OPERATIONS MANAGEMENT STRATEGY

Operations management strategy relates to choices of:

• Product (choice, selection, definition)

• Process (production technologies, manufacturing, process flow, capacity)
• Facilities (location, layout)
• Quality (approaches to quality control)

PRODUCT

Choice – important strategic decision for top level management

- quality product at a competitive price

Selection – 5 stages to new product development

Product Development Stages

STAGE EXPLANATION
Exploring and The exploring and generating stage is where new ideas are generated.
generating Tasks in this stage include formal research into suggestions (coming from
ideas consumers, suppliers, wholesalers and retailers), analysis of competitors’
products, and investigating suggestions from shop-floor employees and
planning sessions.

Rough New ideas need to be screened to see if they fit with the organisation’s
screening overall strategy plan.
How long will the development take?
Are resources (human and material) available already or would they
need to be introduced?
Business The idea is costed and initial financial projections are made.
analysis How much investment will be required?
What are the expected sales?
What impact will it have on other products?
What is the expected break-even point?
What sort of return on the investment is estimated?
Prototype A model or sample of the proposed new item, produced for the purposes
development of further development of:
* the idea
* the total product concept
* a marketing strategy
Testing Tests may be on a representative sample of the market, but that is not
always a good idea. It can be better to wait until the company can launch
the new product (without competitors seeing what it is like).
Product Definition is the selecting and documenting of all the features of a good or service
to be produced and all the inputs needed for its production.

Includes:- size, shape, colours and functions of product

PROCESS

Operations managers need to make choices about the types of technologies to be used, the
flow of the production process and the overall capacity of the production process.

Production Technologies

Technology used to transform inputs into goods and services, for example, machinery and
equipment also including the systems and work practices used along with the physical
technology
Technology is only as good as the way it is used.

H/W Read pages 245 – top half of 249

Research and development – is the search for improvements and innovations in process
technology and in goods and services with a view to making new products.

Manufacturing

• Computer-aided design (CAD)

• Computer-aided manufacturing (CAM)
• Robots
• Flexible manufacturing systems (FMS)
• Electronic data interchange (EDI)
• Computer-integrated manufacturing (CIM)

CIM integrates all the major functions needed for production:

• product design (CAD)

• product engineering (CAM)
• control of the production process (FMS)
• inventory control (MPS-Master Production Schedule)
• data processing and accounting (EDI)

PROCESS FLOW

Success – efficiency of staff using facilities

Management needs to plan for events that can occur:- equipment breakdowns, performance
of maintenance, training of staff and delays in delivery of inputs.

Process Flow – developing detailed specifications of the physical facilities as well as human
skills and effort required to produce the desired volume.

Manufacturing:

• project – one-of-a-kind or customised product such as building a house

• job shop – small batches of different sorts of products such as specialty furniture
• batch – for different sorts of products
• assembly line – large volumes of a narrow range of standardised products such as
motor vehicles or white goods
• continuous flow – a high volume process that runs endlessly, eg oil refineries and
chemical plants

Service Industries:

• the amount of customer contact

• how much labour is used compared to capital equipment

CAPACITY

Have the capacity to produce the correct amount of product to meet customer demand.

Seasonal changes

Service Industries: labour-intensive services (hairdressers, doctors, dentists)

FACILITIES CHOICE
Plant and equipment needed to carry out operations.
LOCATION CHOICE

The right location is crucial.

Home service industry – location of advertising/contact network

E-commerce – relates to positioning in cyberspace

Retail & some service businesses –

• passing traffic is an important location consideration

• access to transport facilities – manufacturing operations where the product can be
easily moved to a retail outlet for distribution
• service industries – where speed is critical, central location near major roads
• farms – cheap land, good quality soil and appropriate climate
• amusement parlour – area where there are a large number of teenagers
• second-hand clothing – where many people live on very low incomes

“ISSUES” RELATING TO LOCATION

 area profile
 cost of site
 access to site
 location of competitors
 age and suitability of buildings

AREA PROFILE

 demographics (age, gender, etc)

 financial status and occupation profile of the people
 population and business activity trends (increasing or declining)
 planning considerations (freeways, road works, future developments)
 zoning laws (laws that apply in the region)

COST OF SITE

 rates
 water and sewerage rates
 taxes
 theft insurance premiums

NB: high-cost sites -- maximise business trading opportunities

Low-cost sites -- can signal difficulties ahead

ACCESS TO SITE

• sites where people are constantly passing by are the most valuable for most retail
and service businesses (seeing goods in store)
• appointments – parking facilities and public transport access
• shipment of large quantities - access by large trucks, closeness to railway and road
depots

