Extensive Notes: Role of Operations Management

Business Studies Notes Role of operation management: Strategic role of operations management- Operations refer to the business processes that involve transformation or, more generally, ‘production’. Applies both to the manufacturing and services sector. Turning raw materials and resources into outputs of finished goods or products. Qantas operations are strategically important because most organizational activity comprises the day to day activities within the operation function. * Cost leadership- Cost leadership involves aiming to have the lowest costs or to be the most price-competitive in the market.

Qantas; Economies of scale, these are minimizations of cost because of the size of the business. Standardization, the more variations Qantas’ services like the types and frequency of the routes the higher production cost per unit. Technology, the adoption and application of advances in technology directly impact on production costs, reduction in labour costs. Waste, minimizing waste will deliver the lowest production costs, excess production, underutilization of labour or equipment, faulty or defective production and excess inventory. Goods/service differentiation- this approach does not mean competing on cost but by adding features to differentiate its products or service from its competitors. Qantas, Australia’s largest airline offering the most comprehensive domestic and international coverage. City flyer express service means that there are flights every 30 minutes in peak periods between the major capital cities in Australia. Also 76 international destinations. Qantas budget airline Jet star.

Goods and services in different industries- manufacturing- standardized or customized products, perishable or non-perishable products, intermediate goods service- standardized (fast food) or customized (doctors, legal services etc. ) or even self-service. Interdependence with other key business functions- human resources, finance and marketing –exist because of and to support the operations function. However, operations cannot succeed with out their contribution to and direct participation in the transformation of inputs into the final outputs.

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Qantas recruitment- for everyone from pilots to baggage handlers and cleaners. Training and development- newer planes need to retrain pilots, maintenance crews and cabin staff to effectively integrate the new craft. Retained staff- invested heavily in training pilots and maintenance staff to the high level required in this industry, so they want to retain them. Influences Globalization; refers to the removal of barriers of trade between nations, creating new market opportunities.

Characterized by integration between national economies, transfer of capital, labour, financial resources and technology. Qantas- launching new airlines in Asia, cost minimization to be more internationally competitive Technology: innovation of devices. Communication, keeping up with competitors, supply chain management, quality expectations. Qantas- newer planes, newer operational processes, more training required Quality expectations- how well designed, made and functional goods are, and the overall degree of competence with which service are organized and delivered.

Qantas- new generation check in, new Q bad tags, newer planes, specially designed menus Cost-based completion; recognizes that prices cannot keep increasing and reducing cost is a way to maximize profits when revenues are fixed. Qantas- outsourcing, reform to HR practices employing more labour saving techniques, online bookings Government policies; political decisions affect the businesses rules and regulations, which in turn, directly affect the management of various key business functions.

Qantas- more resources devoted to compliance Legal regulation; the regulations that shape business practices and procedures must be followed at the risk of penalty, hence the term compliance. Environmental sustainability; environmental sustainability means that business operations should shaped around practices that consume resources today without compromising access to those resources for future generations. Qantas- purchasing new, environmentally sensitive aircraft, recycling, fuel conservation

Corporate social responsibility; (CSR) is an important influence on business and its integrates financial social and environmental goals. Qantas- health surveillance program, energy and water conservation, recycling. * The difference between legal compliance and ethical responsibility; legal compliance refers to business abiding by the word of the law, where as ethical responsibility encompasses a much broader integration of social community and environmental concerns * Environmental sustainability and social responsibly:. Businesses are being asked to take increasing responsibility for the protection of the environment.

The Earth is a fragile system, and needs high levels of support and informed intervention so that it may sustain itself. Qantas cultural diversity, reconciliation action plan is a program, which focuses on employing indigenous Australia’s. Also new aircraft now being delivered use less fuel per passenger. Social responsibility is good business — customers eventually find out which businesses are acting responsibly and which are not. Customers can react and stop buying a business’s product if they learn that the business is exploiting employees, accepting bribes or polluting the environment.

Operations processes Inputs; labour, Energy, raw materials, machinery and technology (capital equipment) * Transformed resources: materials, information and customers. Are those inputs that are changed or converted in the operations process. The operations processes transform them. Transformed resources are also considered the resources that give the operations process its purpose or goal * Materials: Are the basic elements used in the production process and consist of two types: raw materials and intermediate goods. Raw: normally substances in their natural state such as mineral ore, timber oil and water. Qantas is the expensive fuel they use. * Intermediate good: which are goods manufactured and used in further manufacturing or processing. Qantas: examples are the food and ingredients for their catering services, stationary and computers * Information: is the knowledge gained from research, investigation and instruction, which result in an increase in understanding. The value of information lies mainly in its ability to influence behavior or decision-making.

