Business Management UNIT 3 AOS 3 - Operations management
Supply chain management
-----> A typical supply chain starts with the sourcing of natural resources -----> followed by manufacturing activities such as component construction and assembly. ------>The supply chain moves on to storage facilities ------>before reaching the consumer. It is from this range of suppliers that the business purchases materials and resources. The supply chain needs to be well managed because an operations system depends on the inputs. Supply chain management is critical for the following reasons: • If materials are not on hand, nothing can be produced. • If materials are of inferior quality, it is difficult or costly to produce quality products. • If the right quantity of materials is not available, the business cannot meet demand. Supply chain management involves - assessing the location in terms of distance to suppliers - considering the efficiency of delivery - the stock-use rate - the uniformity of quality and pricing - comparisons with other suppliers of similar product to identify whether they can better meet the business's needs In recent years, many businesses have had to come to terms with developing more sustainable supply chains or 'greener supply chains'. For example, Australian road freight company Linfox uses aerodynamic trucks and trailers to maximise efficiency, has reduced power consumption at its offices and warehouses, and uses smarter vehicle routes to reduce its greenhouse gas emissions. Nays - can be very expensive to implement - successful supply chain management requires preparation and training of staff - can be complex and specific parts of the chain may be difficult to manage - some aspects of the supply chain may be in another part of the country or overseas - if one part of the chain breaks down, the ability of the business to deliver products to customers may be negatively impacted. For example, if the business cannot get materials, if a website crashes, if inventory cannot be located in a warehouse or if a delivery vehicle breaks down, a business's operations system may come to a standstill.
DP 3 - Operations management within both manufacturing and service businesses
A manufacturer will transform inputs into tangible products. Tangibles are physical products that can be handled and stored before they are sold to the consumer, such as bread, clothing or a car. The production process and consumption are not linked. That is, there is little customer involvement in production. A service business will transform inputs into services. Services are intangible, which means that they cannot be touched. For example, if you attend a training course, you cannot physically touch it, but you benefit from gaining knowledge and learning new skills. Services cannot be stored and the customer may actually need to be present when the service is being delivered. For example, the customer must be present when receiving a haircut. Manufacturing businesses - Produce goods that are tangible (can be touched) - Manufactured goods can be stored for later use - Little customer involvement in production — the consumer is typically not present when the good is produced - Production process and consumption are not linked - Manufactured goods tend to be homogenous or standardised - Examples include bread, clothing, cars Service businesses - Produce services that are intangible (cannot be touched) - Services cannot be stored - Customer is involved in the production — the consumer typically has to be present when the service is produced - Production process and consumption typically occur at the same time - Services tend to be differentiated or tailored to individual customers - Examples include haircut, transport, education Many businesses today produce a combination of both manufactured goods and services. e.g - Products such as cars or electronic equipment often come with a warranty and other services. - When a customer enters a contract with an internet provider, they will receive a service (their broadband connection), a modem and other goods necessary to enable the connection. Regardless of whether a business manufactures a good or produces a service, most large businesses will have an operations function or department. The strategies that the operations area uses will differ according to whether the business manufactures a good or provides a service. A bank, for example, would not be as concerned with the management of materials as a car manufacturer would be.
DP 6 - The management of quality
A quality product - has a high degree of excellence - achieves the purpose for which it was designed - should be reliable - easy to use - durable - well designed - delivered on time - it should include after-sales services - have an agreeable appearance Quality is very important to Tatura Milk Industries, a wholly owned subsidiary of Bega Cheese Limited. The business manufactures quality dairy products from milk supplied by dairy farms in regional northern Victoria. When managing quality, a business will: • minimise waste and defects • strictly conform to standards • reduce variance in the final output. Operations managers use a variety of strategies to maintain or improve quality. Tatura Milk makes use of quality control and quality assurance. Many businesses use an approach called Total Quality Management.
Website development
A website can be used for marketing but it can also be developed for operations purposes. The operations department may work with technology support to develop ways to make it easier for customers to purchase goods or services online or to share information. Online sales functions may be added to the website or upgraded. For example, an upgrade might involve improving a shopping cart or a checkout process. A business may also develop its website to provide information to employees, customers and suppliers. A section for policies, such as a privacy policy or a returns policy and an FAQ section for addressing the most frequently asked questions of a support team could be included on a website for customers. yays - make it easier for customers to purchase goods or services online or to share information - can allow customers to make bookings or appointments - can be used to increase the amount of information it gets from its customers and analyse this information. - provide detailed information to suppliers e.g it can make procurement activities available to potential suppliers - have a portal for suppliers to identify and obtain qualified suppliers - deliver consistent messages to customers and suppliers - gain customer feedback - mean that a business is accessible 24 hours a day, 7 days a week - reduce the costs of labour and of leasing or purchasing physical space. nays - designing, registering and publishing a website may initially be expensive and time-consuming. - websites do crash so the loss of access to the business when there is a malfunction may prevent customers or other stakeholders dealing with the business. - operating a website may require employees to be trained in website design and maintenance, and a lack of this skill set may lead to employees losing their jobs. - the business will need to ensure that a website that will handle private and sensitive personal information provided by customers can effectively protect this information.
