Influences on Operations

Influences on operations have a dual effect on businesses. 

1. They can cause the business to undergo change and to continually adjust to external factors. Responsiveness to change is a constant issue for business. 

2. The threat and the opportunity that these influences represent to operations processes.   

Influences - globalisation, technology, quality expectations, cost-based competition, government policies, legal regulation, environmental sustainability  

Acronym - GT QE CBC GEL

Globalisation refers to the removal of barriers of trade between nations. Globalisation is characterised by an increasing integration between national economies and a high degree of transfer of capital (facilities and/or machinery), labour, intellectual capital and ideas, financial resources and technology. 

Globalisation is a very significant influence on operations management. Large businesses are increasingly orienting their practices towards the global market, with a view to meeting the needs of global consumers. Global consumers seek global brands and tend to seek standardised products. 

• Globalisation affects consumers who seek global brands and this, in turn, shapes the operations function.

• Globalisation affects organisational design and the supply chain.

• For large global businesses, the integration of the range of suppliers creates a network, sometimes called the 'global web'.

• The supply chain is also affected by whether the nation is innovative or whether it is a follower.

• Location for manufacturing facilities - Globalisation means that factories can be built around the world but products can be shipped to customers anywhere. Usually this comes down financial decisions such as cost of construction, tax incentives, tax rates, minimum wage and environmental laws. Companies will usually choose to build where it is a lower cost and has good infrastructure to ship the product. 

• The management of quality - Globalisation requires each stage be quality control which creates jobs but also ensure quality is maintained throughout the entire process. 

• Logistics and inventory management processes - To manage shipping across the globe is difficult to say the least. Managers must ensure dates of entry, import restrictions, different rules and regulations, exchange rates and the ability to meent consumer demand in a timely manner. 

To organise on a global scale, operation managers must ensure they have quality in Supply chain management (SCM) and the global web

• Supply chain management refers to the range of suppliers a business has and the nature of its relationship with those suppliers.

• Global web refers to the network of suppliers a business has chosen on the basis of lowest overall cost, lowest risk and maximum certainty in quality and timing of supplies.

Zara Case study pg 39

Technology may be defined as the design, construction and/or application of innovative devices, methods and machinery upon operations processes.

CAD (computer aided design): Computer software technology allowing designers, architects to draw a visual representation using a computer.

CAM (computer aided manufacture): manufacturing process is controlled by computer.

Question - How does Coca-Cola/Apple/Qantas use technology and how does it influence its operations (from the megafactories video above).

Quality may be understood to be a specific reference to how well designed, made and functional goods are, and the degree of competence with which services are organised and delivered.

Quality expectations and operations management

Case study: Tiffany & Co. — quality expectations pg 42

Question - How does Tiffany & Co ensure quality?

Cost-based competition is derived from determining break even point (the level at which the firm’s total revenue = to its total costs) and applying strategies to create cost advantages over competitors.

• Typically used it is difficult to differentiate the product in another way.

• Need to reduce operational costs in order to gain a price advantage. 

• This can be done by operational strategies - outsourcing, using cheaper inputs, updating technology, reducing quality, relocating operations to a cheaper location.

Fixed costs are those that not dependent on the level of operating activity in a business. Fixed costs do not change when the level of activity changes — they must be paid regardless of what happens in the business.

Examples - Rent, insurance, mortgage. 

Variable costs are those that vary in direct relationship to the levels of operating activity or production. Such costs include 

Examples - labour costs and costs of energy.

Kmart, Target and Big W — Businesses that employ cost-based competition

Operations managers in businesses that compete on cost prioritise their decision making based on reducing costs and improving productivity by:

•  ensuring stable production processes with limited interruption

•  ensuring all resources are used to their optimum advantage

•  constantly looking for opportunities to streamline production processes

•  updating facilities and equipment with new, more efficient technology

•  providing training and development to improve the skills and capabilities of employees.

All businesses operate in a political–legal environment. Political decisions affect the business rules and regulations, which, in turn, directly affect the management of various key business functions. Government policies change from time to time, most notably due to a change in government or a change in social expectations.

Remember Covid lockdowns are good for this example due to their impact on manufacturing and service based businesses e.g. teaching, tourism and hospitality. 

Regulations include:

• • Taxation rates

  • Required materials handling practices

  • Work health and safety (WHS) standards 

  • Industry training requirement 

  • Public health policies 

  • Environmental policies 

  • Employment relations 

  • Trade and industry policies 

A highly significant external factor that affects the operations function of business is that of laws and regulations. 

The range of laws with which a business must comply are collectively termed ‘compliance’. The regulations that shape business practices and procedures must be followed at the risk of penalty, hence the term compliance. 

The expenses associated with meeting the requirements of legal regulations are termed compliance costs.

