

Explicit service: tangible aspect of the service being provided, such as the
application of time, expertise, skill and effort
Implicit service: feeling of psychological wellbeing or looked after

3 Supply chain management logistics, e-commerce, global sourcing

Logistics:
Broadly refers to distribution including:
1 Transportation
2 use of storage, warehousing, distribution centres
3 materials handling and packaging
Distribution: ways of getting goods/services to consumer
Transportation:
Type of product and cost of transportation will determine the mode of
transportation selected
Some products, due to their nature, can be transported only by particular modes
(coal, crude oil can be transported only by freighter on the seas or by train on
land)
Storage, warehousing and distribution centres:
Storage: finding a secure place to hold stock until it is required
Warehousing: use of warehouses for the storage, protection and distribution of
stock
Distribution centres: Strategically located to minimise time taken to supply
stock to retail outlets
Costs include:
premise
insurance and security for stock
Stacking and moving the stock
Carrying excess stock or redundant stock if not sold
Shrinkage costs and losses from theft or reasons not accounted for
Stock subject to damage if not correctly stored (water damage)
Materials handling and packaging:
Some products require particular skills, care or attention when being moved
(delicate glassware needs to be transported and stored carefully, packaged for
damage protection)

E-Commerce:
Buying and selling of goods and services via the internet
E-procurement: use of online systems to manage supply, allowing suppliers to
access business supply levels without formal request from buyer
also known as B2B (business to business): direct access from one business
(supplier) to business (buyer)
B2C (business to consumer): selling of goods and services to consumer over
the internet (credit card)
Stock levels must be managed well and information exchanged frequently so
that accurate stock levels can be presented to prospective customers

Sourcing:
Purchasing of inputs for the transformation process
Factors influencing choice of sources/suppliers:
1 Consumer demand
2 Quality of inputs required
3 Flexibility and timeliness of supply
4 Cost of supplier
Global sourcing: businesses purchasing supplies or services without being
constrained by location, buying or sourcing from wherever to best meet the
sourcing requirements
Benefits: cost and expertise advantages, access to new technologies and
resources
Challenges: increased cost of logistics, slower lead times, loss of control over
quality
 Supplier rationalisation: use of online systems to manage supply, which
allows supplies direct access to the business level of supplies
Backwards vertical integration: guarantees suppliers and achieves time and
cost savings

4 Outsourcing advantages and disadvantages

Use of external providers to perform business activities
Often called Business process outsourcing (BPO) which includes:
1 Finance and accounting outsourcing (FAO)
2 Knowledge process outsourcing (KPO)
3 Legal process outsourcing (LPO)
1. Onshore (in the same nation)
2. Near-shore (in a close nation within the region)
3. Offshore (a third nation that can be outside of the immediate region)
Considerations:
Is it cheaper?
geographical location
which vendors?
Outsourcing options:

Outsourcing option Features

Creation of shared services centres
(SSC)
Use of fee-for-service arrangement
Joint ventures
Use of a build-operate-transfer
approach
An in-house outsourcing options
involving creation of an in-house centre
that performs work for multiple
subsidiaries
Low-risk, short-term strategy involving
engaging supplier for fixed services at
pre-determined price. Allows business to
test outsourcing market prior to making
a change.
Engages an outsourcing services
provider but the provider is also free to
outsource to other businesses in the
same industry.
Involves offshore outsourcing,
contracting with external organisations.
Use of contracts that detail agreed levels
of service against pre-determined KPIs.
Relocation of services to a new offshore
location (build-operate) is then
transferred to independent vendor that
company contracts.

Co-sourcing: two parties fully involved in managing the success of the

particular aspect of business, work is not done by an external party, but rather
by an external expert who works within the business as a contractor. Help
business take better control over what is given to a specialist third party.

