Operations Management and Business Objectives (VCE SSCE Business Management): Revision Notes

Operations Management and Business Objectives

Introduction to operations management

Operations refer to the series of procedures and processes a business undertakes to create outputs. These outputs can be tangible goods or intangible services. Operations management involves overseeing the processes required in the production of goods and services. It encompasses the effective planning, coordination, and management of resources and functions within a business to achieve efficient and effective output.

Operations management across industry sectors

Operations management applies to all sectors of the Australian economy. Understanding these sectors helps clarify how operations management functions in different contexts:

Industry sector	Description	Examples	Products
Primary sector	Extracts or harvests products or raw materials from the natural environment	Mining, agriculture, fishing and hunting	Commodities
Secondary/manufacturing sector	Takes raw materials and creates products through the production process	Construction, engineering, food industry	Goods
Tertiary/services sector	Produces intangible products	Retail, tourism, banking, media, health	Services
Quaternary sector	Provides information and knowledge	Education, financial services, information technology, research and development	Information and knowledge services

The operations manager's role

Operations managers have broad responsibilities that require regular consultation and decision-making with other areas of management. This ensures business planning is consistent and all management areas work towards achieving business objectives. For example, human resource management must support operations by ensuring sufficiently trained, skilled, and motivated workers are available to meet operational needs.

The operations manager's role involves ensuring the operations system serves to meet the business's objectives through two main types of decision-making:

Strategic decision-making

Strategic decisions are essential in the planning and design of the operations system. These include:

• Design and layout of facilities
• Product design and development
• Inventory planning and control
• Management of quality standards

Tactical and operational decision-making

Tactical decisions involve the development of plans, processes, and methods. These include:

• Production control decisions
• Day-to-day management of the operations system
• Managing stock levels
• Creating work rosters
• Scheduling production
• Planning maintenance

Specific aspects of operations management

Operations managers oversee several critical functions:

Materials management involves estimating the quantity of products required and calculating the capacity requirements of the facility. This includes managing materials as they are received into store and ensuring availability for production.

Production planning determines how goods are to be produced (the production process), where production will take place (site selection), and the layout of manufacturing facilities. These decisions directly affect efficiency and productivity.

Quality control involves determining and implementing quality procedures and standards, then ensuring that quality is maintained throughout the production process. This reduces wastage and defects.

Maintenance and engineering ensures that equipment is in working order and regularly maintained. This reduces breakdowns and downtime, which can be costly.

The relationship between operations management and business objectives

It is crucial that the operations system aligns with a business's goals and objectives. Operations directly impacts on revenue, costs, quality of output, and ultimately profits. The operations system aims to produce the best quality goods for the lowest price, providing a business with the opportunity to achieve several business objectives.

Any business, regardless of whether it manufactures goods or provides services, must aim to improve competitiveness by positioning itself to sell goods and services with better value than its competitors. To maximize opportunities to create profit and maintain competitiveness, businesses are required to manage the operations system efficiently.

Direct relationship between operations strategies and objectives

The table below illustrates how specific operational management strategies impact operations and contribute to achieving business objectives:

Operational management strategies	Overall impact on operations	Business objectives
Introduce technology	Increases efficiency and effectiveness	Increased profitability
Materials management	Reduces levels of inventory	Increased efficiency
Improve quality	Reduces wastage and defects	Increased productivity and effectiveness
Waste minimisation	Reduces costs and meets community expectations	Fulfil a market/social need, improved effectiveness

Competitive advantage through operations

Developing a competitive advantage sets a business apart from its competitors and offers improved customer value. Competitive advantage refers to a point of difference or superiority over one's competitors. The ability of an operations system to offer customer value is determined by several factors:

Productivity levels involve producing maximum quantity at minimum cost. Higher productivity means more output for the same input, reducing unit costs.

Quality refers to the degree of excellence in final products. High-quality products meet or exceed customer expectations, leading to customer satisfaction and loyalty.

Speed of production in response to customer demands allows businesses to meet market needs quickly and capitalize on opportunities.

Reliability in meeting customer demands builds trust and encourages repeat business. Consistent delivery of products or services on time is essential.

Flexibility is the ability to change the quantity, timing, and types of production as the need arises. Flexible operations can respond to changing market conditions and customer preferences.

Typically, a business will strive to establish a competitive advantage based on one or both of these.

Measuring operations efficiency

The primary objective of operations management is to use all required resources as efficiently as possible. Effective operations systems establish reliable supply chains, apply technology where it will be most beneficial, determine materials management strategies, and minimize waste and defects to reduce costs. When combined with quality management, these important strategies produce a superior final product or service.

Productivity can affect final cost, profitability, and competitiveness. Improved productivity effectively reduces the cost of production and creates higher volumes of output.

Productivity equation

Productivity is calculated using the following formula:

$\text{Productivity} = \frac{\text{Amount of quantity or output}}{\text{Resource input}}$

Where output can be measured as:

• Money (revenue or value added)
• Product (quantity or value)
• Service (quantity or value)

And resource input can be measured as:

• Staffing (staff-hours)
• Machinery (machine-hours)
• Materials (materials quantity)
• Money (value of input)

Strategies to improve efficiency and productivity

Several strategies can be implemented to increase productivity:

Employee engagement recognizes that employees will be more productive when they are well trained, satisfied by their work, and where communication processes are enhanced. Engaged employees are more committed to quality and efficiency.

Technology improvements such as implementing automated production lines and robotics can speed up production and make processes more durable. Technology can also improve accuracy and reduce errors.

Equipment and facilities that are of good quality and maintained regularly will increase reliability and reduce the likelihood of breakdowns and downtime. Regular maintenance prevents costly interruptions to production.

Minimization of wastage and defects through well-trained employees and appropriate technology will reduce the amount of waste and defects. This directly reduces costs and improves efficiency.

Gaining operations effectiveness

Effectiveness is the degree to which a process or system is successful in the achievement of business objectives. It is measured by results directly linked to the objectives of a business. This involves the strategies and goals of the business against which it can measure growth and competitiveness.

When operations systems are managed effectively, businesses can achieve many of their business objectives, including:

• Quality of outputs that meet or exceed customer expectations
• Market share growth through competitive positioning
• Profit levels that satisfy stakeholder expectations
• Fulfilment of market needs through appropriate products or services
• Meeting shareholder expectations through returns on investment

Business case study: Ford Motor Company

The evolution of Ford Motor Company's operations demonstrates the power of operations management in achieving business objectives. Founded in 1903 by Henry Ford, the company revolutionized manufacturing through innovation in operations management.

Before 1908, cars were individually crafted by teams of skilled workers using a fixed position layout where cars remained stationary and workers came to them. This was slow and expensive, taking over 12 hours to assemble a Model T Ford with a purchase price of $950.

Ford experimented with moving vehicles on an assembly line to stationary workers. Each employee performed only one or two tasks repetitively. This reduced wage costs as workers only needed to be paid as unskilled employees rather than craftsmen.

Additional changes included Just In Time supply systems and robotics with high-tech robots replacing hand tools.