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Flashcards in U3AOS3 - Operations Management Deck (104)
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a series of procedures and processes undertaken in order to create output


operations management

management of resources and functions within a business to achieve efficient output of finished goods and services in a way which adds value to customers and creates a profit margin for the business

- manufacturing has decreased in importance to Australian economy but service industries have increased their relative contribution to gross domestic product


relationship with objectives

- has direct impact on competitiveness and achievement of objectives
- determines the overall quality and cost of production
- controlling operations well can increase effectiveness


improving competitiveness requires operations management to

establish and achieve objectives such as increasing productivity as well as quality in processes and output while adopting a sustainable approach to operations


factors which affect competitiveness

- levels of operational efficiency and productivity
- high standards of quality build into operations
- socially and ethically responsible operations


ways to increase levels of operational efficiency and productivity include

- establishing reliable supply chains
- minimising wastage and defects
- applying technology


high standards of quality build into operations

improves quality of output and thus competitiveness


socially and ethically responsible operations

attracts high quality investors
attracts high quality staff and customers


main goal of operations management

minimising the cost of production (efficiency) while maintaining the quality of the output produced (effectiveness)


main factors of an operations system which provide value to the customer

- productivity levels (max quantity at min cost)
- quality (degree of excellence in products)
- speed (relating to customer demand and production response
- reliability (in meeting customer demand)
- flexibility (ability to change production cycle to meet customer and tech changes)


participants in operations management

production manager
quality manager
materials manager
- procurement manager
- logistics manager
- inventory control manager
IT manager
maintenance manager


operations manager

involves making sure the operations system of the business meet the business objectives including tests such as:
- strategic decision making
- overseeing operations as they occur


specific aspects of operations management

- inventory management // determines the qualities of inputs required in order for requirements to be met
- manufacturing // determining production rates required to meet budget forecasts
- quality // determining required standards, documentation of quality and standards as well as codes of practice
- maintenance // ensure equipment is up to date and in working order


measuring efficiency

the primary aim or objective of an operations manager is to enhance efficiency or productivity
- improvements will in effect reducer costs of production and allow the organisation to produce the same or greater level of output for lower input costs



refers to the ratio of output obtained from the level of input
- measured by KPIs


example KPIs

units of production produced per employee
crop tonnage per hectare planted
number of clients attended to per hour


factors determining productivity

research and development
equipment and facilities
tasks and procedures
layout of facilities
communication processes
workplace safety


main industry types

primary sector
secondary / manufacturing sector
tertiary / service sector


primary sector

- agriculture / mining / fishing and hunting
- extract or harvest products or raw materials from the environment
- products are known as commodities


secondary / manufacturing sector

- create finished goods through the production process
- construction / engineering / factories / craft


tertiary / service sector

- provide intangible products or services // people sell their labour and expertise
- retail / professional sector / media / tourism / banking



- tangible
- production and consumption occur separately
- can be stored
- easily standardised and mass produced
- minimal customer contact
- capital intensive process



- intangible
- easily customisable
- production and consumption occur often simultaneously
- difficult to store
- high degree of customer contact
- labour intensive process


goods and services - similar

- utilize technology
- deal with customers and suppliers
- plan and develop organisational objectives
- require decision making on how to optimise productivity / quality levels
- aim to produce high quality goods or services at the lowest cost


key elements of the operations system




- materials (raw and components)
- HR (labour)
- technology
- capital (plant and equipment)
- utilities
- information and knowledge
- time



- the process adds value
- in the process the inputs are referred to as works in progress
- operations manager plans, organises and controls the transformation process
- decisions should be more geared towards optimising efficiency, effectiveness and therefore competitiveness



- outputs are the final products and results
- to maintain competitiveness management must ensure that the type of output is responsive to market needs


tech optimising operations

websites / cloud computing



- involves the replacement of human effort by machinery and technology
- examples include automated production lines which process raw materials and they leave as finished products with little to no human interaction


automation advantages

- increased production speed
- reduction in material waste
- greater precision and accuracy
- more efficient use of time
- potential to replace dangerous or repetitive work


automation disadvantages

- security threats
- high initial start up costs
- social responsibility implication
- tech can be viewed as inflexible


CAD (computer aided design)

computer program that facilitates creation and modification of the design
- uses software to make designs in 3D faster and more accurately
- can test and cost designs before they are produced


CAD advantages



CAD disadvantages

experience of employees


CAM (computer aided manufacturing)

computer program that controls the manufacturing and parts of the production line
- machinery, tools and equipment controlled through a computer