Automated production lines
An automated production line is comprised of machinery and equipment arranged in a sequence with components added to the good as it proceeds through each step. The good usually moves along the line on a conveyer belt. An automated production line does not need employees directly involved in its operation as all or part of the process is controlled by automation; that is, it is self-operating or controlling. Computers manage the process and humans are likely to be given the task of monitoring the operations system. A typical key feature of an automated production line is the use of robotics — a form of technology that is capable of complex tasks. Robots are used in engineering and specialised areas of research, as well as on automated production lines, where a programmable machine capable of doing several different tasks is required. Yays - robotics allows for a degree of precision and accuracy generally unmatched by human labour - robots work without complaint or demands for wage rises, in conditions that would be repetitive, difficult or even dangerous for employees - an automated production line does not need employees directly involved in its operation Nays - Robotics is a high-cost form of technology that can be unaffordable for many small and medium-scale manufacturers.
Example of the key elements of an operations system
An operations system for a manufacturing company producing building products Inputs - Materials — water, steel and electricity - Capital equipment — factories, trucks, forklifts and tools - Labour — process workers, store-persons, drivers, machinery operators, labourers - Information — the use of advances in technology and research Time Transformation process - Design - Manufacturing - Quality control Output - Building product An operations system for a bank or financial institution, delivering financial services Inputs - Materials — computer software and paper - Capital equipment — security screens, computers, safes and office furniture - Labour — tellers, mobile lenders, managers and lawyers - Information — provided by market research companies to assist in product design and delivery - Time Transformation process - Ensuring good customer service - Ensuring the computer systems work - Establishing banking systems and procedures Output - Delivery of financial services to the customer
DP 1 - Operations management
Businesses follow a process or recipe when they are producing their good or service. Managers of this process are known as operations management In some way, all businesses must consider the challenges of operations management. This area of management is concerned with the strategies that are used to create, operate and control the transformation of inputs into output, or goods and services, to satisfy the demands of customers. Operations managers make use of strategies including management of - materials - quality - waste -use of technology.
DP 4 - Technological developments
Businesses need to utilise up-to-date technology in order to compete with other businesses. In both the service and manufacturing sectors, technological developments can - be used to speed up processes - maximise the use of materials - goods and services can be produced using less labour. (These factors reduce costs and maximise efficiency. ) - improve quality; as sales increase and as costs are reduced, a business should increase its profitability (or effectiveness). Technological developments - Automated production lines - Computer‐aided design - Computer‐aided manufacturing techniques - Website development
CAD/CAM/CIM
Computer-aided design (CAD) software generates three-dimensional diagrams from a set of given input data (parameters). Once the design has been created, it can be viewed from multiple angles, assisting both the designer and the end user to visualise what will be produced. It is used in a range of businesses. From the design, material use can be calculated, as can time for the task to be completed. This enables costings of the project to be quantified. If the cost is too high, or if the design is too limited, the input parameters can be altered to reflect these requirements. CAD software can customise a series of options that meets the client's or customer's needs. Normal drafting processes would cost much more, take longer and be less accurate. CAD software can also design the sequence of steps that would need to be taken to create the desired product in the shortest possible lead time using the least material. Robert Gordon is a highly creative and innovative business. Management staff regularly attend overseas trade shows, observing trends that inspire the development of new designs, techniques, textures and colour. In recent years, graphic artists at Robert Gordon have used computer-aided design and 3D printing to create prototypes for new designs and to refine the design of wares for large-scale production in China. The Pakenham facility will continue as the business's 'design house' where new designs will continue to be explored and developed. The long-term plan is to retain the Pakenham facility as a design house, incorporating traditional design and production techniques as well as computer-aided design and 3D printing. Computer-aided manufacturing (CAM) involves using software to direct and control the manufacturing process. CAD software can be linked to CAM software to manufacture designs that are accepted by clients. CAM can also be used more broadly to calculate how much of each input would be required. Computer-integrated manufacturing (CIM) uses a computerised system to combine CAD and CAM to manage the entire production process. Product design, analysis, planning, purchasing, costing, inventory control and distribution can be controlled by computer. Yays - CAD and CAM (as well as CIM) offer faster production at a reduced cost Nays - computer software can crash, resulting in the possible loss of work or production ceasing - software and systems can be expensive - the cost and time involved in training staff can also deter many businesses from the use of CAD and CAM (as well as CIM). - the use of these strategies can lead to the loss of jobs as fewer employees are likely to be required to complete tasks.
DP 8 - Corporate social responsibility considerations in an operations system
Corporate social responsibility refers to management's awareness of the social and environmental consequences of its actions. It can be expensive and time-consuming to manage an operations system in a socially responsible way. However, it does bring benefits. Behaving in a socially acceptable manner can improve the reputation of a business, improve efficiency and reduce costs in the long term. The aspects of corporate social responsibility that would concern an operations manager include: • managing inputs appropriately • managing suppliers appropriately • managing staff appropriately • managing the customer relationship appropriately In particular, operations managers must consider - the environmental sustainability of inputs - the amount of waste generated from processes and production of outputs
The environmental sustainability of inputs
Environmental sustainability refers to a business making decisions that will allow it, and the rest of society, to interact with the environment both now and into the future. An operations manager should ensure that the inputs used in the production process do not have a serious or negative impact on the environment (as well as community health and social conditions). This could be done for example by investing money into combating climate change. A company may introduce - renewable energy initiatives - source sustainable ingredients - support farmers who use sustainable methods of production - and have wind-powered operations
Outputs
Essentially, outputs are the result of a business's efforts — the final good or service that is delivered or provided to the consumer. Manufacturing businesses transform inputs into tangible products or goods. Goods tend to be homogenous, which means that they are basically all the same or similar. Service businesses transform inputs into services. Services tend to be differentiated, that is, they are provided to individual customers and are modified to suit each customer.