LOCATION OF COMPETITORS

 some businesses need to be far away eg milk bars

  closeness in high population areas eg Marooka Magic Mile, Caxton Street & Park
Road (restaurants), Sunshine and Gold Coast (tourism) People attracted to these
areas like choice
AGE AND SUITABILITY OF BUILDINGS

• rent, lease or buy

• rent/lease - money available to invest

• regular payments, continual negotiation re rent or lease

• approval from owner/landlord for renovations or
improvements

Consideration to be given to the following in FACTORIES:

• the amount of light in each working area

• the availability of wide aisles
• the safety of work stations and production areas
• the ability to allow logical workflow and movement of items and people
• appropriate staff areas for downtimes such as meal breaks

Consideration to be given to the following in RETAIL:

• ability to allow customer movement

• space for displaying stock to attract customers
• safe and secure space for storage
• appropriate staff areas for downtimes such as meal breaks

LAYOUT

Layout is the physical arrangement of facilities (plant and equipment) and workstations
(positioning of people) used in the creation of a product.

• a challenging task for management due to its complex and technical nature
• expensive and are constructed (assembled) to be permanent
• layouts vary according to business types however, key aspects to be considered:

 size of goods
 volume of production
 staff needs
 flexibility of use
 type of service
 security needs
 health and safety requirements

OPERATIONS LAYOUTS

1 PROCESS-ORIENTED

Equipment and workstations are grouped together according to function.

Eg variety of products or variations on a single product (warehouses and hospitals)

2 PRODUCT-ORIENTED

Equipment and workstations are in line to provide a sequence of tasks.

 Eg one standardised products is produced in large volumes (motor vehicle, automatic car
washes)

3 FIXED-POSITION

Workers and equipment come to the product.

Eg not feasible to move the product (aircraft manufacturing, household electrical repairs)

Operations Systems must be regularly evaluated according to performance indicators:

 Productivity
 Capacity to meet timelines
 Customer satisfaction

QUALITY CHOICE

Management of quality has increased due to sharp competition as well as, consumer
protection laws consumer group activities.

Approaches to quality control

 Quality control

Strategy for monitoring quality of a good or service during production or delivery.

Sampling and analysis (statistical techniques used)

To take corrective action if necessary.

 Quality assurance (QA)

A certified achievement of a level of quality in the production of a good or service.

Particular industry standards need to be met leading to certification from Standards
Australia.

 Total Quality Management (TQM)

Quality circles meet regularly to discuss production (QA) and quality improvement and to
find solutions to workplace problems.

Takes a broader more total view of quality compared to quality control and QA.

Three central principles in the TQM approach:

• continuous improvement
• customer focus
• employee participation and teamwork

CONTINUOUS IMPROVEMENT

It has been found there is more value in continuous small improvement as a basis of long-
term improvement and ultimately , competitive edge.

All employees at all levels to seek ways to improve work performance.

Benchmarking and identifying best practice in particular production process or area of work.
Benchmarking compares the outcomes of a process with similar work from the past.
CUSTOMER FOCUS
 Quality is based on the expectations of the customer.

External Customers – buyers of goods and/or service

Internal Customers – employees within the organisation

EMPLOYEE PARTICIPATION AND TEAMWORK

• aim of employees: eliminate errors in operations

• employees involved in decision-making are more inclined to take responsibility for

quality

• employees are a key part of total quality approach

Pages 266/67 Question 5:

STATEMENT QUALITY QA TQM SIX SIGMA

CONTROL
1 Competition is enhanced by providing a better
product or service.
2 Customers and suppliers are key external
elements.
3 Certification is given to businesses that attain a
specified standard.
4 The need for ‘inspection’ is eliminated.
5 The emphasis is on continually improving
production processes to ensure quality.
6 there is a heavy reliance on checking and
analysis during production or during delivery of
the service.
7 Employees are involved in the quality process.
8 this approach creates an almost defect-free
environment.
9 Manufacturers check the quality of mass-
produced goods.
10 The customer demands quality at any point
along the production chain and can be internal or
external.
11 Employees are often directly involved in
decision-making, problem-solving and teamwork.
12 A business can display its certification.
13 Standards are set in different industries for
businesses to try and attain.
14 Improvements in quality usually come in small
steps.
15 Corrective action is taken once production
performance gaps are found.
16 There is strong use of statistical analysis of
processes.