Role of Operations Management

Operations refers to the business processes that involve transformation or, more generally, ‘production’. Transformation is the conversion of inputs (resources) into outputs (goods and services).Value adding is the creation of extra or added value as inputs are transformed into outputs.

Operations used to be unseen in the background. However, it may not be clear that customers also desire firms to engage in processes that:

• minimise resources in their production — lean production utilises minimal resources, reducing waste and materials usage

• reflect fair value for any labour used in processes

• operate at low cost so as to maximise affordability

• integrate environmental awareness and a need for ecologically sustainable practices

• reflect changes in the needs of consumers over time

Lean production aims to eliminate waste at every stage of production. It involves analysing each stage of the production process, detecting where inefficiencies are and correcting them.

The role of operations management

The creation of goods and the provision of services by businesses. The transformation of inputs into outputs or products to be sold. This involves:

• • Planning activities

  • Purchasing inputs 

  •  Managing inventory

  •  Selecting and implementing manufacturing processes

  • Developing strategies to gain a sustainable competitive advantage. 

Cost leadership

Case Study - Virgin pg 9 (21)

What makes a role strategic is not so much the length of time, but rather the  level with which it integrates and affects all key business areas.

Generally, the overarching goal of business is to maximise profits. In most businesses, this is done by focusing on 2 very important aspects of profit:

• revenue or income

• costs or expenses

Revenue or income should be maximised so as to bring in the greatest possible volume of money. Conversely, costs need to be minimised in order to reduce the overall level of expenses incurred

Cost leadership involves aiming to have the lowest costs or to be the most price-competitive in the market. A key aspect to cost leadership is that although trading with the lowest cost, the overall business should still be profitable.

Economies of scale refers to cost advantages that can be created as a result of an increase in scale of business operations. Typically the cost savings come from being able to purchase lower cost per unit of input and from efficiencies created through improved use of technology and machinery.

Manufacturing  outputs:

•    Physical, tangible 

•    Can be reused 

•   More capital intensive (machinery)

•  Can be stored

•  Hard to modify once manufactured.

Services outputs :

•  Intangible

•  Can only be used by one customer once

•  More labour intensive 

•  More interaction with customers

•  Easier to change and customise.

There are some similarities, they both:

· Use technology

· Must make predictions

· Deal with customers and suppliers

Sources of differentiation in goods include:

– varying the actual product features

– varying product quality

– varying any augmented features(e.g. warranties etc.) 

Sources of differentiation in services include:

– varying the amount of time spent on a service

– varying the level of expertise brought to a service

– varying the qualifications and experience of the service provider

– varying the quality of materials/technology used in service delivery.

For both goods and services, differentiation can be created from cross branding or strategic alliances. 

example 

Qantas:

Qantas has engaged in strategic alliances with various international airlines through membership in global airline alliances. One prominent example is its partnership with Emirates through the oneworld alliance. This collaboration involves joint ventures, codeshare agreements, and coordinated schedules, allowing Qantas to extend its global reach and provide customers with a seamless travel experience. Through this alliance, Qantas passengers can access an extensive network of destinations, fostering mutual benefits for both airlines.

Apple:

Apple has strategically collaborated with other technology companies to enhance its product offerings. An illustrative example is the integration of Apple Music with third-party smart speakers. Apple has formed alliances with companies like Sonos and Amazon, allowing users to play Apple Music on these devices. This cross-branding strategy enables Apple to expand its music streaming services to a broader audience using different hardware, promoting interoperability and enhancing the overall user experience.

Service 

When a business offers a service, then it can bring a cost leadership to the service by standardising how that service is performed. This can be seen in the quick service meal industry (also called ‘fast-food’ industry).

Self-service means encouraging the customers to take the initiative to help themselves.

Drip pricing means that a business advertises one price but in the process of a customer purchasing the service numerous additional charges and costs are added. The effect is that the final price can be much higher than the price advertised. Drip pricing has been an issue in relation to airline ticketing and travel products sold online.