Four Principles' Application of Lean Management
Four Principles is a business that took the lean principles of the Toyota Production System and distilled them into four core principles. The result is a more memorable structure that can easily be adopted by businesses in any industry The business uses its lean methodology to help other businesses to establish lean programs and eliminate waste, reduce costs and increase profitability. Four Principles' application of lean management involves four complementary, interconnected principles: • Pull — this relates to avoiding overproduction and stockpiling. By enabling customer demand to dictate the rate at which products are delivered, a business is more likely to minimise waste as it will only be producing the outputs that will be sold. The costs of inventory will be reduced, as will the likelihood of stock Pull becoming lost, damaged or perishing. In this way, customers 'pull' value through the production process, leading to efficiency and effectiveness. • One piece flow - this largely relates to eliminating waiting time or idle time. One piece flow involves a piece of production moving through the operations process one at a time. All steps in the operations process must be focused and aligned to adding value, one piece at a time, removing all wasteful and unnecessary activities. By producing in a smooth, uninterrupted manner, idle time is minimised. This improves efficiency, as costs are reduced and waste minimised. Quality is improved, enabling the business to be more effective. • Takt — this refers to the rate of production needed to meet customer demand. Takt time is the average time that passes between production starting on one unit of a product and the start of production of the next unit, in order to meet demand. If a business, for example, has a takt time of ten minutes, this means every ten minutes a finished product is completed because, on average, a customer buys a product every ten minutes. This is important for a business that is making use of lean principles, as it must know the minimum level of resources that are necessary in order to produce enough to meet customer demand. Takt helps the business to establish a consistent workflow following a smooth pattern that is flexible and easy to regulate as demand rises or falls. • Zero defects — this is all about the business striving for perfection. Errors or defects need to be identified as closely as possible to where they occur. By doing so, and by not accepting or passing on defects, issues will be resolved quickly and levels of waste will be reduced. This improves efficiency, as resources are utilised with minimum waste, and avoids quality issues, leading to increased profitability.
DP 9 - Global considerations in operations management
Global sourcing of inputs Businesses can buy inputs from markets in other countries (global sourcing). Many businesses today do this to exploit efficiencies that can be gained from the global delivery of products, including - low-cost skilled labour - low-cost raw materials - lower taxes - low trade tariffs due to free trade agreements. Global sourcing initiatives form an integral part of the materials planning strategy of many businesses. - Red clay, which is imported from Mexico, is the preferred clay used at the pottery. Yays • Reduces costs • The opportunity to learn how to do business in a potential market • Accessing skills or resources that are unavailable domestically • Developing alternative suppliers/ sources of inputs • Increasing capacity of the total supply Nays • Hidden costs associated with different cultures and time zones • Exposure to potential high risk, both financial and political • Long lead times (for manufactured goods) • The risk of ports shutting down and interrupting the supply • Difficult to monitor the quality of inputs
The relationship between efficiency and effectiveness
If a business is Inefficient and Ineffective • Ineffective and inefficient (not producing enough at high cost) • Doing the wrong things in the wrong way Inefficient and Effective • Effective but inefficient (costs are high) • Doing the right things in the wrong way Efficient and Effective • Effective and efficient • Doing the right things and doing them right Efficient and Ineffective • Efficient but ineffective (not producing enough but at low cost) • Doing things right but doing the wrong things
The operations systems of manufacturing and service businesses
In many cases, businesses carry out both types of operation (services and manufacturing). In addition to its own collections, Robert Gordon supplies custom-made tableware to the hospitality industry. Food presentation and imaginative styling of dishes in restaurants have become just as important as the quality of the food served, which has provided an additional business opportunity for Robert Gordon. Restaurants such as Vue de Monde, Gazi, Grossi Florentino, Top Paddock and Fonda have endorsed Robert Gordon products by purchasing made-to-order tableware, including plates, platters, bowls, cups, mugs, jugs, and oven-to-tableware pieces. As Australia's largest pottery, a staggering 10 000 pieces are produced each week. All businesses carry out many activities that can be isolated from direct involvement with the customer. The operations manager must be able to link transformation processes to the activities performed by other areas of the business. Output must always be responsive to customer demands. Issues of quality, efficiency and flexibility must be balanced against the resources and strategic plan of the business.
Summary
Inputs - Ensuring that suppliers provide materials that come from socially responsible sources (such as environmentally sustainable supplies and workplaces that are free of exploitation) - A business could purchase inputs from local suppliers (rather than from overseas) to reduce emissions as a result of transportation - this can also demonstrate support for the local community by providing employment for members of the community. - Inputs should be environmentally sustainable (for example, recyclable materials could be used, a business might use green energy to reduce carbon emissions, and energy-efficient equipment could be used to reduce energy use). Processes - Facilities and technology should contribute to the health and welfare of staff (above and beyond what is required by legislation). - A business could conduct production locally (in doing so, it can show its concern for local communities). - Part of the transformation process can involve recycling and the remanufacturing of materials or waste. - All employees should have ongoing access to training, as well as fair pay and work conditions (above and beyond what is required by legislation). Outputs - Focus on creating high-quality products that provide real value - products that are fit for their intended purpose - A business could make use of environmentally friendly packaging (for example, packaging could be minimised to reduce the amount of material and energy used as well as to reduce waste, and recyclable or biodegradable packaging could be used). - A business must ensure that its product is safe and reliable - dangerously defective or harmful products can result in the injury or death of consumers.