Qantas: in individual bookings (information) made by the customers are analyzed and transformed into decision as to which aircraft to use, which services are to offer. * Customers: Customers are generally thought of as being relevant to outputs, not inputs. Customers become transformed resources when their choices shape inputs. Qantas: customers are transformed by having their location changed from their starting point to the new destination. * Transforming resources (human resource, facilities): which are those inputs that carry out the transformation process.

They enable the change and value adding to occur * Human resources: These are the people who assemble the inputs, operate and maintain the machinery and equipment used in the processes, fulfill the sales function, distribute the output and deal with the customers. Qantas this means everyone from cleaners and baggage handlers to the pilots and sales managers. * Facilities (capital): refer to the plant (factory or office) and machinery used in the operations processes.

Major decisions include the design layout of the facilities, the number of facilities to be used, their location and their capacity. Qantas this includes the terminal buildings and their contents, maintenance facilities, spare parts holdings, aircraft, and even computers and motor vehicles. * Transformation processes: The main concept of operations processes is transformation, which is the conversion of inputs (resources) into outputs (goods or services). * The influence of volume, variation in demand and visibility (customer contact) * Volume: Volume refers to how much of a product is made.

Volume flexibility refers to how quickly the transformation process can adjust to increases or decreases in demand. Standardized products. * Variety: The influence of variety on transformation processes is: the greater the variety made, the more the operations process needs to allow for variation. * Variation in demand: a variation in demand can impact significantly on transformation resources. An increase in demand will require increased inputs from suppliers, increased human resources, increased energy use and increased use of machinery and technology.

Predicting demand. Qantas, experiences a predictable major increase in demand for school holidays and special events. * Visibility: Customer contact may be direct or indirect. Direct contact takes the form of customer feedback given through surveys, interviews, warranty claims, letters, Indirect feedback comes through a review of sales data that gives an indication of customer preferences and market share data, through an observation of peoples’ decision-making processes and through consumer reviews.

Because businesses seek to maximize sales, customer contact is essential and ultimately shapes the transformation processes. Qantas is high visibility because there is customer contact throughout the whole process. * Sequencing and scheduling: Sequencing and scheduling are two very important aspects that assist with structuring and ordering the transformation processes. Sequencing refers to the order in which activities in the operations process occur. Scheduling refers to the length of time activities take within the operations process.

Qantas: flight schedule that a customer sees shows departure and arrival times. It also includes making sure that each flight has crews. (pilots, cabin, catering) * Grantt Charts: The Gantt chart outlines the activities that need to be performed, the order in which they should be performed and how long each activity is expected to take * Critical path analysis: The Critical Path Analysis (CPA) is a scheduling method or technique that shows what tasks need to be done, how long they take and what order is necessary to complete those tasks. Technology, task design and process layout: Qantas: a major business expense for Qantas is the terminal, hanger and maintenance space is which the operations process takes place. Optimum process layout at Qantas is where machines and equipment are grouped together by function. This enables Qantas to utilise space and labour efficiently and eliminate bottlenecks. * Technology: technology is the application of science or knowledge that enables people to do new things or perform established tasks in new and better ways.

Qantas: has facilitated increase productivity, very often by directly replacing human capital. Examples include online check in, online booking, and electronic bag tags. * Task design: Task design involves classifying job activities in ways that make it easy for an employee to successfully perform and complete the task. Qantas: the break down of the full transformation process into the individual tasks to be preformed. * Process layout: The process layout is the arrangement of machines such that the machines and equipment are grouped together by the function (or process) they perform. Monitoring, controlling and improvement: Monitoring and control lead to improvements when there is a focus on quality and standards. Qantas involve detecting and discrepancy between planned and actual activity, taking corrective action and intervening to impose new plans if necessary. * Monitoring: Monitoring is the process of measuring actual performance against planned performance. Monitoring involves the measuring of all aspects of operations, from supply chain management and the use of inputs, through to transformation processes and outputs. Controlling: Control occurs when KPIs are assessed against predetermined targets and corrective action is taken if required. This means controlling compares what was intended to happen with what has actually occurred. * Improvement: Improvement refers to systematic reduction of inefficiencies and wastage, poor work processes and the elimination of any bottlenecks. A bottleneck is an aspect of the transformation process that slows down the overall processing speed or creates an impediment leading to a backlog of incompletely processed products. Outputs: Essentially outputs are the result of a business’s efforts — the final good or service that is delivered or provided to the consumer * Customer service: f a customer expresses dissatisfaction with a product on account of it being defective, not meeting quality expectations, finds wait times/lead times too long or returns the product or makes a warranty claim, then the operations processes need review. Qantas: meets the needs of customers. Also has adopted the ‘net promoter score’ as a key measuring of customer service.