Advantages Disadvantages:
1 Simplification
2 Efficiency and cost savings
3 Increased process capability
4 Increased accountability
5 Access to skills/resources
lacking within business
6 Capacity to focus on core
business/key competencies
7 Strategic benefits:
1 get around trade barriers
2 expertise
3 trading in different time
zones
4 strong partnerships lead to
vendor suggesting
innovative solutions
8 Improvements to in-house
performance
1 Payback periods and cost
2 Communication and language
3 Loss of control of standards and information
security Hierarchies
4 Organisational change and redesign
5 Loss of corporate memory and vulnerability
Shadow teams: retain corporate
knowledge
6 Information technology: cost and time
associated with use and adaptation of IT to
the specific requirements of business and
the outsourcing vendor

5 Technology leading edge, established

Leading edge technology: technology most advanced or innovative at any
point in time
Help business create products quicker and to higher standards with less waste
Can be buggy and have issues, problems receiving support
Established technology: technology developed and widely used, accepted
without question
Establish basic standards for productivity and speed
Barcoding, point-of-sale (POS) data, robotics, CAD, CAM, CIM
Bleeding edge technology: technology so new it has reliability risks

6 Inventory management advantages and disadvantages of holding

stock, LIFO (last-in-first-out), FIFO(first-in-first-out), JIT (just-in-time)
Inventory/stock: amount of raw materials, work-in-progress and finished goods
that a business has on hand
Can be viewed as under-utilised or unused resources
Represents difference between what is supplied to the business as product
inputs and what leaves as outputs

Advantages of holding stock Disadvantages of holding stock

1 Consumer demand can be met when
stock is available. This may prevent the
consumer from seeking to buy from an
alternative business. (risk reduction
strategy)
2 Alternative offered if product line runs
out, generating income instead of lost
1 Cost: storage charges, spoilage,
insurance, theft and handling
expenses
2 Invested capital, labor and
energy cannot be used
elsewhere as it has been used
to create the stock
 sale. 3 Cost of Obsolescence if stock
3 Reduces lead times between order and remains unsold
delivery
4 Opportunity to generate immediate
revenue
5 Can be distributed to distribution
centres, then rapidly transported by
demand
6 Older stock attract further income at
discount
7 Asset on balance sheet
8 Cheaper to produce in bulk

Inventory Valuation Methods:

Different ways to value profit and cost of remaining inventory at end of financial
period
Cost of sourcing supplies changes throughout financial period
LIFO: (last-in-first-out)
Method assumes last goods purchased are also the first good sold and therefore
cost of each unit sold is last cost recorded
When costs of purchased goods rises overtime, LIFO can inflate cost and
understate gross profit
Undervalues stock on hand at end of the period
Used for technology
FIFO: (first-in-first-out)
Method assumes first goods purchased are also the first goods sold and
therefore cost of each unit sold is first cost recorded
Costs may be understated and profits overstated
Overvalues stock on hand at end of the period
Used for products with a use-by-date

JIT: (Just-in-time)
Inventory management approach ensuring that exact amount of material inputs
arrive only as they are needed in the operations process
Aims to overcome the problem of end-of-period stock valuation: a lean
production method
Saves money as there are no holding and insurance costs
Flexible operations and suppliers required
Shrinkage costs and losses by minimising obsolescence
Not an inventory valuation technique

Weighted average cost: average cost that takes into account all different cost
prices

7 Quality management
 Processes a business undertakes to ensure products are consistent, reliable, safe
and fit for purpose