Inputs
Inputs are the resources used in the process of production. Some resources are owned by the business, while others are from suppliers. There are five categories of inputs: 1. Materials - include raw materials, components and parts consumed or converted by the transformation process. 2. Capital equipment - includes the plant, machinery, equipment and property necessary to conduct operations. 3. Labour - refers to people involved in the operations function. 4. Information - from a variety of sources contributes to the transformation process. 5. Time and its efficient use - are critical to all businesses. Coordinating resources within appropriate time frame limits costs and wastage. Differences between the inputs of manufacturing and service businesses Manufacturers tend to make more use of capital equipment and materials and use less labour and information. A hospital is an example of a business that provides medical services. The inputs to provide these services involve medical equipment and products such as tape, injections, sheets, towels and hand-wash solutions. Labour, in the form of medical supervision by nurses and doctors, is also required. For a service provider such as a hospital, information is a very important input. For example, information about medical practices and patients are combined with the other inputs in the transformation process to improve patient health.
DP 5 - Materials management
Materials management is an important area of operations management that ensures that materials are received and stored in the right quantities and at the right time so that they are available in the operations system as required. Many businesses will have large amounts of materials on hand to complete production. This is referred to as stock or inventory. Yays - A large inventory may be held by the business to ensure that materials do not run out Nays - this represents a cost to the business - Stock taking up storage space for lengthy periods can mean that the business misses the opportunity to invest money in other places - Materials can also have a 'use-by date', which means that they could become unusable after a period. Vehicle manufacturer Hyundai Motor uses Just In Time production — a strategy where assembly plants keep small supplies of parts on hand, and materials are delivered from nearby facilities when needed. A delay in delivery can shut down the entire manufacturing process. In August 2017, Hyundai was forced to suspend production at four of its factories in China after a supplier refused to provide parts due to delays in payment. Businesses, such as Hyundai, reduce costs by having fewer materials held as inventory. Its efficient handling of materials keeps costs down, but when materials don't arrive on time (as in the case of the supplier refusing to provide parts) the consequences can be devastating. One important aspect of materials management is materials handling. It refers to the handling of goods in warehouses and at distribution points. Adequate materials handling procedures and techniques can result in a more efficient production process and cost savings. Proper handling can also reduce accidents, breakage and spoilage. It is also important that the operations area carries out - forecasting - materials planning (including a master production schedule and materials requirement planning) - inventory control (such as Just In Time).
Inventory control
Inventory control is a system used to ensure that costs associated with maintaining an inventory of materials are kept to a minimum. Costs can be minimised by not allowing materials to remain idle and by making sure that inputs are available for the operations system when needed. An operations system that runs out of materials will not perform at an optimal level. Modern businesses use bar coding and computerised stock records to control inventory. Computerisation can help to minimise loss or theft of stock and it provides precise, up-to-date information about stock levels. Signals can alert management when it is time to order new materials, and how much to order. Businesses also conduct stocktakes, physically counting stock and then comparing the count against what was expected to be available. Any differences would indicate problems with stock control. Just In Time The Just In Time (JIT) system of inventory control is a common strategy used by many businesses in Australia. This approach makes sure that the right amount of materials arrive just as they are needed for production. Yays - it can reduce storage costs and reduce the risk of any waste occurring in storage, thus increasing competitiveness Nays - supplier deliveries must be reliable, and materials must be received at the appropriate time - car manufacturers such as Hyundai Motor only have a limited amount of materials available in the inventory at any given point in time. One Hyundai car is comprised of more than 20 000 parts; in 2017, the failure to receive just a single part on time at Hyundai's factories in China brought the production line to a halt.
Lean Management - Robert Gordon
Kanban is the overarching framework for lean management that is implemented at the Robert Gordon pottery. This approach is used to help ensure that efficiency and effectiveness are maintained throughout the manufacturing process. There are two key features of this system: • Kanban involves a 'pull' system, whereby the flow of work is controlled by allocating resources only when there is demand and when capacity is available. In other words, products are made to order. A goal of this approach is to replace only what has been consumed at the optimal time. It is called a pull system because raw materials and resources and 'pulled' into the manufacturing process when they are needed or requested. At Robert Gordon stock levels are accurately maintained and relied on to satisfy immediate manufacturing requirements. Materials and other requirements are available Just In Time. • Kanban involves 'respect for people' where employees are encouraged to practise their skills by actively managing their own areas. They are trusted to maintain a high level of quality control. Each staff member is responsible for checking the quality of products produced and withdrawing inferior pieces from the production process, including removing inferior items that are good enough to be offered for sale as seconds in the retail outlet.
