Area of Study 3: The Operations Management Function

1. Area of Study 3: The Operations Management Function Chapter 7: Optimising Operations

2. Examine some strategies currently being used by organisations in order to optimise their operations and improve competitiveness • Look at the following aspects of the operating system: • Facilities design and layout • Impact of technology • Materials and supply chain management • Management of quality

3. Facilities Design and Layout

4. Optimising the use of physical space Optimising the use of equipment and raw materials Insufficient workspace will often result in bottlenecks and blockages in workflow Workspace must also not be too large as this can hinder productivity Equipment and materials must be easily accessible, reliable and operational to maximise its use

5. Regular maintenance program Essential to keeping equipment and facilities operational Multiskilling of workers necessary for equipment to be fully utilised Regular maintenance will avert expensive downtime

6. Layout of plant and equipment • Appropriate layout of plant and equipment will streamline the production process and allow for efficient flow of production.

7. Layout of plant and equipment Fixed position/project layout Process/functional layout Product remains in one position while it is being built or constructed All labour and resources bought to it Advantages: greater flexibility, made to exact specifications Disadvantages: expensive as time consuming, high labour input requirements Pieces of equipment with like functions are grouped together Used for products requiring large degree of variety that are produced in small amounts E.g. hospital

8. Layout of plant and equipment Product layout Products move to the equipment on a conveyor belt Used when employing mass production techniques Assembly line – machines pass a product past workers who perform a small specialised task Advantages: Low unit costs Constant rate of output Consistent quality standards Disadvantages: Initial high set up costs Unmotivated employees (repetitive work) No allowance for customisation

9. Layout of plant and equipment Virtual Factory Decentralisation of productive activities so that production does not occur at one work site Advantages: Reduced fixed costs Concentration of expertise Ability to take advantage of cost savings offered by low-wage countries Disadvantages: Language and cultural barriers High set up costs Difficult to change suppliers Political and economic disruption Ethical and social responsibility issues

10. Layout of plant and equipment Other Considerations Employee work environment: Furniture and equipment Protective clothing Lighting and temperature Occupational Health and Safety Legal requirements and obligations Effective communication channels Activity 7.4 Tomorrow: Activity 7.2 If on excursion this is weekend homework

11. Improving Operations Through Technology

12. Technological developments can help operations manager to achieve: • More outputs produced • Quality of outputs enhanced • Fewer errors made • Less waste • Automation: techniques and equipment used to achieve automatic, as opposed to human, operation or control of a process, equipment or a system

13. CAM – Computer-aided manufacturing CAD – Computer-aided Design Control of machinery, tools and equipment through a computer Fed instructions from a central computer for greater precision What production run consists of – time, number of units, sizes etc. Using computers to design products instead of drafting by hand Can easily experiment with variations of design Costly to introduce but saves time and money in long run

14. Computer-aided Engineering Robotics Computer simulations save time and money Useful for crash-test simulations for car design and stress simulations for bridges and buildings Use of computer controlled robots to perform manual tasks, especially on an assembly line Replacing functions previously performed by human labour Can prevent injuries, improve quality and be cost-effective

15. Flexible Manufacturing Systems (FMS) Service Industries Creates total computer control of all aspects of the operations system Detect things such as machine breakdown E-commerce: transactions occur over the internet (e.g. online shopping, banking etc.) Computerisation: reduced operating costs Mobile phones: offers potential productivity gains, greater workplace flexibility and employee work-life balance Communication via the internet: significant cost savings

16. Problems associated with the implementation of technology • Cost – technology is expensive and can get out-of-date quickly • Training – some or all employees would have ot be trained in use and repair of new technology • Repairs – staff will need to be employed to maintain and repair the new technology • Redundancies – technology can replace workers – fewer workers required to maintain productivity

17. Materials and supply chain management

18. Materials management • The systems that are implemented to ensure that the right materials are available in the right numbers for the right cost when required • Necessitates decisions about: • How much to order • When to order • Control of stock security system

19. Must be carefully planned and coordinated and include: • Developing a reliable and accurate inventory system to determine what items to order and in what quantities. • Key is to maintain a level of inventory that allows production without any delays but avoiding the cost of holding excess stock • System of inventory control that determines how and when to store items • capable of tracking movement of raw materials, components and part complete units while protecting against loss due to theft or damage

20. Materials management Steps Master production schedule (MPS) Materials requirement plan (MRP) Document shows: what the business plans to produce How they plan to produce it within given time period Part of the tactical planning responsibility of operations manager Outlines all the materials required in production targets set in MPS

21. Supply Chain Broad term that takes in the concepts of: Sourcing and purchasing of required materials Distribution Logistics Materials management Total supply chain management optimises to reduce waste and unnecessary cost

22. Just in time • An inventory management system which aims to avoid holding any stocks (either as inputs or finished goods). • Supplies arrive just as needed for production, and finished products are immediately despatched or sold to customers • Advantages: great potential for productivity improvements and cost savings • Disadvantages: factors affecting delivery schedule has potential to completely shut down whole production process

23. ABC Analysis • Classification of inventory into items according to their value and importance in the production process • Items that are required frequently are kept in stock. • Expensive and less frequently required only ordered as the need arises

24. Procurement of inputs • Locating and acquiring a regular and reliable supply of high quality inputs • Some suppliers will need prior warning of requirements • Planning must occur to ascertain exact amounts of materials required • Need to anticipate possibility of future price rises or falls, world market conditions, changes in the value of the Australian dollar or potential industrial action at a supplier’s production facility • System (such as JIT/ABC) must be established to keep inventory at the required levels to avert theft and loss of materials in storage

25. Transport and distribution (logistics) • Efficient system of transporting finished products to the customer • May involve contracts with transport specialists such as couriers • Frequency of deliveries must be established, as must the routes taken • Activity 7.5

26. The Management of Quality

27. Quality: the degree of excellence in a good or service and its ability to satisfy the customer • Customers look for the best quality at the lowest price • Quality management programs aim to: • Minimise waste and defect rates in production • Obtain consistently high standards of product and service • Achieve set quality standards or benchmarks

28. Quality control • Process of checking the quality standards of work done or quality of raw materials or components • Aims to detect defects after they occur • Product recall can occur if defect makes product unsafe

29. Quality assurance • A system established to ensure that predetermined quality standards are achieved • Avoiding errors before they occur • Quality certification: provides confidence to organisations stakeholders and adds potential for selling into export markets • Standards usually cover aspects such as: • Process in regards to customer satisfaction • Training of staff • Documentation of processes • Controls • Correction action • Auditing of processes

30. Total Quality Management • Holistic approach to quality where all members of an organisation aim to participate in ongoing improvement of organisational culture and production processes • Quality circle: group of workers who meet regularly to discuss quality and production issues, proposed changes put to management • Core TQM Concepts: • 1. Continuous process improvement • 2. Customer focus • 3. Defect prevention • 4. Universal responsibility

31. Activity 7.6 • Activity 7.7 • Activity 7.8

32. Ethical and Socially responsible management of operations

33. Inputs Transformation process Suppliers of an organisation should treat workers and the environment appropriately Suppliers should be treated appropriately by organisations that use them Methods used to transform inputs should be such that they do not cause pollution If there is unavoidable waste it might be able to be put to some use in the community

34. Outputs The goods and services produced should not cause problems for society Products should be safe Should enhance quality of lives Read “Environmental management systems” page 168 Chapter Summary Questions ***Exam Preparation Question***