Interdependence of operations and the business

•  Specialisation – where the business is separated into different functions, each of which is highly skilled at its specific task or role. 

•  Interdependence – where the different parts of a business must rely on each other to perform their task or role.

There will be a constant flow of information between operations and the other key business functions: marketing, human resources and finance.

In marketing, research identifies the nature of goods consumers’ desire and marketing strategies encourage purchases. 

Marketing and operations are interdependent and their functions overlap. 

Marketing is concerned about the design of products, and their subsequent sale, to meet the needs of consumers. The operations function involves the acquisition or sourcing of products for resale or the sourcing of inputs for production. Thus, the requirement of product design (a marketing requirement) directly affects the operations function. In this way they can be seen to be interdependent.

Operations must supply a product that has the features and quality consumers demand as well as reliably distributing this product to the market. 

The finance manager will create budgets and make funds available  to purchase inputs, equipment, repairs

A key marketing objective is profitability. 

Profitability requires that a business maximise sales (revenue) and minimise costs (expenses). The operations function is that aspect of business that produces. If costs of production can be minimised then profit margins can be increased. Similarly, if operations processes focus on quality then the resulting products can be sold at higher prices and generate higher revenues. In this way it can be seen there is a direct relationship between operations management and financial management.

A further example can be seen with respect to a decision to invest in facilities and buy technology. Here the high financial costs can lead to faster processing speeds with less waste. Again the financial objective and the operations decisions are interdependent — each affects the other.

Human resources will ensure that enough employees with the appropriate skills in most businesses these days the operations function is going through change. New technologies are enabling faster processing speeds and are changing the way that work is done. This has a direct effect on the human resources within a business. As the nature of work changes so too does the skills and qualities sought in employees.

Outsourcing is also changing the nature of operations and has a direct impact on human resources. The changing shape of businesses as brought on through the use of outsourcing means that communication between human resources can be more complicated and that there is an increasing reliance on technology.

The operations decision to outsource and to acquire technology directly shapes the nature of the workplace and the skills and qualities required of the human resources. In this way the key functions are interdependent.

2012

Q21 (d) Explain the interdependence of finance and operations in a business. Support your answer with relevant examples. 4 marks 

2013

Q1 Which business function transforms raw materials and resources into finished goods or products?

(A) Finance 

(B) Human resources 

(C) Marketing 

(D) Operations

Q17 Which of the following combinations would result in the lowest production cost per unit?

(A) Limited customer contact,limited product variety and low volume 

(B) Limited customer contact,limited product variety and high volume

(C) Extensive customer contact,extensive product variety and low volume

(D) Extensive customer contact,extensive product variety and high volume

2014

Q15 What is the most likely result of a business achieving economies of scale?

(A) Greater flexibility 

(B) Higher sales price per unit 

(C) Greater efficiencies in production

 (D) Higher average costs of production

2015

18 Which of the following would be the focus of a business aiming to reduce expenses?

(A) Changing task design

(B) Differentiating its product

(C) Establishing cost leadership

(D) Developing quality expectations

2020

6 The main advantage of economies of scale is that a business can achieve 

A. economic objectives. B. industry benchmarks. C. lower per unit input costs. D. simplified supply chain management. 

Question 23 (10 marks) 

Use the information provided to answer parts (a) and (b). A denim jeans clothing store is concerned about declining sales. They have identified that the lower sales are a result of: 

• outdated store presentation 

• increased foreign competition 

• a reluctance to adopt modern in-store payment methods. 

(a) How could the strategic role of operations management assist this business? 

2022

12 Which of the following is an example of service differentiation? 

A. A car manufacturer supplies cars with premium tinted windows. 

B. A chemist issues a patient with medication in exchange for a script. 

C. A shoe store assistant spends varying amounts of time with customers. 

D. A salesperson provides a receipt to a customer who has purchased a bed. 

2023

9 The training of staff in the manufacturing process is an example of interdependence between which of the following business functions? 

A. Finance and marketing 

B. Marketing and operations 

C. Finance and human resources 

D. Operations and human resources