Forecasting
One of the initial stages of the management of materials involves forecasting. The operations area will use forecasting to develop a production plan and reduce the uncertainty of future events. A business needs to forecast the quantity and timing of demand for its good or service and then match supply with demand. This will allow the business to decide what goods or services to produce, how to produce them and in what quantity. In this way, it can estimate or predict what materials are needed, and in what quantities. A business may also forecast the costs of materials and transportation. Forecasts can be for the short term, for example for the next hour, day, a week, month or year; or for the longer term, for example for the next three to five years or for the life of a product. Forecasting methods fall into two broad categories: qualitative and quantitative. - Qualitative forecasting is subjective, that is, it gathers the information that is usually based on the opinions of people, such as through market research and open-ended questions on questionnaires. - Quantitative forecasting makes use of data in numerical form. For example, a business might develop a forecasting model where it would try to predict future demand for its good based on an analysis of numerical facts or historical patterns in statistics from the previous five years. Yays - ensures that the business maintains an appropriate level of materials for the operations system without overproducing - avoids the business carrying too much inventory and the stock would remain in storage, representing a cost to the business - avoids the situation where it does not have enough inventory for the operations to function (underproduction). Nays - making use of historical data does not necessarily guarantee that past events will continue into the future - it is always possible that unforeseen or unexpected events will occur - forecasting, to some degree, will always be inaccurate, the strategy provides a 'guesstimate' — a mixture of a 'guess' and an 'estimate'
Operations Managers
Operations management differs from other areas of management because it applies specifically to the productive or transformational process. An operations manager in a large business is likely to be part of the senior management team. A large business is also likely to have many managers who report to the operations manager, such as a production manager, warehouse manager and quality manager. -Chief executive officer------> --Human resources manager --Finance manager --Sales and marketing manager --Technology support manager --Operations manager-------> ---Production manager ---Warehouse manager ---Maintenance manager ---Component inventory manager ---Quality manager
Global outsourcing
Outsourcing means that some part of a business's operations is transferred to an external person or business. For some time, tasks that are not part of a business's core activities, such as accounting or customer service, have been contracted to another business. More recently, many businesses have decided to even outsource the production and delivery of goods and services that are considered to be their core business. Yays • Improved quality because of access to expert knowledge and high-quality service (an external person or business may have expertise in managing a task that the business does not have) • The business is able to focus on its core activities • Costs can be reduced (for example, instead of employing a full-time driver, a business can use contracted drivers as required) • Production may be quicker as the outsourced provider should be able to focus on the task they specialise in Nays • Management may have less control over the production process • It may be difficult to maintain quality • Loss of local jobs and career prospects (sometimes resulting in low morale in the local workforce) • There may be security and confidentiality issues • There may be communication issues that lead to customer service problems Global outsourcing means that business operations can be contracted out to countries all around the world. Many people disapprove of the practice of sending tasks to overseas countries, because of its impact on local jobs and local suppliers.
Overseas manufacture
Overseas manufacturing is also referred to as offshoring, meaning a good is produced in a country that is different from the location of the business's headquarters. Determining how and where to complete manufacturing is an important problem for the operations area. Some businesses will gradually increase their commitment to overseas manufacturing and may initially move into this strategy by outsourcing their manufacturing. In this case, it is important that the business finds a way to contract the work or go into a partnership with an overseas manufacturer without losing control of the product. As a business expands, it may move from outsourcing its manufacturing through to ownership of overseas factories. Yays - can enable a business to get its product to the market more quickly - reduce the cost of production - reduce delivery costs - reduce labour and overhead and component costs while keeping research and development design and short-run manufacturing in Australia Nays - may be hidden costs associated with operating in different cultures and time zones - the business exposes itself to risks, both financial and political - speed of delivery can increase, but if manufactured items need to be brought back to the business's country of origin, then lead times may increase. - the extra transport required may also negatively impact on the environment - can lead to local job losses - may be difficult for the head office of the business to monitor the quality of production in another country
Quality assurance
Quality assurance - involves the use of a system that will assure customers that the products of a business are fit for purpose - involves achieving set standards throughout the production process, thereby preventing quality issues before they occur - is said to be a proactive strategy and is process oriented - all employees in a business that has implemented quality assurance will be responsible for the quality, not just those directly involved in the production Robert Gordon - Quality control stations Staff check for quality throughout the manufacturing process. There are several stations where each piece is individually checked for quality and the edges of the wares are cleaned and made smooth. There are a number of examples of quality systems, including process checklists, audits and the development of standards. Many businesses make use of external organisations that audit the operations of the business against national and international standards. Quality assurance is an integral part of Tatura Milk's operations. It has a quality system in place to ensure that set standards are achieved. Its quality assurance system is based on the ISO 9001 series. This is a widely used international standard that sets out the criteria for a quality management system. 'ISO' stands for International Organization for Standardization. Meeting these international standards is voluntary, but many businesses comply with ISO requirements to remain competitive locally and internationally. The ISO provides guidelines on how businesses should establish quality assurance systems by adopting specific procedures, controls, and recording and documentation measures. Tatura Milk's quality system provides reassurance to customers that it is able to provide a safe, quality product. Its system includes the factory and staff, the calibration and maintenance of equipment, as well as hygiene and workplace health and safety. Yays - quality assurance is able to improve business competitiveness and customer satisfaction - quality assurance should lead to efficiency, and therefore competitiveness, as the costs associated with waste and faulty products are reduced - as customers are likely to feel assured that they are purchasing a quality product, sales would be expected to increase, and as costs are reduced - improvements in quality should lead to an increase in profit therefore, quality assurance should also lead to effectiveness Nays - introducing a quality assurance system can be expensive, particularly for smaller businesses - may also be a heavy emphasis on documentation making the process time-consuming - large contributions could possibly be required from those employees involved in introducing and maintaining the standards