CAM advantages

- reduces labour and costs
- less time
- improves the quality and consistency


CAM disadvantages

- reduces jobs available // ethical responsibilities
- costly to set up initially
- halts operations if there is an issue
- training to use the machinery


website / cloud computing

ecommerce, advertising, communication, providing information
- the development and maintenance of an accessible and easily locatable business website is vital for competitiveness
- customers see the products of a business, menus, locations, offers and benefits via websites
- inventory storage and accessing data and programs over the internet instead of through a local hard drive


website / cloud computing advantages

- 24/7
- increases access to information
- improves effectiveness and efficiency


website / cloud computing disadvantages

- no physical location
- work life balance affected
- hacking and privacy concerns


materials management

relates to the inward flow of materials including movement and storage of raw materials, work in progress inventory and finished goods
- need to make sure the operations manager can make things arrive on time (right place, standard and quantity)
- risk of having large quantities in storage → waste // not used, becomes obsolete or OOD, damaged, increased housing costs, stolen or lost stock



the job of a materials manager is to provide the right materials in the right quantities and levels of quality at the right time
- procurement involves locating and acquiring a regular and reliable supply of high quality inputs


along with quantity, type of supply and the required needs have to be considered

- supplier lead in time (suppliers require prior warning for orders)
- future price changes (take into account seasonal variations, world market conditions or changes in the value of the Australian dollar)


forecasting advantages

- less waste
- less storage required
- cheaper


forecasting disadvantages

- could go wrong // some things can’t be forecasted


other tools designed to optimise materials forecasting and planning

master production scheduling
materials requirement planning and scheduling


master production scheduling

- involves setting out the production requirements and breaking it down into stages
- shows exactly what needs to be produced in what time frame (delivery dates and contracts set out)


master production scheduling specifics

- quantities and types of production over different periods
- quantities of inputs that will be required to meet these output levels over a set time frame
- computer software has been written to make this easier


materials requirement planning and scheduling

MRP is a computer based inventory management system to assist scheduling and planning orders; it:
- ensures sufficient inputs are on target to meet production requirements
- minimises inventory costs
- planning operational activities, delivery schedules and purchasing activities


the following factors are considered with MRP

- supplier lead in time
- exact amounts of materials required
- possible future price changes
- planning to entire correct quantities of materials are kept in storage
- contracts should be established to ensure a regular and reliable supply of input materials
- systems must be established to keep inventory at required levels


inventory management

inventory is made up of raw materials, unfinished production and finished goods ready for distribution
- it takes a lot of space and therefore has a cost
- if the inventory doesn't hold enough inputs the production cycle will halt
- optimal inventory levels must be clearly identified and monitored with reordering procedures in place


the impacts of optimising inventory

- developing a reliable accurate inventory system that determines what items to order
- a system that determines how and when to store items


improvements to inventory could include

- new mechanical and automated warehousing equipment to allow for easier stock movement
- computerised stock control systems
- just in time inventory management


just in time

involves the reduction and minimisation of inventory levels in the supply chain thereby reducing inventory levels
- the availability of products in the required amounts at the right time in the production process is crucial while minimising the use of materials, equipment, labour and space
- aims to reduce waste and storage costs


JIT system advantages

- reduces production costs
- inventory holding reduced
- storage space requirements reduced


JIT system disadvantages

- depends on reliable and frequent materials delivery
- allows for less time checking on materials quality
- ordering and admin costs may increase with the requirement for more frequent orders
- bulk buying discounts may be lost



the degree of excellence in a product and its ability to satisfy customer/client requirements


quality management programs

quality control
total quality management
quality assurance


quality control

includes a series of physical checks at different stages of production to ensure that products and services meet designated standards and errors are eliminated post-production
- defective products are rejected and may be sold as seconds
- reactive by nature and eliminates when occurrences arise
- operations management decides whether production needs to be halted or not


stages of quality control

establishment of standards
carry out inspections on performance
compare results of inspection with standards
correct processes to prevent defects reoccuring


quality assurance

assurance aims to build quality into work processes thereby avoiding errors before occurrence
- it is a proactive process involving the use of an external organisation
- attaining certification entitles an organisation to display certification marks
- provides confidence


quality assurance certification process

1. organisation employs a consultant to advise on quality standards to be met
2. adjustments in process and procedures made in line with standards
3. certification granted
4. right to use standard logo in marketing etc granted


total quality management

a holistic approach to quality where all members of an organisation aim to participate in ongoing improvement of organisational culture and production processes
- employees are placed into work groups known as quality circles and they work together to achieve quality improvements in their area


TQM system components

- focus on customer
- continuous improvement
- quality improvement
- accurate evaluation
- involve all employees


TQM core concepts

continuous process improvement
customer focus
defect prevention
universal responsibility


lean management

the term given to a range of measured to reduce waste and costs of production
- focuses on identifying and removing all activities within the operations system that doesn't add value to the product


the steps in lean production are:

1. identify why customers will pay for the product
2. identify all steps taken in the operations system
3. make everyone in the organisation responsible for areas of waste
4. implement improvements to minimise inventory levels, maximize production flow, produce items when required
5. empower workers and make them responsible for strategies to eliminate waste
6. partner with suppliers


waste minimisation

a process that involves reducing the amount of unwanted or unstable resources created by the business' production process in an attempt to improve the efficiency and effectiveness of operations
- demonstrates concern for the natural environment and can improve the reputation of the business


areas of waste minimisation

- transport
- inventory
- motion

- wasted time
- overprocessing
- overproduction
- defects



distance between stages needs to be minimised and reduced
- caused by poor layouts, large batch sizes and multiple storage locations



stock in excess of requirements is waste
- could be caused by lack of work / flow balance or large batch sizes



any motion or equipment not adding value
- caused by poor workstation layout and organisation


wasted time

idle time of production
- caused by changovers and poor coordination



putting more into a product than is valued by a consumer



creating too much
- caused by lack of planning



waste of corrections inc additional work performed on the product
- created by excess stock, inadequate training or inadequate supplies


TIM WOOD strengths

- reduced energy and resource consumption
- reduced delays
- increased worker productivity
- reduced uncertainty
- increased customer satisfaction


TIM WOOD weaknesses

- requires committed and experienced employees
- employees may not like the change to lean management
- the constant force on improvement can result in stress
- requires a good relationship with suppliers
- can involve high implementation costs


corporate social responsibility

the commitment by organisations to conduct their business in an ethical manner, have responsibility for economic, social and environmental consequences of their activities and to be accountable to a wide range of stakeholders


pressures for CSR come from



five areas of CSR

corporate governance and accountability
sustainability and the environment
employees ethical treatment
human rights
community involvement


corporate governance and accountability

- companies are responsible for their actions and the impacts of shareholders, government, employees, customers and community


sustainability and the environment

responsible for environmental impacts


employees ethical treatment

work life balance


human rights

use of ethical suppliers and Fairtrade issues


community involvement

volunteering programs


aspects of socially responsible operations may include

- waste minimisation such as recycling
- strategies that reduce carbon emissions such as green technology
- provision of enhanced quality of life for employees through safe working environments and respecting employee rights
- taking responsibility for the environment, social and economic impacts of the organization's activities


triple bottom line

economic performance
social performance
environmental performance


economic performance

measured through KPIs measuring profits, market share and monetary value of assets
- KPIs include net profit, turnover, market share


social performance

measured through examination of inputs the business has within the business and outside the business
- KPIs include labour utilisation, staff morale, working conditions


environmental performance

measured through impact on the natural environment
- KPIs include emission levels, rates of recycling and waste levels


environmental management systems

a series of policies and procedures that focuses on an organisations approach to environmental issues
- requires things such as monitoring and measuring of its progress, identification of how the business interacts with the environment and development of an environmental policy that focuses on an organisations approach to environmental issues


environmental management systems considerations

- can be costly and time consuming to implement
- can increased environmental performance and lead to increased efficiency and reduced costs
- employee morale may be lifted with the awareness of environmental issues


socially responsible inputs

- may have a environmentally friendly purchasing policy
- a sustainable procurement process may be used (sourcing)
- pre-qualification may occur to make sure the supplier meets the right criteria
- audits are done to check the standards are being met
- local suppliers have priority as they have lesser CO2 impact
- considerations include treatment of employees as well



allows customers to identify goods that have international standards
helps by promoting policies such as fair and stable prices, long term contract security etc


sustainable procurement

purchase of sustainable inputs helps minimise the effects business operation has on the natural environment
- examples inc. the purchase of green energy


sustainable processing

a sustainable processing place will use fewer resources, lower emissions and waste and reduce costs
- examples inc. the reuse of resources


sustainable outputs

social and ethical considerations include:
- non harmful (to society or the environment)
- quality outputs adding real value for consumers
- honest marketing (truthful or non-deceptive marketing maintains a socially responsible image)
- packaging (eco friendly and no offensive content)
- recyclable or biodegradable packaging options


supply chain

a supply chain is a system of organizations, people, activities, information and resources involved in moving a product or service from suppliers to manufacturers and then to consumers


global sourcing

refers to the business participating in a global supply chain
- global sourcing of inputs
- overseas processing
- global outsourcing (contracting an overseas business to perform some of its operations)


global sourcing advantages

- global efficiency
- lower input and production costs
- skills and resources not found in home country can be used


global sourcing disadvantages

- hidden costs
- changing financial and political situations
- risk of losing IP
- time (delays or holdups)
- loss of Australian jobs


issues to address

- local labour costs and conditions (need to take CSR into account and ensure employees aren't exploited)
- environmental issues
- exchange rates
- tariffs
- location of overseas suppliers