All aspects of business must abide by the laws of business. Operations management has particular laws that influence how practices and processes are conducted. 

The operations function involves transformation and value adding. The transformation or conversion involves the use of any or all of labour, technology, finance, machinery and energy. 

The relevant laws will relate to labour and labour management, as well as the environment and public health including:

• • work health and safety (WHS) — in the use of machinery and in interacting with the business environment. Safe and healthy working conditions require that employees be given appropriate safety training, use of protective equipment, and work with machines that abide by noise, pollution and safety standards

  • training and development — in the use and application of technology and in the appropriate methods required to work effectively

  • fair work and anti-discrimination laws — requiring that employees be treated with dignity and respect

  • environmental protection — in the use of minimising pollution, eliminating and safely disposing of any toxic residues

  • apply rules related to public health — including any fair trading rules which influence product safety standards and fitness for purpose of products.

Examples of Laws

• • Racial Discrimination Act 1975 (Cwlth)

  • Sex Discrimination Act 1984 (Cwlth)

  • Workers Compensation Act 1987 (NSW)

  • Disability Discrimination Act 1992 (Cwlth)

  • Age Discrimination Act 2004 (Cwlth)

  • Anti-Discrimination Act 1977 (NSW)

  • Work Health and Safety (WHS) Act 2012 (Cwlth)

  • Environment Protection and Biodiversity Conservation Act (1999) (Cwlth)

  • Superannuation Guarantee Act 1992 (Cwlth)

  • Taxation Act 1953 (Cwlth)

  • Corporations Act 2001 (Cwlth)

  • Fair Work Act 2009 (Cwlth)

Environmental sustainability (ecological sustainability) means that business operations should be shaped around practices that consume resources today without compromising access to those resources for future generations. 

The precautionary principle requires that, where environmental impacts are uncertain, a business undertake actions that are most likely to cause least environmental impact. 

Carbon footprint refers to the amount of carbon produced and entering the environment from operations processes.

This can be seen in the move by businesses to reduce and minimise waste; recycle water, glass, paper and metals, and reduce their carbon footprint. 

Corporate social responsibility (link)– the difference between legal compliance and ethical responsibility – environmental sustainability and social responsibility 

• • Samsung packaging

  • Thank you water

  • Gillette Ad and Nike Ad 

2012 

Q21 (a) How might a business benefit when an operations manager acts in an ethically and socially responsible manner? Support your answer with relevant examples. 4 marks

2013

Q27 (20 marks)

Assess strategies that management may use to respond to influences on operations.

2014 

Q17

Which of the following is an example of legal compliance for a sports store?

(A) Paying taxes on time 

(B) Offsetting carbon emissions 

(C) Induction of new employees 

(D) Paying dividends to shareholders

2015 

Q13

The term compliance costs refers to expenses associated with meeting

(A) competitor prices.

(B) legal requirements.

(C) consumer demands.

(D) supplier constraints

Q23 

North Coast Manufacturing makes customised furniture for its clients.

(a) How could technology influence the transformation process at North Coast Manufacturing? 2 marks 

2016 

Q24

A fruit shop has experienced strong growth in its sales of fresh organic fruit since it started to sell online.

(b) Explain why corporate social responsibility should be a key concern in operations management for this business. 3 marks 

2017

Q16

Which of the following actions is an example of corporate social responsibility?

A. Sponsoring a sporting event

B. Opening a manufacturing plant

C. Introducing a community health program

D. Paying compensation for a work-related injury

2019

A juice bar is operating in a shopping centre. The juice is served to customers in plastic cups with plastic straws. The high sales volume and quick turnover demand an efficient operations process. 

Q24 (c) Why might this business be reluctant to become more socially responsible? 4 marks

2021

Q3 Which row of the table shows both an advantage and a disadvantage of a business investing in leading edge technology? 

Q11 A mobile phone manufacturer decides to globally source inputs that they had previously produced themselves. Which of the following shows possible negative effects of this decision?

A. Simplified logistics and delays in the supply chain 

B. Delays in the supply chain and increased transport costs 

C. Increased transport costs and reduced access to specialist suppliers 

D. Reduced access to specialist suppliers and a decrease in logistics costs 

Question 25 (20 marks) 

Ozzi Baby Food Pty Ltd have developed a trusted reputation in domestic and global markets due to their safe and sustainably-sourced product range. This has led to a significant increase in demand. As a result, they are considering the purchase of a larger automated factory. This will lead to some job losses. The business will require external finance to fund the factory purchase using either a mortgage or becoming a public company on the Australian Securities Exchange (ASX). 

You have been hired as a consultant by Ozzi Baby Food Pty Ltd to write a business report to the owners. In your report: 

• outline TWO operations influences affecting this business