Quality control
Quality control - reduces problems and defects in the product, using inspections at various points in the production process. - is a traditional approach to quality management and is product orientated - is generally said to be a reactive one because it detects defects in goods and services that have already been produced Robert Gordon uses quality control to maximise efficiency and effectiveness in its operations process. Quality control is implemented with the thermal shock test. The glazed pot is heated between 200 to 300 degrees Centigrade and dropped into cold water. A thermal shock test accelerates any potential breaks that could occur with everyday thermal shock to ensure that customers get products that won't break or crack when exposed to a significant change in temperature. Many businesses such as Robert Gordon minimise errors and waste by ensuring that standards are met. Specifications or benchmarks are set before the physical checks are completed. Actual performance is then compared to the established criteria. If the established standards are met, it is likely that the business will be meeting customer expectations. If a product does not survive the thermal shock test it will not be sold. Efficiency, and therefore competitiveness, increases as the costs associated with waste and faulty products are reduced. Effectiveness should increase as sales increase and as costs are reduced — improvements in quality should lead to an increase in profit. Yays - quality control is able to reduce problems and defects in a business's product Nays - using this quality strategy does represent a cost - rejected products will end up as waste unless they can be reworked, and more time needs to be added to the production process to inspect products - because quality control often involves the selection of random samples that are subjected to inspections, it is possible that poor-quality products will still be provided to customers - qualified professionals, such as chemists or engineers, may be employed by the business to carry out testing or inspections (expensive)
Supply Chain - Robert Gordon
Red clay, which is imported from Mexico, is the preferred clay used at the pottery. The production process at the Robert Gordon pottery is labour-intensive and the pottery uses long- established techniques to craft the clay. For handmade pieces, a traditional process is used whereby items are created using clay on the potter's wheel and a slab roller. This is referred to as 'tooling'. A slab roller, resembling an industrial-sized rolling pin is used to roll out a slab that is even in thickness. This is ideal for creating platters. The pottery also creates plates from the red clay. Initial preparation involves cutting clay to a similar size of the plate, which is placed on a mould, compressed and then positioned directly into a kiln. Mould-making Mould-making requires high-level expertise and the pottery employs an Italian-trained mould-maker. Working initially with a model, he develops a mould made from plaster. The mould or block, as it is known, must be flawless, as it becomes the template or prototype for all future pieces of that design. The block can be used for many years to come. The final stage involves the development of case moulds, which are the working moulds, used for slip casting (liquid clay). Depending on the shape of the pot, moulds are made from rubber or plaster. With repeated use, moulds wear over time and must be replaced after 200 uses. Mixing and peddling for ceramics The large 'blunger', which is a machine used for mixing 'slip' (a mixture of clay and water), is used to mechanically mix the clay and water to produce a slurry (slip). Deflocculants can be added to the slurry to create the correct level of fluidity so that less water than otherwise is required (reducing the amount of time for drying at the peddling station). The slip is pumped to the casting tables for casting. Slip casting at the casting tables Over 100 moulds can be filled at any given time at the casting tables. The slurry or slip is poured into the mould. As the slurry begins to dry to the mould, what is no longer required is emptied and drained. Working at the casting tables requires substantial skill to determine the precise timing in relation to emptying the slurry from the mold. The drained slurry is recycled back to the blunger. There is no waste at the pottery as all excesses are recycled back to the manufacturing process. Once the piece is dry, it is removed from the mould and is ready for the next stage of the manufacturing process. Quality control stations Staff check for quality throughout the manufacturing process. There are several stations where each piece is individually checked for quality and the edges of the wares are cleaned and made smooth. High temperature firing Items ready to be fired are positioned on a trolley that can be pushed into the kiln. Traditionally, the trolleys are on railway tracks. Andy Gordon designed plastic weight-bearing wheels that allow the trolley to be wheeled in and out of the kiln and to different areas of the pottery, providing greater flexibility in using space. This is an example of innovation at Robert Gordon. Ceramic items are fired twice. A bisque fire is the first firing at 1000 degrees Centigrade. After glazing, the second gloss fire is at 1280 degrees Centigrade. The double firing converts greenware to fully vitrified pieces that do not absorb any moisture. Vitrification refers to how solid or non-porous a piece of pottery is and occurs at a particular stage in the firing process. At this point, the piece can hold water without glaze. Glaze preparation area This is a highly technical process where the glaze and the ceramic body must match by moving at the same time. The pottery develops its own glazes, adding to the overall aesthetic of Robert Gordon pottery. Quality control is implemented with the thermal shock test. The glazed pot is heated between 200 to 300 degrees Centigrade and dropped into cold water. Glazing and finishing The glazing process provides colour to the product and forms an impervious coating (vitrified). Each piece of pottery is glazed separately. Packing, storage and logistics Following the production of pottery items, packing is the last stage undertaken at the pottery. Products are then transferred to a managed warehouse ready to transport interstate and overseas.
Safe workplace for staff
Robert Gordon The company currently employs over 30 staff at the pottery. The pottery is a clean workplace, with no fumes, odours or dust. This is significant because a clean workplace influences employees' productivity, motivation, performance and wellbeing, and keeps absences due to injury or illness to a minimum. One of the benefits of providing a safe, clean workplace is that the company has many long-term, committed and skilled employees, many of who are expert potters who have worked at the pottery for many years.