Qantas closed loop feedback program enables direct feedback from its 1100 frequent flyers. * Warranties: Warranty claims are made against goods that have defects arising from an issue in transformation. Although a small proportion of warranty claims are false, the number of claims made against a business on a particular product line or product range will give an indication of problems in the processing. Operations strategies: * Performances objectives: 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. * Quality: consumer expectations, which are used to inform the production standards applied by the business often determines Quality. Quality of design, conformance, service. Qantas: means consistently producing its services to customer expectations, doing things right. Includes, clean and tidy aircraft, staff are courteous, helpful and friendly and their website is user friendly. * Speed: Speed refers to the time it takes for the production and the operations processes to respond to changes in market demand.

Speed requires that changes in input levels and processing times can be made in response to demand. Qantas: customer asking for their service and getting it. Things to increase speed of service are booking flights on line, on-line check in, check in kiosks and Q bag tags. * Dependability: dependability, as a performance objective, refers to how consistent and reliable a business’s products are. Dependability, in respect of goods, refers to how long the products are useful before they fail. Dependability refers to consistency of service standards and reliability.

Qantas: time departures and arrivals, Qantas has outperformed its rivals in these statistics its dependability has been seriously eroded in recent years because of mechanical failures, and industrial disputes. * Flexibility: flexibility refers to how quickly operations processes can adjust to changes in the market. Time and flexibility are related; the quicker the processing time the greater the likelihood that processes can be adjusted quickly. Qantas: ability to respond to changes in market demand, either by changing the products offered, changing the mix of products, changing the volume of product or by changing the delivery times.

Jet Star is Qantas’ response to the competition of low cost airlines. * Customization: Customization refers to creation of individualized products to meet the specific needs of the customers. Services are generally customized, although aspects of services can be standardized as seen in the fast-food sector. Customization means giving Qantas customers more options by varying the product in minor ways. It varies its products by offering jet start and a more no frills alternative and offering different classes of seating. Cost: Cost as a performance objective refers to the minimization of expenses such that operations processes are conducted as cheaply as possible. Qantas has interest in keeping their cost as low as is compatible with the levels of quality, speed, dependability and flexibility that their customers require. * Supple chain management: Supply chain management (SCM) involves integrating and managing the flow of supplies throughout the inputs, transformation processes (throughput and value adding) and outputs to best meet the needs of customers.

Supply chain management refers to controlling the flow of supplies though Qantas’ whole operations process from sourcing the raw materials like fuel to final delivery to and service of the service. Increased transaction speed and increased customer satisfaction. Inventory is a major expense in the operations process. Raw materials such as fuel must be sourced and purchased, they must be stored and be available, they must be moved and they must be transformed. * Global sourcing: modern operations involve increasing levels of global sourcing –obtaining suppliers with out being constrained to local sources.

There are some risks involved because of changing exchange rates and coming under laws and customs, which apply in other countries. Qantas has employed some pilots in New Zealand and some cabin staff in Asia at lower wages that paid in Australian and has some engine maintenance carried out in Malaysia on a cost benefit basis. * E-commerce: This is simply buying and selling on the internet. This technology has had a major impact on SCM. It has replaced time consuming and costly manual processes of the past.

It provides for real time information on Quantity, Quality, availability, source and price of all goods and services to be instantly accessible from a range of suppliers local and international. * Logistics: this is the task of ensuring tat Qantas has al the Physical inputs in the quantities needed in the right place at the right time (e. g. pilots, cabin crew, baggage handling, maintenance and catering) for the operations process (fights) to take place undisrupted and hence at optimum efficiency. * Outsourcing: Outsourcing involves the use of external providers to perform business activities.