Quality Control inspection, measurement and intervention

Reduces problems and defects in product by using inspections at various
points in the production process (REACTIVE APPROACH)
Business sets quality standards and applies them to see if products meet
them
Discrepancies require appropriate action to rectify issue in operations
process
Attribute inspection: passing items with attributes eg giving them yes or
no
Quality Assurance application of international quality standards
Use of a system to ensure set standards are achieved in
production(PROACTIVE APPROACH)
Series of measurements taken and assessed against predetermined
standards of quality on aspects like fitness for purpose
Monitoring and evaluation of various processes to ensure minimum level
of quality achieved
Aim to achieve right first time
Global quality assurance standards introduced due to globalisation and
global sourcing
ISO 9000 (International Organisation for Standardisation) is voluntary but
compliance enhances domestic and international competitiveness
Quality Improvement total quality management and continuous
improvement
Focuses on continuous improvement and total quality management
Total quality management: (TQM) (W. Edwards Deming)
Holistic approach where quality becomes responsibility of every employee
Excellence required in all aspects of operation
Build product right in the first place by involving employees in QM process
4 elements: Benchmarking, Employee empowerment, focus on customer,
continuous improvement
Continuous Improvement
Belief that processes will be made more efficient and effective over time
Achieved through innovative breakthrough or incremental steps
Require inclusion of staff encouraged to show initiative
8 Overcoming resistance to change financial costs, purchasing new
equipment, redundancy payments, retraining, reorganizing plant
layout, inertia

Financial Costs: Explanation

Purchasing new Investment in machinery has high capital costs
equipment Recouped through use (add value in transformation) and
deprecation
Benefits:
1 Improved processing flexibility
 2 Improved processing speeds, shorter lead times
3 Consistency in production
4 Higher overall quality of processing
5 Reduced wastage and losses from equipment failure
Redundancy payout Loss of work arising from job skills no longer required
or relevant to workplace
Money given to employees when they are forced out
of work because their jobs skills are no longer
relevant
Can be high depends on:
1 Length of employment
2 Level of pay employee was on prior to being made
redundant
3 Amount of unused leave employee accrued
4 Outstanding wages
Often brought about due to capita/labour substitution
Retraining Arises from change causing in reorganisaiton of
business internal hierarchy or acquisition of technology
Reorganising plant Introduction of new products or technology
layout necessitates change in plant layout
Completely re-engineering plant requires expensive
reorganisation of facilities
Costs incurred in downtime and bringing power
Productivity affected as new employees come to
terms with new environment

Psychological:
Inertia: Psychological resistance to change
Threatened job prospects and technology are intimidating for managers and
employees

Change management strategies:

1 Identify source of change and assess whether there is need to accommodate
change through adjustments to business process
2 Small incremental steps
3 Lower resistance to change by communication
4 Change agents: somebody who initiates change or facilitates the change
process
5 Kurt Lewins model:
1 Unfreeze: breaks current system and prepares business for change
2 Change: new procedures and behaviour communicated and
implemented
3 Refreeze: requires manager offering positive reinforcement to make
sure change lasts

9 Global factors global sourcing, economies of scale, scanning and

learning, research and development
Global sourcing:
 Benefits
Cost advantages
access to new technologies
advantages of expertise
labour specialization
access to other resources
ability to operate over extended
hours
Financial concerns
exchange rate fluctuations
Challenges
possible relocation of aspects of
operations
increased cost of logistics, storage
and distribution
managing different regulatory
conditions between nation
increasing complexity of overall
operations
Contractual concerns
language and cultural variations,
regulatory differences, misunderstanding
created by poorly negotiated service
level agreements

Economies of scale:
Cost advantages gained by producing on large scale
Need to sell globally becomes a decision based on scale advantages, as scale of
production increases, costs per unit falls, meaning profitability rises.
Product life cycles are extended, meaning there is greater added value on
production.
Can be created through:
1 Producing in high volume
2 Capital investment
3 Improved use of technologies
4 For multinational corporations (MNC):
marketing, global branding and global advertising savings costs on
duplication
5 Application of training, development and range of HR strategies
Scanning and learning
All businesses benefit from scanning the global environment and learning from
the best practice of businesses around the world
Diversity of experience helps businesses learn how to handle any issue with
flexibility and insight
Can be achieved by:
1 Reading management journals,
2 Becoming part of business associations
3 Attending conferences
4 Gained from staff members who have worked in other nations
Research and development (R&D)
Helps businesses create leading edge technologies, innovative products and
solutions
Government encourages R&D and may offer taxation incentives and grants
Central aspect is ascertaining what consumers want and assisting to create
products that meet their needs