Lean management
The concept of lean management was derived from the Toyota production system and was originally developed in post-war Japan for Toyota and the manufacturing of automobiles. Lean management is an approach to operations management that attempts to improve efficiency and effectiveness by eliminating waste and improving quality. More specifically by carefully analysing each stage of the operations system and remove any inefficiencies that do not add value to the product. - Lean in this case means no excess, just as lean meat has as little fat as possible. - Waste is anything that reduces the speed of production or stops production occurring at the lowest possible cost. (As waste is reduced, production times and costs are cut.) There are a number of different areas of waste that a business can focus on. A business may choose to eliminate, reduce or avoid any one or more of the following wastes: - excess transport - defects (or errors) - excess motion - overproduction - excess inventory - waiting time - overprocessing For example, a manufacturing business could attempt to minimise waste through the avoidance of excess motion by reducing unnecessary movement of workers and materials between production processes. A service business might for example, decide rather than making customers queue several times in order to receive a service, a service business could provide a one-stop service. E.g of Lean management - not overproducing - reducing movement - minimising storage - reducing customer waiting times Effectiveness - by eliminating waste, it reduces costs that may lead to an improvement in profit. Furthermore, lean management can lead to increased customer satisfaction, which can result in increased sales and, subsequently, an improvement in profit. Efficiency - through the use of lean management, as a business reduces the amount of waste produced while working towards achieving objectives, productivity increases and resources should be used more efficiently. Yays • Reduced energy and resource consumption • Reduced delays • Increased worker productivity • Reduced uncertainty • Increased customer satisfaction Nays • Requires committed and experienced employees • Employees may resent the change to lean or may prefer not to provide any input. • The constant focus on improvement and elimination of waste can result in workplace stress. • Requires good relationships with suppliers • Can involve high implementation costs Types of strategies of lean management can include Jidoka - Using automation but with a human touch. For example, the use of automation to increase productivity and quality but a worker is constantly evaluating abnormalities and defects. Kaizen - Continuous improvement. This refers to the never-ending focus on achieving perfection (reducing defects) JIT- only using the necessary inputs to meet the customer demand for output.
Relationship between operations and business objectives
The core objective of all businesses is to maximise profit. This aim, therefore, requires businesses to efficiently use resources to produce goods or services at the lowest possible cost. Operations management is responsible for achieving this objective. Efficient and effective operations ----> satisfied customers, sales, -------> the achievement of business objectives. Besides profit, these objectives include increasing market share, fulfilling a social need and providing a reasonable return for investors. The responsibility for the operations area in small businesses tends to be held by the owner-operator or one or more employees. It is very likely that the owner of a small business will determine business objectives and ensure that operations strategies meet those objectives. Larger-sized businesses will usually establish an operations department. The manager responsible for operations will be involved in determining business objectives, along with the other senior managers. This manager will also need to ensure that the strategies being used within operations align with the objectives and strategies of the entire business. The operations department will work closely with other areas in the business. Operations may, for example, work closely with the Human Resource Management department to recruit and select new staff to work in the area of operations. Additionally, operations strategies can be used to achieve objectives by supporting strategies in other areas of the business. How operations strategies can support business objectives Business objectives -----> Operations objectives ---------> Operations strategies To make a profit --> reduce costs ----> through Just In Time (Just In Time (JIT) production is also used at Toyota. This means that the right parts and materials are manufactured and provided in the exact amount needed, and when needed. The number of cars produced is directly related to customer demand.) Increase market share ------> Improve quality -------> Quality control Provide a return for shareholders -------> Increase productivity --------> Introduce automated production lines Contribute to the wellbeing of the community ------> Minimise waste ------> Establishment of lean management
The amount of waste generated from processes and production of outputs
The inputs used in the production process create waste. In the desire to keep down the costs of production, businesses should not be tempted to use cheaper, illegal waste disposal methods. Businesses also need to consider how outputs are produced, packaged and marketed. This can be done by - aiming to send zero waste to landfill from factories worldwide. The company continues to strive towards maintaining this objective. - introducing Packaging Sustainability Guidelines to reduce the amount of material and energy used in its packaging process - ensuring the use of recycled materials - reducing waste in general - introducing renewable energy initiatives - sourcing sustainable ingredients - supporting farmers who use sustainable methods of production to ensure the environmental sustainability of inputs
DP 2 & 3 - Key elements of an operations system
The key elements of an operations system are inputs, processes and outputs. These elements differ between manufacturing and service businesses. The management of the operations system is important because it will determine how efficiently and effectively the business produces goods or services to meet the needs of customers. Inputs -----> Processes ----->Outputs
Processes/transformation
The main concept of operations management is transformation — conversion of inputs (resources) into outputs (goods or services). The term 'transformation' implies physical changes, but, today, it also includes the conversion of resources into services. Your school takes its main inputs — students, the syllabus, staff and buildings — and produces educated, employable graduates. Differences between the processes of manufacturing and service businesses A manufacturer transforms inputs into tangible products (goods that can be touched). - The operations system of a manufacturer tends to be highly automated or mechanised. - use machinery, robots and computers to transform inputs into outputs. A service business transforms inputs into intangible products (services that cannot be touched). - Service providers rely heavily on interaction with the customer - their processes tend to be more labour intensive; that is, staff are crucial to the operations.