The theory behind outsourcing is that when an external provider that specializes in a particular business function performs a service, it will do so at a lower cost and with a greater effectiveness than the same task done within the business hierarchy. * Advantages of outsourcing for Qantas: * Saving capital outlay-factory space and machinery are provided by another business at their expense * Saving in labour-staff management and expenses are born by the other business * Increased dependability- more than one external supplier can be accessed, thus ensuring security of supply. Saving in cost- the other business can provide the input at a lower price than it can be done in-house. * Access to higher level skills- the other business contains skills that do not exist in-house * Increased flexibility- variations in demand are managed by other business * Saving in management- having set up contracts, management can concentrate only on the tasks it does perform in-house. * Disadvantages of outsourcing for Qantas: * Dependency-the operations process is now dependent on another party for supply of inputs; failures in that external supply chain can cause major internal disruption and expense. Loss of control and security- there can be loss in control of standards and vulnerability to proprietary and patent data and information accessible by the supplier * Quality- control is no longer exercised over the inputs used by the outsourced supplier * False economy- outsourced inputs can become more expensive over time so constant review of the decision is warranted * Cost- the one-off expense of redundancies to staff no longer required is an offset to the savings from outsourcing. Technology: Technology in the operations function may be classified according to whether it applies to and improves inputs, transformations processes and outputs; or whether it makes the managerial and administrative functions smoother. * Leading edge: Leading edge technology is the technology that is the most advanced or innovative at any point in time. Operations managers can distinguish their operations processes by utilizing the best available technologies. This can help businesses to create products more quickly and to higher standards, with less waste, and also help a business to operate more effectively. Established technology: Established technology is the technology that has been developed and widely used, and is simply accepted without question. Such technologies include the use of computers and various software packages in managing business operations and functions. Established technologies are functionally sound and help to establish basic standards for productivity and speed. Qantas was one of a number of airlines who placed advance orders for the new airbus A380, but they opted to make sure they were NOT the airline to receive the very First one. Inventory management: inventory refers to the raw materials, work in progress (unfinished goods still undergoing the transformation process) and finished goods held by the business at a point in time. The extent of these holdings is an important operational strategic decision, because they represent significant capital outlay (cost), which is yet to yield revenue. To hold excess quantities adds additional cost on production, but to hold too little can result in disruption to production and loss of sales because customer demand cannot be met.

This is more of an issue for manufacturing businesses than for Qantas because they do not ‘store’ product to meet customer demand like a manufacturing one does. Inventory management is the system that manages the ordering, storage and recovery of the material inputs used in production. * Quality management: Quality management refers to those processes that a business undertakes to ensure consistency, reliability, safety and fitness of purpose of product. In operations, quality management includes quality controls at each stage of processing.

Qantas has marketed as a high quality, perfect safety record, full service airline and commanded premium fares; at the other end of the spectrum is jet star which has traded quality for price and markets as a no frill low cost airline. * Quality control: programmed inspections are carried out at key stages of Qantas’ service (on a continuing basis) to ensure the process is meeting specified standards. If not, then management intervenes and corrective action is taken to bring the process back within standards.

It attempts to solve the root cause of Quality problems at Qantas * Quality assurance: the minimum level of satisfactory quality at all stages of the process is continually monitored at Qantas by actual measurement and comparison against pre-determined standards. It attempts to broaden the organizational responsibility for quality at Qantas. * Quality improvement: Maintaining competitive advantage is not only a matter of maintaining quality of output; the aim must be to improve quality over time by reducing error, and finding better ways of performing the tasks leading to lower cost or higher quality at the same cost.

All staff are invited to participate with suggestions and ideas. It also involves Qantas’ customers and suppliers. It attempts to make quality both central and strategic within Qantas. * Overcoming resistance the change. : All businesses are subject to change from the external environment. Legislative and regulatory changes, changes in economic conditions, social changes over time and technological breakthroughs all impact on the business and shape its operations.

Moreover, change can also come from within the business through the initiative of staff or the application of technology and a focus on innovation. * Financial costs: One major cause of a resistance to change from managers and business owners is that of financial costs. The main financial costs associated with change include the:, cost of purchasing new equipment, cost of redundancies, costs of retraining employees, costs associated with structural reorganisation of the business, including changes to plant and equipment layouts. Purchasing new equipment: Qantas plan to spend $US 22 billion in new technology and equipment between 2011 and 2018. * Redundancy costs: to implement staff reductions incurs mandatory redundancy payments to the workers retrenched. The alternative to redundancies is to rely on attrition and recruit casual and part time workers. * Retraining costs: significant change incurs retraining expenditure. The adoption of the new reservation system, introduction of new business class, annual security training and engineering and maintenance for are aircraft. Plant layout cost: acquiring new aircraft requires re-organization of maintenance operations to seek increased capacity and efficiency. Jetstar is replacing Boeing 717s with airbus A380s so a new heavy maintenance base becomes necessary because the existing one cannot accommodate the larger planes. The A380 also requires refurbishment of the Qantas Jet base. * Inertia: the unenthusiastic response of some managers, some staff and even some of the owners is an impediment to change and will be evident and will have to be overcome.

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