Materials planning
The production plan provides the basic information necessary for detailed materials management planning. Modern businesses typically complete materials planning by using software. Such planning includes a master production schedule (MPS) and materials requirements planning (MRP). Master production schedule A master production schedule (MPS) is a plan that describes what is to be produced, in what quantities, how and when. The plan is linked to specific delivery dates or contracts for delivery in the future. Inability to meet this schedule may have serious business implications. It is important, therefore, that the productive capacity of the business has been correctly assessed. A business cannot increase its rate of production without increasing the number of necessary inputs. Decisions such as upgrading plant and equipment or employing additional staff may be related to ongoing problems in meeting this schedule. Materials requirement planning Materials requirement planning (MRP) is completed after the business has a clear understanding of the quantities to be produced and the time frame involved. It involves producing an itemised list of all materials involved in production to meet the specified orders. Such planning must consider: • lead times required by suppliers; that is, whether items need to be ordered weeks or months in advance • the exact number of inputs to complete the task • the amount of stock (inventory) on hand • purchasing procedures; for example, whether the business wishes to take advantage of bulk purchasing discounts offered by suppliers. Yays of both - allow a business to avoid overproducing (which is likely to result in an excess of inventory) or underproducing (which is likely to result in shortages) - an operations manager will be able to predict the future needs of the business and determine the materials required - can be used by a business to make adjustments to production in response to fluctuations in demand - allow a business to schedule changes when new products are introduced These benefits provide a business with flexibility. *MRP improves efficiency in the location of production resources, providing accurate estimates of materials requirements and delivery dates, allowing the business to control costs. Nays of both - rely on accurate information — if incorrect information is used, it is likely that errors will occur in the materials planning process - the cost of implementing both strategies can be inhibitive for many businesses - software and other resources may need to be purchased to facilitate each strategy, and training may also be required - while they can both provide a business with flexibility, using MPS and/or MRP may result in a business not being able to adapt quickly enough to any changes or problems because all materials needs are tied into a production schedule. Once materials are ordered and employees are scheduled to work it can be difficult to interrupt the process and make changes
Total Quality Management
Total Quality Management (TQM) is a commitment to excellence that emphasises continuous improvement in all aspects of a business's operation by sharing responsibility among all the members of the business. The aim of TQM is to create a defect-free production process and maintain a customer focus in operations. Yays - can reduce costs throughout the business and, because it leads to a reduction in defects, should result in improved efficiency. -improved cost, competitiveness and improved product quality, increased customer satisfaction, should lead to attaining a competitive advantage (effectiveness) Nays - can be expensive - time-consuming - it relies on the full participation of all employees, but it is possible that its introduction may be resisted as employees are required to change their way of thinking and attitude - staff will need to be trained in customer service and problem-solving, and it will take time for improvements to be seen across the business Deming's Quality Philosophy W Edwards Deming is known as the 'founder of the quality movement'. His Total Quality Management concept focuses on managing the total business to deliver quality to customers. He argued that if employees tried to build a product in the right way in the first place, then businesses would avoid the expense of inspection and the waste of rejected products. Improving quality, said Deming, can also help businesses increase their market share (as a result of better quality and lower priced products), ensure their future and provide more jobs. To achieve TQM objectives, a number of approaches may be used including - the empowerment of employees - continuous improvement - improved customer focus. Employee empowerment Deming believed that quality problems would be best solved with an emphasis on employee involvement. Many businesses use quality circles as a means of achieving employee empowerment. Under this approach, teams of up to 10 workers meet regularly to solve problems related to process, design or quality. The groups often make presentations to management with their ideas, in order to improve the performance of the business. Such programs have resulted in substantial cost savings for businesses. Quality circles improve the quality of production. Continuous improvement Continuous improvement is a process that involves a constant evaluation of, and improvement in, the way things are done in a business. Higher and higher standards are set in the continual pursuit of improvement. It emphasises continuous improvement in all facets of a business, from the way the CEO manages to the way assembly line workers perform their jobs. Although perfection is practically impossible to achieve, it is the 'striving' that is important to a business's corporate culture. Customer focus Deming believed that quality should be the responsibility of every employee. The TQM approach considers one of the most important questions a business should ask: 'What does the customer require?' All teams need to realise that they are serving a customer. This is as true for the employees that deal directly with external customers as for those that simply pass work on to other employees within the business.
Efficiency, effectiveness and business competitiveness
Two key areas that the operations area of management responsibility must focus on are effectiveness and efficiency. - Effectiveness refers to the degree to which a business has accomplished its stated objectives, - Efficiency refers to how well a business uses resources in achieving these objectives. If a business's objective is to make a profit, then improving profit from one year to the next means that the business is considered to be effective. Operations strategies such as the management of materials, quality, waste and use of technology should reduce costs and improve quality, contributing to the attainment of objectives such as making a profit and increasing sales. Of particular importance to operations is improving productivity — a measure of the amount of output compared to the amount of inputs going into production. An improvement in productivity is typically associated with reduced costs and waste, meaning that the business is using resources more efficiently. Businesses that can improve productivity and/or quality will become more competitive. Business competitiveness refers to the ability of a business to sell products in a market. A business will be competitive when it is able to produce goods or services at the same level or better than competitors. Cost, the quality of the product and speed of delivery are all areas that a business can compete on.
DP 7 - Waste minimisation
Waste minimisation is a process that involves reducing the amount of unwanted or unusable resources created by the business's production process in an attempt to improve the efficiency and effectiveness of operations. Waste minimisation strategies include: • redesigning products and packaging • procurement of materials made from recycled materials • reusing scrap material • improving quality control • exchanging waste with other businesses • introducing all systems approaches, such as lean production Robert Gordon - The mould-maker has created hundreds of blocks, enabling discontinued designs to be reproduced in the future if required. Yays - minimising waste reduces the costs of production of the business, such as the costs of waste removal - improves productivity across the operations area - demonstrates concern for the natural environment; this can contribute to improving the reputation of the business Minimising waste is a win−win situation — it reduces costs and cares for the environment. Woolworths launched its Trolley Tracker tracking system to help find the approximately 15 000 trolleys that 'go feral' each year, disappearing from Woolworths and Big W stores around the nation. Abandoned trolleys cost the company $50 million each year; it costs more than $150 to replace a broken or lost trolley. Dumped shopping trolleys also damage the environment; they end up in creeks and backyards. Residents who see abandoned trolleys can use the Trolley Tracker App or website or call a national toll-free number to report the location and enter a draw to win a $1000 monthly reward.
